<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 30, 1997
Or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-8210
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)
(816) 234-6000
(Registrant's Telephone Number, Including Area Code)
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 whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distributions of securities under a plan
confirmed by a court. YES / / NO / /*
* The Company filed a voluntary petition pursuant to the provisions of
Chapter 11 of the U.S. Bankruptcy Code on July 21, 1997. While the Company
has submitted a plan of reorganization to the Court, the Court has not
confirmed that plan.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 39,964,041 shares of Common Stock, $.01 par value, outstanding as of
October 3, 1997.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
STATEMENTS OF OPERATIONS (Unaudited) (1) and (2)
<TABLE>
(In thousands, except per share amounts) Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------------------------------------------------
August 30, August 24, August 30, August 24,
1997 1996 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Net sales $ 632,107 $ 723,793 $ 1,780,848 $ 1,932,812
Other income 1,191 1,481 3,660 4,599
---------------------------------------------------------------------
633,298 725,274 1,784,508 1,937,411
Costs and expenses
Cost of merchandise sold (3) 478,038 535,956 1,309,378 1,400,372
Selling, general and administrative 148,166 157,403 437,720 451,737
Reorganization items (4) 5,121 -- 5,121 --
Special charges (3) 13,056 8,184 13,056 8,184
Asset impairment charges (5) 60,483 59,697 60,483 59,697
Provision for depreciation and amortization 12,768 14,007 38,609 40,777
Interest expense (contractual interest of
$16,468, $0, $48,797, and $0, respectively) 14,663 14,438 46,992 44,396
Interest income (6) -- (4,900) -- (4,900)
---------------------------------------------------------------------
732,295 784,785 1,911,359 2,000,263
---------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (98,997) (59,511) (126,851) (62,852)
Federal and state income taxes (6) (33,595) (36,633) (40,085) (38,217)
---------------------------------------------------------------------
NET LOSS $ (65,402) $ (22,878) $ (86,766) $ (24,635)
=====================================================================
Net loss attributable to common stock $ (67,037) $ (24,388) $ (91,575) $ (29,077)
=====================================================================
Net loss per common share (7) $ (1.68) $ (.61) $ (2.29) $ (.73)
=====================================================================
Weighted average common shares outstanding 39,965 39,952 39,963 39,939
=====================================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE> 3
CONDENSED BALANCE SHEETS (Unaudited) (1) and (2)
<TABLE>
August 30, November 30, August 24,
(In thousands) 1997 1996 1996
---------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36,707 $ 425 $ 166
Merchandise inventories (8) 348,780 399,010 399,373
Prepaid expenses and other current assets 14,930 22,281 23,875
Income taxes receivable 47,421 15,200 15,200
Deferred income taxes 12,733 13,681 14,505
---------------------------------------------------------
TOTAL CURRENT ASSETS 460,571 450,597 453,119
OTHER ASSETS
Real estate held for sale (5) 44,321 18,529 14,642
Cost in excess of net assets acquired, less
accumulated amortization of $112,332,
$105,198 and $102,829, respectively (5) 268,120 292,946 295,315
Deferred financing costs 11,176 12,837 10,002
Other 15,511 12,917 15,325
LAND, BUILDINGS AND EQUIPMENT 719,173 782,935 788,642
Allowance for depreciation and amortization (275,011) (277,643) (277,948)
---------------------------------------------------------
TOTAL LAND, BUILDINGS AND EQUIPMENT 444,162 505,292 510,694
---------------------------------------------------------
$ 1,243,861 $ 1,293,118 $ 1,299,097
========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE> 4
CONDENSED BALANCE SHEETS - Continued (Unaudited) (1) and (2)
<TABLE>
August 30, November 30, August 24,
(In thousands) 1997 1996 1996
--------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt (9) $ 465,372 $ 18,340 $ 16,713
Trade accounts payable 17,991 121,891 148,748
Other current liabilities (5) 125,452 172,918 172,621
Income taxes payable 8,980 6,444 3,230
--------------------------------------------------------
TOTAL CURRENT LIABILITIES 617,795 319,593 341,312
LONG-TERM DEBT, less portion
classified as current liability (9) -- 618,667 611,332
NON-CURRENT LIABILITIES
Deferred income taxes 29,358 41,665 38,370
Other 21,462 23,462 23,891
LIABILITIES SUBJECT TO COMPROMISE (10) 372,158 -- --
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 25,000,000
shares authorized; issued:
Cumulative Preferred Stock, 406,000 shares,
$83,372, $78,563 and $77,022 aggregate
liquidation preference, respectively 40,600 40,600 40,600
Common Stock, $.01 par value:
Voting, 150,000,000 shares authorized,
39,964,041, 37,709,028, and 37,705,628
shares issued, respectively 400 377 377
Non-Voting Class A, 5,000,000 shares
authorized, 0, 2,250,000 and
2,250,000 shares issued, respectively -- 23 23
Additional paid-in capital 487,851 487,728 487,746
Accumulated deficit (325,763) (238,997) (244,554)
---------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 203,088 289,731 284,192
---------------------------------------------------------
$ 1,243,861 $ 1,293,118 $ 1,299,097
=========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE> 5
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1) and (2)
<TABLE>
Thirty-Nine Weeks Ended
----------------------------------------------
August 30, August 24,
(In thousands) 1997 1996
----------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (86,766) $ (24,635)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 38,609 40,777
Asset impairment charges (5) 60,483 59,697
Deferred income taxes (11,359) (17,260)
Non-cash reorganization items (4) 2,481 --
Non-cash interest 2,500 1,800
Other 2,048 1,578
Changes in assets and liabilities 54,747 (32,533)
----------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 62,743 29,424
Cash Flows from Investing Activities
Additions to land, buildings and equipment (33,764) (27,552)
Proceeds from sale of land, buildings and equipment 12,277 12,649
Acquisition of business, excluding working capital:
Land, buildings and equipment -- (193)
Purchase price in excess of net assets acquired (1,015) (1,360)
Increase in other assets (2,593) (972)
----------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (25,095) (17,428)
Cash Flows from Financing Activities
Retirements of long-term debt (10,703) (26,911)
Net proceeds from revolving credit facility 13,461 14,857
Financing fees (3,320) (381)
Sale of Common Stock under stock option plan -- 94
Other (804) (449)
----------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (1,366) (12,790)
----------------------------------------------
Net increase (decrease) in cash and cash equivalents 36,282 (794)
Cash and cash equivalents, beginning of period 425 960
----------------------------------------------
Cash and cash equivalents, end of period $ 36,707 $ 166
==============================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE> 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
Thirty-nine weeks ended August 30, 1997, and August 24, 1996.
(1) On July 21, 1997 (the "Petition Date"), the Company commenced a
reorganization case (the "Case") by filing a voluntary petition for
relief under Chapter 11, Title 11 of the United States Code ("Chapter
11") in the U.S. Bankruptcy Court for the Western District of Missouri in
Kansas City (the "Court").
While the Company had sufficient liquidity to fund its current
operations, the operating performance of the Company during the second
quarter of fiscal 1997, which was well below the Company's expectations,
led management to conclude that it was unlikely that the Company
would be able to comply with the covenants contained in its principal
credit agreements at the end of the current fiscal year. In the course of
the Company's subsequent negotiations with its senior lenders to
restructure its debt and after considering all other alternatives with
its financial adviser, Houlihan Lokey Howard & Zukin, including the sale
of the Company and liquidation, the Company concluded that a Chapter 11
proceeding provided the best approach for a comprehensive financial
restructuring of the Company.
On July 21, 1997, the Company filed a Disclosure Statement and a Plan of
Reorganization with the Court. The Disclosure Statement and the Plan were
subsequently amended on September 5, 1997, and modified on October 9,
1997. The Disclosure Statement and the Plan of Reorganization, as
amended, are referred to herein as the "Disclosure Statement" and the
"Plan," respectively. The following summary of the Plan omits certain
information set forth in the Plan. Any statements contained herein
concerning the Plan are not necessarily complete, and in each such
instance reference is made to the Plan, a copy of which is filed as an
exhibit to this report. Each such statement is qualified in its entirety
by such reference. On October 10, 1997, the Court determined that the
Disclosure Statement contains adequate information to permit a creditor
to make an informed decision about the Plan. The Plan will now be
presented to the Company's impaired creditors and equity security holders
for acceptance or rejection. Under the Plan, the Company proposes to
cancel existing shares of common and preferred stock and issue
approximately 20,000,000 shares of newly reorganized Payless Cashways,
Inc. common stock (the "New Common Stock"), as described below.
The Plan generally provides for the following: (I) The secured bank group
(the "Existing Lenders") under the existing credit agreement (the
"Amended Credit Agreement") will receive (a) payment of accrued interest,
fees and expenses, (b) Net Cash Proceeds (as defined in the Plan) from
the sale of certain collateral securing the Amended Credit Agreement and
the collection of certain promissory notes pledged to the Existing
Lenders, (c) their allocable portion of $273 million of new term notes
(the "New Term Notes") under a secured term loan facility to take effect
upon emergence from Chapter 11 (the "Term Facility") and (d) an estimated
10,800,000 shares of New Common Stock (equivalent to approximately 54% of
the shares of the newly reorganized Company expected to be outstanding
upon emergence from Chapter 11 (the "Effective Date")), of which 460,000
shares will be distributed to the lenders providing a revolving credit
facility to supply working capital financing to take effect upon
emergence from Chapter 11 (the "Exit Facility") in consideration for
their commitment to provide the Exit Facility. The aggregate principal
amount of the New Term Notes and the number of shares of New Common Stock
allocated to the Existing Lenders are subject to adjustment as set forth
in the Plan. The New Term Notes will be subject to a scheduled
amortization of an aggregate of $3 million per year and shall be prepaid
in the amount of any dispositions or realizations on certain collateral.
In addition, the New Term Notes will be prepaid from an annual cash flow
sweep of 65% of excess cash flow (as defined in the Term Facility). The
New Term Notes will also contain covenants and other provisions
consistent with the Amended Credit Agreement. (II) The holders of notes
under the existing loan facility with the Prudential Insurance Company of
America (the "Prudential Loan Facility") will receive new Prudential
notes (the "New Prudential Notes") pursuant to a new Prudential Loan
Facility in the amount of the existing notes. These New Prudential Notes
will bear interest at a rate of LIBOR plus 4.0% per annum, mature seven
years from the Effective Date, will amortize at a rate of $4 million
per year, subject to adjustment for asset sales proceeds applied as a
credit toward the scheduled amortization, and will be secured by the same
collateral that secures the existing Prudential Loan Facility.
(Subsequent to July 21, 1997, Prudential sold its interest in these notes
to UBS Mortgage Finance, Inc.) (III) Unsecured claims against the Company
of vendors and suppliers for goods delivered and services rendered prior
to the Petition Date, claims in respect of the Senior Subordinated Notes,
contingent unliquidated claims and claims for damage arising from the
rejection by the Company pursuant to Section 365 of the Bankruptcy Code
of executory contracts and unexpired leases (collectively, "General
Unsecured Claims") will receive their pro rata share of an aggregate
number of shares of New Common Stock equal to (a) 19,000,000 less (b) the
number of such shares allocated to the Existing Lenders. It is estimated
that holders of General Unsecured Claims will receive
<PAGE> 7
8,269,329 shares or approximately 41% of the shares of the newly
reorganized Company expected to be outstanding on the Effective Date.
(IV) Holders of issued and outstanding shares of existing preferred stock
will receive their pro rata share of 600,000 shares of New Common Stock
(estimated to be 3% of the shares of the newly reorganized Company
expected to be outstanding on the Effective Date). (V) Holders of issued
and outstanding shares of existing common stock will receive their pro
rata share of 400,000 shares of New Common Stock (estimated to be 2% of
the shares of the newly reorganized Company expected to be outstanding on
the Effective Date). In addition, any stock options relating to existing
preferred stock and common stock will be canceled on the Effective Date.
In the event that any impaired class of unsecured creditors or equity
security holders rejects the Plan, holders of existing shares of common
stock would not receive or retain any property under the Plan.
Fractional shares of New Common Stock will not be issued to creditors or
shareholders in connection with the Plan. In addition, no distribution of
less than $5.00 will be made for fractional share interests. As a result
of these provisions, many current equity security holders will receive no
distribution of stock or cash under the Plan.
Borrowings under the Amended Credit Agreement are no longer available to
the Company. A commitment for a revolving credit facility (the "DIP
Agreement") has been entered into between the Company and a group of
institutional lenders (the "DIP Lenders") led by Canadian Imperial Bank
of Commerce ("CIBC"), as agent bank, and was approved by the Court. The
aggregate DIP Agreement commitment is $125 million with sublimits of $100
million for revolving credit loans and documentary letters of credit
(which may not exceed $15 million in the aggregate outstanding at any one
time) and $25 million for standby letters of credit. On April 1, 1998,
the commitment will be automatically reduced to $100 million with the
revolving credit/documentary letter of credit subfacility reducing to $75
million. Interest is to be charged at an annualized rate of 1.5% in
excess of CIBC's Alternate Base Rate or, at the Company's option, LIBOR
plus 2.5%.
As collateral for borrowings under the DIP Agreement, the Company will
grant to the DIP Lenders a first priority priming lien in all the
collateral securing the Amended Credit Agreement and all property of the
Company unencumbered as of the Petition Date or acquired during the Case
and a second priority lien on all the collateral securing the existing
Prudential Loan Facility and other collateral pledged to other creditors.
The DIP Agreement includes various restrictive covenants prohibiting the
Company from, among other things, incurring additional indebtedness, with
certain limited exceptions, making investments, except for certain
limited exceptions (such as the Company's strategic initiatives) and
making dividend, redemption and certain other payments on its capital
stock. The DIP Agreement also contains certain customary financial
covenants and events of default for financing of this type, including a
change of control covenant.
The DIP Agreement will terminate on the Effective Date or, if earlier,
one year after the Petition Date, subject to certain other termination
provisions. On the Effective Date, the Company intends to pay all amounts
outstanding under the DIP Agreement. It is currently proposed that such
payments will be financed from the proceeds of the Exit Facility. As
currently proposed, the Exit Facility will have a commitment of $150
million for revolving loans with a sublimit of $40 million for letters of
credit. Revolving credit loans under the Exit Facility will bear interest
at the rate of LIBOR plus 2.5% per annum. The Exit Facility will be
secured by the same liens on all the collateral securing the DIP
Agreement. The Exit Facility will contain a number of financial
conditions, which the Company must meet in order to draw down the
facility. Among those conditions, the Company must: 1) have earnings
before interest, taxes, depreciation and amortization (EBITDA) during the
four months ended November 29, 1997, not less than $12.9 million; 2) have
a debt to EBITDA ratio of not more than 7.9 to 1 for the 12 months
preceding the Effective Date; and 3) have post-petition trade payables of
not less than $30.6 million on the Effective Date.
In order for the Company to reorganize and emerge from the Case, the
Court must confirm a plan of reorganization. A disclosure statement,
approved by the Court will be sent to all classes of impaired creditors
and equity security holders for acceptance or rejection. On November 19,
1997, following acceptance or rejection of any plan by impaired classes
of creditors and equity security holders, the Court is scheduled to
consider whether to confirm the Plan. Among other things, to confirm a
plan the Court is generally required to find that (a) each impaired class
of creditors and equity security holders will, pursuant to the Plan,
receive at least as much as the class would have received in liquidation
of the Company, (b) each impaired class of creditors and equity security
holders has accepted the Plan by the requisite vote and (c) confirmation
of the Plan is not likely to be followed by the liquidation or need for
further financial restructuring of the Company. If any impaired class of
creditors or equity security holders does not accept a plan and assuming
that all other requirements of the Bankruptcy Code are met, the plan
proponents may
<PAGE> 8
invoke the so-called "cram-down" provisions of the Bankruptcy Code,
whereby the Court may confirm a plan notwithstanding the non-acceptance
of the plan by an impaired class of creditors or security holders if,
among other things, the plan is fair and equitable and does not
discriminate unfairly with respect to each impaired class of claims or
interests that has not accepted the plan. The Unsecured Creditors'
Committee and the Equity Committee have expressed support of the Plan.
The accompanying condensed financial statements have been prepared on a
going concern basis, which assumes continuity of operations, realization
of assets and liquidation of liabilities in the ordinary course of
business. However, as a result of the Chapter 11 filing and circumstances
relating thereto, substantial uncertainty exists with respect to the
Company's ability to continue as a going concern.
If the Company is unable to obtain confirmation of its plan or
reorganization, its creditors or equity security holders may seek a
liquidation of the Company by conversion to a Chapter 7 bankruptcy
proceeding or otherwise. In that event, it is likely that additional
liabilities and claims would be asserted which are not presently
reflected in the Company's financial statements. Furthermore, certain
assets and liabilities, such as merchandise inventories and liabilities
related to defined benefit pension plans, are presented using assumptions
appropriate for an ongoing business. In the event of liquidation, other
assumptions would be utilized and the amounts reflected in the financial
statements would be subject to adverse adjustments in amounts which,
while not presently determinable, would be material.
Financial accounting during a Chapter 11 proceeding is prescribed in
"Statement of Position 90-7 of the American Institute of Certified Public
Accountants," titled "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" which the Company adopted July 21, 1997. Among
other things, Statement of Position 90-7 provides that the emergence from
the Chapter 11 proceeding would result in the creation of a new reporting
entity without any accumulated deficit and with the Company's assets and
liabilities restated to their fair values, under so-called "fresh start"
reporting. The impacts of fresh start reporting will be dependent on the
terms of any plan of reorganization confirmed by the Bankruptcy Court and
the fair values of assets and liabilities at such time. However, the
Company believes that the present aggregate carrying value of goodwill
and land, buildings and equipment exceed the fair value of such assets
and, as a result, write-downs in the carrying value of such assets will
likely be required as a part of fresh start reporting, although the
amounts of such write-downs are not presently determinable.
On July 21, 1997, the Company also announced its plan to close 29 stores
and to eliminate approximately 15% of the staff at the Company's
headquarters and regional administrative centers. The Court subsequently
approved such plan on August 6, 1997. See Notes 3, 4, and 5 for a
description of related charges recorded in the third quarter of 1997.
(2) The accompanying condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q. To the extent that
information and footnotes required by generally accepted accounting
principles for complete financial statements are contained in or
consistent with the audited financial statements incorporated by
reference in the Company's Form 10-K for the year ended November 30,
1996, such information and footnotes have not been duplicated herein. In
the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of
financial statements have been reflected herein. The November 30, 1996,
condensed balance sheet has been derived from the audited financial
statements as of that date.
(3) A special charge of $13.1 million ($8.1 million after tax), primarily a
cash charge, was recorded in the third quarter of fiscal 1997 in
connection with the closing of 29 stores as part of the Company's
reorganization under Chapter 11. In addition, the Company recorded an
inventory write-down of $10.7 million ($6.6 million after tax), included
in cost of merchandise sold, in connection with the store closings. The
1997 special charge includes:
<TABLE>
Amount Amount Reserve
Charged Utilized at
(In millions) 1997 Through 8/30/97 8/30/97
--------- --------------- -------
<S> <C> <C> <C>
Real estate disposal costs $ 6.8 $ .1 $ 6.7
Severance costs 6.3 .3 6.0
--------- --------------- -------
$ 13.1 $ .4 $ 12.7
========= =============== =======
</TABLE>
<PAGE> 9
Historical financial data for the 29 closed stores is as follows for the
thirty-nine week periods presented:
<TABLE>
(In thousands) 1997 1996
------------- ------------
<S> <C> <C>
Net sales $ 204,707 $ 240,132
Net operating income (loss) $ (5,101) $ 4,539
</TABLE>
A special charge of $8.2 million ($5.0 million after tax), primarily a
cash charge, was recorded in the third quarter of fiscal 1996 in
connection with the future closing of nine underperforming stores. The
Company also recorded an inventory write-down of $5.8 million ($3.5
million after tax), included in cost of merchandise sold, in connection
with the store closings. The 1996 special charge includes future store
rentals of $3.7 million and real estate disposal costs of $4.5 million.
For the thirty-nine week period ended August 24, 1996, net sales and net
operating loss for the nine closed stores were $45.5 million and $3.2
million, respectively.
(4) In connection with its Chapter 11 filing on July 21, 1997, discussed at
Note 1, the Company recorded reorganization items of $5.1 million during
the quarter ended August 30, 1997. Reorganization items for this period
consisted of professional fees of $2.8 million, the write-off of deferred
financing costs of $2.5 million and interest income of $0.2 million.
(5) The Company recorded an asset impairment charge of $60.5 million ($43.9
million after tax) and $59.7 million ($44.6 million after tax) in the
third quarters of 1997 and 1996, respectively. The asset impairment
charges were recorded after considering current and expected future
operating cash flows for certain stores together with the proceeds the
Company could expect to receive upon the sale of these assets.
The Company adopted Financial Accounting Standard No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be
Disposed Of," in 1996. Primarily because the environment for building
materials retailing has continued to be increasingly competitive, the
Company first conducted its review in the third quarter of 1996 and
determined certain assets were impaired. In the third quarter of 1997,
the Company again conducted a review of underperforming stores and
determined that certain additional assets were impaired, including assets
related to twenty-nine stores which the Company determined to close (see
Note 3). These assets included certain real estate, including future
store lease obligations, and associated goodwill which is attributable to
those assets and which was established in 1988 as part of the Company's
leveraged buyout.
In 1997 as a result of the impairment charge, certain real estate
carrying values were reduced $28.8 million, goodwill was reduced $18.7
million and a $13.0 million liability for future store lease payments was
recorded. In 1996 as a result of the impairment charge, goodwill was
reduced $22.4 million, certain real estate carrying values were reduced
$25.7 million and a $11.6 million liability for future store lease
payments, net of $6.0 million in amounts the Company estimated to be
recoverable, was recorded.
(6) On August 20, 1996, the Small Business Job Protection Act of 1996 was
signed into law. Certain provisions of this Act clarified the Tax Reform
Act of 1986 and made retroactively tax deductible certain costs and
expenses previously recorded by the Company without any related tax
benefit. In addition, the Company settled with the Internal Revenue
Service regarding several tax issues. As a result, the Company recorded a
tax benefit of $23.7 million and related interest income of $4.9 million
($2.9 million after tax) in the third quarter of 1996. This tax benefit
included recoverable income taxes of $10.0 million and non-cash tax
benefits of $13.7 million.
(7) Net loss per common share has been computed based on the weighted average
number of existing common shares outstanding during the period. Common
stock equivalents, consisting of certain stock options and shares
issuable under the Director Deferred Compensation Plan, have not been
considered because the effect would be dilutive. For purposes of this
computation, net loss was adjusted for dividend requirements on preferred
stock. If effected, the Plan would materially affect the existing
preferred and common stock and would substantially dilute the ownership
of existing common shareholders.
<PAGE> 10
(8) Approximately 82% of the Company's inventories are valued using the LIFO
(last-in, first-out) method. Because inventory determination under the
LIFO method is only made at the end of each fiscal year based on the
inventory levels and costs at that time, interim LIFO determinations must
necessarily be based on management's estimates of expected year-end
inventory levels and costs. Since future estimates of inventory levels
and costs are subject to change, interim financial results reflect the
Company's most recent estimate of the effect of inflation and are subject
to final year-end LIFO inventory amounts. If the FIFO (first-in,
first-out) method of inventory accounting had been used by the Company,
inventories would have been $27.3 million, $24.3 million and $31.7
million higher than reported at August 30, 1997, November 30, 1996, and
August 24, 1996, respectively.
(9) Long-term debt consisted of the following:
<TABLE>
August 30, November 30, August 24,
(In thousands) 1997 1996 1996
---------------------------------------------------------
<S> <C> <C> <C>
DIP Agreement $ -- $ -- $ --
Amended Credit Agreement 367,462 354,000 340,857
Mortgage loan 97,364 108,000 112,154
Senior subordinated notes 173,655 173,655 173,655
Other senior debt 1,285 1,352 1,379
---------------------------------------------------------
639,766 637,007 628,045
Less portion classified as current liability (465,372) (18,340) (16,713)
Less portion classified as liabilities
subject to compromise (174,394) -- --
---------------------------------------------------------
$ -- $ 618,667 $ 611,332
=========================================================
</TABLE>
The terms of substantially all of the Company's debt agreements contain
cross default provisions. The commencement of the Case constituted a
default under the Amended Credit Agreement, the mortgage loan and the
senior subordinated notes. The outstanding balances of the Company's
long-term debt outstanding at August 30, 1997, have been classified as
current liabilities to the extent such amounts are not classified as
liabilities subject to compromise. The Company has discontinued,
effective July 21, 1997, the accrual of interest on pre-petition debt
that is unsecured or estimated to be under-secured (see Note 10).
(10) Liabilities subject to compromise consisted of the following:
August 30,
(In thousands) 1997
-----------
Trade accounts payable $ 125,773
Other current liabilities 48,098
Taxes other than income 9,370
Senior subordinated debentures 173,655
Other long-term debt 725
Other non-current liabilities 14,537
-----------
Total liabilities subject to compromise $ 372,158
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PETITION FOR RELIEF UNDER CHAPTER 11
On October 3, 1996, the Company amended its $408 million credit agreement (the
"Amended Credit Agreement") to include two tranches of term loans in the
aggregate amount of $273 million, a revolving credit facility of $135 million
and a $60 million working capital facility. All facilities mature in November
2000. As part of the amendment, permitted levels of capital expenditures were
increased, additional collateral (including substantially all merchandise
inventory) was added, various covenants were modified or eliminated and interest
rates were increased. The Amended Credit Agreement was designed to give the
Company additional flexibility and liquidity in order to continue the
implementation of its strategic plan and provide the banks with additional
security.
While the Company had sufficient liquidity to fund its current operations, the
operating performance of the Company during the second quarter of fiscal 1997,
which was well below the Company's expectations, led management to conclude that
it was unlikely that the Company would be able to comply with the covenants
contained in its principal credit agreements at the end of the current fiscal
year. In the course of the Company's subsequent negotiations with its senior
lenders to restructure its debt and after considering all other alternatives
with its financial adviser, Houlihan Lokey Howard & Zukin, including the sale of
the Company and liquidation, the Company concluded that a Chapter 11 proceeding
provided the best approach for a comprehensive financial restructuring of the
Company. This action is intended to improve the Company's competitive position
by establishing a more appropriate capital structure to operate the business in
this period of unprecedented competitive pressure after a decade of dealing with
a highly leveraged balance sheet, which has limited capital expenditures.
On July 21, 1997, the Company filed a voluntary petition to reorganize under
Chapter 11 and filed a plan of reorganization for its emergence from Chapter 11.
The Company is operating its business as a debtor-in-possession, subject to the
jurisdiction of the Court, while pursuing its reorganization plan to restructure
the Company's capitalization. As a debtor-in-possession in Chapter 11, the
Company may not engage in transactions outside of the ordinary course of
business without the approval, after notice and hearing, of the Court.
The Chapter 11 filing results in an automatic stay of the commencement or
prosecution of claims against the Company that arose before the Petition Date.
Until the Court confirms a reorganization plan, payments of pre-petition
liabilities will be limited to those payments approved by the Court. In
addition, a plan of reorganization will materially change the amounts currently
recorded in its financial statements. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets, the amounts and classification of liabilities which
may be allowed in the reorganization plan, or the ultimate capitalization of the
Company.
On July 21, 1997, the Company filed the Disclosure Statement and Plan with the
Court. The Disclosure Statement and Plan were subsequently amended on September
5, 1997, and modified on October 9, 1997. On October 10, 1997, the Court
determined that the Disclosure Statement contains adequate information to permit
a creditor to make an informed decision about the Plan. The Plan will now be
presented to the Company's impaired creditors and equity security holders for
acceptance or rejection. A hearing on confirmation is scheduled to occur
November 19, 1997, at which time, the Court will decide whether to approve the
Plan. For a summary description of the Plan, See Note 1 to Notes to Condensed
Financial Statements. Unless otherwise ordered by the Court, confirmation of the
Plan requires approval of all impaired classes of creditors and affirmation by
the Bankruptcy Court. There can be no assurance that the Plan will be approved
in its present form.
If the Company is unable to obtain confirmation of its Plan, its creditors or
equity security holders may seek other alternatives for the Company, including
bids for the Company or parts thereof through an auction process. In that event,
it is possible that certain assets would not be realized and additional
liabilities and claims would be asserted which are not presently reflected in
the consolidated financial statements and which are not presently determinable.
The effect of any such assertion or non-realization could be material. The
Company will incur professional fees and other cash demands typically incurred
in bankruptcy.
<PAGE> 12
The rights of pre-petition creditors and shareholders and the ultimate payment
of their claims and interests may be substantially altered and, in some cases,
eliminated under the Bankruptcy Code. Although the Company is optimistic the
Plan will be confirmed on November 19, 1997, and that it will emerge from the
protection of the Bankruptcy Court, it is not possible at this time to predict
the ultimate outcome of the Chapter 11 proceeding or its effects on the
Company's business or on the claims or interests of creditors or shareholders.
As proposed by the Plan, the claims of pre-petition unsecured creditors and the
interests of shareholders will be materially adversely affected.
RESULTS OF OPERATIONS
Income
Net sales for the quarter ended August 30, 1997, decreased 12.7% from the same
period of 1996 in total and 8.7% on a comparable-store sales basis. (Comparable
stores are those open one full year.) Net sales for the first three quarters of
1997 decreased 7.9% from the same period of 1996 in total and 4.6% on a
comparable store sales basis. Management believes that sales for the third
quarter were adversely impacted by the disruption in the supply of product and
the erosion of customer confidence caused by the Chapter 11 filing as well as
continuing competitive pressure. Same store sales to do-it-yourself customers
during the third quarter declined 14.1% and same-store sales to professional
customers declined 1.9%. Twenty-three stores were closed during the third
quarter of 1997, six stores were closed during the first quarter of 1996 and
eight additional stores were closed during the fourth quarter of 1996. Those 37
stores, as well as six additional stores planned to close in the fourth quarter
of 1997, accounted for $204.9 million and $287.0 million of sales in the first
three quarters of 1997 and 1996, respectively.
Costs and Expenses
Cost of merchandise sold as a percent of sales was 75.6% and 74.1% for the third
quarter of 1997 and 1996, respectively. For the first three quarters of 1997 and
1996, cost of merchandise sold as a percent of sales was 73.5% and 72.5%,
respectively. An inventory write-down of $10.7 million ($6.6 million after tax),
related to the closing of twenty-nine stores in connection with the Company's
reorganization under Chapter 11, was 1.7% and 0.6% of sales for the third
quarter and first three quarters of 1997, respectively. An inventory write-down
of $5.8 million ($3.5 million after tax), related to the closing of nine
underperforming stores, was 0.8% and 0.3% of sales for the third quarter and
first three quarters of 1996, respectively. Excluding the effect of both the
1997 and 1996 inventory write-downs, the increase of cost of merchandise sold
for the third quarter and the first three quarters of 1997 was primarily due to
competitive pressure and 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's average. The disruption in the supply of
product resulting from the Chapter 11 filing caused some increase in cost of
goods sold for the third quarter of 1997 due to purchasing product from
secondary sources at higher costs.
Selling, general and administrative expenses were 23.5% and 21.7% of sales for
the third quarter of 1997 and 1996, respectively. For the first three quarters
of 1997 and 1996, selling, general and administrative expenses were 24.6% and
23.3% of sales, respectively. The increase as a percent of sales for both
periods of 1997 was due primarily to lower sales. The decrease in dollars for
both periods of 1997 was due primarily to savings from eight stores closed in
the fourth quarter of 1996.
In connection with its Chapter 11 filing on July 21, 1997, discussed above, the
Company recorded reorganization items of $5.1 million during the quarter ended
August 30, 1997. Reorganization items for this period consisted of professional
fees of $2.8 million, the write-off of deferred financing costs of $2.5 million
and interest income of $0.2 million.
<PAGE> 13
A special charge of $13.0 million ($8.1 million after tax), primarily a cash
charge, was recorded in the third quarter of fiscal 1997 to reflect real estate
disposal and severance costs related to the future closing of twenty-nine
underperforming stores as part of the Company's reorganization under Chapter 11.
A special charge of $8.2 million ($5.0 million after tax), primarily a cash
charge, was recorded in the third quarter of fiscal 1996 to reflect future store
rentals and real estate disposal costs related to the future closing of nine
underperforming stores.
The Company recorded an asset impairment charge of $60.5 million ($43.9 million
after tax) and $59.7 million ($44.6 million after tax) in the third quarters of
1997 and 1996, respectively. Primarily because the environment for building
materials retailing has continued to be increasingly competitive, the Company
first conducted its review in the third quarter of 1996 and determined certain
assets were impaired. In the third quarter of 1997, the Company again conducted
a review of underperforming stores and determined that certain additional assets
were impaired, including assets related to twenty-nine stores, which the Company
determined to close. The asset impairment charges were recorded after
considering current and expected future operating cash flows for certain stores
together with the proceeds the Company could expect to receive upon the sale of
these assets.
The provision for depreciation and amortization decreased from the third quarter
and first three quarters of 1996 due primarily to goodwill written-off and
assets written down in connection with the 1996 asset impairment charge,
described above, and assets removed from service in connection with the 1996
store closings.
Interest expense for the third quarter and first three quarters of 1997
increased compared to the same periods of 1996 primarily due to higher borrowing
levels in 1997. The Company has discontinued, effective July 21, 1997, the
accrual of interest on pre-petition debt that is unsecured or estimated to be
unsecured. The Company also recorded interest income of $4.9 million ($2.9
million after tax) in the third quarter of 1996 related to a tax benefit arising
out of 1996 legislation and a settlement with the Internal Revenue Service.
The income tax benefit for the first three quarters of 1997 was $40.1 million
compared to $38.2 million for the first three quarters of 1996. On August 20,
1996, the Small Business Job Protection Act of 1996 was signed into law. Certain
provisions of this Act clarified the Tax Reform Act of 1986 and made
retroactively tax deductible certain costs and expenses previously recorded by
the Company without any related tax benefit. In addition, the Company settled
with the Internal Revenue Service ("IRS") regarding several tax issues. As a
result, the Company recorded a tax benefit of $23.7 million and related interest
income, discussed earlier. This tax benefit included recoverable income taxes of
$10.0 million and non-cash tax benefits of $13.7 million. The effective tax
rates for both periods were different from the 35% statutory rate primarily due
to the effect of goodwill amortization and the third quarter write-offs of
goodwill as part of the asset impairment charges, both of which are
non-deductible for income tax purposes, and due to the tax benefit related to
1996 legislation and the IRS settlement. Such tax benefit reflects management's
estimates of the annual effective tax rates at the end of each quarter.
Net Loss
Net loss for the quarter ended August 30, 1997, was $65.4 million compared to
$22.9 million for the same period of 1996. The net loss for the 1997 quarter
reflects the $10.7 million inventory write-down, the reorganization items of
$5.1 million, the $13.1 million special charge, and the $60.5 million asset
impairment charge, previously discussed. The net loss for the 1996 quarter
reflects the $5.8 million inventory write-down, the $8.2 million special charge,
the $59.7 million asset impairment charge, the $23.7 million federal income tax
benefit, and related $4.9 million interest income, previously discussed. Without
these non-routine items, net loss for the third quarter of 1997 would have been
$3.7 million and net income for the third quarter of 1996 would have been $3.6
million.
For the first three quarters of 1997, net loss was $86.8 million compared to
$24.6 million for the same period of 1996. The net loss for the 1997 period
reflects the inventory write-down, the special charge, and the asset impairment
charge, discussed above. The net loss for the 1996 period reflects the inventory
write-down, the special charge, the asset impairment charge, the federal income
tax benefit, and the related interest income, discussed above. Excluding the
non-routine items recorded in the third quarters of both years, net loss for the
first three quarters of 1997 would have been $25.1 million and net income for
the first three quarters of 1996 would have been $1.9 million.
<PAGE> 14
The following chart presents pro forma results (excluding non-routine items) in
order to make appropriate comparisons of the operating profile of the Company
for each of the periods presented:
Comparative Operating Data
<TABLE>
(In thousands, except per share amounts)
Thirteen Weeks Ended
----------------------------------------------------------------------------
August 30, 1997 August 24, 1996
---------------------------------- ----------------------------------
Historical Historical
Pro Forma (Including Pro Forma (Including
(Excluding non-routine (Excluding non-routine
non-routine items) items) non-routine items) items)
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Net sales and other income $ 633,298 $ 633,298 $ 725,274 $ 725,274
Income from operations before
depreciation and amortization 17,787 7,094 37,762 31,915
Income (loss) before income taxes (9,644) (98,997) 9,317 (59,511)
Federal and state income taxes (5,910) (33,595) 5,689 (36,633)
Net income (loss) (3,734) (65,402) 3,628 (22,878)
Net income (loss) per common
share $ (0.13) $ (1.68) $ 0.05 $ (0.61)
</TABLE>
<TABLE>
Thirty-Nine Weeks Ended
----------------------------------------------------------------------------
August 30, 1997 August 24, 1996
----------------------------------- ----------------------------------
Historical Historical
Pro Forma (Including Pro Forma (Including
(Excluding non-routine (Excluding non-routine
non-routine items) items) non-routine items) items)
----------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Net sales and other income $1,784,508 $ 1,784,508 $ 1,937,411 $ 1,937,411
Income from operations before
depreciation and amortization 48,103 37,410 91,149 85,302
Income (loss) before income taxes (37,498) (126,851) 5,976 (62,852)
Federal and state income taxes (12,400) (40,085) 4,105 (38,217)
Net income (loss) (25,098) (86,766) 1,871 (24,635)
Net income (loss) per common
share $ (0.75) $ (2.29) $ (0.06) $ (0.73)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $62.7 million for the first three
quarters of 1997 compared to $29.4 million for the same period of 1996. The
increase in cash from operating activities was primarily caused by a decrease in
merchandise inventories and an increase in trade accounts payable, both in
connection with the Chapter 11 filing. Excluding these and other changes in
assets and liabilities, cash from operating activities would have been $8.0
million for the first three quarters of 1997 compared to $62.0 million for the
same period of 1996 primarily due to lower sales and gross margins. During the
first three quarters of 1997 and 1996, the Company used cash of approximately
$4.2 million and $10.1 million, respectively, in operating activities related to
the execution of the 1996 and 1995 restructuring plans.
A commitment for a revolving credit facility (the "DIP Agreement") has been
entered into between the Company and the DIP Lenders and was subsequently
approved by the Court. Certain terms of the DIP Agreement and the Exit Facility
are summarized in Note 1 to Notes to Condensed Financial Statements. Borrowings
have been available under the DIP Agreement to supplement cash generated by
operations since July 21, 1997. At August 30, 1997, $95.1 million was available
for borrowing under the DIP Agreement. At August 30, 1997, there was a working
capital deficit of $157.2 million due to the reclassification of long-term debt
as current, partially offset by the reclassification of current liabilities as
liabilities subject to compromise. Working capital was $131.0 million and $111.8
million at November 30, 1996 and August 24, 1996, respectively. The current
ratio at August 30, 1997, was .7 to 1 due to the same factors causing the
working capital deficit. The current ratios at November 30, 1996, and August 24,
1996, were 1.41 to 1, and 1.33 to 1, respectively.
The Company believes that its ongoing operating cash flow and the DIP Agreement
should enable the Company to meet liquidity requirements during the
reorganization proceeding. However, notwithstanding all of the events and
circumstances described above, there is substantial uncertainty with respect to
the Company's liquidity.
<PAGE> 15
The DIP Agreement will terminate on the Effective Date or, if earlier, one year
after the Petition Date, subject to certain other termination provisions. On the
Effective Date, the Company intends to pay all amounts outstanding under the DIP
Agreement. It is currently proposed that such payments will be financed from the
proceeds of the Exit Facility. As currently proposed, the Exit Facility will
have a commitment of $150 million for revolving loans with a sublimit of $40
million for letters of credit. Revolving credit loans under the Exit Facility
will bear interest at the rate of LIBOR plus 2.5% per annum. The Exit Facility
will be secured by the same liens on all the collateral securing the DIP
Agreement. The Exit Facility will contain a number of financial conditions,
which the Company must meet in order to draw down the facility. Among those
conditions, the Company must: 1) have earnings before interest, taxes,
depreciation and amortization (EBITDA) during the four months ended November 29,
1997, not less than $12.9 million; 2) have a debt to EBITDA ratio of not more
than 7.9 to 1 for the 12 months preceding the Effective Date; and 3) have
post-petition trade payables of not less than $30.6 million on the Effective
Date. The Company expects to meet all these conditions, however, notwithstanding
all of the events and circumstances described above, there is substantial
uncertainty with respect to the Company's ability to meet these conditions.
The Company's primary investing activities are capital expenditures for the
implementation of the Company's Dual Path strategy, renovation of existing
stores, and additional equipment. The DIP Agreement limits the amount of capital
expenditures, which can be made ($69 million in fiscal 1997, $21 million in the
first quarter of fiscal 1998 and $17 million in the second quarter of fiscal
1998, subject to certain adjustments). The Company spent approximately $33.8
million and $27.6 million during the first three quarters of 1997 and 1996,
respectively, for the implementation of the Company's Dual Path strategy,
including the acquisition of a door and trim manufacturer during January 1996
and a truss manufacturer during March 1997, renovation of existing stores, and
additional equipment. The Company intends to finance the remaining fiscal 1997
capital expenditures of approximately $35 million, consisting primarily of the
implementation of the Company's Dual Path strategy, renovation of existing
stores and additional equipment, with funds generated from operations and
borrowings under the DIP Agreement. The Company has continued to sell real
estate from facilities closed in 1995 and 1996 resulting in cash proceeds of
$12.3 million and $12.6 million for the first three quarters of 1996 and 1997,
respectively.
On July 21, 1997, the Company also announced its plan to close 29 stores and to
eliminate approximately 15% of the staff at the Company's headquarters and
regional administrative centers. The Court subsequently approved such plan on
August 6, 1997. See Notes 3, 4, and 5 to the Notes to Condensed Financial
Statements for a description of related charges recorded in the third quarter of
1997.
FORWARD-LOOKING STATEMENTS
Statements above in the sections entitled "Petition For Relief Under Chapter 11"
and "Liquidity and Capital Resources" such as "unlikely", "intend", "estimated",
"believe", "expect", "anticipate" and similar expressions which are not
historical are forward-looking statements that involve risks and uncertainties.
Such statements include, without limitation, the Company's expectation as to
future performance.
Such forward-looking statements 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; lumber prices; product mix; growth of certain
market segments; competitor activities; an excess of retail space devoted to the
sale of building materials; success of the Dual Path strategy; the need for
Bankruptcy Court approvals; the adequacy of and compliance with the DIP
financing and the Exit financing; stability of customer demand and supplier
support; timely emergence from Chapter 11; and the many uncertainties involved
in operating a business in a Chapter 11 bankruptcy environment. Additional
information concerning certain of these and other factors is contained in the
Company's Securities and Exchange Commission filings, including but not limited
to the Form 10-K and Form 10-Q, copies of which are available from the Company
without charge or on the Company's web site, payless.cashways.com.
<PAGE> 16
REVIEW BY INDEPENDENT AUDITORS
The condensed financial statements of Payless Cashways, Inc. for the thirteen
week and thirty-nine week periods ended August 30, 1997, and August 24, 1996,
have been reviewed by KPMG Peat Marwick LLP, independent auditors. Their report
is included in this filing.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
On July 21, 1997, the Company filed a voluntary petition for relief
under Chapter 11 of Title 11 of the United States Code in the United States
Bankruptcy Court for the Western District of Missouri in Kansas City. During the
course of its Chapter 11 case, the Company will continue business operations as
a debtor-in-possession. As a debtor-in-possession, the Company may not engage in
operations outside the normal course of business without approval of the Court.
See Note 1 to Notes to Condensed Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this filing.
A group of terminated employees and others have filed a lawsuit against
the Company and other named defendants in the United States District Court for
the Southern District of Iowa. (See the full description of the lawsuit in Item
3-Legal Proceedings contained in the Company's Form 10-K for the year ended
November 30, 1996.) The lawsuit was brought in connection with a reduction in
force pursuant to a January 1994 restructuring. The suit has asserted a variety
of claims including federal and state securities fraud claims, alleged
violations of the Racketeer Influenced and Corrupt Organizations (RICO) 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
Company filed a motion to dismiss the majority of the claims; and Rulings and an
Order have been issued with respect thereto, substantially narrowing plaintiff's
legal claims by dismissing some age discrimination claims, all federal
securities fraud and RICO claims except one each, and all state law claims
related to an alleged partnership. The Former Employee's motion for class
certification has been denied on all claims except the age discrimination
claims. No ruling has been entered on the Former Employee's motion for class
certification of certain age discrimination claims. Each of the parties has
conducted discovery pursuant to the court's scheduling order and discovery plan.
The lawsuit has been formally stayed pursuant to the automatic stay issued by
the Bankruptcy Court following the voluntary Chapter 11 reorganization filing on
July 21, 1997. The Company denies any and all claimed liability and is
vigorously defending this litigation, but 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 3. Defaults Upon Senior Securities.
The information required by Part II, Item 3, of Form 10-Q is
incorporated by reference from Notes 9 and 10 of the Condensed Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operation Liquidity and Capital Resources, set forth herein.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
2.1 First Amended Plan of Reorganization, as modified
October 9, 1997.
4.0 Long-term debt instruments of Payless in amounts not
exceeding ten percent (10%) of the total assets of
Payless will be furnished to the Commission upon
request.
4.1 Revolving Credit Agreement dated July 21, 1997, among
Payless, the Banks listed on the signature pages
thereof and Canadian Imperial Bank of Commerce, New
York Agency, as Administrative Agent and Collateral
Agent.
<PAGE> 17
4.2 Security and Pledge Agreement dated July 21, 1997, made
by Payless for the benefit of Canadian Imperial Bank of
Commerce, New York Agency, as Administrative Agent and
Collateral Agent, and the banks and other financial
institutions party to the Amended and Restated Credit
Agreement.
10.1* Amendment No. 2 to Employment Agreement dated as of
June 30, 1997, between Payless and Susan M. Stanton.
10.2* Amendment No. 2 to Employment Agreement dated as of
June 30, 1997, between Payless and Stephen A.
Lightstone.
10.3* Amendment No. 1. to Employment Agreement dated as of
June 30, 1997, between Payless and G. Michael Buchen.
10.4* Change in Control Agreement dated as of June 26, 1997,
between Payless and Richard E. Nawrot.
10.5* Change in Control Agreement dated as of June 26, 1997,
between Payless and E. J. Holland, Jr.
10.6* Change in Control Agreement dated as of June 26, 1997,
between Payless and Robert S. Islinger.
11.1 Computation of per share loss.
15.1 Letter re unaudited financial information - KPMG Peat
Marwick LLP.
27.1 Financial data schedule.
* Represents a management contract or a compensatory plan or arrangement.
b. Reports on Form 8-K.
No reports on Form 8-K were filed by Payless during the quarter
ended August 30, 1997.
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAYLESS CASHWAYS, INC.
(Registrant)
Date: October 13, 1997 By: /s/ Stephen A. Lightstone
------------------------------
Stephen A. Lightstone, Senior
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
Exhibit 11.1
PAYLESS CASHWAYS, INC.
COMPUTATION OF PER SHARE LOSS
- -----------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------ ----------------------------
August 30, August 24, August 30, August 24,
1997 1996 1997 1996
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Net Loss $ (65,402) $ (22,878) $ (86,766) $ (24,635)
Less:
Preferred stock dividends (1,635) (1,510) (4,809) (4,442)
------------ ------------ ------------ ----------
Net loss available to common shareholders $ (67,037) $ (24,388) $ (91,575) $ (29,077)
------------ ------------ ------------ ----------
Weighted average common and dilutive common
equivalent shares outstanding 39,965 (1) 39,952 (1) 39,963 (1) 39,939 (1)
------------ ------------ ------------ ----------
Net loss per common share $ (1.68) $ (.61) $ (2.29) $ (.73)
============ ============ ============ ==========
FULLY DILUTED
- -------------
Net Loss $ (65,402) $ (22,878) $ (86,766) $ (24,635)
Less:
Preferred stock dividends (1,635) (1,510) (4,809) (4,442)
------------ ------------ ------------ ----------
Net loss available to common shareholders $ (67,037) $ (24,388) $ (91,575) $ (29,077)
------------ ------------ ------------ ----------
Weighted average common and dilutive common
equivalent shares outstanding 39,965 (1) 39,952 (1) 39,963 (1) 39,939 (1)
------------ ------------ ------------ ----------
Net loss per common share $ (1.68) $ (.61) $ (2.29) $ (.73)
============ ============ ============ ==========
<FN>
(1) Due to a loss being incurred for the period, dilutive common equivalent
shares have not been computed as the resulting earnings per share would be
antidilutive.
</TABLE>
<PAGE> 1
[Letterhead of KPMG Peat Marwick LLP]
EXHIBIT 15.1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Payless Cashways, Inc.:
We have reviewed the accompanying condensed balance sheets of Payless Cashways,
Inc. as of August 30, 1997 and August 24, 1996 and the related condensed
statements of operations and cash flows for the thirteen and thirty-nine week
periods then ended. These condensed financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements for them to be in
conformity with generally accepted accounting principles.
The accompanying condensed financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 1 to the
condensed financial statements, in connection with a planned financial
restructuring, on July 21, 1997 the Company commenced a reorganization
proceeding under Chapter 11. Such circumstances indicate that the Company may be
unable to continue as a going concern. Management's plans in regard to these
matters are also described in note 1 to the condensed financial statements. The
condensed financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Payless Cashways, Inc. as of November 30, 1996
and the related statements of operations, shareholders' equity and cash flows
for the fiscal year then ended (not presented herein); and in our report dated
January 13, 1997, we expressed an unqualified opinion on those financial
statements. As discussed in note H to the financial statements, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in
fiscal 1996. In our opinion, the information set forth in the accompanying
condensed balance sheet as of November 30, 1996 is fairly presented, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
September 15, 1997
<PAGE> 2
[Letterhead of KPMG Peat Marwick LLP]
EXHIBIT 15.1
Payless Cashways, Inc.
Kansas City, Missouri
Gentlemen:
With respect to the subject registration statements on Form S-8 and Form S-3, we
acknowledge our awareness of the use therein of our report dated September 15,
1997 related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
September 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the August
30, 1997, financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-29-1997
<PERIOD-END> AUG-30-1997
<CASH> 36707
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 348780
<CURRENT-ASSETS> 460571
<PP&E> 719173
<DEPRECIATION> (275011)
<TOTAL-ASSETS> 1243861
<CURRENT-LIABILITIES> 617795
<BONDS> 0
0
40600
<COMMON> 400
<OTHER-SE> 162088
<TOTAL-LIABILITY-AND-EQUITY> 1243861
<SALES> 632107
<TOTAL-REVENUES> 633298
<CGS> 478038
<TOTAL-COSTS> 478038
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14663
<INCOME-PRETAX> (98997)
<INCOME-TAX> (33595)
<INCOME-CONTINUING> (65402)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (65402)
<EPS-PRIMARY> (1.68)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1 Exhibit 4.1
REVOLVING CREDIT AGREEMENT
Dated as of July 21, 1997
REVOLVING CREDIT AGREEMENT, dated as of July 21, 1997, among PAYLESS
CASHWAYS, INC., an Iowa corporation (the "Borrower"), a debtor and
debtor-in-possession in the Case (as hereinafter defined), each of the financial
institutions from time to time party hereto as lenders (the "Lenders"), the
Underwriters (as hereinafter defined) and CANADIAN IMPERIAL BANK OF COMMERCE
(acting through one or more of its agencies, branches, or affiliates, "CIBC"),
as the issuer of standby letters of credit, FIRST BANK NATIONAL ASSOCIATION, in
its capacity as the issuer of documentary letters of credit (and not as a
lender) and CIBC, as coordinating and collateral agent (in such capacity, the
"Agent") for the Lenders, the Fronting Banks (as hereinafter defined) and the
Underwriters.
INTRODUCTORY STATEMENT
On July 21, 1997, the Borrower filed a voluntary petition with the
Bankruptcy Court initiating the Case and has continued in the possession of its
assets and in the management of its business pursuant to Sections 1107 and 1108
of the Bankruptcy Code.
The Borrower has applied to the Lenders for revolving credit and letter
of credit facilities in an aggregate principal amount not to exceed $125,000,000
(subject to the limitation set forth in Section 2.1(a) and to mandatory and
optional reductions in accordance with Sections 2.9 and 2.12).
The proceeds of the Loans will be used to provide working capital for
the Borrower, and for other general corporate purposes of the Borrower,
including for capital expenditures.
To provide security for the repayment of the Loans, the reimbursement
of any draft drawn under a Letter of Credit and the payment of the other
obligations of the Borrower hereunder and under the other Loan Documents, the
Borrower will provide to the Agent, the Lenders, the Fronting Bank and the
Underwriters the following (each as more fully described herein):
(a) an allowed administrative expense claim in the Case
pursuant to Section 364(c)(1) of the Bankruptcy Code having
priority over all administrative expenses of the kind
specified in Sections 503(b) and 507(b) of the Bankruptcy
Code;
(b) a perfected first priority Lien, pursuant to Section
364(c)(2) of the Bankruptcy Code, upon substantially all
unencumbered properties and interests in property of the
Borrower (including, with limitation, all After-Acquired
Property) and all cash and cash equivalents in the Letter of
Credit Account but excluding Consignor Property;
(c) a perfected Lien, pursuant to Section 364(c)(3) of the
Bankruptcy Code, upon all property of the Borrower (other than
the property referred to in paragraph (d)
<PAGE> 2
below that is subject to the valid and perfected Liens that
presently secure the Borrower's pre-petition Debt under
the Existing Agreements)that is subject to valid and perfected
Liens in existence on the Filing Date, junior to such valid
and perfected Liens and the Consignor Property; and
(d) a perfected first priority priming Lien, pursuant to
Section 364(d)(1)of the Bankruptcy Code, upon all property of
the Borrower (including, without limitation, accounts receiv-
able, inventory, equipment, general intangibles, intellectual
property and vehicles of the Borrower) that is subject to the
existing Liens that presently secure the Borrower's
pre-petition Debt under the Existing Agreements and any Liens
granted after the Filing Date to provide adequate protection
in respect of the Existing Agreements, which Lien in favor of
the Agent, the Lenders, the Fronting Banks and the
Underwriters shall be senior in all respects to all of such
existing Liens and to any Liens granted after the Filing Date
to provide adequate protection in respect thereof.
All of the claims and the Liens granted hereunder in the Case to the
Agent, the Lenders, the Fronting Banks and the Underwriters shall be subject to
the Carve-Out to the extent provided in Section 2.22 and to the prior rights of
(x) the Credit Card Banks under the GE Credit Program Documents with respect to
certain accounts receivable, returned merchandise and general intangibles and
(y) Commerce under the Commerce Bank Agreement with respect to certain
documents, inventory and related collateral.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
SECTION 1.1. Defined Terms.
As used in this Agreement, the following terms shall have the meanings
specified below:
"ABR Loan" shall mean any Loan bearing interest at a rate determined by
reference to the Alternate Base Rate in accordance with the provisions of
Section 2.
"Additional Credit" shall have the meaning set forth in Section 4.2(d).
"Adjusted LIBOR Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/100 of 1%) equal to the quotient of (a) the LIBOR
Rate in effect for such Interest Period divided by (b) a percentage (expressed
as a decimal) equal to 100% minus Statutory Reserves. For purposes hereof, the
term "LIBOR Rate" shall mean the rate (rounded upwards, if necessary, to the
next 1/100 of 1%) at which dollar deposits approximately equal in principal
amount to such Eurodollar Borrowing and for a maturity comparable to such
Interest Period are offered to the principal London office of the
<PAGE> 3
Agent in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Affiliate" shall mean, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with such Person. For purposes of this definition, a Person (a
"Controlled Person") shall be deemed to be "controlled by" another Person (a
"Controlling Person") if the Controlling Person possesses, directly or
indirectly, power to direct or cause the direction of the management and
policies of the Controlled Person whether by contract or otherwise.
"After-Acquired Property" shall have the meaning set forth in
Section 5.11.
"Agent" shall have the meaning set forth in the Introduction.
"Agreement" shall mean this Revolving Credit Agreement, as the same may
be amended, amended and restated, modified or supplemented from time to time.
"Alternate Base Rate" shall mean, for any day, a rate 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 in
effect on such day plus 1/2 of 1%. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal Funds Rate for any reason, including the
inability or failure of the Agent to obtain sufficient quotations in accordance
with the terms hereof, the Alternate Base Rate shall be determined without
regard to clause (b) of the first sentence of this definition, until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in CIBC's base rate or the Federal Funds
Rate shall be effective on the effective date of such change in CIBC's base rate
or the Federal Funds Rate, respectively.
"Annual Budget" shall have the meaning set forth in Section 5.1(f).
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the Agent,
substantially in the form of Exhibit E.
"Bankruptcy Code" shall mean The Bankruptcy Reform Act of 1978, as
heretofore and hereafter amended, and codified as 11 U.S.C. Section 101 et seq.
"Bankruptcy Court" shall mean the United States Bankruptcy Court for
the Western District of Missouri or any other court having jurisdiction over the
Case from time to time.
"Beneficial Ownership" by a Person when used with respect to any Voting
Shares shall mean beneficial ownership by such Person of such Voting Shares as
defined in Rule 13d-3 of the Exchange Act.
<PAGE> 4
"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States.
"Borrower" shall have the meaning set forth in the Introduction.
"Borrowing" shall mean the incurrence of Loans of a single Type made
from all the Lenders on a single date and having, in the case of Eurodollar
Loans, a single Interest Period (with any ABR Loan made pursuant to Section 2.15
being considered a part of the related Borrowing of Eurodollar Loans).
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks in New York City are required or permitted to close
(and, for a Letter of Credit, other than a day on which the relevant Fronting
Bank issuing such Letter of Credit is closed); provided, however, that when used
in connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"Business Plan" shall mean the revised financial projections of the
Borrower dated on or about June 27, 1997 and as amended from time to time in a
manner not inconsistent with the terms and provisions of this Agreement.
"Capitalized Lease" shall mean, as applied to any Person, any lease of
property by such Person as lessee which would be capitalized on a balance sheet
of such Person prepared in accordance with GAAP.
"Carve-Out" shall have the meaning set forth in Section 2.22.
"Case" shall mean the Chapter 11 Case of the Borrower pending in the
Bankruptcy Court.
"Cash Collateral Order" shall have the meaning set forth in
Section 4.1(d).
"Change of Control" shall mean 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 acquire or hold 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 such that such nominees so elected (whether new or continuing as
directors) shall constitute a majority of the Board of Directors of the
Borrower.
"CIBC" shall have the meaning set forth in the Introduction.
<PAGE> 5
"CIBC Wood Gundy" shall mean CIBC Wood Gundy Securities Corp.
"Closing Date" shall mean the date on which this Agreement has been
executed and the conditions precedent to the making of the initial Loans or the
issuance of the initial Letter of Credit set forth in Section 4.1 have been
satisfied or waived, which date shall occur promptly, but no later than 10 days,
after the entry of the Interim Order.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean the Collateral under the Security and Pledge
Agreement.
"Commerce" shall mean Commerce Bank, N.A.
"Commerce Bank Agreement" shall mean that certain Letter of Credit
Issuance and Reimbursement Agreement, dated as of November 18, 1994, as amended
by that certain First Amendment, effective as of October 3, 1996, between
Commerce and the Borrower.
"Commitment" shall mean, with respect to each Lender, its Revolving
Credit Commitment and its Standby L/C Commitment in the amount set forth
opposite its name on Annex A hereto or as may subsequently be set forth in the
Register from time to time, as the same may be reduced from time to time
pursuant to Sections 2.9 and 2.12.
"Commitment Fee" shall have the meaning set forth in Section 2.19.
"Commitment Letter" shall mean that certain Commitment Letter, dated
July 17, 1997, among the Agent, the Underwriters and the Borrower.
"Commitment Percentage" shall mean at any time, with respect to each
Lender, the percentage obtained by dividing its Commitment at such time by the
Total Commitment at such time.
"Consignor Property" shall mean goods held by the Borrower on
consignment to which it does not have title and the proceeds therefrom.
"Consummation Date" shall mean the date which is the earlier of (x) the
date on which the substantial consummation (as defined in Section 1101 of the
Bankruptcy Code) of a Reorganization Plan occurs and (y) the effective date of a
Reorganization Plan which is confirmed pursuant to an order of the Bankruptcy
Court.
"Credit Card Banks" shall mean General Electric Credit Corporation
and Monogram Credit Card Bank of Georgia.
<PAGE> 6
"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 Capitalized
Leases, (v) all Debt of others secured by (or for which the holder of such Debt
has an existing right, contingent or otherwise, to be secured by) a Lien on any
asset of such Person, including (without limitation) the Synthetic Lease
Obligations, whether or not such Debt is assumed by such Person, (vi) all Debt
of others Guaranteed by such Person, directly or indirectly, or by an instrument
having the effect of assuring another's payment or performance of any Debt,
(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 or payment requests
honored with respect thereto, (viii) all obligations of such Person in respect
of interest rate protection agreements, foreign currency exchange agreements or
other interest or exchange rate hedging arrangements (other than fully paid
interest rate cap arrangements), (ix) all obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, and (x) 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.
"Designated Collateral" shall mean (i) inventory at the 29 stores to be
closed pursuant to the Business Plan, (ii) the real estate interests at 9 of
such stores to be closed (and the 7 properties currently held for sale) and any
relaxed fixtures and equipment, which as of the Filing Date secure the Existing
Secured Obligations, (iii) the tax refund projected to be received by the
Borrower during the Case and (iv) the proceeds of the promissory notes (in the
aggregate principal amount of approximately $1,050,000) presently pledged to the
Existing Secured Lenders in connection with the prior store dispositions and
which mature on December 1, 1997.
"Disclosure Statement" shall mean the Borrower's disclosure statement
prepared in connection with the Proposed Plan.
"Documentary Letter of Credit" shall mean a documentary letter of
credit in form and substance customarily issued by the relevant Fronting Bank
from time to time and in form and substance acceptable to the Agent.
"Documentary Letter of Credit Fronting Bank" shall mean the Fronting
Bank which has committed to issue Documentary Letters of Credit hereunder.
"Documentary Letter of Credit Outstandings" shall mean, at any time,
the sum of (i) the aggregate undrawn stated amount of all Documentary Letters of
Credit then outstanding plus (ii) all amounts theretofore drawn under
Documentary Letters of Credit and not then reimbursed.
"Documentary Reserve" shall have the meaning set forth in
Section 2.2(a).
<PAGE> 7
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Domestic Lending Office" shall mean initially, as to each Lender, its
office designated as such on the signature pages to this Agreement, and
thereafter, upon notice to the Borrower and the Agent, such other office of such
Lender, if any, which shall be making or maintaining ABR Loans.
"Dual Path Capital Expenditures" shall mean capital expenditures made
or accrued in connection with the Business Plan and identified as such in
Section 6.4.
"EBITDA" shall mean, for any period, the consolidated net income (or
net loss) of the Borrower for such period before deduction of "Chapter 11
expenses" (or "administrative costs reflecting Chapter 11 expenses") (excluding
extraordinary, unusual or non-recurring gains and losses or (without
duplication) special charges), plus without duplication in accordance with GAAP
the sum of (i) interest and tax expense of the Borrower for such period to the
extent deducted in determining such consolidated net income plus (ii)
depreciation and amortization expense of the Borrower for such period to the
extent deducted in determining such consolidated net income as shown on the
Borrower's consolidated statement of income for such period.
"Eligible Assignee" shall mean (i) a commercial bank having total
assets in excess of $1,500,000,000 and (ii) a finance company, insurance company
or other financial institution or fund, in each case acceptable to the Agent,
which in the ordinary course of business extends credit of the type evidenced by
the Notes and has total assets in excess of $250,000,000 and whose becoming an
assignee would not constitute a prohibited transaction under Section 4975 of
ERISA.
"Environmental Law" shall have the meaning set forth in Section 6.14(e).
"Environmental Lien" shall mean a Lien in favor of any Governmental
Authority for (i) any liability under federal or state environmental laws or
regulations, or (ii) damages arising from or costs incurred by such Governmental
Authority in response to a release or threatened release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which is a member of a group of which the Borrower is a member and
which is under common control within the meaning of Section 414(b) or (c) of the
Code and the regulations promulgated and rulings issued thereunder.
"Eurocurrency Liabilities" shall have the meaning assigned thereto in
Regulation D issued by the Board, as in effect from time to time.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
<PAGE> 8
"Eurodollar Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Adjusted LIBOR Rate in accordance with the
provisions of Section 2.
"Event of Default" shall have the meaning set forth in Section 7.
"Existing Agreements" shall mean the Existing Credit Agreement and each
of the agreements listed on Schedule 1.1 hereto, the notes delivered pursuant
thereto, and all of the agreements granting security interests and liens in
property and assets of the Borrower to the Existing Lenders, including without
limitation, the security agreements, mortgages, deeds of trust and leasehold
mortgages listed on Schedule 1.1 hereto, each of which documents was executed
and delivered (to the extent party thereto) by the Borrower prior to the Filing
Date, as each may have been amended, amended and restated, modified or
supplemented from time to time.
"Existing Credit Agreement" shall mean that certain Amended and
Restated Credit Agreement, dated as of October 3, 1996, among the Borrower, the
Existing Lenders and the Agent, as amended, amended and restated, modified or
supplemented from time to time.
"Existing Credit Agreement Agent" shall mean CIBC in its capacities as
Administrative Agent and Collateral Agent under the Existing Credit Agreement.
"Existing Lenders" shall mean, collectively, those certain financial
institutions which have provided loans and other extensions of credit to the
Borrower under the Existing Agreements, together with any successors or assigns
thereof.
"Existing Secured Obligations" shall mean the Secured Obligations, as
such term is defined in the Existing Credit Agreement.
"Existing Secured Parties" shall mean the Secured Parties, as such term
is defined in the Existing Credit Agreement.
"Exit Facility" shall mean the Exit Facility referred to in Section
9.3(b).
"Federal Funds Rate" shall mean, 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 Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Fees" shall mean, collectively, the Commitment Fees and the Letter of
Credit Fees, together with the other fees referred to in Section 2.18.
<PAGE> 9
"Filing Date" shall mean July 21, 1997.
"Final Order" shall have the meaning set forth in Section 4.2(d).
"Financial Officer" shall mean the Chief Financial Officer, Vice
President Finance or the Treasurer of the Borrower.
"Fronting Banks" shall mean (i) with respect to Standby Letters of
Credit, CIBC and (ii) with respect to Documentary Letters of Credit, First Bank
National Association ("First Bank"); or, in each se, such other Lender or
Lenders or financial institutions or institutions (which other financial
institution or institutions shall have been chosen by the Borrower with the
approval of the Required Lenders) as may agree with the then existing Fronting
Bank to act in such capacity.
"GAAP" shall mean generally accepted accounting principles applied on a
basis consistent with those used in preparing the financial statements referred
to in Section 3.4.
"GE Credit Program Documents" shall mean (a) the Amended and Restated
Monogram Credit Card Bank of Georgia Program Agreement, dated as of July 20,
1997, between the Borrower and Monogram Credit Card Bank of Georgia, as such
agreement may hereafter be amended, amended and restated, modified or
supplemented from time to time to the extent permitted by this Agreement,
together with any agreements entered into by the Borrower and Monogram Credit
Card Bank of Georgia, or any affiliate, in replacement of such agreement to the
extent permitted by this Agreement; and (b) the Second Amended and Restated
Commercial Credit Account Purchase and Service Program Agreement, dated as of
July 20, 1997, between the Borrower and General Electric Capital Corporation, as
such agreement may hereafter be further amended, amended and restated, modified
or supplemented from time to time to the extent permitted by this Agreement,
together with any agreement entered into by the Borrower and General Electric
Capital Corporation, or any affiliate, in replacement of such agreement to the
extent permitted by this Agreement.
"Governmental Authority" shall mean any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality or any court, in each case whether of the United States or
foreign.
"Group" shall mean 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, 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
<PAGE> 10
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 Substances" shall have the meaning set forth in Section
6.14(e).
"Hedging Agreement" means that certain ISDA Master Agreement, dated as
of May 22, 1995, between CIBC and the Borrower, together with all Schedules
executed in connection therewith, as amended, amended and restated, modified or
supplemented from time to time.
"Insufficiency" shall mean, with respect to any Plan, the amount, if
any, of its unfunded benefit liabilities within the meaning of Section
4001(a)(18) of ERISA.
"Interim Order" shall have the meaning set forth in Section 4.1(c).
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan, the
last day of such Interest Period, and (ii) as to all ABR Loans, the last
calendar day of each month and the date on which any ABR Loans are refinanced
with Eurodollar Loans pursuant to Section 2.11.
"Interest Period" shall mean, as to any Borrowing of Eurodollar Loans,
the period commencing on the date of such Borrowing (including as a result of a
refinancing of ABR Loans) or on the last day of the preceding Interest Period
applicable to such Borrowing and ending on the numerically corresponding day (or
if there is no corresponding day, the last day) in the calendar month that is 1,
2 or 3 months thereafter, as the Borrower may elect in the related notice
delivered pursuant to Sections 2.5(b) or 2.11; provided, however, that (i) if
any Interest Period would end on a day which shall not be a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day and
(ii) no Interest Period shall end later than the Termination Date.
"Investments" shall have the meaning set forth in Section 6.9.
"Lenders" shall have the meaning set forth in the Introduction.
"Letter of Credit" shall mean any irrevocable letter of credit issued
pursuant to Section 2.2, which letter of credit shall be (i) a Standby Letter of
Credit or a Documentary Letter of Credit, (ii) issued for such purposes for
which the Borrower has historically obtained letters of credit, or for such
other purposes as are reasonably acceptable to the Agent and the relevant
Fronting Bank, (iii) denominated in Dollars and (iv) otherwise in such form as
may be reasonably approved from time to time by the Agent and the relevant
Fronting Bank.
"Letter of Credit Accounts" shall mean (i) with respect to Standby
Letters of Credit, the account established by the Borrower under the sole and
exclusive control of the Agent maintained
<PAGE> 11
at the office of the Agent at 425 Lexington Avenue, New York, New York 10017
designated as the "Payless Cashways, Inc. Standby Letter of Credit Account" and
(ii) with respect to Documentary Letters of Credit, the account established by
the Borrower under the sole and exclusive control of First Bank National
Association, maintained at the office of First Bank National Association at 601
2nd Avenue South, Minneapolis, Minnesota 55402, designated the "Payless
Cashways, Inc. Documentary Letter of Credit Account," each of which shall be
used solely for the purposes set forth in Sections 2.2(c) and 2.12.
"Letter of Credit Fees" shall mean the fees payable in respect of
Letters of Credit pursuant to Section 2.20.
"Letter of Credit Outstandings" shall mean, at any time, the aggregate
amount of all Documentary Letters of Credit Outstandings and all Standby Letters
of Credit Outstandings.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever (including any conditional sale or other
title retention agreement or any lease in the nature thereof).
"Loan" shall have the meaning set forth in Section 2.1.
"Loan Documents" shall mean this Agreement, the Notes, the Letters of
Credit, the Security and Pledge Agreement, and any other instrument or agreement
executed and delivered in connection herewith, including (without limitation)
documentation between the respective Fronting Banks and the Borrower with
respect to Letters of Credit.
"Lumberjack" shall mean Lumberjack Stores, Inc.
"Maturity Date" shall mean July 21, 1998.
"Minority Lenders" shall have the meaning set forth in Section 9.10(b).
"Moody's" shall mean 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 Agent and the
Borrower.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" shall mean a Single Employer Plan, which (i)
is maintained for employees of the Borrower or an ERISA Affiliate and at least
one Person other than the Borrower and its ERISA Affiliates or (ii) was so
maintained and in respect of which the Borrower or an ERISA
<PAGE> 12
Affiliate could have liability under Section 4064 or 4069 of ERISA in the event
such Plan has been or were to be terminated.
"Net Cash Proceeds" shall mean, with respect to any sale, lease,
transfer or other disposition of property or other assets: (a) the cash proceeds
received by the Borrower or its Subsidiary (including, without limitation, all
cash proceeds received by way of (i) deferred payment of principal pursuant to a
note or installment receivable or otherwise, but only as and when received and
(ii) receivables and other assets retained by the Borrower as part of the sales
consideration), minus (b) reasonable and customary brokerage commissions and
other reasonable and customary fees and expenses (including reasonable and
customary fees and expenses of counsel and investment bankers and reasonable and
customary inventory liquidation costs) related to such financing, sale, lease or
other disposition or issuance, minus (c) payments made to retire Debt (other
than Debt outstanding under the Existing Credit Agreement) secured by such
assets being sold or otherwise disposed of where payment of such Debt is
required in connection with such sale or disposition.
"Notes" shall mean the promissory notes of the Borrower, substantially
in the form of hereto, each payable to the order of a Lender, evidencing Loans.
"Obligations" shall mean (a) the due and punctual payment of principal
of and interest on the Loans and the Notes and the reimbursement of all amounts
drawn under Letters of Credit, and (b) the due and punctual payment of the Fees
and all other present and future, fixed or contingent, monetary obligations of
the Borrower to the Lenders, the Fronting Banks, the Underwriters and the Agent
under the Loan Documents.
"Orders" shall mean the Interim Order and the Final Order of the
Bankruptcy Court referred to in Sections 4.1(c) and 4.2(d).
"Other Taxes" shall have the meaning set forth in Section 2.17.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor agency or entity performing substantially the same functions.
"Pad Site" shall have the meaning set forth in the definition of
"Permitted Pad Sale."
"Pension Plan" shall mean a defined benefit pension or retirement plan
which meets and is subject to the requirements of Section 401(a) of the Code.
"Permitted Liens" shall mean (i) Liens imposed by law (other than
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than Environmental
Liens and any Lien imposed
<PAGE> 13
under ERISA) imposed by law created in the ordinary course of business for
amounts not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP; (iii) Liens (other than
any Lien imposed under ERISA) incurred or deposits made in the ordinary course
of business (including, without limitation, surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Debt), statutory obligations and
other similar obligations or arising as a result of progress payments under
government contracts; (iv) easements (including, without limitation, reciprocal
easement agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and zoning and other restrictions,
charges or encumbrances (whether or not recorded), which do not interfere
materially with the ordinary conduct of the business of the Borrower and which
do not materially detract from the value of the property to which they attach or
materially impair the use thereof to the Borrower; (v) purchase money Liens upon
or in any property acquired or held in the ordinary course of business to secure
the purchase price of such property or to secure Debt permitted by Section
6.3(iii) solely for the purpose of financing the acquisition of such property
and Capitalized Leases permitted by Section 6.3(iv) and true leases on account
of which financing statements have been filed; and (vi) extensions, renewals or
replacements of any Lien referred to in paragraphs (i) through (v) above;
provided, that the principal amount of the obligation secured thereby is not
increased and that any such extension, renewal or replacement is limited to the
property originally encumbered thereby.
"Permitted Pad Sale" shall mean 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 the facility located on or to
be constructed on such real property, as reasonably 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
any such real property does not exceed 50% of the total acreage of such real
property and (iii) such sale is completed within twelve months of the
acquisition of such real property.
"Person" shall mean any natural person, corporation, division of a
corporation, limited liability company, limited liability partnership,
partnership, trust, joint venture, association, company, estate, unincorporated
organization or government or any agency or political subdivision thereof.
"Plan" shall mean a Single Employer Plan or a Multiemployer Plan.
"Prepayment Date" shall mean thirty (30) days after the entry of the
Interim Order by the Bankruptcy Court if the Final Order has not been entered by
the Bankruptcy Court prior to the expiration of such thirty (30) day period.
<PAGE> 14
"Pre-Petition Payment" shall mean a payment (by way of adequate
protection or otherwise) of principal or interest or otherwise on account of any
pre-petition Debt or payables, except (i) pre-petition Debt permitted to be paid
in connection with dispositions of assets permitted under Section 6.10, (ii)
payment of employee and independent contractor compensation, vacation,
severance, health and other benefits, retiree health and Pension Plan benefits,
withholding, sales and use taxes, customer deposits and gift certificates,
amounts required to cure defaults under assumed executory contracts and leases,
operating expenses, the failure to pay which after the Filing Date would have a
material adverse effect on the Borrower's business, operations, condition
(financial or otherwise), assets or prospects, (iii) other amounts which are
necessary to be paid in the reasonable judgment of the Borrower and are
satisfactory to the Required Lenders in their judgment reasonably exercised and
(iv) other priority claims; provided, that all such amounts described in the
foregoing clauses (ii), (iii) and (iv) are paid in the ordinary course of the
Borrower's business with the prior approval of the Bankruptcy Court and do not
exceed in the aggregate the amount for such pre-petition payments set forth in
the Business Plan and (v) to the extent permitted by the Bankruptcy Court, other
pre-petition Debt or payables in an aggregate amount not to exceed $1,000,000.
"Property" shall have the meaning set forth in Section 6.14(a).
"Proposed Plan" shall have the meaning set forth in Section 4.1(f).
"Register" shall have the meaning set forth in Section 9.3(d).
"Remedial Work" shall have the meaning set forth in Section 6.14(c).
"Reorganization Plan" shall mean a plan of reorganization in the Case.
"Required Lenders" shall mean, at any time, Lenders (including CIBC)
holding Loans representing in excess of 51% of the aggregate principal amount of
such Loans outstanding or, if no such Loans are outstanding, Lenders having
Commitments representing in excess of 51% of the Total Commitment.
"Revolving Credit Commitment" shall mean the commitment of each Lender
to make Loans and to purchase a participation in Documentary Letters of Credit
issued, as set forth in Section 2.1, as the same may be increased pursuant to
Section 2.1(a) and as the same may be reduced from time to time pursuant to
Sections 2.9 and 2.12.
"S&P" shall mean 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 Agent and the Borrower.
"Security and Pledge Agreement" shall have the meaning set forth in
Section 4.1(e).
<PAGE> 15
"Single Employer Plan" shall mean a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the
Borrower or an ERISA Affiliate or (ii) was so maintained and in respect of which
the Borrower could have liability under Section 4069 of ERISA in the event such
Plan has been or were to be terminated.
"Standby Letter of Credit" shall mean a standby Letter of Credit in
form and substance customarily issued by the relevant Fronting Bank from time to
time and in form and substance acceptable to the Agent.
"Standby Letter of Credit Fronting Bank" shall mean the Fronting Bank
which has committed to issue Standby Letters of Credit hereunder.
"Standby Letter of Credit Outstandings" shall mean, at any time, the
sum of (i) the aggregate undrawn stated amount of all Standby Letters of Credit
then outstanding plus (ii) all amounts theretofore drawn under Standby Letters
of Credit and not then reimbursed.
"Standby L/C Commitment" shall mean the commitment of each Lender to
purchase a participation in Standby Letters of Credit issued as set forth in
Section 2.2.
"Statutory Reserves" shall mean on any date the percentage (expressed
as a decimal) established by the Board and any other banking authority which is
the then stated maximum rate for all reserves (including but not limited to any
emergency, supplemental or other marginal reserve requirements) applicable to
any member bank of the Federal Reserve System in respect of Eurocurrency
Liabilities (or any successor category of liabilities under Regulation D issued
by the Board, as in effect from time to time). Such reserve percentages shall
include, without limitation, those imposed pursuant to said Regulation. The
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in such percentage.
"Subsidiary" shall mean, with respect to any Person (herein referred to
as the "parent"), any corporation, association or other business entity (whether
now existing or hereafter organized) of which at least a majority of the
securities or other ownership interests having ordinary voting power for the
election of directors is, at the time as of which any determination is being
made, owned or controlled by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Super-Majority Lenders" shall have the meaning set forth in Section
9.10(b).
"Superpriority Claim" shall mean a claim against the Borrower in the
Case which is an administrative expense claim having priority over any or all
administrative expenses of the kind specified in Sections 503(b) or 507(b) of
the Bankruptcy Code.
<PAGE> 16
"Synthetic Lease Banks" shall mean the banks and financial institutions
party to the Synthetic Lease Participation Agreement.
"Synthetic Lease Documents" shall mean the Participation Agreement and
the Lease, the Loan Documents and the Trust Agreement (each as defined in the
Synthetic Lease Participation Agreement) and any and all documents, agreements
and instruments related thereto, each as amended, amended and restated, modified
or supplemented to the extent permitted by this Agreement.
"Synthetic Lease Obligations" shall mean the obligations of the
Borrower under the Synthetic Lease Documents (whether or not such obligations
constitute Capital Lease obligations).
"Synthetic Lease Participation Agreement" shall mean the Participation
Agreement, dated as of February 23, 1995, among the Borrower, Wilmington Trust
Company, as Certificate Trustee, the Synthetic Lease Banks as Certificate
Purchasers and/or Lenders and BA Leasing & Capital Corporation, as
administrative agent for the Certificate Purchasers and the lenders, as amended
by Amendment No. 1, dated as of November 22, 1995, and as hereafter amended,
amended and restated, modified or supplemented to the extent permitted by this
Agreement.
"Taxes" shall have the meaning set forth in Section 2.17.
"Temporary Cash Investments" shall mean 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, in each case maturing
within one year from the date of the acquisition thereof by the Borrower, or
(ii) (x) commercial paper rated in the highest grade (A1+/P1 or its equivalent)
by S&P or Moody's or (y) 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, in each case maturing within 180 days from the date of
acquisition thereof by the Borrower.
"Termination Date" shall mean the earliest to occur of (i) the
Prepayment Date, (ii) the Maturity Date, (iii) the Consummation Date and (iv)
the acceleration of the Loans and the termination of the Total Commitment in
accordance with the terms hereof.
"Termination Event" shall mean (i) a "reportable event", as such term
is described in Section 4043 of ERISA and the regulations issued thereunder
(other than a "reportable event" not subject to the provision for 30-day notice
to the PBGC under Section 4043 of ERISA or such regulations) or an event
described in Section 4068 of ERISA excluding events described in Section
4043(c)(9) of ERISA or 29 CFR ss.ss.2615.21 or 2615.23 and excluding events
which would not be reasonably likely (as reasonably determined by the Agent) to
have a material adverse effect on the financial condition, operations, business,
properties or assets of the Borrower taken as a whole, or (ii) the withdrawal of
<PAGE> 17
the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan
year in which it was a "substantial employer", as such term is defined in
Section 4001(c) of ERISA, or the incurrence of liability by the Borrower or any
ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple
Employer Plan, or (iii) providing notice of intent to terminate a Plan pursuant
to Section 4041(c) of ERISA or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Plan by the PBGC under Section 4042 of ERISA, or (v) any other
event or condition (other than the commencement of the Case and the failure to
have made any contribution accrued as of the Filing Date but not paid) which
would reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan,
or the imposition of any liability under Title IV of ERISA (other than for the
payment of premiums to the PBGC).
"Total Commitment" shall mean, at any time, the sum of the Total
Revolving Credit Commitments and the Total Standby L/C Commitments at such time.
"Total Revolving Credit Commitments" shall mean, at any time, the sum
of the Revolving Credit Commitments at such time.
"Total Standby L/C Commitments" shall mean, at any time, the sum of the
Standby L/C Commitments at such time.
"Transferee" shall have the meaning set forth in Section 2.17.
"Type" when used in respect of any Loan or Borrowing shall refer to the
rate of interest by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "rate" shall mean
the Adjusted LIBOR Rate and the Alternate Base Rate.
"Underwriters" shall mean CIBC Wood Gundy, NationsBank, N.A., Goldman
Sachs Credit Partners, L.P. and Lehman Commercial Paper Inc.
"Unused Total Commitment" shall mean, at any time, (i) the Total
Commitment less (ii) the sum of (x) the aggregate outstanding principal amount
of all Loans and (y) the aggregate Letter of Credit Outstandings.
"Voting Shares" shall mean, 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).
"Withdrawal Liability" shall have the meaning set forth under Part I of
Subtitle E of Title IV of ERISA.
<PAGE> 17
"ZR&G" shall have the meaning set forth in Section 9.5.
SECTION 1.2. Terms Generally. The definitions in Section 1.1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. All references herein to Sections,
Exhibits and Schedules shall be deemed references to Sections of, and Exhibits
and Schedules to, this Agreement unless the context shall otherwise require.
Except as otherwise expressly provided herein, all accounting or financial terms
used herein shall be construed in accordance with GAAP, as in effect from time
to time; provided, however, that for purposes of determining compliance with any
covenant set forth in Section 6, such terms shall be construed in accordance
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in the Borrower's audited financial
statements referred to in Section 3.4.
SECTION 2. AMOUNT AND TERMS OF CREDIT.
SECTION 2.1. Commitments of the Lenders.
(a) Each Lender severally and not jointly with the other Lenders
agrees, upon the terms and subject to the conditions herein set forth
(including, without limitation, the provisions of Section 2.27), to make
revolving credit loans (each a "Loan" and, collectively, the "Loans") to the
Borrower and to participate in Documentary Letters of Credit issued by the
Documentary Letter of Credit Fronting Bank at any time and from time to time
during the period commencing on the date hereof and ending on the Termination
Date (or the earlier date of termination of the Total Commitment) in an
aggregate principal amount not to exceed the Revolving Credit Commitment of such
Lender. At no time shall the sum of the then outstanding aggregate principal
amount of the Loans plus the then aggregate Documentary Letter of Credit
Outstandings exceed the Total Revolving Credit Commitments of $100,000,000, as
the same may be reduced from time to time pursuant to Sections 2.9 or 2.12, as
the case may be; provided, that unless and until an aggregate amount of
$20,000,000 of Net Cash Proceeds from dispositions of Designated Collateral have
been applied to the repayment of the principal amount of the Existing Secured
Obligations outstanding on the Filing Date, the Total Revolving Credit
Commitment shall not exceed $80,000,000 at any time prior to April 1, 1998 or
$55,000,000 at any time on or after April 1, 1998 (when the Total Revolving
Credit Commitment reduces to $75,000,000 pursuant to Section 2.12(a)). In
addition, at no time shall the then outstanding aggregate principal amount of
Loans exceed an amount equal to the Total Revolving Credit Commitments minus the
Documentary Reserve.
(b) Each Lender severally and not jointly with the other Lenders
agrees, upon the terms and subject to the conditions herein set forth
(including, without limitation, the provisions of Section 2.27), to participate
in Standby Letters of Credit issued by the Standby Letter of Credit Fronting
Bank for the account of the Borrower at any time and from time to time during
the period commencing on the date hereof and ending on the Termination Date (or
the earlier date of
<PAGE> 19
termination of the Total Commitment) in an aggregate principal amount not to
exceed the Standby L/C Commitment of such Lender. At no time shall the aggregate
Standby Letters of Credit Outstandings exceed the Total Standby L/C Commitments
of $25,000,000, as the same may be reduced from time to time.
(c) Each Borrowing shall be made by the Lenders pro rata in accordance
with their respective Revolving Credit Commitments; provided, that the failure
of any Lender to make any Loan shall not in itself relieve the other Lenders of
their obligations to lend.
SECTION 2.2. Letters of Credit
(a) Upon the terms and subject to the conditions herein set
forth, the Borrower may request the Documentary Letter of Credit Fronting Bank,
at any time and from time to time after the date hereof and prior to the
Termination Date, to issue, and subject to the terms and conditions contained
herein, such Fronting Bank shall issue, for the account of the Borrower one or
more Documentary Letters of Credit; provided, that no Documentary Letter of
Credit shall be issued if, after giving effect to such issuance, the aggregate
Documentary Letter of Credit Outstandings would exceed the lesser of
$15,000,000, or, the Documentary Reserve and provided, further that no
Documentary Letter of Credit shall be issued if the Documentary Letter of Credit
Fronting Bank shall have received at least one Business Day's prior written
notice from the Agent or the Required Lenders that the conditions to such
issuance have not been met. The Borrower hereby designates $5,000,000 as the
reserve for the issuance of Documentary Letters of Credit (the "Documentary
Reserve"). The Borrower may increase or decrease the amount of the Documentary
Reserve in an amount equal to $1,000,000 or any integral multiple thereof upon
ten (10) Business Days' prior written notice to the Agent and the Documentary
Letter of Credit Fronting Bank; provided, that in no event shall the Documentary
Reserve exceed $15,000,000 or be less than the Documentary Letters of Credit
Outstanding and provided, further that if any requested increase in the
Documentary Reserve would cause the then outstanding aggregate principal amount
of the Loans to be in excess of the amount permitted pursuant to the last
sentence of Section 2.1(a), such increase shall not be effective until the then
outstanding aggregate principal amount of the Loans has been repaid to that
extent and the Documentary Letter of Credit Fronting Bank has been notified in
writing by the Agent that such increase is effective.
(b) Upon the terms and subject to the conditions herein set
forth, the Borrower may request the Standby Letter of Credit Fronting Bank, at
any time and from time to time after the date hereof and prior to the
Termination Date, to issue, and subject to the terms and conditions contained
herein, such Fronting Bank shall issue, for the account of the Borrower one or
more Standby Letters of Credit; provided, that no Standby Letter of Credit shall
be issued if after giving effect to such issuance (i) the aggregate Standby
Letter of Credit Outstandings shall exceed $25,000,000 or (ii) the aggregate
Standby Letter of Credit Outstandings would exceed the Total Standby L/C
Commitments and provided, further that no Standby Letter of Credit shall be
issued
<PAGE> 20
if the Standby Letter of Credit Fronting Bank shall have received notice from
the Agent or the Required Lenders that the conditions to such issuance have not
been met.
(c) No Letter of Credit shall expire later than 60 days after
the Maturity Date; provided, that if any Letter of Credit shall be outstanding
on the Termination Date, the Borrower shall, at or prior to the Termination
Date, except as the Agent and the relevant Fronting Bank may otherwise agree in
writing, (i) cause all Letters of Credit which expire after the Termination Date
to be returned to the relevant Fronting Bank undrawn and marked "cancelled" or
(ii) if the Borrower is unable to do so in whole or in part, either (x) provide
a "back-to-back" letter of credit to the relevant Fronting Bank in a form
satisfactory to such Fronting Bank and the Agent (in their sole discretion),
issued by a bank satisfactory to such Fronting Bank and the Agent (in their sole
discretion), in an amount equal to 105% of the then undrawn stated amount of all
outstanding Letters of Credit issued by such Fronting Bank and/or (y) deposit
cash in the Letter of Credit Account of such Fronting Bank in an amount equal to
105% of the then undrawn stated amount of all outstanding Letters of Credit
issued by such Fronting Bank as collateral security for the Borrower's
reimbursement obligations in connection therewith, such cash to be remitted to
the Borrower upon the expiration, cancellation or other termination or
satisfaction of such reimbursement obligations. In addition, the Borrower shall
at all times maintain a minimum balance of at least $25,000 in the Letter of
Credit Account of the Documentary Letter of Credit Fronting Bank and the
Borrower hereby authorizes the Documentary Letter of Credit Fronting Bank to
debit such Letter of Credit Account to reimburse itself with respect to drafts
drawn under Documentary Letters of Credit and unpaid fees, costs and expenses
incurred by the Documentary Letter of Credit Fronting Bank in connection
therewith (whereupon the Borrower shall forthwith deposit such additional funds
in such Letter of Credit Account, if any, as shall be necessary to achieve such
minimum balance).
(d) The Borrower shall pay to each Fronting Bank, in addition
to such other fees and charges as are specifically provided for in Section 2.20
hereof, such fees and charges in connection with the issuance and processing of
the Letters of Credit issued by such Fronting Bank of the same type as are
customarily imposed by such Fronting Bank from time to time in connection with
letter of credit transactions in the amounts specified by such Fronting Bank.
(e) Drafts drawn under each Letter of Credit shall be
reimbursed by the Borrower in Dollars (i) on the same day if the relevant
Fronting Bank shall have notified the Borrower prior to 11:00 a.m. (New York
City time) and (ii) in all other cases, not later than the first Business Day
following the date of draw. Drafts drawn under each Letter of Credit shall bear
interest from the date of draw until the first Business Day following the date
of draw at a rate per annum equal to the Alternate Base Rate plus 1-1/2% and
thereafter until reimbursed in full at a rate per annum equal to the Alternate
Base Rate plus 3-1/2% (computed on the basis of the actual number of days
elapsed over any year of 360 days). The Borrower shall effect such reimbursement
(x) if such draw occurs prior to the Termination Date (or the earlier date of
termination of the Total Commitment), in cash or through a Borrowing without the
satisfaction of the conditions precedent set forth in Section 4.2 (provided that
if such draw relates to a Documentary Letter of Credit, such a Borrowing shall
only
<PAGE> 21
be made if the Documentary Letter of Credit Bank notifies the Agent that it has
not otherwise been reimbursed by the Borrower in respect of such draw) or (y) if
such draw occurs on or after the Termination Date (or the earlier date of
termination of the Total Commitment), in cash. Each Lender agrees to make the
Loans described in clause (x) of the preceding sentence notwithstanding a
failure to satisfy the applicable lending conditions thereto or the provisions
of Sections 2.1 or 2.27 or the occurrence of the Termination Date.
(f) Immediately upon the issuance of any Letter of Credit by
any Fronting Bank, such Fronting Bank shall be deemed to have sold to each
Lender other than such Fronting Bank and each such other Lender shall be deemed
unconditionally and irrevocably to have purchased from such Fronting Bank,
without recourse or warranty, an undivided interest and participation, to the
extent of such Lender's Commitment Percentage, in such Letter of Credit, each
drawing thereunder and the obligations of the Borrower under this Agreement with
respect thereto. Upon any change in the Commitments pursuant to Section 9.3, it
is hereby agreed that with respect to all Letter of Credit Outstandings, there
shall be an automatic adjustment to the participations hereby created to reflect
the new Commitment Percentages of the assigning and assignee Lenders. Any action
taken or omitted by a Fronting Bank under or in connection with a Letter of
Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for such Fronting Bank any resulting liability to
any other Lender.
(g) In the event that a Fronting Bank makes any payment under
any Letter of Credit and the Borrower shall not have reimbursed such amount in
full to such Fronting Bank pursuant to this Section, such Fronting Bank shall
promptly notify the Agent, which shall promptly notify each Lender of such
failure. In such case each Lender is authorized (and the Borrower does hereby so
authorize each Lender) to and shall promptly make an ABR Loan to the Borrower by
making the proceeds thereof available to the Agent in the amount of such
Lender's Commitment Percentage of such unreimbursed amount regardless of
noncompliance with the applicable conditions precedent and other restrictions on
Borrowings hereunder unless the making of such Loans are stayed by a court of
competent jurisdiction or otherwise not permitted by, or the obligation of the
Borrower to repay the same is not enforceable, under applicable law. If such
Fronting Bank so notifies the Agent, and the Agent so notifies the Lenders,
prior to 11:00 a.m. (New York City time) on any Business Day, each Lender shall
make available to the Agent the amounts required hereby, and the Agent shall
make available to the relevant Fronting Bank the total unreimbursed amount, in
each case on such Business Day and in same day funds. Notwithstanding the
failure of any Lender to make available to the Agent such Lender's Commitment
Percentage of the total Loan to be made to the Borrower, the Agent shall
promptly remit to the Fronting Bank the proceeds of such Loan in the amount of
the unreimbursed draw, in each case in Dollars and in the same day funds.
In the event that the making of any Loan is stayed by a court of
competent jurisdiction, or the Required Lenders and the Agent reasonably
determine that the making of a Loan is not permitted by, or the obligation of
the Borrower to repay the same is not enforceable under applicable law, each
<PAGE> 22
Lender shall promptly and unconditionally pay to the Agent for the account of
the Fronting Bank the amount of such Lender's Commitment Percentage of the
unreimbursed payment and the Agent shall promptly and unconditionally pay to the
Fronting Bank the amount of such unreimbursed payment in each case in Dollars
and in the same day funds. If such Fronting Bank so notifies the Agent, and the
Agent so notifies the Lenders, prior to 11:00 a.m. (New York City time) on any
Business Day, each Lender shall make available to the Agent, and the Agent shall
make available to the relevant Fronting Bank the total unreimbursed amount in
each case on such Business Day and in same day funds.
If and to the extent such Lender shall not have so made its Commitment
Percentage of the amount of any Loan or payment available to the Agent, or the
Agent shall not have made the amount of such Loan or payment available to the
relevant Fronting Bank, such Lender agrees to pay to the Agent, and the Agent
agrees to pay to such Fronting Bank, forthwith on demand such amount, together
with interest thereon, for each day from such date until the date such amount is
paid to the party entitled thereto at the Federal Funds Rate. The failure of any
Lender to make available to the Agent its Commitment Percentage of any Loan
required to be made pursuant to this Section or any payment under any Letter of
Credit shall not relieve any other Lender of its obligation hereunder to make
available to the Agent its Commitment Percentage of such Loan or payment under
any Letter of Credit, nor shall it relieve the Agent of its obligation hereunder
to make the amount of such payment available to the relevant Fronting Bank, in
each case on the date required, as specified above, but no Lender shall be
responsible for the failure of any other Lender to make available to the Agent
such other Lender's Commitment Percentage of any such Loan or such payment.
Whenever a Fronting Bank receives a payment of a reimbursement obligation from
the Borrower as to which it has received any payments from the Lenders pursuant
to this Section, such Fronting Bank shall pay to each Lender which has paid its
Commitment Percentage thereof, in Dollars and in same day funds, an amount equal
to such Lender's Commitment Percentage thereof.
(h) First Bank in its capacity as the Documentary Letter of
Credit Fronting Bank, may terminate its obligation to issue Documentary Letters
of Credit upon forty-five days' written notice to the Agent of such termination.
Further, if (i) the Interim Order (or the Final Order, upon entry thereof) shall
cease to be in full force and effect, shall have been amended, modified, stayed,
reversed, vacated or rescinded in any respect that adversely modifies or affects
the rights of First Bank as the Documentary Letter of Credit Fronting Bank or as
entered does not grant First Bank the rights contemplated by this Agreement,
then, First Bank may immediately terminate its obligation to issue Documentary
Letters of Credit upon written notice to the Agent of such termination or (ii)
CIBC resigns as Agent, First Bank shall be deemed to have resigned as
Documentary Letter of Credit Fronting Bank, effective as of the effective date
of CIBC's resignation as Agent, unless it otherwise notifies the Borrower in
writing of its decision to remain as Documentary Letter of Credit Fronting Bank.
SECTION 2.3. Issuance. Whenever the Borrower desires a Fronting Bank
to issue a Letter of Credit, it shall give to the relevant Fronting Bank and the
Agent at least two Business Days' prior
<PAGE> 23
written (including telegraphic, telex, facsimile or cable communication) notice
(or such shorter period as may be agreed upon by the Agent, the Borrower and
such Fronting Bank) specifying the date on which the proposed Letter of Credit
is to be issued (which shall be a Business Day), the stated amount of the Letter
of Credit so requested, the expiration date of such Letter of Credit and the
name and address of the beneficiary thereof.
SECTION 2.4. Nature of Letter of Credit Obligations Absolute.
The obligations of the Borrower to reimburse the Fronting Banks and
the Lenders for drawings made under any Letter of Credit shall be unconditional
and irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation (it being
understood that any such payment by the Borrower shall be without prejudice to,
and shall not constitute a waiver of, any rights the Borrower might have or
might acquire as a result of the payment by the relevant Fronting Bank of any
draft or the reimbursement by the Borrower thereof): (i) any lack of validity or
enforceability of any Letter of Credit; (ii) the existence of any claim, setoff,
defense or other right which the Borrower may have at any time against a
beneficiary of any Letter of Credit or against the relevant Fronting Bank or any
of the Lenders, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction; (iii) any draft, demand,
certificate or other document presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; (iv) payment by the relevant
Fronting Bank of any Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Letter of Credit (including without limitation, payment by the Documentary
Letter of Credit Fronting Bank in accordance with its usual practices and
procedures, subsequent to the expiry date of a Documentary Letter of Credit as
long as the Documentary Letter of Credit Fronting Bank has obtained the consent
of the Borrower thereto and has not been notified in writing by the Agent or a
Lender of the occurrence of the Termination Date); (v) any other circumstance or
happening whatsoever, which is similar to any of the foregoing; or (vi) the fact
that any Event of Default shall have occurred and be continuing.
SECTION 2.5. Making of Loans.
(a) Except as contemplated by Section 2.8, Loans shall be
either ABR Loans or Eurodollar Loans as the Borrower may request subject to and
in accordance with this Section; provided, that all Loans made pursuant to the
same Borrowing shall, unless otherwise specifically provided herein, be Loans of
the same Type. Each Lender may fulfill its Commitment with respect to any
Eurodollar Loan or ABR Loan by causing any lending office of such Lender to make
such Loan; provided, that any such use of a lending office shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
the applicable Note. Each Lender shall, subject to its overall policy
considerations, use reasonable efforts (but shall not be obligated) to select a
lending office which will not result in the payment of increased costs by the
Borrower pursuant to Section 2.14. Subject to the other provisions of this
Section and the provisions of Section 2.11,
<PAGE> 24
Borrowings of Loans of more than one Type may be incurred at the same time;
provided, that no more than five (5) Borrowings of Eurodollar Loans may be out-
standing at any time.
(b) The Borrower shall give the Agent prior notice of each
Borrowing hereunder of at least three Business Days for Eurodollar Loans and one
Business Day for ABR Loans (except as provided in the last sentence of this
Section 2.5(b)); such notice shall be irrevocable and shall specify the amount
of the proposed Borrowing (which shall not be less than $5,000,000 in the case
of Eurodollar Loans and $1,000,000 in the case of ABR Loans) and the date
thereof (which shall be a Business Day) and shall contain disbursement
instructions. Such notice, to be effective, must be received by the Agent not
later than 12:00 noon, New York City time, on the third Business Day in the case
of Eurodollar Loans and the first Business Day in the case of ABR Loans,
preceding the date on which such Borrowing is to be made except as provided in
the last sentence of this Section 2.5(b). Such notice shall specify whether the
Borrowing then being requested is to be a Borrowing of ABR Loans or Eurodollar
Loans. If no election is made as to the Type of Loan, such notice shall be
deemed a request for Borrowing of ABR Loans. The Agent shall promptly notify
each Lender of its proportionate share of such Borrowing, the date of such
Borrowing, the Type of Borrowing or Loans being requested and the Interest
Period or Interest Periods applicable thereto, as appropriate. On the borrowing
date specified in such notice, each Lender shall make its share of the Borrowing
available at the office of the Agent at 425 Lexington Avenue, New York, New York
10017, no later than 12:00 noon, New York City time, in immediately available
funds. Upon receipt of the funds made available by the Lenders to fund any
borrowing hereunder, the Agent shall disburse such funds in the manner specified
in the notice of borrowing delivered by the Borrower and shall use reasonable
efforts to make the funds so received from the Lenders available to the Borrower
no later than 2:00 p.m. New York City time (other than as provided in the
following sentence). With respect to ABR Loans of $10,000,000 or less, the
Lenders shall make such Borrowings available to the Borrower by 4:00 p.m., New
York City time, on the same Business Day that the Borrower gives notice to the
Agent of such Borrowing if the Agent receives such notice by 12:00 noon, New
York City time.
SECTION 2.6. Notes; Repayment of Loans. The Loans made by each Lender
shall be evidenced by a Note, duly executed on behalf of the Borrower, dated the
Closing Date or the date of the effectiveness of the applicable Assignment and
Acceptance, as the case may be, in substantially the form attached hereto as
Exhibit A, payable to the order of such Lender in an aggregate principal amount
equal to such Lender's Commitment. Loans may be repaid and reborrowed in
accordance with the provisions of this Agreement. The outstanding principal
balance of all of the Loans, as evidenced by such Notes, shall be payable on the
Termination Date. Each Note shall bear interest from the date thereof on the
outstanding principal balance thereof as set forth in Section 2.7. Each Lender
shall, and is hereby authorized by the Borrower to, endorse on the schedule
attached to each Note delivered to such Lender (or on a continuation of such
schedule attached to such Note and made a part thereof), or otherwise to record
in such Lender's internal records, an appropriate notation evidencing the date
and amount of each Loan from such Lender, each payment and prepayment of
principal of any such Loan, each payment of interest on any such
<PAGE> 25
Loan and the other information provided for on such schedule; provided, that the
failure of any Lender to make such a notation or any error therein shall not
affect the obligation of the Borrower to repay the Loans made by such Lender in
accordance with the terms of this Agreement and the applicable Notes.
SECTION 2.7. Interest on Loans.
(a) Subject to the provisions of Section 2.8, each ABR Loan
shall bear interest (computed on the basis of the actual number of days elapsed
over a year of 360 days) at a rate per annum equal to the Alternate Base Rate
plus 1-1/2%.
(b) Subject to the provisions of Section 2.8, each Eurodollar
Loan shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 360 days) at a rate per annum equal, during each Interest
Period applicable thereto, to the Adjusted LIBOR Rate for such Interest Period
in effect for such Borrowing plus 2-1/2%.
(c) Accrued interest on all Loans shall be payable in arrears
on each Interest Payment Date applicable thereto, at maturity (whether by
acceleration or otherwise), after such maturity on demand and (with respect to
Eurodollar Loans) upon any repayment or prepayment thereof (on the amount
prepaid).
SECTION 2.8. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or in the payment of any
other amount becoming due hereunder (including, without limitation, the
reimbursement pursuant to Section 2.2(e) of any draft drawn under a Letter of
Credit), whether at stated maturity, by acceleration or otherwise, the Borrower
shall on demand from time to time pay interest, to the extent permitted by law,
on such defaulted amount up to (but not including) the date of actual payment
(after as well as before judgment) at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days) equal to (x) in the
case of Borrowings consisting of Eurodollar Loans, the Adjusted LIBOR Rate in
effect for such Borrowing plus 4-1/2% and (y) in the case of all other amounts,
the Alternate Base Rate plus 3-1/2%.
SECTION 2.9. Optional Termination or Reduction of Commitment.
Upon at least two Business Days' prior written notice to the Agent, the Borrower
may at any time in whole permanently terminate, or from time to time in part
permanently reduce, the Unused Total Commitment. Each such reduction of the
Revolving Credit Commitments or the Standby L/C Commitment, as the case may be,
shall be in the principal amount of $5,000,000 or any integral multiple thereof.
Simultaneously with each reduction or termination of the Revolving Credit
Commitment or the Standby L/C Commitment, as the case may be, the Borrower shall
pay to the Agent for the account of each Lender the Commitment Fee accrued on
the amount of the respective Commitment of such Lender so terminated or reduced
through the date thereof. Any reduction of
<PAGE> 26
the Total Revolving Credit Commitment or the Total Standby L/C Commitment
pursuant to this Section shall be applied pro rata to reduce the Commitment of
each Lender.
SECTION 2.10. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan, the Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower absent manifest
error) that reasonable means do not exist for ascertaining the applicable
Adjusted LIBOR Rate, the Agent shall, as soon as practicable thereafter, give
written or telegraphic notice of such determination to the Borrower and the
Lenders, and any request by the Borrower for a Borrowing of Eurodollar Loans
(including pursuant to a refinancing with Eurodollar Loans) pursuant to Section
2.5 or 2.11 shall be deemed a request for a Borrowing of ABR Loans. After such
notice shall have been given and until the circumstances giving rise to such
notice no longer exist, each request for a Borrowing of Eurodollar Loans shall
be deemed to be a request for a Borrowing of ABR Loans.
SECTION 2.11. Refinancing of Loans. The Borrower shall have the
right, at any time, on three Business Days' prior irrevocable notice to the
Agent (which notice, to be effective, must be received by the Agent not later
than 12:00 noon, New York City time, on the third Business Day preceding the
date of any refinancing), (x) to refinance (without the satisfaction of the
conditions set forth in Section 4 as a condition to such refinancing) any
outstanding Borrowing or Borrowings of Loans of one Type (or a portion thereof)
with a Borrowing of Loans of the other Type or (y) to continue an outstanding
Borrowing of Eurodollar Loans for an additional Interest Period, subject to the
following:
(a) as a condition to the refinancing of ABR Loans with
Eurodollar Loans and to the continuation of Eurodollar Loans for an
additional Interest Period, no Event of Default shall have occurred and
be continuing at the time of such refinancing;
(b) if less than a full Borrowing of Loans shall be
refinanced, such refinancing shall be made pro rata among the Lenders
in accordance with the respective principal amounts of the Loans
comprising such Borrowing held by the Lenders immediately prior to such
refinancing;
(c) the aggregate principal amount of Loans being refinanced
shall be at least $1,000,000; provided, that no partial refinancing of
a Borrowing of Eurodollar Loans shall result in the Eurodollar Loans
remaining outstanding pursuant to such Borrowing being less than
$5,000,000 in aggregate principal amount;
(d) each Lender shall effect each refinancing by applying the
proceeds of its new Eurodollar Loan or ABR Loan, as the case may be, to
its Loan being refinanced;
<PAGE> 27
(e) the Interest Period with respect to a Borrowing of
Eurodollar Loans effected by a refinancing or in respect to the
Borrowing of Eurodollar Loans being continued as Eurodollar Loans shall
commence on the date of refinancing or the expiration of the current
Interest Period applicable to such continuing Borrowing, as the case
may be;
(f) a Borrowing of Eurodollar Loans may be refinanced only on
the last day of an Interest Period applicable thereto; and
(g) each request for a refinancing with a Borrowing of
Eurodollar Loans which fails to state an applicable Interest Period
shall be deemed to be a request for an Interest Period of one month.
In the event that the Borrower shall not give notice to refinance any Borrowing
of Eurodollar Loans, or to continue such Borrowing as Eurodollar Loans, or shall
not be entitled to refinance or continue such Borrowing as Eurodollar Loans, in
each case as provided above, such Borrowing shall automatically be refinanced
with a Borrowing of ABR Loans at the expiration of the then-current Interest
Period. The Agent shall, after it receives notice from the Borrower, promptly
give each Lender notice of any refinancing, in whole or part, of any Loan made
by such Lender.
SECTION 2.12. Mandatory Commitment Reduction; Commitment Termination;
Cash Collateral
(a) On April 1, 1998, the Total Commitments shall be reduced
to $100,000,000 and the Revolving Credit Commitments shall be reduced to
$75,000,000 and the Borrower shall prepay the Loans in an aggregate amount equal
to the amount, if any, by which the then outstanding aggregate principal amount
of the Loans and the Documentary Letter of Credit Outstandings exceed the
Revolving Credit Commitment as so reduced.
(b) Upon the Termination Date, the Total Commitment shall be
terminated in full and the Borrower shall pay the Loans in full and, except as
the relevant Fronting Bank may otherwise agree in writing, if any Letter of
Credit remains outstanding, (i) deposit into the Letter of Credit Account of
each Fronting Bank an amount equal to 105% of the amount by which the sum of the
aggregate Letter of Credit Outstandings in respect of Letters of Credit issued
by such Fronting Bank exceeds the amount of cash held in such Letter of Credit
Account, such cash to be remitted to the Borrower upon the expiration,
cancellation, satisfaction or other termination of such reimbursement
obligations, or (ii) otherwise comply with Section 2.2(c).
SECTION 2.13. Optional Prepayment of Loans; Reimbursement of Lenders.
(a) The Borrower shall have the right at any time and from
time to time to prepay any Loans, in whole or in part, (x) with respect to
Eurodollar Loans, upon at least three Business Days' prior written, telex or
facsimile notice to the Agent and (y) with respect to ABR Loans on the same
Business Day if written, telex or facsimile notice is received by the Agent
prior to 12:00 noon,
<PAGE> 28
New York City time, and thereafter upon at least one Business Day's prior
written, telex or facsimile notice to the Agent; provided, that (i) with respect
to Eurodollar Loans, each such partial prepayment shall be in integral multiples
of $1,000,000, (ii) with respect to ABR Loans, each such partial prepayment
shall be in integral multiples of $1,000,000, (iii) no prepayment of Eurodollar
Loans shall be permitted pursuant to this Section 2.13(a) other than on the last
day of an Interest Period applicable thereto unless the Borrower pays breakage
costs as provided in Section 2.13(b)(i), and (iv) no partial prepayment of a
Borrowing of Eurodollar Loans shall result in the aggregate principal amount of
the Eurodollar Loans remaining outstanding pursuant to such Borrowing being less
than $5,000,000. Each notice of prepayment shall specify the prepayment date,
the principal amount of the Loans to be prepaid and in the case of Eurodollar
Loans, the Borrowing or Borrowings pursuant to which made, shall be irrevocable
and shall commit the Borrower to prepay such Loan by the amount and on the date
stated therein. The Agent shall, promptly after receiving notice from the
Borrower hereunder, notify each Lender of the principal amount of the Loans held
by such Lender which are to be prepaid, the prepayment date and the manner of
application of the prepayment.
(b) The Borrower shall reimburse each Lender on demand for any
loss incurred or to be incurred by it in the reemployment of the funds released
(i) resulting from any prepayment (for any reason whatsoever, including, without
limitation, refinancing with ABR Loans) of any Eurodollar Loan required or
permitted under this Agreement, if such Loan is prepaid other than on the last
day of the Interest Period for such Loan or (ii) in the event that after the
Borrower delivers a notice of borrowing under Section 2.5 in respect of
Eurodollar Loans, such Loans are not made on the first day of the Interest
Period specified in such notice of borrowing for any reason other than a breach
by such Lender of its obligations hereunder. Such loss shall be the amount as
reasonably determined by such Lender as the excess, if any, of (A) the amount of
interest which would have accrued to such Lender on the amount so paid or not
borrowed at a rate of interest equal to the Adjusted LIBOR Rate for such Loan,
for the period from the date of such payment or failure to borrow to the last
day (x) in the case of a payment or refinancing with ABR Loans other than on the
last day of the Interest Period for such Loan, of the then current Interest
Period for such Loan, or (y) in the case of such failure to borrow, of the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow, over (B) the amount of interest which would have accrued to
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the London interbank market. Each Lender shall
deliver to the Borrower from time to time one or more certificates setting forth
the amount of such loss as determined by such Lender.
(c) In the event the Borrower fails to prepay any Loan on
the date specified in any prepayment notice delivered pursuant to Section
2.13(a), the Borrower on demand by any Lender shall pay to the Agent for the
account of such Lender any amounts required to compensate such Lender for any
loss incurred by such Lender as a result of such failure to prepay, including,
without limitation, any loss, cost or expenses incurred by reason of the
acquisition of deposits or other funds by such Lender to fulfill deposit
obligations incurred in anticipation of such prepayment, but without duplication
of any amounts paid under Section 2.13(b). Each Lender shall deliver to the
Borrower
<PAGE> 29
from time to time one or more certificates setting forth the amount of such loss
as determined by such Lender.
(d) Any partial prepayment of the Loans by the Borrower
pursuant to this Section shall be applied as specified by the Borrower or, in
the absence of such specification, as determined by the Agent.
SECTION 2.14. Reserve Requirements; Change in Circumstances
(a) Notwithstanding any other provision herein, if after the
date of this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Loan made by such Lender or any
fees or other amounts payable hereunder (other than changes in respect of Taxes,
Other Taxes and taxes imposed on, or measured by, the net income or overall
gross receipts or franchise taxes of such Lender by the jurisdiction in which
such Lender has its principal office or in which the applicable lending office
for such Eurodollar Loan is located or by any political subdivision or taxing
authority therein, or by any other jurisdiction or by any political subdivision
or taxing authority therein other than a jurisdiction in which such Lender would
not be subject to tax but for the execution and performance of this Agreement),
or shall impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of or
credit extended by such Lender (except any such reserve requirement which is
reflected in the Adjusted LIBOR Rate) or shall impose on such Lender or the
London interbank market any other condition affecting this Agreement or the
Eurodollar Loans made by such Lender, and the result of any of the foregoing
shall be to increase the cost to such Lender of making or maintaining any
Eurodollar Loan or to reduce the amount of any sum received or receivable by
such Lender hereunder or under the Notes (whether of principal, interest or
otherwise) by an amount deemed by such Lender to be material, then the Borrower
will pay to such Lender in accordance with paragraph (c) below such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered.
(b) If any Lender shall have determined that the applicability
of any change in any law, rule, regulation or guideline adopted pursuant to or
arising out of the July 1988 report of the Basel Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards", or the adoption or effectiveness
after the date hereof of any law, rule, regulation or guideline regarding
capital adequacy, or any change in any of the foregoing or in the interpretation
or administration of any of the foregoing by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any Lending Office of such Lender) or
any Lender's holding company 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, has or would
<PAGE> 30
have the effect of reducing the rate of return on such Lender's capital or on
the capital of such Lender's holding company, if any, as a consequence of this
Agreement, the Loans made by such Lender pursuant hereto, such Lender's
Commitment hereunder or the issuance of, or participation in, any Letter of
Credit by such Lender to a level below that which such Lender or such Lender's
holding company could have achieved but for such adoption, change or compliance
(taking into account such Lender's policies and the policies of such Lender's
holding company with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) A certificate of each Lender setting forth such amount or
amounts as shall be necessary to compensate such Lender or its holding company
as specified in paragraph (a) or (b) above, as the case may be, shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay each Lender the amount shown as due on any such certificate
delivered to it within 10 days after its receipt of the same. Any Lender
receiving any such payment shall promptly make a refund thereof to the Borrower
if the law, regulation, guideline or change in circumstances giving rise to such
payment is subsequently deemed or held to be invalid or inapplicable.
(d) Failure on the part of any Lender to demand compensation
for any increased costs or reduction in amounts received or receivable or
reduction in return on capital with respect to any period shall not constitute a
waiver of such Lender's right to demand compensation with respect to such period
or any other period. The protection of this Section shall be available to each
Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
SECTION 2.15. Change in Legality.
(a) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if (x) any change in any law or regulation or in
the interpretation thereof by any Governmental Authority charged with the
administration thereof shall make it unlawful for a Lender to make or maintain a
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to a Eurodollar Loan or (y) at any time any Lender determines that the
making or continuance of any of its Eurodollar Loans has become impracticable as
a result of a contingency occurring after the date hereof which adversely
affects the London interbank market or the position of such Lender in such
market, then, by written notice to the Borrower, such Lender may (i) declare
that Eurodollar Loans will not thereafter be made by such Lender hereunder,
whereupon any request by the Borrower for a Eurodollar Borrowing shall, as to
such Lender only, be deemed a request for an ABR Loan unless such declaration
shall be subsequently withdrawn; and (ii) require that all outstanding
Eurodollar Loans made by it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans as of the
effective date of such notice as provided in
<PAGE> 31
paragraph (b) below. In the event any Lender shall exercise its rights under
clause (i) or (ii) of this paragraph (a), all payments and prepayments of
principal which would otherwise have been applied to repay the Eurodollar Loans
that would have been made by such Lender or the converted Eurodollar Loans of
such Lender shall instead be applied to repay the ABR Loans made by such Lender
in lieu of, or resulting from the conversion of, such Eurodollar Loans.
(b)For purposes of this Section 2.15, a notice to the Borrower
by any Lender pursuant to paragraph (a) above shall be effective, if lawful, and
if any Eurodollar Loans shall then be outstanding, on the last day of the
then-current Interest Period, otherwise, such notice shall be effective on the
date of receipt by the Borrower.
SECTION 2.16. Pro Rata Treatment, etc. All payments and repayments
of principal and interest in respect of the Loans (except as provided in
Sections 2.14 and 2.15) shall be made pro rata among the Lenders in accordance
with the then outstanding principal amount of the Loans and/or participations in
Letter of Credit Outstandings and all outstanding undrawn Letters of Credit (and
the unreimbursed amount of drawn Letters of Credit) hereunder and all payments
of Commitment Fees and Letter of Credit Fees (other than those payable to a
Fronting Bank) shall be made pro rata among the Lenders in accordance with their
Commitments. All payments by the Borrower hereunder and under the Notes shall be
(i) net of any tax applicable to the Borrower and (ii) made in Dollars in
immediately available funds at the office of the Agent by 12:00 noon, New York
City time, on the date on which such payment shall be due. Interest in respect
of any Loan hereunder shall accrue from and including the date of such Loan to
but excluding the date on which such Loan is paid in full or converted to a Loan
of a different Type
SECTION 2.17. Taxes.
(a) Any and all payments by the Borrower hereunder and under
the Notes shall be made free and clear of and without deduction for any and all
current or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding (i) taxes imposed on or
measured by the net income or overall gross receipts of the Agent or any Lender
(or any transferee or assignee thereof, including a participation holder (any
such entity being called a "Transferee")) and franchise taxes imposed on the
Agent or any Lender (or Transferee) by the United States or any jurisdiction
under the laws of which the Agent or any such Lender (or Transferee) is
organized or in which the applicable lending office of any such Lender (or
Transferee) is located or any political subdivision thereof or by any other
jurisdiction or by any political subdivision or taxing authority therein other
than a jurisdiction in which the Agent or such Lender would not be subject to
tax but for the execution and performance of this Agreement and (ii) taxes,
levies, imposts, deductions, charges or withholdings ("Amounts") with respect to
payments hereunder or under the Notes to a Lender (or Transferee) in accordance
with laws in effect on the later of the date of this Agreement and the date such
Lender (or Transferee) becomes a Lender (or Transferee, as the case may be), but
not excluding, with respect to such Lender (or Transferee), any
<PAGE> 32
increase in such Amounts solely as a result of any change in such laws occurring
after such later date or any Amounts that would not have been imposed but for
actions (other than actions contemplated by this Agreement or the Notes) taken
by the Borrower after such later date (all such nonexcluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the Lenders (or any
Transferee) or the Agent, (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) such Lender (or
Transferee) or the Agent (as the case may be) shall receive an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxing authority or other Governmental Authority
in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any current or
future stamp or documentary taxes or any other excise or property taxes,
charges, assessments or similar levies that arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "Other Taxes").
(c)The Borrower will indemnify each Lender (or Transferee) and
the Agent for the full amount of Taxes and Other Taxes paid by such Lender (or
Transferee) or the Agent, as the case may be, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant taxing authority or other Governmental Authority. Such
indemnification shall be made within 30 days after the date any Lender (or
Transferee) or the Agent, as the case may be, makes written demand therefor. If
a Lender (or Transferee) or the Agent shall become aware that it is entitled to
receive a refund in respect of Taxes or Other Taxes as to which it has been
indemnified by the Borrower pursuant to this Section, it shall promptly notify
the Borrower of the availability of such refund and shall, within 30 days after
receipt of a request by the Borrower, apply for such refund at the Borrower's
expense. If any Lender (or Transferee) or the Agent receives a refund in respect
of any Taxes or Other Taxes as to which it has been indemnified by the Borrower
pursuant to this Section, it shall promptly notify the Borrower of such refund
and shall, within 30 days after receipt of a request by the Borrower (or
promptly upon receipt, if the Borrower has requested application for such refund
pursuant hereto), repay such refund to the Borrower (to the extent of amounts
that have been paid by the Borrower under this Section with respect to such
refund plus interest that is received by the Lender (or Transferee) or the Agent
as part of the refund), net of all out-of-pocket expenses of such Lender (or
Transferee) or the Agent and without additional interest thereon; provided, that
the Borrower, upon the request of such Lender (or Transferee) or the Agent,
agrees to return such refund (plus penalties, interest or other charges) to such
Lender (or Transferee) or the Agent in the event such Lender (or Transferee) or
the Agent is required to repay such refund. Nothing contained in this subsection
(c) shall require any Lender (or Transferee) or the Agent to
<PAGE> 33
make available any of its tax returns (or any other information relating to its
taxes that it deems to be confidential).
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee) or the Agent, the Borrower will furnish to the Agent, at its address
referred to on the signature pages hereof, the original or a certified copy of a
receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(f) Each Lender (or Transferee) that is organized under the
laws of a jurisdiction outside the United States shall, if legally able to do
so, prior to the immediately following due date of any payment by the Borrower
hereunder, deliver to the Borrower such certificates, documents or other
evidence, as required by the Code or Treasury Regulations issued pursuant
thereto, including (A) Internal Revenue Service Form W-8 or W-9 and (B) Internal
Revenue Service Form 1001 or Form 4224 and any other certificate or statement of
exemption required by Treasury Regulation Section 1.1441-1, 1.1441-4 or
1.1441-6(c) or any subsequent version thereof or successors thereto, properly
completed and duly executed by such Lender (or Transferee) establishing that
such payment is (i) not subject to United States Federal withholding tax under
the Code because such payment is effectively connected with the conduct by such
Lender (or Transferee) of a trade or business in the United States or (ii)
totally exempt from United States Federal withholding tax or subject to a
reduced rate of such tax under a provision of an applicable tax treaty. Unless
the Borrower and the Agent have received forms or other documents satisfactory
to them indicating that such payments hereunder or under the Notes are not
subject to United States Federal withholding tax or are subject to such tax at a
rate reduced by an applicable tax treaty, the Borrower or the Agent shall
withhold taxes from such payments at the applicable statutory rate.
(g) The Borrower shall not be required to pay any additional
amounts to any Lender (or Transferee) in respect of United States Federal
withholding tax pursuant to subsection (a) above if the obligation to pay such
additional amounts would not have arisen but for a failure by such Lender (or
Transferee) to comply with the provisions of subsection (f) above.
(h) Any Lender (or Transferee) claiming any additional amounts
payable pursuant to this Section shall use reasonable efforts (consistent with
legal and regulatory restrictions) to file any certificate or document requested
by the Borrower or to change the jurisdiction of its applicable lending office
if the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts that may thereafter accrue and would not,
in the sole reasonable determination of such Lender, be otherwise materially
disadvantageous to such Lender (or Transferee).
<PAGE> 34
SECTION 2.18. Certain Fees. The Borrower shall pay to the Agent, for
the respective accounts of the Agent, the Underwriters and the Lenders, the fees
set forth in that certain letter, dated July 17, 1997, among the Agent, the
Underwriters and the Borrower.
SECTION 2.19. Commitment Fee. The Borrower shall pay to the Lenders
a commitment fee (the "Commitment Fee") for the period commencing on the date
the Commitment Letter is executed to the Termination Date or the earlier date of
the termination in full of the Commitment, computed (on the basis of the actual
number of days elapsed over a year of 360 days) at the rate of one-half of one
percent (1/2%) per annum on the average daily Unused Total Commitment. Such
Commitment Fee, to the extent then accrued, shall be payable (x) monthly, in
arrears, on the last calendar day of each month, (y) on the Termination Date and
(z) as provided in Section 2.9, upon any reduction or termination in whole or in
part of the Total Commitment.
SECTION 2.20. Letter of Credit Fees. The Borrower shall pay with
respect to each Letter of Credit (i) to the Agent on behalf of the Lenders a fee
calculated (on the basis of the actual number of days elapsed over a year of 360
days) at the rate of (x) two and one-half (2-1/2%) per annum on the daily
average Letter of Credit Outstandings and (ii) to each Fronting Bank, such
Fronting Bank's fees for issuance, amendments and processing referred to in
Section 2.2. In addition, the Borrower agrees to pay each Fronting Bank for its
account a fronting fee, if required by such Fronting Bank in respect of each
Letter of Credit issued by such Fronting Bank, for the period from and including
the date of issuance of such Letter of Credit to and including the date of
termination of such Letter of Credit, computed at a rate, and payable at times,
to be determined by such Fronting Bank, the Borrower and the Agent. Accrued fees
described in clause (i) of the first sentence of this paragraph in respect of
each Letter of Credit shall be due and payable monthly in arrears on the last
calendar day of each month and on the Termination Date, or such earlier date as
the Total Commitment is terminated. Accrued fees described in clause (ii) of the
first sentence of this paragraph in respect of each Letter of Credit shall be
payable at times to be determined by the relevant Fronting Bank, the Borrower
and the Agent.
SECTION 2.21. Nature of Fees. All Fees shall be paid on the dates due,
in immediately available funds, to the Agent for the respective accounts of the
Agent and the Lenders, as provided herein and in the letter described in Section
2.18. Once paid, none of the Fees shall be refundable under any circumstances.
SECTION 2.22. Priority and Liens. The Borrower hereby covenants,
represents and warrants that, upon entry of the Interim Order (i) pursuant to
Section 364(c)(1) of the Bankruptcy Code, the Obligations of the Borrower
hereunder and under the other Loan Documents shall at all times constitute
allowed administrative expense claims in the Case having priority over all
administrative expenses of the kind specified in Sections 503(b) or 507(b) of
the Bankruptcy Code, (ii) pursuant to Section 364(c)(2) of the Bankruptcy Code,
the Obligations of the Borrower hereunder and under the other Loan Documents
shall at all times be secured by a perfected first priority Lien
<PAGE> 35
on all unencumbered property of the Borrower (including, without limitation, all
After-Acquired Property ) and all cash maintained in the Letter of Credit
Account and any direct investments of the funds contained therein, (iii)
pursuant to Section 364(c)(3) of the Bankruptcy Code, the Obligations of the
Borrower hereunder and under the Loan Documents shall be secured by a perfected
Lien upon all property of the Borrower (other than the property that is subject
to existing Liens that presently secure the obligations of the Borrower under
the Existing Agreements, as to which the Lien in favor of the Agent and the
Lenders will be as described in clause (iv) of this sentence) that is subject to
valid and perfected Liens in existence on the Filing Date, junior to such valid
and perfected Liens, and (iv) pursuant to Section 364(d)(1) of the Bankruptcy
Code, the Obligations of the Borrower hereunder and under the Loan Documents
shall be secured by a perfected first priority, senior priming Lien on all
property of the Borrower (including, without limitation, accounts receivable,
inventory, equipment, general intangibles, intellectual property and vehicles
and the proceeds thereof) that is subject to existing Liens that presently
secure the Borrower's pre-petition Indebtedness under the Existing Agreements
and any Liens granted after the Filing Date to provide adequate protection in
respect of the Existing Agreements, subject in each case, only to, in the event
of the occurrence and during the continuance of an Event of Default or an event
that would constitute an Event of Default with the giving of notice or lapse of
time or both, (x) the payment of allowed and unpaid professional fees and
disbursements thereafter incurred by the Borrower and any statutory committee
appointed in the Case in an aggregate amount not in excess of $3,500,000 and (y)
the payment of unpaid fees pursuant to 28 U.S.C. ss.1930 (collectively, the
"Carve-Out"); provided, that following the Termination Date amounts in the
Letter of Credit Account shall not be subject to the Carve-Out and (z) the prior
rights (i) of the Credit Card Banks under the GE Credit Program Documents with
respect to certain accounts receivable, returned merchandise and general
intangibles financed thereunder and (ii) Commerce under the Commerce Bank
Agreement with respect to certain documents, inventory and related collateral.
The Lenders agree that so long as no Event of Default or event which with the
giving of notice or lapse of time or both would constitute an Event of Default
shall have occurred, the Borrower shall be permitted to pay compensation and
reimbursement of expenses allowed and payable under 11 U.S.C. ss. 330 and 11
U.S.C. ss. 331, as the same may be due and payable, and the same shall not
reduce the Carve-Out.
SECTION 2.23. Right of Set-Off. Subject to the provisions of Section
7.1, upon the occurrence and during the continuance of any Event of Default, the
Agent, each Fronting Bank and each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law and without further
order of or application to the Bankruptcy Court, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and any and all other indebtedness at any time owing by the Agent,
such Fronting Bank and such Lender to or for the credit or the account of the
Borrower against any and all of the obligations of the Borrower now or hereafter
existing under the Loan Documents, irrespective of whether or not such Lender
shall have made any demand under any Loan Document and although such obligations
may be unmatured. Each Lender, each Fronting Bank and the Agent agrees promptly
to notify the Borrower after any such set-off and application made by such
Lender, such Fronting Bank or by the Agent, as the case may be; provided, that
the failure to give such notice shall not affect the validity of such
<PAGE> 36
set-off and application. The rights of each Lender, each Fronting Bank and the
Agent under this Section are in addition to other rights and remedies which such
Lender, such Fronting Bank and the Agent may have upon the occurrence and during
the continuance of any Event of Default.
SECTION 2.24. Security Interest in Letter of Credit Accounts.
Pursuant to Section 364(c)(2) of the Bankruptcy Code, the Borrower hereby
assigns and pledges to the Agent, for its benefit and for the ratable benefit of
the Lenders, and hereby grants to the Agent and the Fronting Banks, for their
respective benefits and for the ratable benefit of the Lenders, a first priority
security interest, senior to all other Liens, if any, in all of the Borrower's
right, title and interest in and to the Letter of Credit Accounts and any direct
investment of the funds contained therein. A Fronting Bank's security interest
in the Letter of Credit Account maintained by it shall be prior to the security
interest in favor of the Agent and the Lenders, and shall not be subject to the
rights of any person other than the Agent, the Lenders and the Borrower so long
as there are any Letter of Credit Outstanding or such Fronting Bank is obligated
to issue Letters of Credit.
SECTION 2.25. Payment of Obligations. Upon the maturity (whether by
acceleration or otherwise) of any of the Obligations under this Agreement or any
of the other Loan Documents of the Borrower, the Lenders and the Fronting Banks
shall be entitled to immediate payment of such obligations without further
application to or order of the Bankruptcy Court.
SECTION 2.26. No Discharge; Survival of Claims. The Borrower agrees
that (i) its obligations hereunder shall not be discharged by the entry of an
order confirming a Plan of Reorganization Plan (and the Borrower, pursuant to
Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such discharge) and
(ii) the Superpriority Claim granted to the Agent, the Fronting Banks and the
Lenders pursuant to the Order and described in Section 2.22 and the Liens
granted to the Agent and the Documentary Letter of Credit Fronting Bank pursuant
to the Order and described in Sections 2.22 and 2.24 shall not be affected in
any manner by the entry of an order confirming a Reorganization Plan.
SECTION 2.27. Use of Cash Collateral. Notwithstanding anything to the
contrary contained herein (other than the provisions of Sections 2.2(e) and (g)
which make this Section inapplicable), the Borrower shall not be permitted (i)
to request a Borrowing under Section 2.5 or request the issuance of a Letter of
Credit under Section 2.3 unless the Bankruptcy Court shall have entered the Cash
Collateral Order or (ii) to request a Borrowing under Section 2.5 unless the
Borrower shall at that time have used all cash collateral subject to the Cash
Collateral Order for the purposes described in Section 3.10.
SECTION 2.28. Existing Secured Obligations. For the express benefit
of the Existing Lenders, (i) the Borrower hereby confirms that it is validly and
justly indebted to the Existing Lenders in the full amount of the Existing
Secured Obligations, without defenses, offsets, claims or counterclaims with
respect to the Existing Secured Obligations, or with respect to the transactions
<PAGE> 37
contemplated thereby, of any kind whatsoever and (ii) the Borrower hereby
expressly releases and discharges the Existing Lenders and the Existing Lenders'
direct and indirect Subsidiaries and Affiliates, together with each of their
present and former shareholders, present and former officers, directors, agents
and employees and present and each of their former attorneys, advisors or
consultants whether presently or formerly retained by attorneys for the Existing
Lenders or by the Existing Lenders themselves, and the predecessors, successors
and assigns of all or any of them (collectively, the "Releasees") from any and
all manners of action, claims, causes of action, suits, proceedings, debts,
dues, sums of money, accounts, accountings, reckonings, demands, liabilities,
losses, damages, acts, omissions, misfeasances, malfeasances, promises, breaches
of contract, breaches of duty, breaches of relationship, and all other
controversies of every type, kind, nature, description or character (all of the
foregoing, collectively, the "Claims") whatsoever, whether known or unknown,
foreseen or unforeseen, liquidated or unliquidated, and whether based upon facts
now known or unknown, direct or derivative, in law, admiralty, equity or
bankruptcy, against the Releasees, or any of them, which the Borrower or the
Borrower's Affiliates and the predecessors, successors or assigns of any or all
of them, ever jointly or individually had, now have or hereafter can, shall or
may have for, upon, or by reason of any matter, cause or thing whatsoever from
the beginning of the world to (and with effect from) the dates on which the
respective Orders are entered, directly or indirectly arising from or relating
in any way to any and all transactions, relationships, or dealings relating in
any way, directly or indirectly, to the Existing Agreements, as well as any
agreements entered into, or notes, or other documents executed, in connection
with the Existing Agreements, or as an adjunct or supplement thereto, and any
prior agreements under which the Existing Lenders (or any of them or their
respective predecessors or successors) made loans or extended credit or any
services or accommodations of any type or kind whatsoever to or on behalf of the
Borrower; provided, that the Borrower reserves all of its rights and claims
against any party other than the Releasees.
SECTI0N 2.29. Assumption of Hedging Agreement. The Hedging Agreement
is hereby assumed by the Borrower in accordance with Section 365 of the
Bankruptcy Code.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to make Loans and to participate in
Letters of Credit hereunder and to induce the Fronting Banks to issue Letters of
Credit hereunder, the Borrower represents and warrants as follows:
SECTION 3.1. Organization and Authority. The Borrower (i) is a
corporation duly organized and validly existing under the laws of the State of
Iowa and is duly qualified as a foreign corporation and is in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on the financial condition, operations, business, properties or
assets of the Borrower; (ii) has the requisite corporate power and authority to
effect the transactions contemplated hereby and by the other Loan Documents to
which it is a party, and (iii) has all requisite corporate
<PAGE> 38
power and authority and the legal right to own, pledge, mortgage and operate its
properties, and to conduct its business as now or currently proposed to be
conducted.
SECTION 3.2. Due Execution. The execution, delivery and performance
by the Borrower of each of the Loan Documents to which it is a party (i) are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, including the consent of shareholders where
required, and do not (A) contravene the charter or by-laws of the Borrower, (B)
violate any law (including, without limitation, the Securities Exchange Act of
1934) or regulation (including, without limitation, Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System), or any order or decree of
any court or governmental instrumentality, (C) violate or result in a breach of,
or constitute a default under, any material indenture, mortgage or deed of trust
entered into after the Filing Date or any material lease, agreement or other
instrument entered into after the Filing Date binding on the Borrower or any of
its properties, or (D) result in or require the creation or imposition of any
Lien upon any of the property of the Borrower other than the Liens granted
pursuant to this Agreement; and do not require the consent, authorization by or
approval of or notice to or filing or registration with any Governmental
Authority other than the entry of the Orders and the Cash Collateral Order. This
Agreement has been duly executed and delivered by the Borrower. This Agreement
is, and each of the other Loan Documents to which the Borrower is a party, when
delivered hereunder or thereunder, will be, a legal, valid and binding
obligation of the Borrower, enforceable against the Borrower, in accordance with
its terms.
SECTION 3.3. Statements Made. The information that has been delivered
in writing by the Borrower to the Agent, the Underwriters or to the Bankruptcy
Court in connection with any Loan Document, and any financial statement
delivered pursuant hereto or thereto (other than to the extent that any such
statements constitute projections), contains no untrue statement of a material
fact and does not omit to state a material fact necessary to make such
statements not misleading; and, to the extent that any such information
constitutes projections, such projections were prepared in good faith on the
basis of assumptions, methods, data, tests and information believed by the
Borrower to be reasonable at the time such projections were furnished.
SECTION 3.4. Financial Statements. The Borrower has furnished the
Lenders with copies of (i) the audited consolidated financial statements of the
Borrower and Lumberjack for the fiscal year ended November 30, 1996, accompanied
by an unqualified opinion of KPMG Peat Marwick LLP and (ii) the unaudited
consolidated financial statements of the Borrower and Lumberjack for the six
month period ended May 31, 1997. Such financial statements present fairly the
financial condition, the results of operations and cash flows of the Borrower
and Lumberjack on a consolidated basis as of such dates and for such periods;
such balance sheets and the notes thereto disclose all liabilities, direct or
contingent, of the Borrower and Lumberjack as of the dates thereof required to
be disclosed by GAAP, and such financial statements were prepared in a manner
consistent with GAAP, subject (in the case of such six month statements) to
normal year end adjustments. No material adverse change in the operations,
business, properties, assets, prospects
<PAGE> 39
or condition (financial or otherwise) of the Borrower, taken as a whole, has
occurred from that set forth in the Business Plan other than (x) those which
customarily occur and as a result of events leading up to and following the
commencement of a proceeding under Chapter 11 of the Bankruptcy Code and (y) the
commencement of the Case (it being understood that any non-cash restructuring
and other non-cash charges to be reflected on the Borrower's 1997 consolidated
financial statements will not in themselves be deemed to constitute such a
material adverse change).
SECTION 3.5. Ownership. As of the date hereof, Lumberjack, which
is wholly-owned by the Borrower and is the only direct or indirect Subsidiary of
the Borrower, is inactive and has no significant assets.
SECTION 3.6. Liens. Except for Liens existing on the Filing Date as
reflected on Schedule 3.6, there are no Liens of any nature whatsoever on any
assets of the Borrower other than: (i) Liens granted pursuant to the Existing
Agreements; (ii) Permitted Liens; (iii) Liens permitted pursuant to Section
6.1(ii); and (iv) Liens in favor of the Agent, the Fronting Banks and the
Lenders. The Borrower is not a party to any contract, agreement, lease or
instrument the performance of which, either unconditionally or upon the
happening of an event, will result in or require the creation of a Lien on any
assets of the Borrower or otherwise result in a violation of this Agreement
other than the Liens granted to the Agent, the Fronting Banks and the Lenders as
provided for in this Agreement.
SECTION 3.7. Compliance with Law.
(a) (i) The operations of the Borrower comply in all material
respects with all Environmental Laws; (ii) to the Borrower's knowledge, none of
the operations of the Borrower is the subject of any Federal or state
investigation evaluating whether any remedial action involving a material
expenditure by the Borrower is needed to respond to a release of any Hazardous
Substance into the environment; and (iii) to the Borrower's knowledge, the
Borrower does not have any material contingent liability in connection with any
release of any Hazardous Substance into the environment.
(b) The Borrower is not, to the best of its knowledge, in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority the violation
of which, or a default with respect to which, would have a material adverse
effect on the financial condition, operations, business, properties or assets of
the Borrower.
SECTION 3.8. Insurance. All policies of insurance of any kind or
nature owned by or issued to the Borrower, including, without limitation,
policies of life, fire, theft, product liability, public liability, property
damage, other casualty, employee fidelity, workers' compensation, employee
health and welfare, title, property and liability insurance, are in full force
and effect and
<PAGE> 40
are of a nature and provide such coverage as is sufficient and as is customarily
carried by companies of the size and character of the Borrower.
SECTION 3.9. The Orders. On the date of the making of the initial
Loans or the issuance of the initial Letters of Credit hereunder, whichever
first occurs, the Interim Order will have been entered and will not have been
amended, modified, stayed, reversed, vacated or rescinded. On the date of the
making of any Loan or the issuance of any Letter of Credit, the Interim Order or
the Final Order, as the case may be, shall have been entered and shall not have
been amended, modified, stayed, reversed, vacated or rescinded. Upon the
maturity (whether by the acceleration or otherwise) of any of the Obligations of
the Borrower hereunder and under the other Loan Documents, the Lenders shall,
subject to the provisions of Section 7.1, be entitled to immediate payment of
such Obligations, and to enforce the remedies provided for hereunder, without
further application to or order by the Bankruptcy Court.
SECTION 3.10. Use of Proceeds. The proceeds of the Loans shall
be used (i) for general working capital of the Borrower and (ii) for other
general corporate purposes of the Borrower (including, among such general
corporate purposes, the making of Capital Expenditures, subject to the
limitations provided for in Section 6.4).
SECTION 3.11. Litigation. Except as set forth on Schedule 3.11, there
are no unstayed actions, suits or proceedings pending or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any of its
properties, before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which is reasonably
likely to be determined adversely to the Borrower and, if so determined
adversely to the Borrower, would have a material adverse effect on its financial
condition, business, properties, prospects, operations or assets.
SECTION 4. CONDITIONS OF LENDING
SECTION 4.1. Conditions Precedent to Initial Loans and Initial Letter
of Credit. The obligation of the Lenders to make the initial Loans or of the
relevant Fronting Bank to issue the initial Letter of Credit, whichever may
occur first, is subject to the following conditions precedent:
(a) Supporting Documents. The Agent shall have received:
(i) a copy of the Borrower's certificate of
incorporation, as amended, certified as of
a recent date by the Secretary of State of
Iowa;
(ii) a certificate of the Secretary of State of
Iowa, dated as of a recent date, as to the
good standing of the Borrower and as to the
charter documents on file in the office of
the Secretary of State; and
<PAGE> 41
(iii) a certificate of the Secretary or an
Assistant Secretary of the Borrower dated
the date of the initial Loans or the
initial Letter of Credit hereunder,
whichever first occurs, and certifying
(A) that attached thereto is a true and
complete copy of the by-lawsof the Borrower
as in effect on the date of such
certification, (B) that attached thereto
is a true and complete copy of resolutions
adopted by the Board of Directors of
the Borrower authorizing the Borrowings and
the issuance of Letters of Credit
hereunder, the execution, delivery and
performance in accordance with their
respective terms of this Agreement,
the Notes, the other Loan Documents
and any other documents required
required or contemplated hereunder or
thereunder and the granting of the security
interest in the Letter of Credit Accounts
contemplated hereby, (C) that the
certificate of incorporation of the
Borrower has not been amended since the
date of the last amendment thereto
indicated on the certificate of the
Secretary of State furnished pursuant to
clause (i) above and (D) as to the
incumbency and specimen signature of each
officer of the Borrower executing this
Agreement, the Notes and the other Loan
Documents or any other document delivered
by it in connection herewith or therewith
(such certificate to contain a
certification by another officer of the
Borrower as to the incumbency and signature
of the officer signing the certificate
referred to in this clause (iii).
(b) Notes. On or before the date of the making of the
initial Loans or the issuance of the initial Letter of Credit
hereunder, whichever first occurs, the Agent shall have received Notes
executed on behalf of the Borrower, dated the Closing Date, payable to
the order of each of the Lenders, in substantially the form of Exhibit
A and in an amount equal to such Lender's Commitment.
(c) Interim Order. At the time of the making of the initial
Loans or at the time of the issuance of the initial Letter of Credit,
whichever first occurs, the Agent, the Fronting Banks and the Lenders
shall have received a certified copy of an order of the Bankruptcy
Court in substantially the form of Exhibit B (the "Interim Order")
approving the Loan Documents and granting the Superpriority Claim
status and priming and other Liens described in Section 2.22 which (i)
shall have been entered upon an application or motion of the Borrower
reasonably satisfactory in form and substance to the Agent, on such
prior notice to such parties (including the Existing Lenders) as may be
reasonably satisfactory to the Agent not later than fifteen (15) days
following the commencement of the Case, (ii) authorize extensions of
credit in amounts satisfactory to the Agent, (iii) provide for adequate
protection in favor of the Existing Lenders, as set forth in Section
4.1(d), (iv) approve the payment by the Borrower of all of the Fees set
forth in Section 2.18, (v) shall be in full force and effect, and (vi)
shall not have been amended, modified, stayed, reversed, vacated or
<PAGE> 42
rescinded in any respect without the prior written consent of the Agent
and the Required Lenders and, if the Interim Order is the subject of a
pending appeal in any respect, neither the making of such Loans nor the
issuance of such Letter of Credit nor the performance by the Borrower
of any of its Obligations hereunder or under the Loan Documents or
under any other instrument or agreement referred to herein shall be the
subject of a presently effective stay pending appeal.
(d) Cash Collateral Order. At the time of the making of the
initial Loans or at the time of the issuance of the initial Letter of
Credit, whichever first occurs, the Agent and the Lenders shall have
received a certified copy of an order or orders of the Bankruptcy Court
in form and substance reasonably satisfactory to the Agent (the "Cash
Collateral Order") pursuant to Section 363(c)(2)(B) of the Bankruptcy
Code (which Cash Collateral Order may be embodied in the Interim Order
and the Final Order) authorizing the use by the Borrower of any cash
collateral in which any Existing Lender under any Existing Agreements
may have an interest and providing for (w) the payments of current
pre-petition and post-petition interest, letter of credit and other
fees and amounts owing to the Existing Credit Agreement Agent and the
other Existing Secured Parties, whether arising pre-petition or
post-petition (including, without limitation, cash management fees,
overdraft repayments and reasonable fees and disbursements of counsel
and other advisors), at the applicable non-default rate or rates
provided for pursuant to or in connection with the Existing Credit
Agreement and any other Existing Secured Obligations, (x) a priority
claim as contemplated by Section 507(b) of the Bankruptcy Code, (y) the
application of the Net Cash Proceeds of dispositions of Designated
Collateral to the permanent repayment of the loans and other extensions
of credit outstanding pursuant to the Existing Agreements in the order
set forth therein, and (z) a Lien on substantially all of the assets of
the Borrower having a priority junior to the priming and other Liens
granted in favor of the Agent and the Lenders hereunder and under the
other Loan Documents (including, without limitation, on all
After-Acquired Property ), which Cash Collateral Order shall be in full
force and effect and shall not have been amended, modified, stayed,
reversed, vacated or rescinded in any respect without the prior written
consent of the Agent and the Required Lenders.
(e) Security and Pledge Agreement. The Borrower shall have
duly executed and delivered to the Agent a Security and Pledge
Agreement in substantially the form of Exhibit C (the "Security and
Pledge Agreement").
(f) Plan of Reorganization. The Agent and the Underwriters
shall have received evidence satisfactory to them that the Borrower has
filed with the Bankruptcy Court (i) a plan of reorganization
satisfactory in form and substance to the Agent and the Underwriters
(the "Proposed Plan") and (ii) the Disclosure Statement satisfactory in
form and substance to the Agent and the Underwriters.
<PAGE> 43
(g) First Day Orders. All of the "first day orders" entered by
the Bankruptcy Court at the time of the commencement of the Case shall
be reasonably satisfactory in form and substance to the Agent.
(h) Opinion of Counsel to the Borrower. The Agent and the
Lenders shall have received the favorable written opinion of counsel to
the Borrower reasonably acceptable to the Agent, dated the date of the
initial Loans or the issuance of the initial Letter of Credit,
whichever first occurs, substantially in the form of Exhibits D-1 and
D-2.
(i) Payment of Fees. The Borrower shall have paid to the
Agent, the Lenders and the Underwriters the then unpaid balance of all
accrued and unpaid Fees owed under and pursuant to this Agreement and
the letter referred to in Section 2.18.
(j) Corporate and Judicial Proceedings. All corporate and
judicial proceedings and all instruments and agreements in connection
with the transactions among the Borrower, the Agent and the Lenders
contemplated by this Agreement shall be reasonably satisfactory in form
and substance to the Agent, and the Agent shall have received all
information and copies of all documents and papers, including records of
corporate and judicial proceedings, which the Agent may have reasonably
requested in connection therewith, such documents and papers where
appropriate to be certified by proper corporate, governmental or
judicial authorities.
(k) Information. The Agent shall have received such
information (financial or otherwise) as may be reasonably requested by
the Agent or the Underwriters.
(l) Compliance with Laws. The Borrower shall have granted the
Agent access to and the right to inspect all reports, audits and other
internal information of the Borrower relating to environmental matters,
and any third party verification of certain matters relating to
compliance with Environmental Laws requested by the Agent, and the
Agent shall be reasonably satisfied that the Borrower is in compliance
in all material respects with all applicable Environmental Laws and be
satisfied with the costs of maintaining such compliance.
(m) Closing Documents. The Agent shall have received all
documents (including security documents granting the liens in favor of
the Agent contemplated hereby) required by this Agreement reasonably
satisfactory in form and substance to the Agent and, in the case of the
issuance of a Letter of Credit, the relevant Fronting Bank shall have
received all documents it requires in connection with its agreement to
issue Letters of Credit hereunder in form and substance reasonably
satisfactory to such Fronting Bank.
<PAGE> 44
SECTION 4.2. Conditions Precedent to Each Loan and Each Letter of
Credit. The obligation of the Lenders to make each Loan and of the relevant
Fronting Bank to issue each Letter of Credit, including the initial Loan and the
initial Letter of Credit, is subject to the following conditions precedent:
(a) Notice. The Agent shall have received a notice with
respect to such borrowing or issuance, as the case may be, as required
by Section 2.
(b) Representations and Warranties. All representations and
warranties contained in this Agreement and the other Loan Documents or
otherwise made in writing in connection herewith or therewith shall be
true and correct in all material respects on and as of the date of each
Borrowing or the issuance of each Letter of Credit hereunder with the
same effect as if made on and as of such date except to the extent such
representations and warranties expressly relate to an earlier date.
(c) No Default. On the date of each Borrowing hereunder or the
issuance of each Letter of Credit, the Borrower shall be in compliance
with all of the terms and provisions set forth herein to be observed or
performed and no Event of Default or event which upon notice or lapse
of time or both would constitute an Event of Default shall have
occurred and be continuing.
(d) Orders. The Interim Order shall be in full force and
effect and shall not have been amended, modified, stayed, reversed,
vacated or rescinded in any respect without the prior written consent
of the Agent and the Required Lenders; provided, that at the time of
the making of any Loan or the issuance of any Letter of Credit the
aggregate amount of either of which, when added to the sum of the
principal amount of all Loans then outstanding and the Letter of Credit
Outstandings, would exceed the amount thereof which was authorized by
the Bankruptcy Court in the Interim Order (collectively, the
"Additional Credit"), the Agent and each of the Lenders shall have
received a certified copy of a final order of the Bankruptcy Court in
substantially the form of Exhibit B (the "Final Order"), which, in any
event, shall have been entered by the Bankruptcy Court no later than 30
days after the entry of the Interim Order, and at the time of the
extension of any Additional Credit the Final Order shall be in full
force and effect, and shall not have been amended, modified, stayed,
reversed, vacated or rescinded in any respect without the prior written
consent of the Agent and the Required Lenders; and if either the
Interim Order or the Final Order is the subject of a pending appeal in
any respect, neither the making of the Loans nor the issuance of any
Letter of Credit nor the performance by the Borrower of any of its
respective obligations under any of the Loan Documents shall be the
subject of a presently effective stay pending appeal.
<PAGE> 45
(e) Cash Collateral Order. The Cash Collateral Order shall be
in full force and effect and shall not have been amended, modified,
stayed, reversed, vacated or rescinded in any respect without the prior
written consent of the Agent and the Required Lenders.
(f) Payment of Fees. The Borrower shall have paid to the Agent
and the Underwriters the then unpaid balance of all accrued and unpaid
Fees then payable under and pursuant to this Agreement and the letter
referred to in Section 2.18.
(g) Amendments to Proposed Plan and Disclosure Statement.
Any proposed amendment to the Proposed Plan or the Disclosure Statement
to be filed with the Bankruptcy Court shall be satisfactory in form
and substance to the Agent and the Underwriters.
The request by the Borrower for, and the acceptance by the Borrower of, each
extension of credit hereunder shall be deemed to be a representation and
warranty by the Borrower that the conditions specified in this Section have been
satisfied or waived at that time.
SECTION 5. AFFIRMATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in
effect or any Letter of Credit shall remain outstanding (in a face amount in
excess of the amount of cash then held in the relevant Letter of Credit Account,
or the face amount of the relevant back-to-back letters of credit delivered, in
each case pursuant to Section 2.2(c)), or any amount shall remain outstanding
under any Note or unpaid under this Agreement, the Borrower agrees that, unless
the Required Lenders shall otherwise consent in writing, it will:
SECTION 5.1. Financial Statements, Reports, etc. The Borrower shall
deliver to the Agent and each of the Fronting Banks and the Lenders (or, in the
case of the weekly report delivered pursuant to Section 5.1 (g), deliver to the
Agent for distribution to the Fronting Banks and the Lenders):
(a) as soon as available and in any event within 90 days after
the end of each fiscal year, the Borrower's consolidated balance sheet
as of the end of such fiscal year and related consolidated statements
of income and cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous year, the
consolidated statement of the Borrower to be audited for the Borrower
by independent public accountants of recognized national standing
acceptable to the Required Lenders and accompanied by an opinion of
such accountants (which shall not be qualified in any material respect
other than with respect to the Case);
(b) as soon as available and in any event within 45 days after
the end of each of the first three fiscal quarters and within 90 days
after the end of the fourth fiscal quarter of each fiscal year, the
Borrower's consolidated balance sheet as of the end of such quarter and
<PAGE> 46
related consolidated statements of income and cash flows for such
fiscal 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, together with a comparison of such
results to the relevant portion of the Annual Budget, each certified by
a Financial Officer as fairly presenting the financial condition and
results of operations of the Borrower on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end
audit adjustments;
(c) concurrently with any delivery of financial statements
under (a) or (b) above, (i) a certificate of a Financial Officer,
certifying such statements (A) certifying that no Event of Default or
event which upon notice or lapse of time or both would constitute an
Event of Default has occurred, or, if such an Event of Default or event
has occurred, specifying the nature, the period of existence and extent
thereof and any corrective action taken or proposed to be taken with
respect thereto and (B) setting forth computations in reasonable detail
satisfactory to the Agent demonstrating whether the Borrower was in
compliance with the provisions of Sections 6.4, 6.5, 6.9 and 6.10 on
the date of such financial statements and (ii) a certificate of such
accountants accompanying the audited consolidated financial statements
delivered under (a) above certifying that, in the course of the regular
audit of the business of the Borrower, such accountants have obtained
no knowledge that an Event of Default has occurred and is continuing,
or if, in the opinion of such accountants, an Event of Default has
occurred and is continuing, specifying the nature thereof and all
relevant facts with respect thereto;
(d) within 15 Business Days of the end of each fiscal month
(or, in the case of the fiscal month ending on November 29, 1997, no
later than December 26, 1997), commencing with the fiscal month ending
on August 2, 1997, a consolidated balance sheet of the Borrower,
related statement of income and cash flows showing the financial
condition of the Borrower and the results of operations as of the close
of such fiscal month and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the
corresponding month and the corresponding portion of the Borrower's
previous fiscal year, together with a comparison of such results to the
relevant portion of the Annual Budget;
(e) as soon as practicable, and in any event within 45 days of
the Closing Date, a pro forma statement of the Borrower's financial
condition as of the Filing Date in form, scope and detail reasonably
satisfactory to the Agent and the Underwriters;
(f) within 45 days after the commencement of each fiscal year,
a forecast of the financial condition and results of operations of the
Borrower, by month, for the four fiscal quarters commencing with such
quarter (the "Annual Budget"), and not later than 45 days after the
commencement of each of the first three quarters of each fiscal year of
the Borrower, a narrative discussion by management of the Borrower of
the financial condition
<PAGE>47
and results of operations of the Borrower for the period covered by the
Annual Budget (or the balance of such fiscalyear, as the case may be),
and, in the case of the second and third fiscal quarters, a reforecast
by month for the balance of such fiscal year in all instances in form,
scope and detail satisfactory to the Agent and the Underwriters;
(g) on the third Business Day of each week, a flash report
reflecting sales and gross margins as of the last Business Day of the
preceding week in form, scope and detail reasonably satisfactory to the
Agent and the Underwriters;
(h) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of or all the functions of
said commission, or with any national securities exchange, as the case
may be;
(i) as soon as available and in any event (A) within 30 days
after the Borrower or any of its ERISA Affiliates knows or has reason
to know that any Termination Event described in clause (i) of the
definition of Termination Event with respect to any Single Employer
Plan of the Borrower or such ERISA Affiliate has occurred and (B)
within 10 days after the Borrower or any of its ERISA Affiliates knows
or has reason to know that any other Termination Event with respect to
any such Plan has occurred, a statement of a Financial Officer of the
Borrower describing such Termination Event and the action, if any,
which the Borrower or such ERISA Affiliate proposes to take with
respect thereto;
(j) promptly and in any event within 10 days after receipt
thereof by the Borrower or any of its ERISA Affiliates from the PBGC
copies of each notice received by the Borrower or any such ERISA
Affiliate of the PBGC's intention to terminate any Single Employer Plan
of the Borrower or such ERISA Affiliate or to have a trustee appointed
to administer any such Plan;
(k) promptly and in any event within 30 days after the 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 Single Employer Plan of the Borrower or any of its
ERISA Affiliates;
(l) within 10 days after notice is given or required to be
given to the PBGC under Section 302(f)(4)(A) of ERISA of the failure of
the Borrower or any of its ERISA Affiliates to make timely payments to
a Plan, a copy of any such notice filed and a statement of a Financial
Officer of the Borrower setting forth (A) sufficient information
necessary to determine the amount of the lien under Section 302(f)(3),
(B) the reason for the failure to make the required payments and (C)
the action, if any, which the Borrower or any of its ERISA Affiliates
proposed to take with respect thereto;
<PAGE> 48
(m) promptly and in any event within 10 days after receipt
thereof by the Borrower or any ERISA Affiliate from a Multiemployer
Plan sponsor, a copy of each notice received by the Borrower or any
ERISA Affiliate concerning (A) the imposition of Withdrawal Liability
by a Multiemployer Plan, (B) the determination that a Multiemployer
Plan is, or is expected to be, in reorganization within the meaning of
Title IV of ERISA, (C) the termination of a Multiemployer Plan within
the meaning of Title IV of ERISA, or (D) the amount of liability
incurred, or which may be incurred, by the Borrower or any ERISA
Affiliate in connection with any event described in clause (A), (B) or
(C) above;
(n) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
the Borrower, or compliance with the terms of any material loan or
financing agreements as the Agent, any Fronting Bank or any Lender may
reasonably request; and
(o) furnish to the Agent and its counsel and the Underwriters
promptly after the same is available, copies of all pleadings, motions,
applications, judicial information, financial information and other
documents filed by or on behalf of the Borrower with the Bankruptcy
Court in the Case, or distributed by or on behalf of the Borrower to
any official committee appointed in the Case.
SECTION 5.2. Corporate Existence. Do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its corporate
existence, material rights, licenses, permits and franchises and comply in all
material respects with all laws and regulations applicable to it.
SECTION 5.3. Insurance. (a) Keep its material properties insured
at all times with financially sound and reputable insurance companies, against
such risks as is customary with companies of the same or similar size in the
same or similar businesses; provided, that such insurance shall (i) insure the
property of the Borrower (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 Agent, but in
no event in an amount less than the replacement cost value thereof, and (ii)
insure the Borrower, the Agent and the Lenders 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 property and operations, such
policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Agent. All such insurance shall, within twenty
days after the Closing Date (i) contain a breach of warranty clause in favor of
the Agent and the Lenders 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
<PAGE> 49
Agent thereof, (iii) name the Agent as loss payee for physical damage insurance
with respect to property as to which a Lien has been granted, with the right to
adjust the same (provided, that 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 name the Agent and the Lenders as additional insureds for liability
insurance, with the Agent having the right to adjust the same, (iv) state that
neither the Agent nor the Lenders shall be responsible for premiums,
commissions, club calls, assessments or advances, (v) contain a waiver of all
rights of set-off, counterclaim, deduction or subrogation against the Agent and
the Lenders and (vi) be reasonably satisfactory in all other respects (including
deductibles) to the Agent with respect to physical damage exposures.
(b) The Borrower will furnish to the Agent, on or prior to the date
which is twenty days after the Closing Date, a schedule, a copy of which is
annexed as Schedule 5.3, describing all insurance maintained by the Borrower,
which schedule shall set forth, for each insurance policy, the policy number,
the scope of coverage, the policy limits and deductibles, the insurer (and
reinsurers, if applicable) and the expiration date.
(c) The Borrower will furnish to the Agent, original certificates of
insurance complying with the requirements of this Section set forth above and
containing signatures of duly authorized representatives of the insurer, on or
prior to the date which is twenty days after the Closing Date and at all times
prior to policy termination, cessation or cancellation.
(d) The Borrower shall maintain such other insurance or self insurance
as may be required by law.
SECTION 5.4. Obligations and Taxes. Pay all its material obligations
arising after the Filing Date promptly and in accordance with their terms and
pay and discharge promptly all material taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or in respect of
its property arising after the Filing Date, before the same shall become in
default, as well as all material lawful claims for labor, materials and supplies
or otherwise arising after the Filing Date which, if unpaid, might become a Lien
or charge upon such properties or any part thereof; provided, that the Borrower
shall not be required to pay and discharge or to cause to be paid and discharged
any such tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings (if
the Borrower shall have set aside on its books adequate reserves therefor).
SECTION 5.5. Notice of Event of Default, etc. Promptly give to the
Agent notice in writing of any Event of Default or the occurrence of any event
or circumstance which with the passage of time or giving of notice or both would
constitute an Event of Default.
SECTION 5.6. Access to Books and Records. Maintain or cause to be
maintained at all times true and complete books and records of the financial
operations of the Borrower; and provide
<PAGE>50
the Agent and its representatives access to all such books and records during
regular business hours, in order that the Agent may examine and make abstracts
from such books, accounts, records and other papers for the purpose of verifying
the accuracy of the various reports delivered by the Borrower to the Agent, the
Fronting Banks or the Lenders pursuant to this Agreement or for otherwise
ascertaining compliance with this Agreement; and at any reasonable time and from
time to time during regular business hours, upon reasonable notice, permit the
Agent and any agents or representatives (including, without limitation,
appraisers) thereof to visit the properties of the Borrower and to conduct
examinations of and to monitor the Collateral held by the Agent and the Fronting
Banks.
SECTION 5.7. Business Plan. As soon as practicable, furnish to the
Lenders and the Fronting Banks all material modifications to the Business Plan,
and make its senior officers available to discuss the same with the Agent and
its advisors upon the Agent's reasonable request.
SECTION 5.8. Maintenance of Concentration and Other Accounts. Continue
to maintain (a) all of its significant operating accounts and demand deposit
accounts used for paying and receiving purposes in the ordinary course of
business and (b) its concentration accounts with the financial institutions
where such accounts are presently located (or at such other financial
institutions acceptable to the Agent).
SECTION 5.9. Customer Charge Sales. Continue to maintain a
"Project Card" and commercial credit receivables sales and administration
program with the Credit Card Banks 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,
in each case on terms and conditions which are, in the aggregate, not materially
less favorable to the Borrower nor materially more restrictive than those
provided for in the GE Credit Program Documents as in effect on the Closing Date
(except for changes in such terms and conditions which are acceptable to the
Agent and the Required Lenders in their judgment reasonably exercised).
SECTION 5.10 Lender Meetings. From time to time as requested by the
Agent or the Required Lenders, participate, and cause the chief financial
officer to be available for and to participate in, a meeting of the Agent and
the Lenders to be held, at reasonable intervals, at locations and at times
requested by the Agent and the Required Lenders and reasonably satisfactory to
the Borrower.
SECTION 5.11. After-Acquired Properties. If the Borrower acquires any
interest in any real property including without limitation a leasehold interest
(each such property or interest, an "After-Acquired Property"), promptly, but in
any event within 30 days, provide written notice thereof to the Agent, setting
forth with specificity a description of such property or interest acquired, the
location of the interest, any structures or improvements thereon and an
appraisal or its good faith
<PAGE> 51
estimate of the current fair market value of such property or interest. The
Agent shall provide notice to the Borrower of whether it intends to direct the
Borrower (and, if requested by the Majority Lenders, the Agent shall direct the
Borrower) to grant and record a mortgage or deed of trust on such After-Acquired
Property. In such event, the Borrower shall promptly execute and deliver to the
Agent a mortgage or deed of trust substantially in the form of Exhibits G-1 and
G-2 to the Existing Credit Agreement, respectively (with such changes as may be
deemed appropriate by the Agent's local real estate counsel for the state in
question), together with such other documents or instruments as the Agent shall
reasonably require, including (without limitation) a Title Policy, a Survey, a
Phase I environmental report and an opinion of the Agent's local real estate
counsel. The Borrower shall pay all reasonable fees and expenses, including
attorneys' fees and expenses or the allocated charges and premiums, in
connection with its obligation under this Section. If at any time after the date
hereof, any existing Lien or sale-leaseback arrangement which prevents the
further mortgaging of any real property of the Borrower, shall for any reason no
longer prevent such further mortgaging, then such property shall also be deemed
an After-Acquired Property for purposes of this Section.
SECTION 6. NEGATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in
effect or any Letter of Credit shall remain outstanding (in a face amount in
excess of the amount of cash then held in the relevant Letter of Credit Account,
or the face amount of the relevant back-to-back letters of credit delivered, in
each case pursuant to Section 2.2(c)) or any amount shall remain outstanding
under any Note or unpaid under this Agreement, unless the Required Lenders shall
otherwise consent in writing, the Borrower will not (and will not apply to the
Bankruptcy Court for authority to):
SECTION 6.1. Liens. Incur, create, assume or suffer to exist any
Lien on any asset now owned or hereafter acquired by the Borrower, other than
(i) Liens which were existing on the Filing Date as reflected on Schedule 3.6
hereto and other Liens incurred in accordance with the Existing Credit Agreement
which are to be set forth on Schedule 3.6 within 20 days, Liens of the same type
as (and no more extensive than) those granted pursuant to the GE Credit Program
Documents in favor of another Person replacing the Credit Card Banks in
providing the Borrower's "Project Card" and commercial credit receivables sales
and administration program in accordance with Section 5.9 and Liens granted
pursuant to the Existing Agreements; (ii) Liens in favor of the Existing Lenders
granted as adequate protection pursuant to the Orders or the Cash Collateral
Order, which Liens are junior to the Liens contemplated hereby in favor of the
Agent and the Lenders; provided, that the Interim Order and the Final Order
provide that the holder of such junior Liens shall not be permitted to take any
action to foreclose with respect to, or otherwise realize upon, such junior
Liens so long as any amounts shall remain outstanding hereunder or under the
Notes or any Commitment shall be in effect; (iii) Permitted Liens; and (iv)
Liens in favor of the Agent and the Lenders and the Fronting Banks.
SECTION 6.2. Merger, etc. Consolidate or merge with or into another
Person.
<PAGE> 52
SECTION 6.3. Capital Expenditures. Contract, create, incur, assume
or suffer to exist any Debt, except for (i) Debt under this Agreement, (ii) Debt
incurred prior to the Filing Date (including Debt outstanding under Capitalized
Leases as in effect on the Filing Date), (iii) Debt incurred subsequent to the
Filing Date- secured by purchase money Liens (exclusive of Debt outstanding
under Capitalized Leases) in an aggregate amount not to exceed $5,000,000, (iv)
Debt outstanding under Capitalized Leases entered into after the Filing Date to
the extent permitted by Section 6.4, (v) Debt arising from Investments that are
permitted hereunder, and (vi) Debt incurred under the GE Credit Program
Documents and any other agreements permitted under Section 5.9.
SECTION 6.4 Capital Expenditures. Directly or indirectly, make an
expenditures or incur any obligations 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 6.1 (iii), but only to the extent
covered by clause (v) of the definition of Permitted Liens and (y) goodwill
associated with any permitted capital expenditure that would otherwise
constitute an Investment, and the Borrower will not incur any obligations in
respect of capital leases, in excess in the aggregate for the Borrower and its
Subsidiary for all such expenditures and obligations, during the fiscal year
ending November 1997 of $69,000,000 or of the following amounts during each of
the fiscal quarters set forth below:
Fiscal Quarter Ending Total Amount
--------------------- -------------
February 1998 $21,000,000
May 1998 $17,000,000
provided, that if the aggregate amount of all Dual Path Capital Expenditures or
all other capital expenditures during any fiscal period of the Borrower set
forth above (after the application of all Dual Path Capital Expenditures or
other capital expenditures, respectively, during such fiscal period, first to
amounts available for such purposes for such fiscal period pursuant to the
operation of this proviso) shall be less than the respective amounts set forth
in the table below for such fiscal period, then the amount of the capital
expenditures for the immediately succeeding fiscal period shall be increased by
an amount equal to the unutilized portion of Dual Path Capital Expenditures for
such prior fiscal period and, in the case of all other capital expenditures, by
an amount equal to the lesser of (x) an amount equal to such unutilized portion
and (y) 50% of the amount of capital expenditures for such prior fiscal period.
<PAGE> 53
Dual Path
Capital
Period Expenditures Other
--------------------- ------------ -----------
Fiscal Year ending
November 1997 $36,800,000 $32,200,000
Fiscal Quarter ending
February 1998 $15,800,000 $ 5,200,000
Fiscal Quarter ending
May 1998 $ 9,700,000 $ 7,300,000
In the event that the Borrower shall sell (or has sold), or shall
receive (or has received) 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 24 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 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.
Notwithstanding anything to the contrary contained in this Section,
there shall be excluded from the determination of the amount of capital
expenditures made in any fiscal period, capital expenditures made during any
such fiscal period to the extent of an amount equal to the net cash proceeds
received during such fiscal period from any Permitted Pad Sales of real property
acquired by the Borrower. For purposes of this Section, (i) all obligations
incurred under a Capitalized Lease shall be deemed(a) to have been incurred on
the date of execution of such lease and (ii) the amount of obligations incurred
with respect to a Capitalized Lease on such date of execution of the lease shall
be the capitalized amount thereof determined in accordance with GAAP.
SECTION 6.5. EBITDA. Permit cumulative EBITDA for each period
commencing on June 1, 1997 and ending on the quarterly dates listed below to be
less than the amount specified opposite such period:
<PAGE>54
Fiscal Quarter Ending EBITDA
--------------------- -----------
August 1997 $15,700,000
November 1997 $25,300,000
February 1998 $27,900,000
May 1998 $47,400,000
SECTION 6.6. Chapter 11 Claims. Incur, create, assume, suffer to
exist or permit any other Super-Priority Claim which is pari passu with or
senior to the claims of the Agent and the Lenders and the Fronting Banks
hereunder, except for the Carve-Out.
SECTION 6.7. Dividends; Capital Stock. Declare or pay, directly or
indirectly, any dividends or make any other distribution or payment, whether in
cash, property, securities or a combination thereof, with respect to (whether by
reduction of capital or otherwise) any shares of capital stock (or any options,
warrants, rights or other equity securities or agreements relating to any
capital stock), or set apart any sum for the aforesaid purposes.
SECTION 6.8. Transactions with Affiliates. Sell or transfer any
property or assets to, or otherwise engage in any other transactions with, any
of its Affiliates other than in the ordinary course of business at prices and on
terms and conditions not less favorable to the Borrower than could be obtained
on an arm's-length basis from unrelated third parties.
SECTION 6.9. Investments, Loans and Advances. Purchase, hold or
acquire any capital stock, evidences of Debt or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment in, any other Person by the Borrower or Lumberjack (all of the
foregoing, "Investments"), except, in the case of the Borrower, for (i) the
ownership by the Borrower of Lumberjack as in effect on the Filing Date, (ii)
Temporary Cash Investments, and (iii) existing Investments set forth on Schedule
6.9.
SECTION 6.10. Disposition of Assets. Sell or otherwise dispose of
any assets (including, without limitation, the capital stock of Lumberjack),
except for (i) sales of inventory, fixtures and equipment in the ordinary course
of business for fair value and sales of customer receivables pursuant to the GE
Credit Program Documents or any similar program entered into in accordance with
Section 5.9, (ii) sales of closed stores, sales of inventory located at such
closed stores and sales or other dispositions of assets related thereto,
including (without limitation) sales listed on Schedule 6.10 and Permitted Pad
Sales, in each case to the extent such sales or dispositions are for fair value
for cash and the Net Cash Proceeds thereof are applied to the repayment of the
Debt secured thereby, and (iii) sales or other dispositions of assets having a
fair market value not exceeding $2,000,000 in the aggregate.
<PAGE> 55
SECTION 6.11. Nature of Business. Modify or alter in any material
manner the nature and type of its business as conducted at or prior to the
Filing Date or the manner in which such business is conducted (except as
required by the Bankruptcy Code).
SECTION 6.12. Accounting Changes. Make any significant change in its
accounting treatment or financial reporting practices except as required by GAAP
or change its fiscal year or the method of determining its fiscal quarter ends.
SECTION 6.13. Sale/Lease-Backs. Enter into any arrangements, directly
or indirectly, with any Person, whereby the Borrower 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.
SECTION 6.14. Environmental Matters. (a) 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 the Borrower has any
control (such as a lease of a small number of parking places in a large parking
lot)) by the Borrower (all such owned or leased real property, being hereinafter
called the "Property"), or transport to or from the Property, any Hazardous
Substance, or (to the extent within the Borrower's control) permit any other
Person to do so, where such could reasonably be expected to have a material
adverse effect on the business, operations, condition (financial or otherwise),
assets or prospects of the Borrower.
(b) The Borrower shall 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 on the
business, operations, condition (financial or otherwise), assets or prospects of
the Borrower.
(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 any portion of the Property is
required to be performed by the Borrower under any applicable local, state or
federal law or regulation, any judicial order, or by any Governmental Authority
or any other Person 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 on the business, operations,
condition (financial or otherwise), assets or prospects of the Borrower, the
Borrower (i) shall promptly notify the Agent in writing, (ii) shall, as soon as
practicable, commence and thereafter diligently prosecute to completion, all
such Remedial Work and (iii) shall provide the Agent with the results of such
investigations, studies and samplings as may be requested by the Agent.
<PAGE> 56
(d) The Borrower will defend, indemnify and hold harmless the
Agent, and the Lenders, 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 Environmental Law
applicable to the operations of the Borrower or the Property, or any orders,
requirements or demands of Governmental Authorities or any other Person 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 solely out of the
gross negligence or willful misconduct of the party seeking indemnification
therefor, as determined by a final order or judgment of a court of competent
jurisdiction. This indemnity shall continue in full force and effect regardless
of the termination of this Agreement and the payment and performance of the
Obligations.
(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, safety, industrial hygiene, or environmental conditions,
including, without limitation, regulations promulgated under the Resource
Conservation and Recovery Act (42 U.S.C. ss.ss. 6901 et seq.) 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.9601 et seq., the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. ss.6901 et seq. and the
Hazardous Materials Transportation Act, 49 U.S.C. ss.1801 et seq., the Toxic
Substance Control Act, 15 U.S.C. ss.2601 et seq., the Clean Water Act, 33 U.S.C.
ss.1251 et seq., and the Clean Air Act, 42 U.S.C. ss.7401 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.
(f) In the event the Agent determines that any representation
hereunder may be incorrect or that the Borrower has failed to comply with any
covenant under this Section in any material respect, the Borrower upon request
shall undertake such investigations, studies, samplings and testings relative to
Hazardous Substance at the property in question as the Agent may request.
SECTION 7. EVENTS OF DEFAULT
SECTION 7.1. Events of Default. In the case of the happening of any
of the following events and the continuance thereof beyond the applicable period
of grace if any (each, an "Event of Default"):
(a) any material representation or warranty made by the
Borrower in this Agreement or in any other Loan Document or in connection with
this Agreement or with the execution and delivery of the Notes or any of the
other Loan Documents or the credit extensions hereunder or
<PAGE> 57
any material statement or representation made in any report, financial
statement, certificate or other document furnished by the Borrower to the Agent,
the Lenders or the Fronting Banks under or in connection with this Agreement or
any of the other Loan Documents, shall prove to have been false or misleading in
any material respect when made or delivered; or
(b) default shall be made in the payment of any principal of
or interest on the Loans or any other amounts payable by the Borrower hereunder
(including, without limitation, any Fees or reimbursement or cash
collateralization obligations in respect of Letters of Credit), when and as the
same shall become due and payable, whether at the due date thereof (including,
without limitation, the Prepayment Date) or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise; or
(c) default shall be made by the Borrower in the due
observance or performance of any covenant, condition or agreement contained in
Section 6 (and such default shall continue unremedied (x) after notice to the
Borrower in the case of Section 6.10 and (y) for more than five (5) days after
notice to the Borrower in the case of Sections 5.11, 6.13 and 6.14); or
(d) default shall be made by the Borrower in the due
observance or performance of any other covenant, condition or agreement to be
observed or performed pursuant to the terms of this Agreement or any of the
other Loan Documents and such default shall continue unremedied for more than
ten (10) days (or such default shall continue unremedied for more than thirty
(30) days in the case of Sections 5.2 and 5.4) or
(e) the Case shall be dismissed or converted to a case under
Chapter 7 of the Bankruptcy Code, a trustee under Chapter 7 or Chapter 11 of the
Bankruptcy Code shall be appointed in the Case and the order appointing such
trustee shall not be reversed or vacated within 30 days after the entry thereof;
or an application shall be filed by the Borrower for the approval of any other
Super-Priority Claim (other than the Carve-Out) in the Case which is pari passu
with or senior to the claims of the Agent, the Fronting Banks and the Lenders
against the Borrower hereunder, or there shall arise or be granted any such pari
passu or senior Super-Priority Claim; or
(f) the Bankruptcy Court shall enter an order or orders
granting relief from the automatic stay applicable under Section 362 of the
Bankruptcy Code to the holder or holders of any security interest to permit
foreclosure (or the granting of a deed in lieu of foreclosure or the like) on
any assets of the Borrower which have a value in excess of $500,000 in the
aggregate; or
(g) a Change of Control shall have occurred; or
(h) any material provision of any Loan Document shall, for any
reason, cease to be valid and binding on the Borrower, or the Borrower shall so
assert in any pleading filed in any court; or
<PAGE> 58
(i) an order of the Bankruptcy Court shall be entered in the
Case appointing an examiner with enlarged powers relating to the operation of
the business of the Borrower (i.e., powers beyond those set forth in Section
1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of the
Bankruptcy Code and such order shall not be reversed or vacated within 30 days
after the entry thereof; or
(j) an order of the Bankruptcy Court shall be entered (i)
reversing, amending, supplementing, staying for a period in excess of 10 days,
vacating or otherwise modifying either of the Orders (without the prior written
consent of the Agent and the Required Lenders) or (ii) terminating the use of
cash collateral by the Borrower pursuant to the Cash Collateral Order; or
(k) any judgment or order as to a post-petition liability or
Debt for the payment of money in excess of $1,000,000 shall be rendered against
the Borrower and the enforcement thereof shall not be subject to the automatic
stay or any other applicable stay; or
(l) any non-monetary judgment or order with respect to a
post-petition event shall be rendered against the Borrower which does or would
reasonably be expected to (i) cause a material adverse change in the financial
condition, business, prospects, operations or assets of the Borrower, (ii) have
a material adverse effect on the ability of the Borrower to perform its
obligations under any Loan Document, or (iii) have a material adverse effect on
the rights and remedies of the Agent, the Fronting Banks or any Lender under any
Loan Document, and there shall be any period of 10 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect; or
(m) the Borrower shall make any Pre-Petition Payments other
than as permitted under the Orders or the Cash Collateral Order to the extent
authorized by the Bankruptcy Court; or
(n) any Termination Event described in clauses (iii) or (iv)
of the definition of such term shall have occurred and shall continue unremedied
for more than 10 days and the sum (determined as of the date of occurrence of
such Termination Event) of the Insufficiency of the Plan in respect of which
such Termination Event shall have occurred and be continuing and the
Insufficiency of any and all other Plans with respect to which such a
Termination Event (described in such clauses (iii) or (iv)) shall have occurred
and then exist is equal to or greater than $3,000,000; or
(o) (i) the Borrower or any ERISA Affiliate thereof shall have
been notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or such ERISA
Affiliate does not have reasonable grounds to contest such Withdrawal Liability
and is not in fact contesting such Withdrawal Liability in a timely and
appropriate manner, and (iii) the amount of such Withdrawal Liability specified
in such notice, when
<PAGE> 59
aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liabilities (determined as of
the date of such notification), exceeds $5,000,000 or requires payments
exceeding $500,000 per annum in excess of the annual payments made with respect
to such MultiEmployer Plans by the Borrower or such ERISA Affiliate for the plan
year immediately preceding the plan year in which such notification is received;
or
(p) the Borrower or any ERISA Affiliate thereof 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 and its ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or being terminated have
been or will be increased over the amounts contributed to such Multiemployer
Plans for the plan years that include the date hereof by an amount exceeding
$2,000,000; or
(q) the Borrower or any ERISA Affiliate shall have committed a
failure described in Section 302(f)(1) of ERISA (other than the failure to make
any contribution accrued and unpaid as of the Filing Date) and the amount
determined under Section 302(f)(3) of ERISA is equal to or greater than
$2,000,000; or
(r) it shall be determined (whether by the Bankruptcy Court or
by any other judicial or administrative forum) that the Borrower is liable for
the payment of claims arising out of any failure to comply (or to have complied)
with applicable environmental laws or regulations, the payment of which will
have a material adverse effect on the financial condition, business, properties,
operations or assets of the Borrower;
then, and in every such event and at any time thereafter during the continuance
of such event, and without further order of or application to the Bankruptcy
Court, the Agent may, and at the request of the Required Lenders shall, by
notice to the Borrower (with a copy to counsel for the Official Creditors'
Committee appointed in the Case and to the United States Trustee for the Western
District of Missouri), take one or more of the following actions, at the same or
different times (provided, that with respect to clause (iv) below and the
enforcement of Liens or other remedies with respect to the Collateral under
clause (v) below, the Agent shall provide the Borrower (with a copy to counsel
for the Official Creditors' Committee appointed in the Case and to the United
States Trustee for the Western District of Missouri) with five (5) Business
Days' written notice prior to taking the action contemplated thereby and
provided, further, that upon receipt of notice referred to in the immediately
preceding clause with respect to the accounts referred to in clause (iv) below,
the Borrower may continue to make ordinary course disbursements from such
accounts (other than the Letter of Credit Accounts) but may not withdraw or
disburse any other amounts from such accounts): (i) terminate forthwith the
Total Commitment; (ii) declare the Loans then outstanding to be forthwith due
and payable, whereupon the principal of the Loans, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrower accrued hereunder and under any other Loan
<PAGE> 60
Document, shall become forthwith due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Borrower, anything contained herein or in any other Loan Document
to the contrary notwithstanding; (iii) require the Borrower upon demand to
forthwith deposit in the respective Letter of Credit Accounts cash in the
respective amounts equal to the sum of 105% of the then outstanding Standby and
Documentary Letters of Credit and, to the extent the Borrower shall fail to
furnish such funds as demanded by the Agent, the Agent shall be authorized to
debit or cause to be debited the account of the Borrower maintained with the
Agent, any Fronting Bank or any Lender in such amount; (iv) set-off or request
to be set-off amounts in the Letter of Credit Accounts or any other accounts
maintained with the Agent, any Fronting Bank or any Lender and apply or cause
such amounts to be applied to the obligations of the Borrower hereunder and
under the other Loan Documents; and (v) exercise any and all remedies under the
Loan Documents and under applicable law available to the Agent, the Fronting
Banks and the Lenders. In the case of any exercise of the right of set-off with
respect to Letter of Credit Accounts, such right may be exercised only to pay
unreimbursed draws under, and unpaid fees, costs and expenses incurred in
connection with, any Letters of Credit issued by the Fronting Bank in the name
of which Fronting Bank such Letter of Credit Account is maintained, except to
the extent that the balance of a Letter of Credit Account exceeds 105% of the
Letter of Credit Outstanding that pertain to such Letter of Credit Account. Any
such excess amount may be applied to other Obligations.
SECTION 8. THE AGENT
SECTION 8.1. Administration by Agent. The general administration
of the Loan Documents shall be by the Agent. Each Lender hereby irrevocably
authorizes the Agent, at its discretion, to take or refrain from taking such
actions as agent on its behalf and to exercise or refrain from exercising such
powers under this Agreement, the Notes and the other Loan Documents as are
delegated by the terms hereof or thereof, as appropriate, together with all
powers reasonably incidental thereto (including the release of Collateral in
connection with any transaction that is expressly permitted by the Loan
Documents). The Agent shall have no duties or responsibilities except as set
forth in this Agreement and the remaining Loan Documents.
SECTION 8.2. Advances and Payments.
(a) On the date of each Loan, the Agent shall be authorized
(but not obligated, except pursuant to Section 2.2(g)) to advance, for the
account of each of the Lenders, the amount of the Loan to be made by it in
accordance with its Commitment hereunder. Should the Agent do so, each of the
Lenders agrees forthwith to reimburse the Agent in immediately available funds
for the amount so advanced on its behalf by the Agent, together with interest at
the Federal Funds Rate if not so reimbursed on the date due from and including
such date but not including the date of reimbursement.
<PAGE> 61
(b) Any amounts received by the Agent in connection with this
Agreement or the Notes (other than amounts to which the Agent is entitled
pursuant to Sections 2.18, 8.6, 9.5 and 9.6), the application of which is not
otherwise provided for in this Agreement shall be applied, first, in accordance
with each Lender's Commitment Percentage to pay accrued but unpaid Commitment
Fees or Letter of Credit Fees, and second, in accordance with each Lender's
Commitment Percentage to pay accrued but unpaid interest on, and the principal
balance outstanding of, each Note and all unreimbursed Letter of Credit
drawings. All amounts to be paid to a Lender by the Agent shall be credited to
that Lender, after collection by the Agent, in immediately available funds
either by wire transfer or deposit in that Lender's correspondent account with
the Agent, as such Lender and the Agent shall from time to time agree.
SECTION 8.3. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower, including, but not limited to, a secured claim under Section 506
of the Bankruptcy Code or other security or interest arising from, or in lieu
of, such secured claim and received by such Lender under any applicable
bankruptcy, insolvency or other similar law, or otherwise, obtain payment in
respect of its Obligations as a result of which the unpaid portion of the
principal amount of its Obligations is proportionately less than the unpaid
portion of the principal amount of the Obligations of any other Lender: (a) it
shall promptly purchase, at par (and shall be deemed to have thereupon
purchased), from such other Lender, a participation in the Obligations of such
other Lender, so that the aggregate unpaid principal amount of each Lender's
Obligations and its participation in Obligations of the other Lenders shall be
in the same proportion to the aggregate unpaid principal amount of all
Obligations then outstanding as the principal amount of its Obligations prior to
the obtaining of such payment was to the principal amount of all Obligations
outstanding prior to the obtaining of such payment and (b) such other
adjustments shall be made from time to time as shall be equitable to ensure that
the Lenders share such payment pro rata; provided, that if any such non-pro rata
payment is thereafter recovered or otherwise set aside such purchase of
participations shall be rescinded (without interest) and provided further that
all references to "Obligations" in this Section shall mean all Obligations other
than pursuant to Sections 2.14, 2.18, 8.6, 9.5 and 9.6 and any incremental
Obligations arising pursuant to Section 2.15. The Borrower expressly consents to
the foregoing arrangements and agrees that any Lender holding (or deemed to be
holding) a participation in the unpaid principal amount of an Obligation may
exercise any and all rights of banker's lien, setoff (subject, in each case, to
the same notice requirements as pertain to clause (iv) of the remedial
provisions of Section 7.1) or counterclaim with respect to any and all moneys
owing by the Borrower to such Lender, as fully as if such Lender held a Note and
was the original obligee thereon, in the amount of such participation.
SECTION 8.4. Agreement of Required Lenders. Upon any occasion
requiring or permitting an approval, consent, waiver, election or other action
on the part of the Required Lenders, action shall be taken by the Agent for and
on behalf or for the benefit of all Lenders upon the direction of the Required
Lenders, and any such action shall be binding on all Lenders.
<PAGE> 62
SECTION 8.5. Liability of Agent.
(a) The Agent, when acting on behalf of the Lenders, may
execute any of its respective duties under this Agreement by or through any of
its respective officers, agents, and employees, and neither the Agent nor its
directors, officers, agents, employees or Affiliates shall be liable to the
Lenders or any of them for any action taken or omitted to be taken in good
faith, or be responsible to the Lenders or to any of them for the consequences
of any oversight or error of judgment, or for any loss, unless the same shall
happen through its gross negligence or willful misconduct. The Agent and its
respective directors, officers, agents, employees and Affiliates shall in no
event be liable to the Lenders or to any of them for any action taken or omitted
to be taken by them pursuant to instructions received by them from the Required
Lenders or in reliance upon the advice of counsel selected by it. Without
limiting the foregoing, neither the Agent, nor any of its respective directors,
officers, employees, agents or Affiliates shall be responsible to any Lender for
the due execution, validity, genuineness, effectiveness, sufficiency, or
enforceability of, or for any statement, warranty, or representation in, this
Agreement, any other Loan Document or any related agreement, document or order,
or shall be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrower of any of the terms, conditions,
covenants, or agreements of this Agreement or any of the Loan Documents.
(b) Neither the Agent nor any of its respective directors,
officers, employees, agents or Affiliates shall have any responsibility to the
Borrower on account of the failure or delay in performance or breach by any
Lender or by the Borrower of any of its Obligations under this Agreement or the
Notes or any of the other Loan Documents or in connection herewith or therewith.
(c) The Agent, in its capacity as Agent hereunder, shall be
entitled to rely on any communication, instrument, or document reasonably
believed by the Agent to be genuine or correct and to have been signed or sent
by a person or persons believed by the Agent to be the proper person or persons,
and the Agent shall be entitled to rely on advice of legal counsel, independent
public accountants, and other professional advisers and experts selected by the
Agent.
SECTION 8.6. Reimbursement and Indemnification. Each Lender agrees
(i) to reimburse (x) the Agent and the Fronting Banks for such Lender's
Commitment Percentage of any expenses and fees incurred by the Agent or the
Fronting Banks (as the case may be) for the benefit of the Lenders under or in
connection with this Agreement, the Notes and any of the Loan Documents
including, without limitation, counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, and any other
expense incurred in connection with the operations or enforcement hereof or
thereof not reimbursed by the Borrower and (y) the Agent and the Fronting Banks
for such Lender's Commitment Percentage of any expenses of the Agent or the
Fronting Banks (as the case may be) incurred for the benefit of the Lenders that
the Borrower has agreed to reimburse pursuant to Section 9.5 and has failed so
to reimburse and (ii) to indemnify and hold harmless the Agent and the Fronting
Banks and any of their respective directors, officers,
<PAGE> 63
employees, agents or Affiliates, on demand, in the amount of its Commitment
Percentage, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against any of them in any way relating to or arising out of this
Agreement, the Notes or any of the other Loan Documents or any action taken or
omitted by it or any of them under this Agreement, the Notes or any of the other
Loan Documents to the extent not reimbursed by the Borrower (except such as
shall result from their respective gross negligence or willful misconduct).
SECTION 8.7. Rights of Agent. It is understood and agreed that CIBC
shall have the same rights and powers hereunder (including the right to give
such instructions) as the other Lenders and may exercise such rights and powers,
as well as its rights and powers under other agreements and instruments to which
it is or may be party, and engage in other transactions with the Borrower, as
though it were not the Agent of the Lenders under this Agreement.
SECTION 8.8. Independent Lenders. Each Lender acknowledges that it
has decided to enter into this Agreement and to make the Loans hereunder based
on its own analysis of the transactions contemplated hereby and of the
creditworthiness of the Borrower and agrees that the Agent shall bear no
responsibility therefor.
SECTION 8.9. Notice of Transfer. The Agent may deem and treat a Lender
party to this Agreement as the owner of such Lender's portion of the Loans for
all purposes, unless and until a written notice of the assignment or transfer
thereof executed by such Lender in accordance with Section 9.3 shall have been
received by the Agent.
SECTION 8.10. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Agent, which shall be reasonably satisfactory to the Borrower. If no successor
Agent shall have been so appointed by the Required Lenders and shall have
accepted such appointment, within 30 days after the retiring Agent's giving of
notice of resignation, the retiring Agent may, on behalf of the Lenders, appoint
a successor Agent, which shall be 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 a least $100,000,000, which shall be reasonably
satisfactory to the Borrower. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement, except that CIBC shall remain obligated to
First Bank in its capacity as Documentary Letter of Credit Bank with respect to
Documentary Letters of Credit issued during the period that CIBC was the Agent.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 8 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement.
<PAGE> 64
SECTION 9. MISCELLANEOUS
SECTION 9.1. Notices. Notices and other communications provided for
herein shall be in writing (including telegraphic, telex, facsimile or cable
communication) and shall be mailed, telegraphed, telexed, transmitted, cabled or
delivered to the Borrower at 2300 Main Street, 2 Pershing Square, 3rd Floor,
Kansas City, MO 64108, Attention: Chief Financial Officer, to First Bank, so
long as it shall be the Documentary Letter of Credit Bank, at 601 2nd Avenue
South, Minneapolis, Minnesota 55402, Attention: Jack Quitmeyer (Fax No.
612-973-2148) and Barbara Engen, Letter of Credit Department (Fax No.
612-973-0838), and to any Lender, any other Fronting Bank or the Agent, at its
address set forth on the signature pages of this Agreement, or such other
address as such party may from time to time designate by giving written notice
to the other parties hereunder. All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the fifth Business Day after the date when sent by
registered or certified mail, postage prepaid, return receipt requested, if by
mail; or when delivered to the telegraph company, charges prepaid, if by
telegram; or when receipt is acknowledged, if by any telegraphic communications
or facsimile equipment of the sender; in each case addressed to such party as
provided in this Section 9.1 or in accordance with the latest unrevoked written
direction from such party; provided, that in the case of notices to the Agent,
notices pursuant to the preceding sentence and pursuant to Section 2 shall be
effective only when received by the Agent.
SECTION 9.2. Survival of Agreement, Representations and Warranties,etc.
All warranties, representations and covenants made by the Borrower herein or in
any certificate or other instrument delivered by it or on its behalf in
connection with this Agreement shall be considered to have been relied upon by
the Lenders and the Fronting Banks and shall survive the making of the Loans
herein contemplated and the issuance and delivery to the Lenders of the Notes,
regardless of any investigation made by any Lender or Fronting Bank or on its
behalf and shall continue in full force and effect so long as any amount due or
to become due hereunder is outstanding and unpaid and so long as the Commitments
have not been terminated.
SECTION 9.3. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrower, the Agent, the Fronting Banks, the Lenders and the
Underwriters and their respective successors and assigns. The Borrower may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of all of the Lenders and, in the case of its rights and
obligations with respect to Letters of Credit, the relevant Fronting Bank. Each
Lender may sell participations to any Person in all or part of any Loan, or all
or part of its Note or Commitment, in which event, without limiting the
foregoing, the provisions of Sections 2.14 and 2.17 shall inure to the benefit
of each purchaser of a participation (provided that such participant shall look
solely to the seller of such participation for such benefits and the Borrower's
liability, if any, under Sections 2.14 and 2.17 shall not be increased as a
result of the sale of any such participation) and the pro rata
<PAGE> 65
treatment of payments, as described in Section 2.16, shall be determined as if
such Lender had not sold such participation. In the event any Lender shall sell
any participation, such Lender shall retain the sole right and responsibility to
enforce the obligations of the Borrower relating to the Loans including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement (provided that such Lender may grant its participant
the right to consent to such Lender's execution of amendments, modifications or
waivers which (i) reduce any Fees payable hereunder to the Lenders, (ii) reduce
the amount of any scheduled principal payment on any Loan or reduce the
principal amount of any Loan or the rate of interest payable hereunder or (iii)
extend the maturity of the Borrower's obligations hereunder). The sale of any
such participation shall not alter the rights and obligations of the Lender
selling such participation hereunder with respect to the Borrower.
(b) Each Lender may assign to one or more Lenders or Eligible
Assignees all or a portion of its interests, rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the same portion of the related Loans at the time owing to it and the related
Note held by it); provided, that (i) each such assignment shall be of the same
percentage of all of the assigning Lender's rights and obligations in respect of
(A) its Revolving Credit Commitment, its Standby L/C Commitment and its Loans
and (B) its commitment with respect to the Exit Facility (as defined in the
Commitment Letter), (ii) other than in the case of an assignment to a Person at
least 50% owned by the assignor Lender, or by a common parent of both, or to
another Lender, the Agent must give its respective prior written consent, which
consent will not be unreasonably withheld, (iii) the aggregate amount of the
Commitment and/or Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Agent) shall, unless otherwise agreed to in
writing by the Borrower and the Agent, in no event be less than $5,000,000 (or
$1,000,000 in the case of an assignment between Lenders) and (iv) the parties to
each such assignment shall execute and deliver to the Agent, for its acceptance
and recording in the Register (as defined below), an Assignment and Acceptance
with blanks appropriately completed, together with any Note subject to such
assignment and a processing and recordation fee of $3,500 (for which the
Borrower shall have no liability). The Agent shall advise the Fronting Banks
that it has received such Assignment and Acceptance and shall provide a copy
thereof to each of the Fronting Banks. Upon such execution, delivery, acceptance
and recording, from and after the effective date specified in each Assignment
and Acceptance, which effective date shall be within ten Business Days after the
execution thereof (unless otherwise agreed to in writing by the Agent), (A) the
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
and (B) the Lender thereunder shall, to the extent provided in such Assignment
and Acceptance, be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto).
<PAGE> 66
(c) By executing and delivering an Assignment and Acceptance,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or any of the other Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any of the other Loan Documents; (ii) such Lender assignor
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or the performance or observance by
the Borrower of any of its obligations under this Agreement or any of the other
Loan Documents or any other instrument or document furnished pursuant hereto;
(iii) such assignee confirms that it has received a copy of this Agreement and
the other Loan Documents, together with copies of the financial statements
referred to in Section 3.4 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Agent, such Lender assignor or any other Lender, 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 action
under this Agreement; (v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms thereto, together with such
powers as are reasonably incidental hereof; and (vi) such assignee agrees that
it will perform in accordance with their terms all obligations that by the terms
of this Agreement are required to be performed by it as a Lender.
(d) The Agent shall maintain at its office a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders and the Commitments of, and principal
amount of the Loans owing to, each Lender from time to time (the "Register").
The entries in the Register shall be conclusive, in the absence of manifest
error, and the Borrower, the Agent and the Lenders shall treat each Person the
name of which is recorded in the Register as a Lender hereunder for all purposes
of this Agreement. The Register shall be available for inspection by the
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and the assignee thereunder, together with any Note
subject to such assignment and the fee payable in respect thereto, the Agent
shall, if such Assignment and Acceptance has been completed with blanks
appropriately filled: (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt written
notice thereof to the Borrower (together with a copy thereof). Within five
Business Days after receipt of notice, the Borrower, at its own expense, shall
execute and deliver to the Agent, in exchange for the surrendered Note, a new
Note to the order of such assignee in an amount equal to the Commitment and/or
Loans
<PAGE> 67
assumed by it pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained Commitments and/or Loans hereunder, a new Note to the order
of the assigning Lender in an amount equal to the Commitment and/or Loans
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Note, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the surrendered Note. Thereafter, such
surrendered Note shall be marked canceled and returned to the Borrower.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.3, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided, that prior to any such disclosure,
each such assignee or participant or proposed assignee or participant shall
agree in writing to be bound by the provisions of Section 9.4.
(g) The Borrower hereby agrees, to the extent set forth in the
Commitment Letter, to actively assist and cooperate with the Agent and the
Underwriters in connection with their efforts to sell participations herein (as
described in Section 9.3(a)) and to assign to one or more Lenders or Eligible
Assignees a portion of its interests, rights and obligations under this
Agreement (as set forth in Section 9.3(b)).
SECTION 9.4. Confidentiality. Each Lender agrees to keep any
information delivered or made available by the Borrower to it confidential from
anyone other than persons employed or retained by such Lender who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided, that nothing herein shall prevent any Lender
from disclosing such information (i) to any other Lender, (ii) to any other
person if reasonably incidental to the administration of the Loans, (iii) upon
the order of any court or administrative agency, (iv) upon the request or demand
of any regulatory agency or authority, (v) which has been publicly disclosed
other than as a result of a disclosure by the Agent or any Lender which is not
permitted by this Agreement, (vi) in connection with any litigation to which the
Agent, any Lender, or their respective Affiliates may be a party to the extent
reasonably required, (vii) to the extent reasonably required in connection with
the exercise of any remedy hereunder, (viii) to such Lender's legal counsel and
independent auditors, and (ix) to any actual or proposed participant or assignee
of all or part of its rights hereunder subject to the proviso in Section 9.3(f).
SECTION 9.5. Expenses. Whether or not the transactions hereby
contemplated shall be consummated, the Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Agent (including, but not limited to, the
reasonable fees and disbursements of Zalkin, Rodin & Goodman LLP, special
counsel for the Agent ("ZR&G"), any other counsel that the Agent or the
Underwriters shall retain and any third-party consultants, accountants and
auditors advising the Agent, the Underwriters or ZR&G, including (without
limitation) Ernst & Young LLP, financial
<PAGE> 68
advisors to ZR&G) and the Fronting Banks (including, but not limited to, the
reasonable fees and disbursements of Dorsey & Whitney LLP, special counsel for
the Documentary Letter of Credit Fronting Bank) in connection with the
preparation, execution, delivery and administration of this Agreement, the Notes
and the other Loan Documents, the making of the Loans and the issuance of the
Letters of Credit, the perfection of the Liens contemplated hereby, the
syndication of the transactions contemplated hereby, the reasonable and
customary costs, fees and expenses of the Agent in connection with its monthly
and other periodic field audits, monitoring of assets and publicity expenses
and, following the occurrence of an Event of Default, all reasonable
out-of-pocket expenses incurred by the Lenders, the Fronting Banks and the Agent
in the enforcement or protection of the rights of any one or more of the
Lenders, the Fronting Banks or the Agent in connection with this Agreement, the
Notes or the other Loan Documents including, but not limited to, the reasonable
fees and disbursements of any counsel for the Lenders, the Fronting Banks or the
Agent. Such payments shall be made on the date of the Interim Order and
thereafter on demand upon delivery of a statement setting forth such costs and
expenses. Whether or not the transactions hereby contemplated shall be
consummated, the Borrower agrees to reimburse the Agent and the Underwriters for
the expenses set forth in the Commitment Letter, and the reimbursement
provisions thereof are hereby incorporated herein by reference. The obligations
of the Borrower under this Section shall survive the termination of this
Agreement and/or the payment of the Loans.
SECTION 9.6. Indemnity. The Borrower agrees to indemnify and hold
harmless the Agent, the Underwriters, the Fronting Banks and the Lenders and
their respective directors, officers, employees, agents and Affiliates (each, an
"Indemnified Party") from and against any and all expenses, losses, claims,
damages and liabilities incurred by such Indemnified Party arising out of claims
made by any Person in any way relating to the transactions contemplated hereby,
but excluding therefrom all expenses, losses, claims, damages, and liabilities
arising out of or resulting from the gross negligence or willful misconduct of
such Indemnified Party.
SECTION 9.7. CHOICE OF LAW. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED WHOLLY WITHIN SUCH STATE AND BY THE BANKRUPTCY CODE.
SECTION 9.8. No Waiver. No failure on the part of the Agent or
any of the Lenders to exercise, and no delay in exercising, any right, power or
remedy hereunder or under the Notes or any of the other Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.
<PAGE> 69
SECTION 9.9. Extension of Maturity. Should any payment of principal
of or interest on the Notes or any other amount due hereunder become due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day and, in the case of principal,
interest shall be payable thereon at the rate herein specified during such
extension.
SECTION 9.10. Amendments, etc.
(a) No modification, amendment or waiver of any provision of
this Agreement, the Notes or the Security and Pledge Agreement, and no consent
to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Required Lenders, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given; provided, that no such modification or amendment
shall without the written consent of all of the Lenders (i) increase the
Commitment of a Lender (it being understood that a waiver of an Event of Default
shall not constitute an increase in the Commitment of a Lender), (ii) reduce the
principal amount of any Loan or the rate of interest payable thereon, or extend
any date for the payment of interest hereunder or reduce any Fees payable
hereunder or extend the final maturity of the Borrower's obligations hereunder;
(iii) amend or modify any provision of this Agreement which provides for the
unanimous consent or approval of the Lenders, (iv) amend this Section 9.10 or
the definition of Required Lenders, (v) amend or modify the Super-Priority Claim
status of the Lenders contemplated by Section 2.22 or (vi) release all or any
substantial portion of the Liens granted to the Agent hereunder, under the
Orders or under any of the Loan Documents. No such amendment or modification may
adversely affect the rights and obligations of the Agent or any Fronting Bank
hereunder without its prior written consent. No notice to or demand on the
Borrower shall entitle the Borrower to any other or further notice or demand in
the same, similar or other circumstances. Each holder of a Note shall be bound
by any amendment, modification, waiver or consent authorized as provided herein,
whether or not a Note shall have been marked to indicate such amendment,
modification, waiver or consent and any consent by a Lender, or any holder of a
Note, shall bind any Person subsequently acquiring a Note, whether or not a Note
is so marked. No amendment to this Agreement shall be effective against the
Borrower unless signed by the Borrower.
(b) Notwithstanding anything to the contrary contained in
Section 9.10(a), in the event that the Borrower requests that this Agreement or
any of the other Loan Documents be modified or amended in a manner which would
require the unanimous consent of all of the Lenders and such modification or
amendment is agreed to by the Super-Majority Lenders (as hereinafter defined),
then with the consent of the Borrower and the Super-Majority Lenders, the
Borrower and the Super-Majority Lenders shall be permitted to amend the
Agreement without the consent of the Lender or Lenders which did not agree to
the modification or amendment requested by the Borrower (such Lender or Lenders,
collectively the "Minority Lenders") to provide for (w) the termination of the
Commitment of each of the Minority Lenders, (x) the addition to this Agreement
of one or more other financial institutions (each of which shall be an Eligible
Assignee), or an increase in the
<PAGE> 70
Commitment of one or more of the Super-Majority Lenders, so that the Total
Commitment after giving effect to such amendment shall be in the same amount as
the Total Commitment immediately before giving effect to such amendment, (y) if
any Loans are outstanding at the time of such amendment, the making of such
additional Loans by such new financial institutions or Super-Majority Lender or
Lenders, as the case may be, as may be necessary to repay in full the
outstanding Loans of the Minority Lenders immediately before giving effect to
such amendment and (z) such other modifications to this Agreement as may be
appropriate. As used herein, the term "Super-Majority Lenders" shall mean, at
any time, Lenders, including CIBC, holding Loans representing at least 80% of
the aggregate principal amount of the Loans outstanding, or if no Loans are
outstanding, Lenders, including CIBC, having Commitments representing at least
80% of the Total Commitment.
SECTION 9.11. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 9.12. Headings. Section headings used herein are for
convenience only and are not to affect the construction of or be taken into
consideration in interpreting this Agreement.
SECTION 9.13. Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument.
SECTION 9.14. Prior Agreements. This Agreement and the other Loan
Documents represent the entire agreement of the parties with regard to the
subject matter hereof and the terms of any letters and other documentation
entered into between the Borrower and any Lender or the Agent prior to the
execution of this Agreement which relate to Loans to be made hereunder shall be
replaced by the terms of this Agreement (except as otherwise expressly provided
herein with respect to the Commitment Letter and the Fee Letter including,
without limitation, the Borrower's agreement actively to assist the Agent and
the Underwriters in the syndication of the transactions contemplated hereby
referred to in Section 9.3(g) and including also the provisions of Section
2.22); provided, that the obligations of the Agent and the Underwriters under
the Commitment Letter with respect to the Exit Facility shall survive the
execution and delivery of this Agreement.
SECTION 9.15. Further Assurances. Whenever and so often as
reasonably requested by the Agent, the Borrower will promptly execute and
deliver or cause to be executed and delivered all such other and further
instruments, documents or assurances, and promptly do or cause to be done all
such other and further things as may be necessary and reasonably required in
order to vest further
<PAGE> 71
and more fully in the Agent, all rights, interests, powers, benefits, privileges
and advantages conferred or intended to be conferred by this Agreement and the
other Loan Documents.
SECTION 9.16. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT,
THE FRONTING BANKS AND EACH LENDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.17. Termination of Revolving and Swingline Commitments Under
Existing Credit Agreement. The Borrower hereby confirms, for the express
benefit of the Revolving Lenders and the Swingline Lenders under the Existing
Credit Agreement, that any and all commitments of such Lenders to extend credit
under the Existing Credit Agreement have been terminated.
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first written.
PAYLESS CASHWAYS, INC.
By: /s/ Steven A. Lightstone
-----------------------------------------------
Title: Sr. Vice President
CANADIAN IMPERIAL BANK OF COMMERCE,
as Coordinating and Collateral Agent and as the
Standby Letter of Credit Fronting Bank
By: /s/ Robert N. Greer
-----------------------------------------------
Title: Assistant General Manager
425 Lexington Avenue
New York, New York 10017
CIBC WOOD GUNDY SECURITIES CORP.,
as an Underwriter
By: /s/ Robert N. Greer
-----------------------------------------------
Title: Authorized Signatory
425 Lexington Avenue
New York, New York 10017
CIBC INC.,
as a Lender
By: /s/ Robert N. Greer
-----------------------------------------------
Title: Director
425 Lexington Avenue
New York, New York 10017
<PAGE> 73
NATIONSBANK, N.A.,
as a Lender and an Underwriter
By: /s/ Jay T. Wampler
-----------------------------------------------
Title: Senior Vice President
901 Main Street
Dallas, Texas 75202
LEHMAN COMMERCIAL PAPER INC. ,
as a Lender and an Underwriter
By: /s/ Dennis J. Dee
-----------------------------------------------
Title: Authorized Signatory
3 World Trade Center
New York, New York 10285
GOLDMAN SACHS CREDIT PARTNERS, L.P.,
as a Lender and an Underwriter
By: /s/ John E. Urban
-----------------------------------------------
Title: Authorized Signer
85 Broad Street
New York, New York 10004
CARGILL FINANCIAL SERVICES CORPORATION,
as a Lender
By: /s/ Patrick J. Halloran
-----------------------------------------------
Title: Vice President
6000 Clearwater Drive
Minnetonka, Minnesota 55343
<PAGE> 74
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST, as a Lender
By: /s/ Jeffrey W. Maillet
-----------------------------------------------
Title: Senior Vice President & Director
One Parkview Plaza
Oak Brook Terrace, Illinois 60181
FIRST BANK NATIONAL ASSOCIATION,
as the Documentary Letter of Credit Fronting
Bank and not as a Lender
By: /s/ Jack S. Quitmeyer
-----------------------------------------------
Title: Vice President
601 2nd Avenue South
Minneapolis, Minnesota 55402
<PAGE> i
REVOLVING CREDIT AGREEMENT
TABLE OF CONTENTS
Page No.
INTRODUCTORY STATEMENT.........................................................1
SECTION 1. DEFINITIONS..................................................2
SECTION 1.1. Defined Terms..........................................2
SECTION 1.2. Terms Generally.......................................18
SECTION 2. AMOUNT AND TERMS OF CREDIT..................................18
SECTION 2.1. Commitments of the Lenders............................18
SECTION 2.2 Letters of Credit ....................................19
SECTION 2.3 Issuance..............................................22
SECTION 2.4 Nature of Letter of Credit Obligations Absolute.......23
SECTION 2.5. Making of Loans.......................................23
SECTION 2.6. Notes; Repayment of Loans.............................24
SECTION 2.7. Interest on Loans.....................................25
SECTION 2.8. Default Interest......................................25
SECTION 2.9. Optional Termination or Reduction of Commitment.......25
SECTION 2.10. Alternate Rate of Interest............................26
SECTION 2.11. Refinancing of Loans..................................26
SECTION 2.12. Mandatory Commitment Reduction; Commitment
Termination; Cash Collateral...................27
SECTION 2.13. Optional Prepayment of Loans; Reimbursement of
Lenders........................................27
SECTION 2.14. Reserve Requirements; Change in Circumstances.........29
SECTION 2.15. Change in Legality....................................30
SECTION 2.16. Pro Rata Treatment, etc...............................31
SECTION 2.17. Taxes.................................................31
SECTION 2.18. Certain Fees..........................................34
SECTION 2.19. Commitment Fee........................................34
SECTION 2.20. Letter of Credit Fees.................................34
SECTION 2.21. Nature of Fees........................................34
SECTION 2.22. Priority and Liens....................................34
SECTION 2.23. Right of Set-Off......................................35
SECTION 2.24. Security Interest in Letter of Credit Accounts........36
SECTION 2.25. Payment of Obligations................................36
SECTION 2.26. No Discharge; Survival of Claims......................36
SECTION 2.27. Use of Cash Collateral................................36
SECTION 2.28. Existing Secured Obligations..........................36
SECTION 2.29. Assumption of Hedging Agreement.......................37
<PAGE> ii
SECTION 6.14. Environmental Matters.................................55
SECTION 7. EVENTS OF DEFAULT.........................................56
SECTION 7.1. Events of Default.....................................56
SECTION 8. THE AGENT.................................................60
SECTION 8.1. Administration by Agent...............................60
SECTION 8.2. Advances and Payments.................................60
SECTION 8.3. Sharing of Setoffs....................................61
SECTION 8.4. Agreement of Required Lenders.........................61
SECTION 8.5. Liability of Agent....................................62
SECTION 8.6. Reimbursement and Indemnification.....................62
SECTION 8.7. Rights of Agent.......................................63
SECTION 8.8. Independent Lenders...................................63
SECTION 8.9. Notice of Transfer....................................63
SECTION 8.10. Successor Agent.......................................63
SECTION 9. MISCELLANEOUS.............................................64
SECTION 9.1. Notices...............................................64
SECTION 9.2. Survival of Agreement, Representations
and Warranties, etc............................64
SECTION 9.3. Successors and Assigns................................64
SECTION 9.4. Confidentiality.......................................67
SECTION 9.5. Expenses..............................................67
SECTION 9.6. Indemnity.............................................68
SECTION 9.7. CHOICE OF LAW.........................................68
SECTION 9.8. No Waiver.............................................68
SECTION 9.9. Extension of Maturity.................................69
SECTION 9.10. Amendments, etc. .....................................69
SECTION 9.11. Severability..........................................70
SECTION 9.12. Headings..............................................70
SECTION 9.13. Execution in Counterparts.............................70
SECTION 9.14. Prior Agreements......................................70
SECTION 9.15. Further Assurances....................................70
SECTION 9.16. WAIVER OF JURY TRIAL..................................71
SECTION 9.17. Termination of Revolving and Swingline Commitments
Under Existing Credit Agreement................71
<PAGE> iii
Annex A Commitment Amount and Percentage of each Lender
Schedule 1.1 Existing Agreements
Schedule 3.6 Pre-Petition Liens
Schedule 3.11 Litigation
Schedule 5.3 Insurance
Schedule 6.9 Existing Investments
Schedule 6.10 Assets for Sale
Exhibit A Form of Promissory Notes
Exhibit B Form of Interim Order
Exhibit C Form of Security and Pledge Agreement
Exhibit D-1 Form of Opinion of Blackwell Sanders Matheny Weary
& Lombardi LLP
Exhibit D-2 Form of Opinion of Wachtell, Lipton, Rosen & Katz
Exhibit E Form of Assignment and Acceptance
<PAGE> COVER
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REVOLVING CREDIT AGREEMENT
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Among
PAYLESS CASHWAYS, INC., a Debtor-in-Possession,
as Borrower,
THE LENDERS, THE UNDERWRITERS AND
THE FRONTING BANKS PARTY HERETO,
and
CANADIAN IMPERIAL BANK OF COMMERCE,
as Coordinating and Collateral Agent
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Dated as of July 21, 1997
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<PAGE> 1 Exhibit 4.2
Exhibit C to Revolving
Credit Agreement
SECURITY AND PLEDGE AGREEMENT
SECURITY AND PLEDGE AGREEMENT (the "Agreement"), dated as of July 21, 1997, by
and between PAYLESS CASHWAYS, INC., an Iowa corporation (the "Grantor"), a
debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code, and
CANADIAN IMPERIAL BANK OF COMMERCE, as coordinating agent and collateral agent
(in such capacity, the "Agent") for the lenders (the "Lenders") party to the
Credit Agreement (as hereinafter defined) and the Fronting Banks and
Underwriters (each as therein defined):
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Agent, the Lenders, the Fronting Banks, the Underwriters and the
Grantor are entering into a Revolving Credit Agreement, dated as of the date
hereof (as amended, amended and restated, modified or supplemented from time to
time, the "Credit Agreement"); and
WHEREAS, unless otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined; and
WHEREAS, it is a condition precedent to the making of Loans and the
issuance of Letters of Credit that the Grantor shall have granted a security
interest, pledge and lien on substantially all of the Grantor's assets and
properties and the proceeds thereof to the Agent pursuant to Sections 364(c)(2),
364(c)(3) and 364(d) of the Bankruptcy Code; and
WHEREAS, the grant of such security interest, pledge and lien has been
authorized pursuant to Section 364(c)(2), 364(c)(3) and 364(d)(1) of the
Bankruptcy Code by the Interim Order and, after the entry thereof, will have
been so authorized by the Final Order (collectively, the "Order"); and
WHEREAS, to supplement the Order without in any way diminishing or
limiting the effect of the Order or the security interest, pledge and lien
granted thereunder, the parties hereto desire to set forth more fully their
respective rights in connection with such security interest, pledge and lien;
and
WHEREAS, this Agreement has been approved by the Order;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make Loans and the Fronting Banks to issue Letters of Credit, the
Grantor hereby agrees with the Agent as follows:
SECTION 1. Grant of Security and Pledge. The Grantor hereby transfers,
grants, bargains, sells, conveys, hypothecates, assigns, pledges and sets over
to the Agent for its benefit and the ratable benefit of the Lenders, the
Fronting Banks and the Underwriters and hereby grants to the Agent for its
benefit and the ratable benefit of the Lenders, the Fronting Bank and the
Underwriters, a perfected pledge and security interest in all of the Grantor's
right, title and interest in and to the following (the "Collateral"), which
pledge and security interest shall be (x) for all purposes senior to, and shall
prime pursuant to Section 364(d)(1) of the Bankruptcy Code, all of the existing
Liens that secure the obligations of the Grantor under the Existing Agreements
and any Liens granted after the Filing Date to provide adequate protection in
respect of the Existing Agreements, (y) junior to the Prudential Lien
hereinafter referred to and subject to the prior rights of the Credit Card Banks
under the GE Credit Program Documents with respect to certain accounts
receivable, returned merchandise and general intangibles financed thereunder and
Commerce under the Commerce Bank Agreement with respect to certain documents,
inventory and related collateral and (z) subject to the Carve-Out:
(a) all present and future accounts, accounts receivable and
other rights of the Grantor to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether now
existing or hereafter arising and wherever arising, and
<PAGE> 2
whether or not they have been earned by performance (collectively, the
"Accounts"); it being agreed that the security interest and lien granted hereby
in and on any Account representing a GECC Receivable, Contractor Receivable
or Monogram Receivable (each as hereinafter defined) shall only attach to
those of such Receivables which the Borrower purchases pursuant to the terms
of the GE Credit Program Documents and, as to such Receivables, shall be
subject and subordinate to perfected security interests in or liens on such
Account in favor of any Credit Card Bank, as well as to any rights of set-off
or recoupment of the Credit Card Banks in respect of such Account;
(b) all goods and merchandise now owned or hereafter acquired
by the Grantor wherever located, whether in the possession of the Grantor or of
a bailee or other person for sale, storage, transit, processing, use or
otherwise consisting of whole goods, components, supplies, materials, or
consigned, returned or repossessed goods) which are held for sale or lease or to
be furnished (or have been furnished) under any contract of service or which are
raw materials, work-in-process, finished goods or materials used or consumed in
the Grantor's business or processed by or on behalf of the Grantor
(collectively, the "Inventory"); it being agreed that the security interest and
lien granted hereby in and on any Inventory constituting returned merchandise in
respect of a Contractor Receivable or a Monogram Receivable shall be subject and
subordinate to perfected security interests in or liens on such Inventory in
favor of any Credit Card Bank;
(c) all machinery, all manufacturing, distribution, selling,
data processing and office equipment, all furniture, furnishings, appliances,
fixtures and trade fixtures, tools, tooling, molds, dies, vessels, aircraft and
all other goods of every type and description (other than Inventory) which are
used or bought for use primarily in business, in each instance whether now owned
or hereafter acquired by the Grantor and wherever located (collectively, the
"Equipment");
(d) all cars, trucks, trailers, construction and earth moving
equipment and other vehicles covered by a certificate of title law of any state
wherever located and whether now owned or hereafter acquired, and, in any event,
shall include, without limitation, the vehicles listed on Schedule 7 hereto, and
all tires and other appurtenances to any of the foregoing (collectively, the
"Vehicles");
(e) all rights, interests, choses in action, causes of action,
claims and all other intangible property of the Grantor of every kind and nature
(other than Accounts, Trademarks, Patents and Copyrights), in each instance
whether now owned or hereafter acquired by the Grantor, including, without
limitation, all general intangibles; all corporate and other business records;
all loans, royalties, and other obligations receivable; all inventions, designs,
trade secrets, computer programs, software, printouts and other computer
materials, goodwill, registrations, copyrights, licenses, franchises, customer
lists, credit files, correspondence, and advertising materials; all customer and
supplier contracts, firm sale orders, rights under license and franchise
agreements, and other contracts and contract rights; all interests in
partnerships and joint ventures; all tax refunds and tax refund claims; all
right, title and interest under leases, subleases, licenses and concessions and
other agreements relating to real or personal property; all payments due or made
to the Grantor in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of any property by any person or governmental authority;
all deposit accounts (general or special) with any bank or other financial
institution; all credits with and other claims against carriers and shippers;
all rights to indemnification; all reversionary interests in pension and profit
sharing plans and reversionary, beneficial and residual interest in trusts; all
proceeds of insurance of which the Grantor is beneficiary; and all letters of
credit, guaranties, liens, security interest and other security held by or
granted to the Grantor; and all other intangible property, whether or not
similar to the foregoing; in
<PAGE> 3
each instance, however and wherever arising, but
excluding any contract, agreement or license which prohibits the assignment or
encumbrance by the Grantor of such contract, agreement or license (or of its
rights thereunder), except to the extent that such prohibition would be
ineffective pursuant to Section 9-318(4) of the Uniform Commercial Code as in
effect in the State of New York (collectively, the "General Intangibles"); it
being agreed that the security interest and lien granted hereby in and on any
General Intangibles representing a GECC Receivable or other obligation of any
Credit Card Bank to the Grantor shall be subject and subordinate to perfected
security interests in or liens on such General Intangible in favor of any Credit
Card Bank, as well as to any rights of set-off or recoupment of such Credit Card
Bank in respect of such General Intangible;
(f) all chattel paper, all instruments, all notes (including,
but not limited to, the notes listed on Schedule 8 annexed hereto and made a
part hereof) (the "Pledged Notes") and debt instruments and all payments
thereunder and instruments and other property from time to time delivered in
respect thereof or in exchange therefor, and all bills of lading, warehouse
receipts and other documents of title and documents, in each instance whether
now owned or hereafter acquired by the Grantor;
(g) all property or interests in property now or hereafter
acquired by the Grantor which may be owned or hereafter may come into the
possession, custody or control of the Agent or any of the Lenders or the
Fronting Banks or any agent or affiliate of the Agent or any of the Lenders in
any way or for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise), and all rights and interests of the
Grantor, now existing or hereafter arising and however and wherever arising, in
respect of any and all (i) notes, drafts, letters of credits, stocks, bonds, and
debt and equity securities, whether or not certificated, and warrants, options,
puts and calls and other rights to acquire or otherwise relating to the same;
(ii) money (including all cash and cash equivalents held in the Letter of Credit
Accounts (as defined and referred to in the Credit Agreement)); (iii) proceeds
of loans, including, without limitation, Loans made under the Credit Agreement;
and (iv) insurance proceeds and books and records relating to any of the
property covered by this Agreement; together, in each instance, with all
accessions and additions thereto, substitutions therefor, and replacements,
proceeds and products thereof;
(h) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos and other source or business identifiers, prints and labels on which said
trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos and other source
or business identifiers, have appeared or appear, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, and
all registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, or any other country or political subdivision thereof (except for
"intent to use" applications for trademark or service mark registrations filed
pursuant to Section 1(b) of the Lanham Act, unless and until an Amendment to
Allege Use or a Statement of Use under Sections 1(c) of said Act has been
filed), all whether now owned or hereafter acquired by the Grantor, including,
but not limited to, those described in Schedule 3 annexed hereto and made a part
hereof, and all reissues, extensions or renewals thereof and all licenses
thereof together, in each case, with the goodwill of the business connected with
the use of, and symbolized by each such trademark, service marks, trade name and
trade dress (all of the foregoing being herein referred to as the "Trademarks");
(i) all letters patent of the United States or any other
country, and all registrations
<PAGE> 4
and recordings thereof, including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by the Grantor, including,
but not limited to, those described in Schedule 4 annexed hereto and made apart
hereof, and (ii) all reissues, continuations, continuations-in-part or
extensions thereof and all licenses thereof (all of the foregoing being herein
referred to as the "Patents");
(j) all copyrights of the United States, or any other country,
and all registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof, or
any other country or political subdivision thereof, all whether now owned or
hereafter acquired by the Grantor, including, but not limited to, those
described in Schedule 5 hereto and all renewals and extensions thereof and all
licenses thereof (all of the foregoing being herein referred to as the
"Copyrights");
(k) all books, records, ledger cards and other property at any
time evidencing or relating to the Accounts, Inventory, Equipment, Vehicles,
General Intangibles, Trademarks, Patents or Copyrights;
(l) (i) all the shares of capital stock owned by the Grantor,
listed on Schedule 6 hereto of the issuers listed thereon (individually, an
"Issuer", and collectively, the "Issuers") and all shares of capital stock of
any Issuer obtained in the future by the Grantor and the certificates
representing or evidencing all such shares (the "Pledged Shares"); (ii) all
other property which may be delivered to and held by the Agent in respect of the
Pledged Shares pursuant to the terms hereof; (iii) subject to Section 9 below,
all dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed, in respect of, in exchange for or upon the
conversion of the securities referred to in clauses (i) and (ii) above; and (iv)
subject to Section 9 below, all rights and privileges of the Grantor, as
applicable, with respect to the securities and other property referred to in
clauses (i), (ii) and (iii) (the items referred to in clauses (i) through (iv)
being collectively called the "Pledged Stock Collateral");
(m) all other personal property of the Grantor, whether
tangible or intangible, and whether now owned or hereafter acquired; and
(n) all proceeds and products of any of the foregoing, in any
form, including, without limitation, any claims against third parties for loss
or damage to or destruction of any or all of the foregoing.
As used herein, the following terms shall have the following meanings:
"Contractor Receivables" shall mean those certain commercial credit
accounts sold by the Grantor or extended directly to a Grantor customer by a
Credit Card Bank (including any documents, instruments, chattel paper or
intangibles evidencing any such transferred receivable or the transaction giving
rise thereto) (i) pursuant to the terms of the GE Credit Program Documents or
(ii) to any other Person pursuant to any similar contractual arrangement (but in
such case solely to the extent such an arrangement is permitted by Section 5.9
of the Credit Agreement).
"Credit Card Banks" shall mean General Electric Capital Corporation and
Monogram Credit Card Bank of Georgia.
<PAGE> 5
"Existing Credit Agreement" shall mean that certain Amended and
Restated Credit Agreement, dated as of October 3, 1996, among the Grantor, the
Existing Lenders, the Agent, CIBC as Letter of Credit Bank and the Co-Agents
named therein, as amended, amended and restated, supplemented or modified from
time to time.
"Existing Lenders" shall mean, collectively, those certain financial
institutions which have provided loans and other extensions of credit to the
Grantor under, among other agreements, the Existing Credit Agreement, together
with any successors or assigns thereof.
"GECC Receivables" shall mean receivables (including any documents,
instruments, chattel paper or intangibles evidencing any such transferred
receivable or the transaction giving rise thereto) (i) payable to the Grantor by
Credit Card Banks pursuant to the terms of the GE Credit Program Documents
arising out of sales of merchandise or services made by the Grantor or (ii)
payable to or purchased by any other Person pursuant to any similar contractual
arrangement solely to the extent such an arrangement is permitted by Section 5.9
of the Credit Agreement.
"GE Credit Program Documents" shall mean (a) the Amended and Restated
Monogram Credit Card Bank of Georgia Program Agreement, dated as of July 20,
1997, between the Grantor and Monogram Credit Card Bank of Georgia, as such
agreement may hereafter be amended, restated, supplemented or modified from time
to time to the extent permitted by the Credit Agreement, together with any
agreements entered into by the Grantor and Monogram Credit Card Bank of Georgia,
or any affiliate, in replacement of such agreement to the extent permitted by
the Credit Agreement; and (b) the Second Amended and Restated Commercial Credit
Account Purchase and Service Program Agreement, dated as of July 20, 1997,
between the Grantor and General Electric Capital Corporation, as such agreement
may hereafter be further amended, restated, supplemented or modified from time
to time to the extent permitted by the Credit Agreement, together with any
agreement entered into by the Grantor and General Electric Capital Corporation,
or any affiliate, in replacement of such agreement to the extent permitted by
the Credit Agreement.
"Monogram Receivables" shall mean all obligations now or hereafter
owing to, and all rights now or hereafter acquired by, Monogram Credit Card Bank
of Georgia arising out of any of the private label credit card sales referred to
in clause (i) of the definition of "GECC Receivables."
"Prudential" shall mean the Prudential Insurance Company of America.
"Prudential Lien" shall mean Liens in existence on the date hereof
granted under the Prudential Real Estate Financing.
"Prudential Loan Agreement" shall mean the Loan Agreement, dated June
20, 1989, by and among the Borrower, Knox Home Centers, Inc., Somerville and
Prudential, as the same has been and may hereafter be amended, amended and
restated, modified or supplemented to the extent permitted by this Agreement.
"Prudential Real Estate Financing" shall mean the financing by
Prudential provided for by the Prudential Loan Agreement and other documentation
executed and delivered in connection therewith.
<PAGE> 6
The Agent acknowledges that, for purposes of this Security and Pledge
Agreement, (i) the private label credit card sales and commercial account sales
referred to in clause (i) of the definition of "GECC Receivables" constitute
extensions of credit directly from Monogram to cardholders or true sales of
accounts and indebtedness from the Grantor to GECC, (ii) the Grantor has no
right, title or interest in or to any Monogram Receivables or Contractor
Receivables, except to the extent the Grantor purchases such receivables
pursuant to the terms of the GE Credit Program Documents and (iii) except to the
extent so purchased by the Grantor, no Monogram Receivable or Contractor
Receivable shall constitute Collateral (or any category of property included
within the definition thereof) for purposes of this Security and Pledge
Agreement. The Agent agrees with the Grantor that neither the security interest
created herein nor any related financing statements may be assigned by the Agent
unless, prior to any such assignments, such financing statements are amended (a)
to include the definition of "GE Credit Program Documents" set forth herein, and
(b) specifically to exclude the Monogram Receivables and the Contractor
Receivables from the collateral covered by such financing statements.
SECTION 2. Security for Obligations. This Agreement and the Collateral
secure the prompt and complete payment and performance when due of all
obligations of the Grantor, now or hereafter existing, under the Credit
Agreement, the Notes and the other Loan Documents, whether for principal,
interest, fees, expenses or otherwise, including (without limitation) all
obligations of the Grantor now or hereafter existing under or in respect of this
Agreement including, but not limited to, (a) the due and punctual payment of
principal of and interest on the Loans and the Notes and the reimbursement of
all amounts drawn under Letters of Credit, and (b) the due and punctual payment
of the Fees, indemnities and all other present and future, fixed or contingent,
direct or indirect, monetary obligations of the Grantor to the Lenders, the
Fronting Banks, the Underwriters and the Agent under the Loan Documents (all
such obligations of the Grantor being herein called the "Obligations").
SECTION 3. Delivery of Pledged Stock Collateral and Pledged Notes;
Other Action. Upon written request by the Agent (and without further order of
the Bankruptcy Court), all certificates or instruments representing or
evidencing the Pledged Stock Collateral and the Pledged Notes shall be delivered
to and held by the Agent pursuant hereto and shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Agent. Upon the occurrence and during the
continuance of any Event of Default, the Agent shall have the right (for the
ratable benefit of the Lenders), at any time in its discretion and without
notice to the Grantor, to transfer to or to register in the name of the Agent or
any of its nominees any or all of the Pledged Stock Collateral and all of the
Pledged Notes.
SECTION 4. Representations and Warranties. The Grantor represents and
warrants as follows:
(a) All of the Inventory and/or Equipment is located at the
places specified in Schedule 1 hereto. The chief places of business and chief
executive offices of the Grantor and the offices where the Grantor keeps its
records concerning any Accounts and all originals of all chattel paper which
evidence any Account are located at the places specified in Schedule 2 hereto.
All trade names under which the Grantor has sold and will sell Inventory are
listed on Schedule 3 hereto.
<PAGE> 7
(b) The Grantor owns the Collateral free and clear of any
lien, security interest, charge or encumbrance except for the security interest
created by this Agreement and except as permitted under Section 6.1 of the
Credit Agreement. No effective financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any recording
office, except (x) such as may have been filed in favor of the Agent relating to
this Agreement or in connection with the Existing Credit Agreement in favor of
the Agent thereunder and (y) in favor of any holder of a Lien otherwise
permitted under Section 6.1 of the Credit Agreement.
(c) As of the Filing Date, the Grantor does not own any
material Trademarks, Patents or Copyrights or have any material Trademarks,
Patents or Copyrights registered in, or the subject of pending applications in,
the United States Patent and Trademark Office or any similar office or agency in
any other country or any political subdivision thereof, other than those
described in Schedules 3, 4 and 5 hereto. The registrations for the Collateral
disclosed on such Schedules 3, 4 and 5 hereto are valid and subsisting and in
full force and effect. None of the material Patents or Copyrights have been
abandoned or dedicated.
(d) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(e) The Grantor is the legal and beneficial owner of the
Pledged Shares described on Schedule 6 free and clear of any lien, security
interest, option or other charge or encumbrance, except for the security
interest created by this Agreement and the Orders and Liens created pursuant to
the Existing Agreement and except as disclosed on Schedule 6.
(f) The Pledged Shares described in Section 1(l) hereof
constitute all of the issued and outstanding shares of stock of each of the
Issuers and no Issuer is under any contractual obligation to issue any
additional shares of stock or any other securities, rights or indebtedness.
(g) The Vehicles listed on Schedule 7 hereto constitute a
complete and correct list of all Vehicles owned by the Grantor as of the
Effective Date.
(h) The Pledged Notes delivered at any time by the Grantor to
the Agent in accordance with this Agreement or the Credit Agreement shall at all
times constitute all of the Pledged Notes owned by the Grantor at each such
time.
(i) Except for the Orders, no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant and pledge by the Grantor
of the security interests granted hereby or for the execution, delivery or
performance of this Agreement by the Grantor or (ii) for the perfection of the
security interests or the exercise by the Agent of its rights and remedies
hereunder.
SECTION 5. Further Assurances.
(a) The Grantor agrees that from time to time, at the expense
of the Grantor, it will promptly execute and deliver all further instruments and
documents, and take all further action,
<PAGE> 8
that may be necessary, or that the Agent may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Agent to exercise and enforce any of its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, and without further order of the Bankruptcy Court,
the Grantor will execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary,
or as the Agent may reasonably request, in order to perfect and preserve the
security interests granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Grantor where
permitted by law.
(c) The Grantor will furnish to the Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
(d) The Grantor hereby agrees from time to time hereafter,
that upon the acquisition or creation of additional Pledged Notes, that it will
execute and deliver to the Agent, for the benefit of the Lenders, the Fronting
Banks and the Underwriters, such additional Pledged Notes, in each case,
accompanied by appropriate endorsements executed in blank.
SECTION 6. As to Equipment and Inventory. The Grantor shall:
(a) Keep the Equipment and Inventory (other than Inventory
sold in the ordinary course of business) at the places specified therefor in
Schedule 1 hereto or, upon 30 days' prior written notice to the Agent, at other
places in jurisdictions where all action required by Section 5 shall have been
taken to assure the continuation of the perfection of the security interest of
the Agent (for its benefit and the ratable benefit of the Lenders, the Fronting
Banks and the Underwriters) with respect to the Equipment and Inventory.
(b) Maintain or cause to be maintained in good repair, working
order and condition, excepting ordinary wear and tear and damage due to
casualty, all of the Equipment, and make or cause to be made all appropriate
repairs, renewals and replacements thereof, to the extent not obsolete and
consistent with past practice of the Grantor, as quickly as practicable after
the occurrence of any loss or damage thereto which are necessary or reasonably
desirable to such end.
(c) With respect to the Inventory: (a) the Grantor shall at
all times maintain records with respect to Inventory reasonably satisfactory to
the Agent, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, the Grantor's cost therefor and
daily withdrawals therefrom and additions thereto; (b) the Grantor shall conduct
a physical count of the Inventory at least once each year, but at any time or
times as the Agent may request on or after an Event of Default occurs and is
continuing, and promptly following such physical inventory shall supply the
Agent with a report in the form and with such specificity as may be reasonably
satisfactory to the Agent concerning such physical count; (c) the Grantor shall
not remove any Inventory from the locations set forth or permitted herein,
without the prior written consent of the Agent, except for sales of Inventory
and returns of Inventory to vendors, in each case
<PAGE> 9
in the ordinary course of the Grantor's business and except to move Inventory
directly from one location set forth or permitted herein to another such
location; (d) in addition to the requirements set forth above, upon the Agent's
request, the Grantor shall, at its expense, conduct through the Asset Support
Group or another inventory counting service reasonably acceptable to the Agent,
or shall permit the Agent to conduct (if the Agent so elects), a physical count
of the Inventory in form, scope and methodology reasonably acceptable to the
Agent no more than once in any twelve (12) month period, but at any time or
times as the Agent may request on or after an Event of Default occurs and is
continuing, the results of which shall be reported directly by such inventory
counting service to the Agent and the Grantor shall promptly deliver
confirmation in a form satisfactory to the Agent that appropriate adjustments
have been made to the Inventory records of the Grantor to reconcile the
Inventory count to the Grantor's Inventory records; (e) the Grantor shall
produce, use, store and maintain the Inventory, with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including, but not limited to, the requirements
of the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders related thereto); (f) the Grantor retains all of its
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; and (g) the Grantor shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate the Grantor to repurchase such Inventory
(other than in the ordinary course of business consistent with past practices
and policies of the Grantor or current market practice).
SECTION 7. As to Accounts.
(a) The Grantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning the
Accounts, and the offices where it keeps all originals of all chattel paper
which evidence Accounts, at the location therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent, at such other locations in a
jurisdiction where all actions required by Section 5 shall have been taken with
respect to the Accounts. The Grantor will hold and preserve such records and
chattel paper and will permit representatives of the Agent, at any time during
normal business hours, to inspect and make abstracts from such records and
chattel paper in accordance with Section 5.6 of the Credit Agreement.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall continue to collect in accordance with its customary practice, at
its own expense, all amounts due or to become due to the Grantor under the
Accounts and, prior to the occurrence of an Event of Default, the Grantor shall
have the right to adjust, settle or compromise the amount or payment of any
Account, or release wholly or partly any account debtor or obligor thereof, or
allow any credit or discount thereon, all in accordance with its customary
practices. In connection with such collections, the Grantor may, upon the
occurrence and during the continuation of an Event of Default, take (and at the
direction of the Agent shall take) such action as the Grantor or the Agent may
reasonably deem necessary or advisable to enforce collection of the Accounts;
provided, that upon written notice by the Agent to the Grantor, following the
occurrence and during the continuation of an Event of Default, of its intention
so to do, the Agent shall have the right to notify the account debtors or
obligors under any Accounts of the assignment of such Accounts to the Agent and
to direct such account debtors or obligors to make payment of all amounts due or
to become due to the Grantor thereunder directly to the Agent and, upon such
notification and at the expense of the Grantor, to enforce collection of any
such Accounts, to take possession of and indorse and collect any checks,
<PAGE> 10
drafts, notes, acceptances or other instruments for payment of moneys due under
any Account, to file any claim or take any other action or proceeding in any
court of law or equity otherwise deemed appropriate by the Agent for the purpose
of collecting any such money and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Grantor might
have done. After receipt by the Grantor of the notice referred to in the proviso
to the preceding sentence, (i) all amounts and proceeds (including instruments)
received by the Grantor in respect of the Accounts shall be received in trust
for the benefit of the Agent (for the ratable benefit of the Lenders, the
Fronting Banks and the Underwriters) hereunder, shall be segregated from other
funds of the Grantor and shall be forthwith paid over to the Agent in the same
form as so received (with any necessary endorsement) to be held as cash
collateral and either (A) released to the Grantor if such Event of Default shall
have been cured or waived or (B) if such Event of Default shall be continuing,
paid to the Agent and applied to the Obligations, and (ii) the Grantor shall not
adjust, settle or compromise the amount or payment of any Account, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
(c) The Grantor will keep and maintain at its own cost and
expense satisfactory and complete records with respect to the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Accounts, and the Grantor shall make available any
such books and records to the Agent or to its representatives during normal
business hours at the request of the Agent.
SECTION 8. As to Trademarks, Patents and Copyrights.
(a) Except with respect to any Trademark that the Grantor
shall reasonably determine is of negligible economic value to it (and so advise
the Agent in writing), the Grantor shall, either itself or through licensees,
(i) continue to use the Trademarks on each and every trademark class of goods
applicable to its current line as reflected in its current catalogs, brochures
and price lists in order to maintain the Trademarks in full force free from any
claim of abandonment for nonuse, (ii) maintain as in the past the quality of
products and services offered under the Trademarks, (iii) employ the Trademarks
with the appropriate notice of registration, (iv) not adopt or use any mark
which is confusingly similar or a colorable imitation of the Trademarks unless
the Agent shall obtain a perfected security interest therein and (v) not (and
will not permit any licensee thereof to) do any act or knowingly omit to do any
act whereby any Trademark may become invalidated.
(b) The Grantor will not do any act, or omit to do any act,
whereby the Patents or Copyrights may become abandoned or dedicated and the
Grantor shall notify the Agent immediately if it knows of any reason or has
reason to know that any application or registration may become abandoned or
dedicated.
(c) The Grantor will not, either itself or through any agent,
employee, licensee or designee, (i) file an application for the registration of
any Patent or Trademark with the United States Patent and Trademark Office or
any similar office or agency in any other country or any political subdivision
thereof or (ii) file any assignment of any patent or trademark, which the
Grantor may acquire from a third party, with the United States Patent and
Trademark Office or any similar office or agency in any other country or any
political subdivision thereof, unless the Grantor shall, within 15 days after
the date of such filing, notify the Agent thereof, and, upon request of the
Agent, execute and deliver any and all assignments, agreements, instruments,
documents and papers as the
<PAGE> 11
Agent may request to evidence the Agent's interest in such Patent or Trademark
and the goodwill and general intangibles of the Grantor relating thereto or
represented thereby, and the Grantor hereby constitutes the Agent its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all lawful acts of such attorney being hereby ratified and confirmed;
such power being coupled with an interest is irrevocable until the full payment
and performance of the Obligations, the expiration or cancellation of all of the
Letters of Credit and the termination of the Commitment.
(d) The Grantor will take all reasonable and necessary steps
in any proceeding before the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, to maintain each application and
registration of all material Trademarks, Patents and Copyrights, including,
without limitation, filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings.
(e) The Grantor will, without further order of the Bankruptcy
Court, perform all acts and execute and deliver all further instruments and
documents, including, without limitation, assignments for security in form
suitable for filing with the United States Patent and Trademark Office, and the
United States Copyright Office, respectively, reasonably requested by the Agent
at any time to evidence, perfect, maintain, record and enforce the Agent's
interest in all material Trademarks, Patents and Copyrights or otherwise in
furtherance of the provisions of this Agreement, and the Grantor hereby
authorizes the Agent to execute and file one or more accurate financing
statements (and similar documents) or copies thereof or of this Agreement with
respect to material Patents, Trademarks and Copyrights signed only by the Agent.
(f) The Grantor will, upon acquiring knowledge of any use by
any person of any term or design likely to cause confusion with any material
Trademark, promptly notify the Agent of such use, and if requested by the Agent,
shall join with the Agent, at the Grantor's expense, in such action as the
Agent, in its reasonable discretion, may deem advisable for the protection of
the Agent's interest in and to the Trademarks.
SECTION 9. As to the Pledged Stock Collateral; Voting Rights;
Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be continuing:
(i) the Grantor shall be entitled to exercise any and
all voting and other consensual rights pertaining to the Pledged
Stock Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement; provided, that the
Grantor shall not exercise or shall refrain from exercising any
such right if, in the Agent's reasonable judgment, such action
would have a material adverse effect on the value of the Pledged
Stock Collateral or any part thereof;
(ii) notwithstanding the provisions of Section 1
hereof, the Grantor shall be entitled to receive and retain any
and all dividends paid in respect of the Pledged Stock Collateral;
provided, that any and all
(A) dividends paid or payable other than in
cash in respect of, and instruments and other
property received, receivable or otherwise
distributed in respect of, or in exchange for, any
Pledged Stock Collateral, and
(B) dividends and other distributions paid
or payable in cash in respect of any Pledged Stock
Collateral in connection with a partial or total
liquidation or dissolution or in connection with a
reduction of capital, capital surplus or
paid-in-surplus,
shall be, and shall be forthwith delivered to the Agent to hold
as, Pledged Stock
<PAGE> 12
Collateral and shall, if received by the
Grantor, be received in trust for the benefit of the Agent, be
segregated from the other property or funds of the Grantor, and be
forthwith delivered to the Agent as Pledged Stock Collateral in
the same form as so received (with any necessary endorsement); and
(iii) the Agent shall execute and deliver (or
cause to be executed and delivered) to the Grantor all such
proxies and other instruments as the Grantor may reasonably
request for the purpose of enabling the Grantor to exercise
the voting and other rights which it is entitled to exercise
pursuant to paragraph (i) above and to receive the dividends
which it is authorized to receive and retain pursuant to
paragraph (ii) above;
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) upon written notice from the Agent to
the Grantor to such effect, all rights of the Grantor to
exercise the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to
Section 9(a)(i) and to receive the dividends which it would
otherwise be authorized to receive and retain pursuant to
Section 9(a)(ii) shall cease, and all such rights shall
thereupon become vested in the Agent, who shall thereupon
have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged
Stock Collateral any such dividends; and
(ii) all dividends which are received by the Grantor
contrary to the provisions of paragraph (i) of this Section
9(b) shall be received in trust for the benefit of the Agent,
shall be segregated from other funds of the Grantor and shall
be forthwith paid over to the Agent as Pledged Stock
Collateral in the same form as so received (with any necessary
endorsement).
SECTION 10. Vehicles. The Grantor will maintain each Vehicle in
good operating condition, ordinary wear and tear and immaterial impairments
of value and damage by the elements excepted, and will provide all
maintenance, service and repairs necessary for such purpose. Promptly after
the date hereof and, with respect to any Vehicles acquired by the Grantor
subsequent to the date hereof, all applications for certificates of title
indicating the Agent's first priority Lien on the Vehicle covered by such
certificate, and any other necessary documentation, shall be filed by the
Grantor in each office in each jurisdiction which the Agent shall deem
advisable to perfect or protect its Liens on the Vehicles. In connection
with the foregoing, the Grantor shall notify the Agent, in writing, within
30 days after the date of acquisition, of each Vehicle acquired subsequent
to the date hereof.
SECTION 11. Insurance. The Grantor shall, at its own expense,
maintain insurance with respect to the Inventory and Equipment in such
amounts, against such risks, in such form and with such insurers, as is
provided for in Section 5.3 of the Credit Agreement. Following an Event of
Default and during its continuance, the Grantor shall, at the request of
the Agent, duly execute and deliver instruments of assignment of such
insurance policies and cause the respective insurers to acknowledge notice
of such assignment.
Upon the occurrence and during the continuance of any Event of
Default, all insurance payments in respect of such Inventory and Equipment
shall be held, paid to the Agent and applied to the Obligations.
SECTION 12. Transfers to Others; Liens; Additional Shares.
The Grantor shall not:
<PAGE> 13
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except for dispositions
otherwise permitted by the Credit Agreement.
(b) Create or suffer to exist any lien, security interest
or other charge or encumbrance upon or with respect to any of the
Collateral to secure any obligation of any person or entity, except for the
security interest created by this Agreement and the Orders, or except as
otherwise permitted by the Credit Agreement.
(c) The Grantor agrees that it will (i) cause each of the
Issuers not to issue any stock or other securities in addition to or
substitution for the Pledged Shares issued by such Issuer, except to the
Grantor and (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all such additional shares of
stock or other securities of each Issuer of the Pledged Shares.
SECTION 13. Agent's Appointment as Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact (which
appointment shall be irrevocable and deemed coupled with an interest), with
full authority in the place and stead of the Grantor and in the name of the
Grantor or otherwise, from time to time in the Agent's discretion, upon and
during the occurrence and continuation of an Event of Default, to take any
action and to execute any instrument which the Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(i) to obtain and adjust insurance required to
be paid to the Agent pursuant to Section 11;
(ii) to ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the
Collateral;
(iii) to receive, endorse, and collect any drafts
or other instruments, documents and chattel paper, in
connection with clause (i) or (ii) above;
(iv) to receive, endorse and collect all
instruments made payable to the Grantor representing any
dividend or other distribution in respect of the Pledged Stock
Collateral or any part thereof and to give full discharge for
the same;
(v) to file any claims or take any action or
institute or defend any proceedings which the Agent may deem
necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Agent
with respect to any of the Collateral;
(vi) to direct any party liable for any payment in
respect of or arising out of any of the Collateral to make payment
of any and all moneys due or to become due thereunder directly to
the Agent or as the Agent shall direct;
(vii) to settle, compromise or adjust any suit,
action or proceeding described in clause (v) above and, in
connection therewith, to give such discharges or releases as the
Agent may deem appropriate;
(viii) to set off or cause to be set off amounts in
any account maintained with any Lender, Underwriter or Fronting
Bank or otherwise enforce rights against any of the Collateral in
the possession of any Lender, Underwriter or Fronting Bank; and
<PAGE> 14
(ix) generally, to sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Agent were the
absolute owner thereof for all purposes, and to do, at the Agent's
option and the Grantor's expense, at any time, or from time to
time, all acts and things which the Agent deems necessary to
protect, preserve or realize upon the Collateral and the Agent's
Liens thereon and to effect the intent of this Agreement, all as
fully and effectively as the Grantor might do.
SECTION 14. Agent May Perform. If the Grantor fails
to perform any agreement contained herein, the Agent may itself
perform, or cause performance of, such agreement, and the expenses
of the Agent incurred in connection therewith shall be payable by
the Grantor under Section 17(b).
SECTION 15. The Agent's Duties. The powers conferred
on the Agent hereunder are solely to protect its interest and the
interests of the Lenders in the Collateral and shall not impose
any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights
pertaining to any Collateral, including, without limitation,
ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any
Pledged Stock Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters. Neither the Agent nor
any of the Lenders, Fronting Banks or Underwriters, nor any of
their respective directors, officers, employees, attorneys,
experts or agents shall be liable for failure to demand, collect
or realize upon all or any part of the Collateral or for any delay
in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Grantor or
otherwise. The Grantor releases the Agent, the Fronting Banks, the
Underwriters and the Lenders and their respective directors,
officers, employees, attorneys, experts and agents from any
claims, causes of action and demands at any time arising out of or
with respect to this Agreement, the Collateral, and/or any actions
taken or omitted to be taken by the Agent with respect thereto
(other than any claims, causes of action and demands arising
solely from the gross negligence or willful misconduct of the
party which desires to be so released as determined by a final
order or judgment of a court of competent jurisdiction), and the
Grantor hereby agrees to hold the Lenders and their respective
directors, officers, employees, attorneys, experts and agents
harmless from and with respect to any and all such claims, causes
of action and demands. The agreements of the Grantor contained in
this Section 15 shall survive the payment and performance of the
Obligations, the expiration or cancellation of all of the Letters
of Credit, the termination of the Commitment and the termination
of the security interests granted hereby.
SECTION 16. Remedies. If any Event of Default
shall have occurred and be continuing, and subject to the
provisions of Section 7 of the Credit Agreement:
(a) The Agent may exercise in respect of the
Collateral, in addition
<PAGE> 15
to other rights and remedies provided for
herein or otherwise available to it, and without application to or
order of the Bankruptcy Court, all the rights and remedies of a
secured party on default under the Uniform Commercial Code and
also may (i) require the Grantor to, and the Grantor hereby agrees
that it will at its expense and upon request of the Agent
forthwith, assemble all or part of the Collateral as directed by
the Agent and make it available to the Agent at a place to be
reasonably designated by the Agent and (ii) without notice except
as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Agent
may deem commercially reasonable. The Grantor agrees that, to the
extent notice of such sale shall be required by law, at least ten
days' notice to the Grantor of the time and place of any public
sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral regardless of notice of
sale having been given. The Agent may adjourn any public or
private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(b) The Agent may instruct the Grantor not to
make any further use of the Patents, Copyrights or Trademarks or
any mark similar thereto for any purpose.
(c) The Agent may license, whether general,
special or otherwise, and whether on an exclusive or nonexclusive
basis, any of the Trademarks, Patents or Copyrights throughout the
world for such term or terms, on such conditions, and in such
manner, as the Agent shall in its sole discretion determine.
(d) The Agent may (without assuming any
obligations or liability thereunder), at any time, enforce (and
shall have the exclusive right to enforce) against any licensee or
sublicensee all rights and remedies of the Grantor in, to and
under any one or more license agreements with respect to the
Collateral, and take or refrain from taking any action under any
thereof, and the Grantor hereby releases the Agent from, and
agrees to hold the Agent free and harmless from and against any
claims arising out of, any action taken or omitted to be taken
with respect to any such license agreement.
(e) In the event of any such license, assignment,
sale or other disposition of the Collateral, or any of it, the
Grantor shall supply its know-how and expertise in connection with
the manufacture and sale of the products bearing or relating to
Trademarks, Patents or Copyrights, and its customer lists and
other records relating to the Trademarks, Patents or Copyrights
and to the distribution of said products, to the Agent or its
designee.
(f) In order to implement the assignment, sale or
other disposal of any of the Trademarks, Patents or Copyrights,
the Agent may, at any time, pursuant to the authority granted in
Section 13 hereof, execute and deliver on behalf of the Grantor,
one or more instruments of assignment of the Trademarks, Patents
or Copyrights (or any application of registration thereof), in
form suitable for filing, recording or registration in any
country.
(g) All cash proceeds received by the Agent in
respect of any sale of, collection from, or other realization upon
all or any part of the Collateral may, in the discretion of the
Agent, be held by the Agent as collateral for, and then or at any
<PAGE> 16
time thereafter applied (after payment of any amounts payable to
the Agent pursuant to Section 17) in whole or in part against, all
or any part of the Obligations in such order as the Agent shall
elect. Any surplus of such cash or cash proceeds held by the Agent
and remaining after payment in full of all the Obligations shall
be paid over to the Grantor or to whomsoever may be lawfully
entitled to receive such surplus.
(h) If at any time when the Agent shall determine
to exercise its right to sell all or any part of the Pledged Stock
Collateral pursuant to this Section 16, such Pledged Stock
Collateral or the part thereof to be sold shall not be effectively
registered under the Securities Act of 1933, as amended, and as
from time to time in effect, and the rules and regulations
thereunder (the "Securities Act"), the Agent is hereby expressly
authorized to sell such Pledged Stock Collateral or such part
thereof by private sale in such manner and under such
circumstances as the Agent may deem necessary or advisable in
order that such sale may legally be effected without such
registration. Without limiting the generality of the foregoing, in
any such event the Agent, in compliance with applicable securities
laws, (a) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such
Pledged Stock Collateral or such part thereof shall have been
filed under such Securities Act, (b) may approach and negotiate
with a restricted number of potential purchasers to effect such
sale and (c) may restrict such sale to purchasers as to their
number, nature of business and investment intention including
without limitation to purchasers each of whom will represent and
agree to the satisfaction of the Agent that such purchaser is
purchasing for its own account, for investment, and not with a
view to the distribution or sale of such Pledged Stock Collateral,
or part thereof, it being understood that the Agent may cause or
require the Grantor, and the Grantor hereby agrees upon the
written request of the Agent, to cause (i) a legend or legends to
be placed on the certificates to be delivered to such purchasers
to the effect that the Pledged Stock Collateral represented
thereby have not been registered under the Securities Act and
setting forth or referring to restrictions on the transferability
of such securities; and (ii) the issuance of stop transfer
instructions to such Issuer's transfer agent, if any, with respect
to the Pledged Stock Collateral, or, if such Issuer transfers its
own securities, a notation in the appropriate records of such
Issuer. In the event of any such sale, the Grantor does hereby
consent and agree that the Agent shall incur no responsibility or
liability for selling all or any part of the Pledged Stock
Collateral at a price which the Agent may deem reasonable under
the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were
public and deferred until after registration as aforesaid.
(i) Until the payment in full in cash and
performance of all Obligations, the expiration or cancellation of
all of the Letters of Credit and the termination of the Commitment
and at any time when an Event of Default has occurred and is
continuing: (i) the Grantor will perform any and all reasonable
actions requested by the Agent to enforce the Agent's security
interest in the Inventory and all of the Agent's rights hereunder,
such as leasing warehouses to the Agent or its designee, placing
and maintaining signs, appointing custodians, transferring
Inventory to warehouses, and delivering to the Agent warehouse
receipts and documents of title in the
<PAGE> 17
Agent's name; (ii) if any
Inventory is in the possession of control of any of the Grantor's
agents, contractors or processors or any other third party, the
Grantor will notify the Agent thereof and will notify such agents,
contractors or processors or third party of the Agent's security
interest therein and, upon request, instruct them to hold all such
Inventory for the Agent's and the Grantor's account, as their
interests may appear, and subject to the Agent's instructions;
(iii) the Agent shall have the right to hold all Inventory subject
to the security interest granted hereunder; and (iv) the Agent
shall have the right to take possession of the Inventory or any
part thereof and to maintain such possession on the Grantor's
premises or to remove any or all of the Inventory to such other
place or places as the Agent desires in its sole discretion. If
the Agent exercises its right to take possession of the Inventory,
the Grantor, upon the Agent's demand, will assemble the Inventory
and make it available to the Agent at the Grantor's premises at
which it is located.
SECTION 17. Indemnity and Expenses.
(a) The Grantor agrees to indemnify the Agent from and against
any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities directly arising from the Agent's own gross
negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Agreement,(ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.
(c) The Grantor assumes all responsibility and liability
arising from the use of the Trademarks, Patents and Copyrights, and the Grantor
hereby indemnifies and holds the Agent harmless from and against any claim,
suit, loss, damage or expense (including reasonable attorneys' fees) arising out
of any alleged defect in any product manufactured, promoted or sold by the
Grantor in connection with any Trademark or out of the manufacture, promotion,
labelling, sale or advertisement of any such product by the Grantor except as
the same may have resulted from the gross negligence or willful misconduct of
the Agent.
(d) The Grantor agrees that the Agent does not assume, and
shall have no responsibility for, the payment of any sums due or to become due
under any agreement or contract included in the Collateral or the performance of
any Obligations to be performed under or with respect to any such agreement or
contract by the Grantor, and except as the same may have resulted from the gross
negligence or willful misconduct of the Agent, the Grantor agrees to indemnify
and hold the Agent harmless with respect to any and all claims by any person
relating thereto.
SECTION 18. Security Interest Absolute. All rights of the Agent and
security interests hereunder, and all Obligations of the Grantor hereunder,
shall be absolute and unconditional,
<PAGE> 18
irrespective of any circumstance which might constitute a defense available
to, or a discharge of, any guarantor or other obligor in respect of the
Obligations.
SECTION 19. Amendments; Etc. No amendment or waiver of any provision of
this Agreement, nor any consent to any departure by the Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
party against whom enforcement is sought, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
SECTION 20. Louisiana Remedies. For purposes of executory process under
applicable Louisiana law (and only for such purposes), upon the occurrence and
during the continuance of an Event of Default, the Grantor hereby acknowledges
the indebtedness owed under the Obligations, CONFESSES JUDGMENT thereon and
consents that judgment be rendered and signed, whether during the court's term
or during vacation, in favor of the Agent, for the benefit of the Lenders, the
Fronting Banks and the Underwriters, for the full amount of the Obligations.
Upon the occurrence of an Event of Default, and in addition to all of its
rights, powers and remedies under this Agreement and applicable law, the Agent
may, at its option, cause all or any part of the Collateral located in Louisiana
(the "Louisiana Collateral") to be seized and sold under executory process or
under writ of fieri facias issued in execution of an ordinary judgment obtained
upon the Obligations, without appraisement to the highest bidder, for cash or
under such terms as the Agent deems acceptable. The Grantor hereby waives all
and every appraisement of the Louisiana Collateral and waives and renounces the
benefit of appraisement of the Louisiana Collateral seized and sold under
executory or other legal process. The Grantor agrees to waive, and does hereby
specifically waive:
(1) the benefit of appraisement provided for in
Articles 2332, 2336, 2723 and 2724,
Louisiana Code of Civil Procedure, and all
other laws conferring such benefits;
(2) the demand and three days delay accorded by
Articles 2639 and 2721, Louisiana Code of
Civil Procedure;
(3) the notice of seizure required by Articles
2293 and 2721, Louisiana Code of Civil
Procedure;
(4) the three days delay accorded by Articles
2331 and 2722, Louisiana Code of Civil
Procedure;
(5) the benefit of the other provisions of
Articles 2331, 2722 and 2723, Louisiana
Code of Civil Procedure;
(6) the benefit of the provisions of any other
articles of the Louisiana Code of Civil
Procedure not specifically mentioned above;
and
(7) all rights of division and discussion with
respect to the Obligations.
Pursuant to the authority contained in La.R.S. 9:5136 through 9:5140.1, the
Grantor and the Agent
<PAGE> 19
do hereby expressly designate the Agent or its designee to
be keeper or receiver ("Keeper") for the benefit of the Agent or any assignee of
the Agent, such designation to take effect immediately upon any seizure of any
of the Louisiana Collateral under writ of executory process or under writ of
sequestration or fieri facias as an incident to an action brought by the Agent.
It is hereby agreed that the Keeper shall be entitled to receive as
compensation, in excess of its reasonable costs and expenses incurred in the
administration or preservation of the Louisiana Collateral, an amount equal to
the lesser of $200 per day or four percent of the gross revenues of the
Louisiana Collateral and the payment of such fees shall be secured by the
security interest in the Louisiana Collateral granted in this Agreement. The
designation of Keeper made herein shall not be deemed to require Mortgagee to
provoke the appointment of a Keeper.
SECTION 21. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and shall be given in accordance with
the applicable provisions of the Credit Agreement.
SECTION 22. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the payment and performance in full of the Obligations,
the expiration or cancellation of all of the Letters of Credit and the
termination of the Commitment, (ii) be binding upon the Grantor, its successors
and assigns and (iii) inure, together with the rights and remedies of the Agent
hereunder, to the benefit of the Agent and each of the Lenders, the Fronting
Banks and the Underwriters and their respective successors, transferees and
assigns. Upon the payment and performance in full of the Obligations, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Grantor subject to any existing liens, security
interests or encumbrances on such Collateral. Upon any such termination, the
Agent will, at the Grantor's expense, execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
SECTION 23. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York and by Federal law (including,
without limitation, the Bankruptcy Code) to the extent the same has pre-empted
the law of the State of New York or such other jurisdiction.
SECTION 24. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
IN WITNESS WHEREOF, the Grantor and the Agent have caused this Security
and Pledge Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
GRANTOR:
<PAGE> 20
PAYLESS CASHWAYS, INC.
By: /s/ Stephen A. Lightstone
---------------------------------
Title: Senior Vice President
AGENT:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Agent
By: /s/ Robert N. Greer
---------------------------------
Title: Assistant General Manager
<PAGE> 1
In The United States Bankruptcy Court
For the Western District of Missouri
)
In re ) Chapter 11
)
PAYLESS CASHWAYS, INC., ) Case No. 97-50543
)
Debtor. )
FIRST AMENDED PLAN OF REORGANIZATION
The Debtor (as hereafter defined) proposes the following first amended
plan of reorganization pursuant to the provisions of 11 U.S.C. ss.ss. 1101, et
seq.
ARTICLE I.
DEFINITIONS
The terms set forth in this Article I shall have the respective
meanings hereinafter set forth. Any capitalized term used but not otherwise
defined herein shall have the meaning given to that term in the Code (as
hereinafter defined).
1.1. "Administrative Expenses" shall mean, collectively, (a) any cost
or expense of administration of the Chapter 11 Case allowed under ss. 503(b) or
507(a)(1) of the Code including, without limitation, any such allowed item
constituting (i) an actual and necessary post-Filing Date expense of preserving
the Debtor's estate, (ii) an actual and necessary post-Filing Date expense of
operating the businesses of the Debtor including, without limitation,
post-Filing Date loans or other advances or extensions of credit to the Debtor,
including amounts advanced to, or credited to the account of the Debtor, or
(iii) the amount of any Allowed Claims for reclamation pursuant to ss. 546(c) of
the Code, and (b) and fees or charges assessed against the Debtor's estate under
title 28, United States Code, section 1930.
1.2. "Adverse Determination" shall mean a ruling by the Bankruptcy
Court that including, in the distribution under the Plan to Allowed Class 2A
Claims, all or a specified portion of the shares of New Payless Common Stock
otherwise distributable to Allowed Class 4A Interests and/or Class 5A Interests
to the extent provided in Sections 3.4(a), 3.6 and 3.7 of the Plan would violate
applicable provisions of the Code and thereby render the Plan not capable of
being confirmed under ss. 1129 of the Code.
1.3. "Agent" shall mean CIBC as coordinating and collateral agent for
the DIP Facility.
1.4. "Allowed Amount" shall mean, with respect to a particular Claim,
(a) the amount of a Claim that is listed in the Debtor's Schedules, as they may
from time to time be amended in accordance with Rule 1009 of the Bankruptcy
Rules, as not disputed, contingent or unliquidated,
<PAGE> 2
if the holder of such Claim has not filed a proof of claim with the Bankruptcy
Court within the applicable period of limitation fixed by the Bankruptcy Court
pursuant to Rule 3003(c)(3) of the Bankruptcy Rules, or (b) if a holder of a
Claim has filed a proof of claim with the Bankruptcy Court within the applicable
period of limitation fixed by the Bankruptcy Court pursuant to Rule 3003(c)(3)
of the Bankruptcy Rules: (i) the amount stated in such proof of claim if no
objection to such proof of claim has been interposed within the applicable
period of limitations fixed by the Code or applicable Bankruptcy Rules or as
otherwise fixed by the Bankruptcy Court, or (ii) such amount as shall be fixed
by an order of the Bankruptcy Court which has become a Final Order if an
objection has been interposed within the applicable period of limitations fixed
by the Code, applicable Bankruptcy Rules, or the Bankruptcy Court. "Allowed
Amount" shall not include any interest on or fees with respect to a Claim which
have accrued after the Filing Date except with respect to Class 2 Claims to the
extent (i) permitted by ss. 506(b) of the Code or (ii) made as adequate
protection payments under ss. 363(e) of the Code. "Allowed Amount" shall mean,
with respect to a particular Interest, (a) that number of shares represented by
such Interest as set forth in the Debtor's stock transfer agent's records, as
they may be amended and updated from time to time, if no objection to such
Interest has been interposed within the applicable period of limitations fixed
by the Bankruptcy Court, or (b) that number of shares represented by such
Interest as shall be fixed by an order of the Bankruptcy Court which has become
a Final Order, if an objection to such Interest has been interposed within the
applicable period of limitations fixed by the Bankruptcy Court.
1.5. "Allowed Claim" or "Allowed Class ___________ Claim" shall mean
any such Claim for which an Allowed Amount has been determined.
1.6. "Allowed Interest" or "Allowed Class _________ Interest" shall
mean any such Interest for which an allowed Amount has been determined.
1.7. "Bank Parties" shall have the meaning set forth in Section 11.7 of
the Plan.
1.8. "Bankruptcy Court" shall mean that unit of the United States
District Court for the Western District of Missouri consisting of those
bankruptcy judges in regular active service in such district to whom such
District Court has referred bankruptcy cases and proceedings pursuant to 28
U.S.C. ss. 157(a).
1.9. "Bankruptcy Rules" shall mean the Federal Rules of Bankruptcy
Procedure, as amended from time to time, as the same shall be applicable to the
Chapter 11 Case.
1.10. "Business Day" shall mean any day except Saturday, Sunday and any
other day on which commercial banks in New York City are authorized to close.
1.11. "Cash" shall mean cash, cash equivalents and other readily
marketable direct obligations of the United States of America and certificates
of deposit issued by banks.
1.12. "Chapter 11 Case" shall mean the case under chapter 11 of the
Code commenced by the Debtor on the Filing Date.
<PAGE> 3
1.13. "CIBC" shall mean Canadian Imperial Bank of Commerce.
1.14. "Class" shall mean a group of Claims or Interests, consisting of
Claims or Interests which are substantially similar to each other, as classified
pursuant to the Plan.
1.15. "Class 2A Effective Date Payments" shall mean the payments to be
distributed to the holders of Allowed Class 2A Claims on the Effective Date in
accordance with the provisions of Sections 3.4(a)(i) and 3.4(a)(ii) of the Plan.
1.16. "Class 3A Entitlement" shall mean a number of shares of New
Payless Common Stock equal to (a) 19,000,000, minus (b) the number of shares of
New Payless Common Stock to be distributed to the holders of the Allowed Class
2A Claims pursuant to Section 3.4(a) of the Plan (i.e., 10,800,000 shares,
subject to adjustment as provided in clauses (1), (2) and (4) of the proviso to
Section 3.4(a)(iv)), plus (c) the number of any additional shares of New Payless
Common Stock to be distributed to the holders of Class 3A Claims pursuant to
Sections 3.4(a), 3.6 and 3.7 of the Plan.
1.17. "Closed Store Value" shall mean the value of the Closed Synthetic
Lease Stores, as determined pursuant to Section 3.4(c).
1.18. "Closed Synthetic Lease Stores" shall mean the Debtor's Store
Nos. 249 (Lake Jackson, TX) and 257 (St. Cloud, MN); provided, however, that if
either or both of these stores have been sold prior to the Effective Date, and
the net cash proceeds thereof put into the Synthetic Lease Escrow, all
references in the Plan to such closed store or stores shall be deemed to be a
reference to the proceeds contained in the Synthetic Lease Escrow.
1.19. "Code" shall mean the Bankruptcy Reform Act of 1978 as amended,
11 U.S.C. ss.ss. 101 et seq., as the same shall be applicable to the Chapter 11
Case.
1.20. "Collateral" shall have the meaning set forth in the definition
of "New Term Notes."
1.21. "Company" shall mean Payless Cashways, Inc., a Delaware
corporation, as reorganized pursuant to the Plan.
1.22. "Confirmation Date" shall mean the date the Confirmation Order is
entered.
1.23. "Confirmation Order" shall mean an order entered by the
Bankruptcy Court confirming the Plan under ss. 1129 of the Code.
1.24. "Corporate Reorganization" shall mean the merger of the Debtor
with and into the Company, as described in Section 6.1.
1.25. "Debtor" shall mean Payless, as debtor and debtor-in-possession.
<PAGE> 4
1.26. "Designated Collateral" shall mean (i) inventory at the 29 stores
to be closed pursuant to the Debtor's June 27, 1997 Restructuring Presentation
(the "Business Plan"), (ii) the real estate interests in 9 of such stores to be
closed (and the 7 properties currently held for sale) and any related fixtures
and equipment which presently secure the Existing Credit Facility (iii) the tax
refund resulting from the Small Business Job Retention Act of 1996 and filed for
by the Debtor on October 9, 1996 and (iv) the proceeds of the promissory notes
(in the aggregate principal amount of approximately $1,050,000) presently
pledged to the Existing Lenders in connection with prior store dispositions and
which mature on December 1, 1997.
1.27. "Designated Consummation Date" shall mean a particular day to be
designated on or before the tenth (10th) day following the Confirmation Date by
the Debtor, in its judgment reasonably exercised after consultation with the
Pre-petition Agent, the Agent, and the Underwriters, which is at least ten (10)
but not more than thirty (30) days after the Confirmation Date.
1.28. "DIP Facility" shall mean that certain debtor-in-possession
financing agreement and documents related thereto (each as amended,
supplemented, or modified from time to time), entered into among the Company,
CIBC, as Agent, and certain other financial institutions, authorized pursuant to
the Interim and Final Orders Authorizing Debtor to Obtain Post-Petition
Financing Pursuant to 11 U.S.C. ss.ss. 105, 361, 362, 364(c)(1), 364(c)(2), 364
(c)(3) and 364(d)(1) and to Utilize Cash Collateral Pursuant to 11 U.S.C. ss.
363 and Granting Adequate Protection to Pre-Petition Secured Parties, entered by
the Bankruptcy Court on July 21, 1997 and August 20, 1997, respectively.
1.29. "DIP Lenders" shall mean those financial institutions referenced
in the definition of DIP Facility.
1.30. "Disallowed Amount" shall mean, with respect to a particular
Disputed Claim, that amount which is equal to the difference, if any, between
the Face Amount of such Disputed Claim and the Allowed Amount of the
Subsequently Allowed Claim related thereto.
1.31. "Disallowed Interest" shall mean, with respect to a particular
Disputed Interest, that number of shares equal to the difference, if any,
between the Face Amount of the Disputed Interest and the Allowed Amount of the
Subsequently Allowed Interest related thereto.
1.32. "Disclosure Statement" shall mean that certain disclosure
statement for the Debtor filed with the Bankruptcy Court on the Filing Date, as
the same may be amended from time to time.
1.33. "Disputed Claim" or "Disputed Class ________ Claim" shall mean
any Claim for which an Allowed Amount has not yet been determined, and with
respect to which an objection has been interposed on or prior to the
Confirmation Date or such other date as may be fixed by the Bankruptcy Court and
not subsequently withdrawn or finally resolved. An application, motion,
complaint or any other legal pleading to subordinate or dismiss a Claim shall be
deemed an objection thereto.
<PAGE> 5
1.34. "Disputed Interest" or "Disputed Class _________ Interest" shall
mean any Interest for which an Allowed Amount has not yet been determined, and
with respect to which an objection has been interposed on or prior to the
Confirmation Date or such other date as may be fixed by the Bankruptcy Court and
not subsequently withdrawn or finally resolved. An application, motion,
complaint or any other legal pleading seeking to subordinate an Interest shall
be deemed an objection thereto.
1.35. "Distribution Date" shall mean the Effective Date and each
subsequent date as may be chosen by the Debtor (but, subject to Section 5.14 of
the Plan, not more than six calendar months after the preceding Distribution
Date) for the making of distributions under the Plan.
1.36. "Effective Date" shall mean the first Business Day:
(a) after the Designated Consummation Date;
(b) on which no stay of the Confirmation Order is in effect; and
(c) on which all conditions set forth in Section 7.1 of the Plan
have occurred or been waived as provided in the Plan.
1.37. "Equity Committee" shall mean the Equity Shareholders Committee
appointed in the Chapter 11 Case by the United States Trustee For The Western
District of Missouri, as the membership of such Committee is from time to time
constituted and reconstituted.
1.38. "Existing Credit Facility" shall mean (i) the Amended and
Restated Credit Agreement, dated as of October 3, 1996 among the Debtor, certain
banks and financial institutions party thereto, CIBC, as administrative agent
and 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 and
(ii) documentation with respect to cash management obligations, interest rate
swap obligations and foreign exchange obligations owing to Existing Lenders, as
each of the same may have been subsequently amended, modified or supplemented.
1.39. "Existing Lenders" shall mean those certain financial
institutions party to the Existing Credit Facility.
1.40. "Existing Prudential Facility" shall mean the Loan Agreement
dated June 20, 1989 among the Debtor, Knox Home Centers, Inc., Somerville Lumber
and Supply Co., Inc. and The Prudential Insurance Company of America or its
successor in interest, as the same may have been subsequently amended, modified
or supplemented.
1.41. "Existing Synthetic Lease Facility" shall mean the Participation
Agreement dated as of February 23, 1995 among the Debtor, as Lessee and as
Construction Agent, Wilmington Trust Company, as Certificate Trustee, the
persons described therein, as Certificate Purchasers, the persons listed
therein, as Lenders, and BA Leasing & Capital Corporation, as Agent for the
Lenders and Certificate Purchasers, together with certain agreements entered
into in connection therewith, all as may have been subsequently amended,
modified or supplemented.
<PAGE> 6
1.42. "Exit Facility" shall mean a revolving credit facility evidenced
by the applicable portion of the New Credit Agreement, pursuant to which the
Exit Notes are to be issued, having substantially the terms described in Section
XIV of the Term Sheet attached hereto as Exhibit A.
1.43. "Exit Lenders" shall mean those certain financial institutions
party to the Exit Facility.
1.44. "Exit Notes" shall mean the notes issued by the Company pursuant
to the Exit Facility, bearing interest at a rate per annum equal to LIBOR (as
defined in the New Credit Agreement) plus 2.5% and maturing on May 31, 2002.
1.45. "Face Amount" shall mean, with respect to a particular Claim, (a)
if the holder of such Claim has not filed a proof of claim with the Bankruptcy
Court within the applicable period of limitation fixed by the Bankruptcy Court
pursuant to Rule 3003(c)(3) of the Bankruptcy Rules, the amount of such Claim
that is listed in the Debtor's Schedules, as not disputed, continent or
unliquidated; or (b) if the holder of such Claim has filed a proof of claim with
the Bankruptcy Court within the applicable period of limitation fixed by the
Bankruptcy Court pursuant to Rule 3003(c)(3) of the Bankruptcy Rules, either (i)
the liquidated amount, if any, stated in such proof of claim if the amount of
such Claim has not been estimated by the Bankruptcy Court pursuant to a Final
Order, or (ii) the estimated amount thereof if the amount of such Claim has been
estimated by the Bankruptcy Court pursuant to a Final Order. "Face Amount" shall
mean, with respect to a particular Interest, the number of shares represented by
such Interest if such Interest were not disputed.
1.46. "Filing Date" shall mean July 21, 1997.
1.47. "Final Order" shall mean an order or judgment of the Bankruptcy
Court (a) which is not the subject of a pending appeal, petition for certiorari,
or other proceedings for review, rehearing, or reargument, (b) which has not
been reversed, stayed, modified or amended, and (c) respecting which the time to
appeal from or to petition for certiorari or to seek review, rehearing, or
reargument of such order shall have expired, as a result of which such order
shall have become final in accordance with Rule 8002 of the Bankruptcy Rules and
other applicable law.
1.48. "Interests" shall mean the rights of the holders of the issued
and outstanding shares of Old Payless Preferred Stock or Old Payless Common
Stock determined as of the Effective Date.
1.49. "Market Rate" shall mean such rate of interest as shall be
determined by the Bankruptcy Court to result in a value for the distributions to
be made pursuant to paragraph 3.2 of the Plan equal to the minimum value set
forth in ss. 1129(a)(9)(C) of the Code.
1.50. "Net Cash Proceeds" shall mean (a) cash proceeds (including,
without limitation, all cash proceeds by way of (i) deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received and (ii) receivables and other assets retained as
consideration), minus (b) reasonable and customary brokerage commissions and
other
<PAGE> 7
reasonable and customary fees and expenses (including reasonable and customary
fees and expenses of counsel and investment bankers and reasonable and customary
inventory liquidation costs) related to the realization of such cash proceeds,
minus (c) payments made to retire indebtedness (other than indebtedness
outstanding under the Existing Credit Facility) secured by such assets being
sold or otherwise disposed of where payment of such indebtedness is required in
connection with such sale or disposition.
1.51. "New Credit Agreement" shall mean the credit agreement among the
Company, CIBC, as coordinating and collateral agent, the Existing Lenders, the
Exit Lenders and certain other financial institutions party thereto, which will
be dated the Effective Date and which will evidence the Exit Facility and the
Post-Consummation Facility and pursuant to which the Exit Notes and the New Term
Notes will be issued. The term "New Credit Agreement" also includes all related
documents executed in connection therewith.
1.52. "New Payless Common Stock" shall mean the shares of common stock,
par value $0.01 per Share, authorized by the certificate of incorporation of the
Company, a copy of which is annexed hereto as Exhibit B, which are to be
distributed by the Company on or after the Effective Date to holders of Allowed
Class 2A Claims, Class 3A Claims, Class 4A Interests and Class 5A Interests as
set forth in the Plan. As of the Effective Date, 20,000,000 shares of New
Payless Common Stock will be available for distribution under the Plan.
1.53. "New Prudential Facility" shall mean that certain Amended and
Restated Loan Agreement to be executed and delivered by the Company in favor of
The Prudential Insurance Company of America or its successor in interest, in
form and substance satisfactory to the Debtor, the Required Existing Lenders and
the Required Exit Lenders, to be entered into as of the Effective Date, or such
other agreement as may be approved by the Bankruptcy Court pursuant to ss.
1129(b) of the Code after notice and a hearing.
1.54. "New Prudential Note Amount" shall mean the sum of (i)
$97,400,000 (less any principal payments actually paid and applied to reduce the
amount of Class 2B Claims during the Chapter 11 Case as a result of any sale of
Prudential Real Estate) plus (ii) if the Effective Date occurs on or before
January 1, 1998, all interest accrued under the Existing Prudential Facility at
the non-default rate through the Effective Date.
1.55. "New Prudential Notes" shall mean the notes that are secured by a
first lien on the same collateral that secures the Existing Prudential Facility
and are issued pursuant to the New Prudential Facility, in the aggregate amount
of the New Prudential Note Amount, which New Prudential Notes shall have an
interest rate of LIBOR (as defined in the New Prudential Facility) plus 4%
payable monthly in arrears, a final maturity of the seventh anniversary of the
Effective Date, yearly amortization, commencing on the first anniversary of the
Effective Date, of $4,000,000, a default rate of LIBOR plus 6%, and such other
terms and conditions as are set forth in the New Prudential Facility Term Sheet
attached hereto as Exhibit D and such other terms as are satisfactory to the
Debtor, the Required Existing Lenders, the Required Exit Lenders and the holders
of Class 2B Claims, or such other terms and conditions as are set forth in the
New Prudential Facility.
<PAGE> 8
1.56. "New Synthetic Lease Facility" shall mean that certain Financing
Agreement to be executed and delivered by the Company in favor of the holders of
Class 2C Claims (or the agent under the Existing Synthetic Lease Facility for
their benefit), in form and substance satisfactory to the Debtor, the Required
Existing Lenders and the Required Exit Lenders, to be entered into as of the
Effective Date, or such other agreement as may be approved by the Bankruptcy
Court pursuant to ss. 1129(b) of the Code after notice and a hearing.
1.57. "New Synthetic Lease Notes" shall mean the notes, secured by the
Remaining Synthetic Lease Stores, issued under the New Synthetic Lease Facility
in the aggregate amount of the Remaining Store Value having an interest rate of
LIBOR (as defined in the New Synthetic Lease Facility) plus 2.05% per annum, a
maturity of four and one-half years after the Effective Date and no prior
amortization, or such other terms and conditions as are set forth in the New
Synthetic Lease Facility.
1.58. "New Term Notes" shall mean the term loan notes issued by the
Company pursuant to the Post-Consummation Facility in an aggregate amount equal
to the sum of (i) $273,000,000 plus (ii) the excess, if any, of (a) $47,800,000
over (b) the Net Cash Proceeds from the sale or other liquidation, after the
Filing Date, of Designated Collateral securing the Allowed Class 2A Claims,
which Net Cash Proceeds shall have been paid to any of the holders of Allowed
Class 2A Claims on or prior to the Effective Date in reduction of their Allowed
Class 2A Claims minus (iii) the lesser of (1) $8,000,000 and (2) the excess, if
any, of (a) the amount calculated pursuant to clause (ii)(b) above over (b)
$47,800,000. The New Term Notes shall be secured by the same collateral securing
the Exit Facility (collectively, the "Collateral"). The New Term Notes shall
bear interest at a rate per annum equal to LIBOR (as defined in the New Credit
Agreement) plus 2.5%, shall mature on November 30, 2002 and shall also have the
other terms and conditions as are set forth in the Post-Consummation Facility.
The rights of the holders of the New Term Notes with respect to the Collateral
shall be subject and subordinate to all obligations owing with respect to the
Exit Facility.
1.59. "Old Payless Common Stock" shall mean all authorized, issued and
outstanding shares of common stock, par value $0.01 per share, of the Debtor as
of the Filing Date.
1.60. "Old Payless Preferred Stock" shall mean all authorized, issued
and outstanding shares of Cumulative Preferred Stock, par value $1.00 per share,
of the Debtor as of the Filing Date.
1.61. "Payless" shall mean Payless Cashways, Inc., an Iowa corporation,
prior to its reorganization pursuant to the Plan.
1.62. "Plan" shall mean this First Amended Plan of Reorganization and
all exhibits hereto, which are incorporated herein by reference hereto, and any
amendments or modifications hereto.
1.63. "Post-Consummation Facility" shall mean a term loan facility
evidenced by the applicable portions of the New Credit Agreement, pursuant to
which the New Term Notes are to be
<PAGE> 9
issued, having substantially the terms described in Section II.B of the Term
Sheet attached hereto as Exhibit A.
1.64. "Prepetition" shall mean arising or accruing prior to the Filing
Date.
1.65. "Prepetition Agent" shall mean, CIBC in its capacity as
administrative and collateral agent under the Existing Credit Facility.
1.66. "Priority Status" shall mean the priority in distribution which
is afforded to certain unsecured Claims pursuant to ss. 507(a) of the Code.
1.67. "Priority Tax Claims" shall mean all Claims that are entitled to
priority underss. 507(a)(8) of the Code.
1.68. "Pro Rata" shall mean:
(a) with respect to Allowed Claims, the same proportion that the
Allowed Amount of a Claim of a creditor in any Class of Claims
bears to the sum of:
(i) the aggregate Allowed Amounts of all Claims of that
particular Class of Claims; plus
(ii)the aggregate Face Amounts of all Claims of that
particular Class of Claims which are subject to dispute as
of the Distribution Date, as reduced from time to time as
and to the extent that the Disallowed Amounts of such
Claims are determined not to be allowed or to the extent
the amounts thereof become Allowed Amounts and are
thereafter included in the immediately preceding clause
(i);
(b) with respect to Disputed Claims, the same proportion that the
Face Amount of a Disputed Claim of a creditor in any Class of
Claims bears to the aggregate of:
(i) the aggregate Allowed Amounts of all Claims of that
particular Class of Claims; plus
(ii)the aggregate Face Amounts of all Claims of that
particular Class of Claims which are subject to dispute as
of the Distribution Date, as reduced from time to time as
and to the extent that the Disallowed Amounts of such
Claims are determined not to be allowed or to the extent
the amounts thereof become Allowed Amounts and are
thereafter included in the immediately preceding clause
(i);
(c) with respect to Allowed Interests, the same proportion that the
Allowed Interest of an interest holder in any Class of Interests
bears to the aggregate of:
<PAGE> 10
(i) the aggregate Allowed Amounts of all Interests of that
particular Class of Interest; plus
(ii)the aggregate Face Amounts of all Interests of that
particular Class of Interests which are subject to dispute
as of the Distribution Date, as reduced from time to time
as and to the extent that the Disallowed Amounts of such
Interests are determined not to be allowed or to the
extent the amounts thereof become Allowed Amounts and are
thereafter included in the immediately preceding clause
(i); and
(d) with respect to Disputed Interests, the same proportion that the
Face Amount of a Disputed Interest of an interest holder in any
Class of Interests bears to the aggregate of:
(i) the aggregate Allowed Amounts of all Interests of that
particular Class of Interest; plus
(ii)the aggregate Face Amounts of all Interests of that
particular Class of Interests which are subject to dispute
as of the Distribution Date, as reduced from time to time
as and to the extent that the Disallowed Amounts of such
Interests are determined not to be allowed or to the
extent the amounts thereof become Allowed Amounts and are
thereafter included in the immediately preceding clause
(i).
1.69. "Prudential Real Estate" shall mean the real property subject to
those certain mortgages, deeds of trust and other security instruments granted
by the Debtor pursuant to the Existing Prudential Facility.
1.70. "Required Existing Lenders" shall mean financial institutions
party to the Existing Credit Facility comprising more than one half in number of
all such financial institutions and holding at least two-thirds of the aggregate
amount of the Allowed Class 2A Claims.
1.71. "Required Exit Lenders" shall mean Exit Lenders holding at least
two-thirds of the aggregate commitments under the Exit Facility.
1.72. "Remaining Store Value" shall mean the value of the Remaining
Synthetic Lease Stores, as determined pursuant to Section 3.4(c).
1.73. "Remaining Synthetic Lease Stores" shall mean the Debtor's Stores
Nos. 248 (Bloomington, IN), 255 (Overland Park, KS) and 258 (S. Las Vegas, NV).
1.74. "Schedules" shall mean the schedules of assets and liabilities
filed by the Debtor with the Bankruptcy Court, as they may be amended or
supplemented from time to time in accordance with Rule 1009 of the Bankruptcy
Rules.
<PAGE> 11
1.75. "Senior Subordinated Notes" shall mean all 9-1/8% Senior
Subordinated Notes due April 15, 2003 issued and outstanding pursuant to the
Senior Subordinated Note Indenture as of the Filing Date.
1.76. "Senior Subordinated Note Indenture" shall mean that certain
Indenture of Trust dated April 20, 1993, between the Debtor and the Trustee as
the same may have been subsequently amended, modified or supplemented.
1.77. "Subsequent Allowance Fraction" shall mean, when applied to a
distribution of property to be made by the Debtor pursuant to the Plan to a
holder of a particular Subsequently Allowed Claim or Subsequently Allowed
Interest, that fraction having a numerator equal to the Allowed Amount of such
Subsequently Allowed Claim or Subsequently Allowed Interest, as the case may be,
and the denominator of which is the Face Amount of such Subsequently Allowed
Claim or Subsequently Allowed Interest, as the case may be.
1.78. "Subsequently Allowed Claim" shall mean any Claim for which an
Allowed Amount is fixed after the Effective Date.
1.79. "Subsequently Allowed Interest" shall mean any Interest for which
an Allowed Amount is fixed after the Effective Date.
1.80. "Synthetic Lease Escrow" shall mean the account, if any,
established to receive and hold any net cash proceeds from the sale, prior to
the Effective Date, of any Closed Synthetic Lease Stores.
1.81. "Treatment Option" shall mean the alternative methods of treating
a secured Claim in a plan of reorganization as provided in ss. 1124 of the Code
and set forth in Section 3.4(d) of the Plan, so that such Claim is not impaired
by the terms of such plan of reorganization.
1.82. "Trustee" shall mean United States Trust Company of New York, as
trustee under the Senior Subordinated Note Indenture.
1.83. "Underwriters" shall mean CIBC Wood Gundy Securities Corp.,
NationsBank, N.A., Goldman, Sachs Credit Partners, L.P, and Lehman Commercial
Paper Inc.
1.84. "Unsecured Creditors' Committee" shall mean the Official
Committee of Unsecured Creditors appointed in the Chapter 11 Case by the United
States Trustee For The Western District of Missouri, as the membership of such
Committee is from time to time constituted and reconstituted.
<PAGE> 12
ARTICLE II.
CLASSIFICATION OF CLAIMS AND INTERESTS
For purposes of the Plan, Claims and Interests are classified as
follows:
2.1. "Class 1 Claims" shall consist of all Prepetition Claims against
the Debtor which are entitled to Priority Status, other than Administrative
Expenses and Priority Tax Claims.
2.2. "Class 2A Claims" shall mean claims under or in respect of the
Existing Credit Facility.
2.3. "Class 2B Claims" shall mean claims under or in respect of the
Existing Prudential Facility.
2.4. "Class 2C Claims" shall mean claims under or in respect of the
Existing Synthetic Lease Facility in an aggregate amount equal to the Remaining
Store Value.
2.5. "Class 2D Claims" shall consist of all secured, Prepetition Claims
against the Debtor, each determined in accordance with ss.ss. 506(a) and 1111 of
the Code, that are not Allowed Class 2A Claims, Class 2B Claims or Class 2C
Claims.
2.6. "Class 3A Claims" shall consist of all unsecured, Prepetition
Claims against the Debtor not entitled to Priority Status, including Claims
under the Senior Subordinated Notes, other than Class 3B Claims.
2.7. "Class 3B Claims" shall consist of all unsecured, Prepetition
Claims against the Debtor not entitled to Priority Status in an Allowed Amount
not greater than $1,000, or as to which the holder has agreed in writing,
pursuant to an election set forth on the ballot for voting on the Plan, to
reduce such Claim to $1,000 and to release and waive any further or additional
Class 3A Claims or Class 3B Claims against the Debtor.
2.8. "Class 4A Interests" shall consist of all shares of Old Payless
Preferred Stock, together with any rights of the holders thereof to any accrued
dividends, and together with all claims arising from rescission of a purchase or
sale thereof, damages arising from the purchase or sale thereof, or for
reimbursement or contribution allowed under Section 502 of the Code on account
of such a claim.
2.9. "Class 5A Interests" shall consist of all shares of Old Payless
Common Stock together with all claims arising from rescission of a purchase or
sale thereof, damages arising from the purchase or sale thereof, or for
reimbursement or contribution allowed under Section 502 of the Code on account
of such a claim.
<PAGE> 13
ARTICLE III.
TREATMENT OF CLAIMS AND INTERESTS
3.1. Treatment of Administrative Expenses. Each holder of an
Administrative Expense shall be paid, in accordance with Articles IV and V
hereof, the Allowed Amount of such holder's Claim in full, in cash, under any of
the following clauses chosen at the option of the Debtor with the consent of the
Required Existing Lenders and the Required Exit Lenders in their respective
judgments reasonably exercised, (a) on the Effective Date, or (b) if payment is
before the Effective Date, on such other date as the Bankruptcy Court may fix,
or (c) in the ordinary course of business as said Claim matures, or (d) upon
such other less favorable terms as may be agreed upon by such holder and the
Debtor.
3.2. Treatment of Priority Tax Claims. Each holder of a Priority Tax
Claim shall be paid, consistent with ss. 1129(a)(9)(C) of the Code, under either
of the following clauses chosen at the option of the Debtor with the consent of
the Required Existing Lenders and the Required Exit Lenders in their respective
judgments reasonably exercised, (a) the Allowed Amount of its Claim in full, in
cash, on the Effective Date, or (b) 10% of its Allowed Priority Tax Claim,
together with accrued and unpaid interest on the then outstanding amount of such
Allowed Priority Tax Claim at the Market Rate, on each anniversary of the
Effective Date which occurs prior to the sixth anniversary of the date of
assessment of such Allowed Priority Tax Claim; and the balance of such Allowed
Priority Tax Claim, together with accrued and unpaid interest thereon at the
Market Rate, on the sixth anniversary of the date of assessment of such Allowed
Priority Tax Claim. The Debtor shall have the right to prepay any Allowed
Priority Tax Claim, in whole or in part, at any time, without penalty and with
interest accrued and unpaid thereon to the time of prepayment at the Market
Rate.
3.3. Treatment of Prepetition Priority Claims. Class 1 Claims are not
impaired. Each holder thereof shall be paid, in accordance with Articles IV and
V hereof, the Allowed Amount of its Claim in full, in cash, under any of the
following clauses chosen at the option of the Debtor with the consent of the
Required Existing Lenders and the Required Exit Lenders in their respective
judgments reasonably exercised, (a) on the Effective Date, or (b) if payment is
before the Effective Date, on such other date as the Bankruptcy Court may fix,
or (c) in the ordinary course of business as said Claim matures, or (d) upon
such other less favorable terms as may be agreed upon by such holder and the
Debtor.
3.4. Allowance and Treatment of Secured Claims
(a) Class 2A Claims shall be Allowed Claims, not subject to offset,
reduction or credit of any kind whatsoever, in an amount equal
to the sum of (i) the aggregate principal amount outstanding
under the Existing Credit Facility as of the Filing Date of
$417,368,409.58 plus (ii) accrued and unpaid interest and
letter of credit fees and other fees and amounts owing
(including, without limitation, cash management fees and
overdraft repayments), if any, at the non-default contractual
rate set forth in the Existing Credit Facility, plus (iii) any
unpaid and reasonable out-of-pocket expenses
<PAGE> 14
and reasonable fees and disbursements of all attorneys and other
advisors to the Prepetition Agent and the Existing Lenders,
minus (iv) all amounts of Net Cash Proceeds of Designated
Collateral paid to the Prepetition Agent during the Chapter 11
Case which has been paid to the Prepetition Agent for
application to reduce the amount of the Allowed Class 2A
Claims, plus (v) the amount of any increases after the Filing
Date in the face amount of any letters of credit issued under
the Existing Credit Facility pursuant to provisions of such
letters of credit as in effect on the Filing Date. Allowed
Class 2A Claims are impaired. Consistent withss. 1124 of the
Code, each holder of Allowed Class 2A Claims shall receive in
full satisfaction in respect thereof, on the Effective Date, in
accordance with Articles IV and V hereof, such holder's
allocable portion of:
(i) payment in full in cash in immediately available funds of
all interest, fees, expenses and other amounts accrued and
owing to the Existing Lenders and the Prepetition Agent
through the Effective Date pursuant to or in connection
with the Existing Credit Facility or the Plan, including,
without limitation, letter of credit fees and other fees
and amounts owing (including, without limitation, cash
management fees and overdraft repayments) and all
reasonable out-of-pocket expenses and counsel and other
advisory fees and expenses payable under the Existing
Credit Facility; and
(ii)payment in full in cash in immediately available funds,
of the Net Cash Proceeds of Designated Collateral received
by the Debtor during the Chapter 11 Case to the extent
such Net Cash Proceeds have not theretofore been applied
to reduce the amount of the Allowed Class 2A Claims; and
(iii) the New Term Notes; and
(iv)10,800,000 shares of New Payless Common Stock; provided,
however, that (1) the number of shares otherwise
distributable to Allowed Class 2A Claims will be decreased
by a number equal to the quotient of (A) the excess, if
any, of (I) the Net Cash Proceeds from the sale or other
liquidation, after the Filing Date, of Designated
Collateral securing the Allowed Class 2A Claims, which
proceeds shall have been paid to any of the holders of
Allowed Class 2A Claims on or prior to the Effective Date
in reduction of their Allowed Class 2A Claims, over (II)
$55,800,000, divided by (B) $9.19; (2) the number of
shares otherwise distributable to Allowed Class 2A Claims
will be decreased by a number equal to the quotient of (A)
the excess, if any, of (I) $420,000,000 over (II) the
aggregate amount of the Allowed Class 2A Claims (including
the face amount of any letters of credit outstanding under
the Existing Credit Facility) outstanding on the Filing
Date divided by (B) $9.19; (3) 460,000 of such shares
shall be distributed to
<PAGE> 15
the Exit Lenders on a pro rata basis determined in
accordance with their respective Exit Facility commitments
on the Effective Date, and such distribution
shall reduce the number of shares received by
each holder of an Allowed Class 2A Claim on an allocable
basis; and (4) in the event that Class 3A, Class 4A or
Class 5A rejects the Plan and to the extent no Adverse
Determination is made on or before the Confirmation Date,
there shall be added to the number of shares of New
Payless Common Stock otherwise distributable to Allowed
Class 2A Claims under this clause (iv) the number of
shares of such Stock otherwise distributable to Allowed
Class 4A Interests and/or Class 5A Interests to the extent
provided in Sections 3.6 and 3.7 of the Plan.
(b) Pursuant to the Plan, Class 2B Claims are not subject to
offset, reduction or credit of any kind whatsoever, and shall
be deemed to be Allowed Claims, in the aggregate amount equal
to the sum of (i) the aggregate principal amount outstanding
under the Existing Prudential Facility, as of the Filing Date,
of $97,400,000, plus (ii) accrued and unpaid interest (at the
non-default rate) and other fees and amounts owing (including,
without limitation, reasonable attorneys' fees and expenses),
as provided for under the Existing Prudential Facility minus
(iii) any principal payments actually paid and applied to
reduce the amount of the Class 2B Claims during the Chapter 11
Case as a result of any sale of Prudential Real Estate. Class
2B Claims are impaired. Consistent withss. 1124 of the Code,
each holder of an Allowed Class 2B Claim shall receive in full
satisfaction in respect thereof, on the Effective Date, in
accordance with Articles IV and V hereof, such holder's
allocable portion of:
(i) payment in full in cash in immediately available funds of
all interest (accrued at the non-default rate), fees and
expenses accrued and owing as of the Effective Date in
accordance with the terms of the Existing Prudential
Facility (including, without limitation, all reasonable
fees and out-of-pocket expenses of counsel); provided,
however, that if the Effective Date occurs on or before
January 1, 1998 no such interest accruing on or before the
Effective Date ("Subject Interest") shall be payable in
cash, but rather all Subject Interest shall be added to
the original principal amount of the New Prudential Notes
as provided in clause (iii) below;
(ii)payment in full in cash in immediately available funds of
the proceeds of sale of Prudential Real Estate received by
the Debtor during the Chapter 11 Case to the extent that
such proceeds have not theretofore been paid to holders
of, and applied to reduce the amount of, the Allowed Class
2B Claims; and
(iii) New Prudential Notes pursuant to the New Prudential
Facility in an aggregate principal amount equal to the New
Prudential Note Amount.
<PAGE> 16
(c) Class 2C Claims are impaired. Consistent withss. 1124 of the
Code, each holder of an Allowed Class 2C Claim shall receive in
full satisfaction in respect thereof, on the Effective Date, in
accordance with Articles IV and V hereof, such holder's Pro
Rata share of New Synthetic Lease Notes. At or before the
hearing to consider the entry of the Confirmation Order, unless
the following shall have theretofore been agreed to by the
Debtor, the holders of Class 2C Claims and the Required
Existing Lenders and the Required Exit Lenders in their
respective judgments reasonably exercised, the Bankruptcy
Court, after notice and a hearing, shall determine the
Remaining Store Value and the Closed Store Value. Upon the
determination of the Closed Store Value, the Debtor shall
deliver to the holders of Allowed Class 2C Claims (or to the
agent under the Existing Synthetic Lease Facility for their
benefit) a quitclaim deed (or equivalent instrument) for the
Closed Synthetic Lease Stores (or, in the case of any Closed
Synthetic Lease Store theretofore sold, the proceeds contained
in any Synthetic Lease Escrow or, if different, cash in the
amount of the Closed Store Value with respect to such sold
store), and the claim in respect of the Existing Synthetic
Lease Facility shall thereupon be reduced by the Closed Store
Value. The remaining amount of such claim shall be divided,
with one part, equal to the Remaining Store Value, constituting
Class 2C Claims, and the other part constituting Class 3A
Claims.
(d) Class 2D Claims are not impaired. Consistent with ss. 1124 of
the Code, the holder of each Allowed Class 2D Claim shall
receive treatment on the Effective Date, in accordance with
Article IV and V hereof, under any of the following clauses
chosen at the option of the Debtor with the consent of the
Required Existing Lenders and the Required Exit Lenders in their
respective judgments reasonably exercised:
(i) the Debtor shall execute a written undertaking in
favor of the holder of such Class 2D Claim, whereby
the Debtor assumes such Claim and leaves unaltered
such holder's legal, equitable and contractual rights
with respect to such Claim; or
(ii) notwithstanding any contractual provision or
applicable law that entitles the holder of such Class
2D Claim to demand or receive accelerated payment of
such Claim after the occurrence of a default, the
Debtor shall (1) cure any such default that occurred
before or after the Filing Date, other than a default
of a kind specified inss. 365(b)(2) of the Code, (2)
reinstate the maturity of such Claim as such maturity
existed before such default, (3) compensate the
holder of such Claim for any damages incurred as a
result of any reasonable reliance by such holder on
such contractual provision or such applicable law,
and (4) execute a written undertaking in favor of
such holder, whereby the Debtor assumes such Claim
and, except as permitted in clauses (1), (2) and (3)
hereof, does not otherwise alter the legal, equitable
or contractual rights of such holder with respect to
such Claim; or
<PAGE> 17
(iii)with the consent of the holder, the Debtor shall pay
the holder thereof Cash equal to the Allowed Amount
of such holder's Class 2D Claim.
(e) Notwithstanding the foregoing, the holder of a Class 2B Claim, a
Class 2C Claim or a Class 2D Claim may receive such other less
favorable treatment as may be agreed upon by such holder and the
Debtor.
3.5. Treatment of general unsecured Claims. Class 3A Claims are
impaired. Each holder of an Allowed Class 3A Claim shall receive, in accordance
with Articles IV and V hereof, New Payless Common Stock equal to such holder's
Pro Rata portion of the Class 3A Entitlement.
3.6. Treatment of Claims of holders of Class 3B Claims. Class 3B Claims
are impaired. Each holder of an Allowed Class 3B Claim shall be paid, in
accordance with Articles IV and V hereof, 25% of the Allowed Amount of such
holder's Class 3B Claim, in cash, on the Effective Date.
3.7. Treatment of Old Payless Preferred Stock. Class 4A Interests are
impaired. Each holder of an Allowed Class 4A Interest shall, in accordance with
Articles IV and V hereof, receive its Pro Rata share of 3% of all the shares of
New Payless Common Stock to be issued pursuant to the Plan (i.e., 600,000
shares); provided, however, that the percentage of such New Payless Common Stock
to be distributed to holders of Class 4A Interests shall be (i) increased from
2% to 5% in the event of a rejection of the Plan by Class 5A and the acceptance
of the Plan by Class 4A, Class 3A and Class 3B and (ii) decreased to no
distribution whatsoever in the event of a rejection of the Plan by Class 4A,
Class 3A or Class 3B, in which event all of the shares of New Payless Common
Stock otherwise to be distributed to Class 4A Interest holders and Class 5A
Interest holders shall instead be distributed to holders of (1) Allowed Class 2A
Claims to the extent an Adverse Determination is not made on or before the
Confirmation Date, or (2) Allowed Class 3A Claims to the extent an Adverse
Determination is made on or before the Confirmation Date, as provided in
Sections 3.4(a) and 3.5 of the Plan. Holders of Class 4A Interests shall not
retain or receive any additional property for or on account of their Class 4A
Interests.
3.8. Treatment of Old Payless Common Stock. Class 5A Interests are
impaired. Each holder of an Allowed Class 5A Interest shall, in accordance with
Articles IV and V hereof, receive its Pro Rata share of 2% of all the shares of
New Payless Common Stock to be issued pursuant to the Plan (i.e., 400,000
shares); provided, however, that the percentage of such New Payless Common Stock
to be distributed to holders of Class 5A interests shall be decreased to no
distribution whatsoever upon rejection of the Plan by Class 5A, Class 4A, Class
3A or Class 3B, in which event all of the shares of New Payless Common Stock
otherwise to be distributed to Class 5A Interest holders shall instead be
distributed to (i) holders of Allowed Class 4A Interests, if Class 4A, Class 3A
and Class 3B votes to accept the Plan, as provided in Section 3.6 of the Plan,
or (ii) holders of (1) Allowed Class 2A Claims to the extent an Adverse
Determination is not made on or before the Confirmation Date, or (2) Allowed
Class 3A Claims to the extent an Adverse Determination is made on or before the
Confirmation Date, if Class 4A or Class 3A
<PAGE> 18
votes to reject the Plan, as provided in Sections 3.4(a) and 3.5 of the Plan.
Holders of Class 5A Interests shall not retain or receive any additional
property for or on account of their Class 5A Interests.
3.9. Treatment of Stock Options. Any stock option relating to Old
Payless Preferred Stock or Old Payless Common Stock which is outstanding and
unexercised on the Filing Date may be exercised at any time on or prior to the
Confirmation Date, and immediately after the Effective Date, all such stock
options shall be deemed to have been cancelled and shall be of no further force
or effect.
3.10. Changes in the Treatment of any Claims or Interests. Any changes
or other modifications to the treatment of any claim or interest under the Plan
must be acceptable to the Debtor, the Required Existing Lenders and the Required
Exit Lenders in their respective judgments reasonably exercised.
ARTICLE IV.
DISTRIBUTION OF PROPERTY TO HOLDERS
OF ALLOWED CLAIMS AND ALLOWED INTERESTS
4.1. Distributions to holders of Administrative Expenses and Priority
Tax Claims. The Debtor shall distribute to each holder of an Administrative
Expense or a Priority Tax Claim for which an Allowed Amount has been determined
as of the Effective Date, an amount, in cash, equal to one hundred percent
(100%) of the Allowed Amount of such holder's Claim, unless such holder and the
Debtor have otherwise agreed on less favorable treatment of such Claim (in which
case such holder shall be paid in accordance with such agreement), and, in
either case, at such time as the Debtor elects pursuant to Section 3.1 or 3.2 of
the Plan.
4.2. Distributions to holders of Class 1 Claims. The Debtor shall
distribute to each holder of a Class 1 Claim for which an Allowed Amount has
been determined as of the Effective Date, an amount, in cash, equal to one
hundred percent (100%) of the Allowed Amount of such holder's Claim, unless such
holder and the Debtor have otherwise agreed on less favorable treatment of such
Claim (in which case such holder shall be paid in accordance with such
agreement), and, in either case, at such time as the Debtor elects pursuant to
Section 3.3 of the Plan.
4.3. Distributions to holders of Class 2 Claims: Secured Claims.
(a) Class 2A. The provisions of this Section 4.3(a) shall apply only
to Allowed Class 2A Claims. On the Effective Date, the Debtor
shall distribute to each holder of a Allowed Class 2A Claim such
holder's allocable portion (rounded in accordance with Section
5.8 of the Plan) of the Class 2A Effective Date Payments, New
Term Notes and New Payless Common Stock to be distributed in
accordance with the provisions of Section 3.4(a) of the Plan.
<PAGE> 19
(b) Class 2B. The provisions of this Section 4.3(b) shall apply only
to Class 2B Claims. On the Effective Date, the Debtor shall
distribute to each holder of a Class 2B Claim for which an
Allowed Amount has been determined as of the Effective Date,
such holder's allocable portion (rounded in accordance with
Section 5.8 of the Plan) of the payments in cash and the New
Prudential Notes to be distributed in accordance with the
provisions of Section 3.4(b) of the Plan.
(c) Class 2C. The provisions of this Section 4.3(c) shall apply only
to Class 2C Claims. On the Effective Date, the Debtor shall
distribute to each holder of a Class 2C Claim for which an
Allowed Amount has been determined as of the Effective Date,
such holder's Pro Rata share of the New Synthetic Lease Notes to
be distributed in accordance with the provisions of Section
3.4(c) of the Plan.
(d) Class 2D. The provisions of each of the following subsections of
this Section 4.3(d) shall apply only to distributions made with
respect to Class 2D Claims:
(i) Election of option. On or prior to the Effective Date, the
Debtor shall notify the holder of each Class 2D Claim in
writing as to the Treatment Option (each of which is set
forth in Section 3.4(d) of the Plan) which the Debtor has
elected in accordance with the procedures set forth in
Section 3.4(d) of the Plan.
(ii) Treatment of Class 2D Claims under Section 3.4(d)(i)
election. In the event the Debtor elects, in accordance
with Section 3.4(d) of the Plan to treat a particular
Class 2D Claim in accordance with Section 3.4(d)(i) of the
Plan, on the Effective Date, the Debtor shall execute an
undertaking binding it to repay such Class 2D Claim in
full, in accordance with the tenor and terms of the
agreement underlying such Class 2D Claim, and without
altering the legal, equitable and contractual rights to
which such Class 2D Claim entitles the holder thereof,
including, without limitation, the retention by such
holder of the property of the Debtor securing such Claim.
(iii)Treatment of Class 2D Claim under Section 3.4(d)(ii)
election. In the event the Debtor elects, in accordance
with Section 3.4(d) of the Plan to treat a particular
Class 2D Claim in accordance with Section 3.4(d)(ii) of
the Plan, on the Effective Date (1) the Debtor shall cure
any defaults with respect to such Claim by making payment
to the holder of such Class 2D Claim of an amount, in
cash, equal to the Allowed Amount due in respect of
defaults, and (2) the Debtor shall execute an undertaking
binding it to repay such Class 2D Claim in full, in
accordance with the tenor and terms of the agreement
underlying such Class 2D Claim, without (except as
permitted by ss. 1124(2) of the Code) altering the legal,
equitable and contractual rights to which such Class 2D
Claim entitles the holder thereof, including,
<PAGE> 20
without limitation, the retention by such holder of the
property of the Debtor securing such Claim. The execution
by the Debtor of such undertaking shall automatically
reinstate the maturity of such Class 2D Claim as such
maturity existed immediately before occurrence of defaults
subject to cure with respect to such Class 2D Claim and
any acceleration resulting therefrom.
(iv) Treatment of Class 2D Claims under Section 3.4(d)(iii)
election. In the event the Debtor elects, in accordance
with Section 3.4(d) of the Plan to treat a particular
Class 2D Claim in accordance with Section 3.4(d)(iii) of
the Plan, on the Effective Date, the Debtor shall
distribute to each holder of a Class 2D Claim for which an
Allowed Amount has been determined as of the Effective
Date, an amount, in cash, equal to one hundred percent
(100%) of the Allowed Amount of such holder's Class 2D
Claim, unless less favorable treatment of such Claim is
otherwise agreed upon by such holder and the Debtor, in
which case such holder shall be paid in accordance with
such agreement.
4.4. Distributions to holders of Class 3A Claims; general unsecured
Claims. On the Effective Date (or as promptly thereafter as may be practicable),
the Debtor shall distribute, to each holder of a Class 3A Claim for which an
Allowed Amount has been determined as of the Effective Date, such holder's Pro
Rata share (rounded in accordance with Section 5.8 of the Plan) of the New
Payless Common Stock to be distributed in accordance with the provisions of
Section 3.5 of the Plan.
4.5. Distribution to holders of Class 3B Claims. On the Effective Date
(or as promptly thereafter as may be practicable), the Debtor shall distribute,
to each holder of a Class 3B Claim for which an Allowed Amount has been
determined as of the Effective Date, an amount, in cash, equal to 25% of the
Allowed Amount of such holder's Class 3B Claims.
4.6. Distributions to holders of Class 4A Interests; Old Payless
Preferred Stock. On the Effective Date (or as promptly thereafter as may be
practicable), the Debtor shall distribute to each holder of a Class 4A Interest
for which an Allowed Amount has been determined as of the Effective Date, such
holder's Pro Rata share (rounded in accordance with Section 5.8 of the Plan) of
the New Payless Common Stock, if any, to be distributed in accordance with the
provisions of Section 3.6 of the Plan.
4.7. Distributions to holders of Class 5A Interests; Old Payless Common
Stock. On the Effective Date (or as promptly thereafter as may be practicable),
the Debtor shall distribute to each holder of a Class 5A Interest for which an
Allowed Amount has been determined as of the Effective Date, such holder's Pro
Rata share (rounded in accordance with Section 5.8 of the Plan) of the New
Payless Common Stock, if any, to be distributed in accordance with the
provisions of Section 3.7 of the Plan.
<PAGE> 21
4.8. Stock Options. Any stock options referred to in Section 3.8 of the
Plan that have not been exercised on or before the Confirmation Date shall be
deemed to have been cancelled and shall be of no further force or effect
immediately after the Effective Date.
4.9. Record Date. For the purpose of establishing the ownership of
Claims and Interests so as to determine to whom distributions shall be made
under the Plan, the Debtor shall establish a record date therefor, which record
date shall either be approved by the Prepetition Agent and the Unsecured
Creditors' Committee or by a Final Order.
ARTICLE V.
DISPUTED CLAIMS, DISPUTED INTERESTS, RESERVES
AND MISCELLANEOUS DISTRIBUTION PROVISIONS
5.1. Objections. An objection to the allowance of a Claim or Interest
shall be in writing and may be filed with the Bankruptcy Court by the Debtor or
by any other party in interest at any time on or before the later of (i) sixty
days after the Confirmation Date, or (ii) such other time period as may be fixed
by the Bankruptcy Court.
5.2. Amendment of Claims. A Claim may be amended prior to the Effective
Date only as agreed upon by the Debtor and the holder of such Claim or as
otherwise permitted by the Bankruptcy Court and Bankruptcy Rules. After the
Effective Date, a Claim may be amended to decrease, but not to increase, the
Face Amount thereof.
5.3. Reserves for Disputed Claims and Disputed Interests. On the
Effective Date, unless the Bankruptcy Court otherwise agrees, the Debtor shall
establish a reserve account for the account of the holders of Disputed Claims or
Disputed Interests, and shall from time to time on or after the Effective Date
put into such reserve account that property (Cash and/or securities) which would
otherwise be distributable to such holders on or after the Effective Date were
such Disputed Claims or Disputed Interests to be Allowed Claims or Allowed
Interests respectively, on the Effective Date or on such later dates on which
such distributions would otherwise be made, or such other property (Cash and/or
securities) as the holders of such Disputed Claims or Disputed Interests and the
Debtor may agree upon. The Debtor reserves the right to seek an order of the
Bankruptcy Court estimating the amount of any Disputed Claim or Disputed
Interest for the purposes of making distributions into the reserve account
established pursuant to this Section 5.3. The property so reserved for the
holder of such Disputed Claims or Disputed Interests shall be distributed to the
relevant holders, only to the extent such Disputed Claims or Disputed Interests
are allowed, and only after such Disputed Claims become Subsequently Allowed
Claims or such Disputed Interests become Subsequently Allowed Interests. To the
extent interest is earned on reserved Cash, such interest shall be held by the
Debtor as additional reserved Cash for the account of the holder for whom such
reserved Cash is held; reserved Cash shall be distributed to the holder of a
Subsequently Allowed Claim in accordance with Section 5.5 of the Plan. To the
extent a permitted dividend payment is received for or on account of a reserved
security, such dividend payment shall be held by the Debtor as additional
reserved property for the account of the holder for whom such reserved security
is held, and shall be
<PAGE> 22
distributed to such holder to the extent such holder becomes entitled to the
reserved security with respect to which the dividend payment was received.
5.4. Investment of reserves. Except as otherwise provided in an order
of the Bankruptcy Court, the Debtor shall deposit or invest all Cash held from
time to time in reserve consistent with ss. 345 of the Code or as otherwise
permitted by an order of the Bankruptcy Court dated as of the Filing Date, in
each case consistent with the DIP Facility, giving due regard for the Debtor's
likely need for such monies to satisfy Subsequently Allowed Claims.
5.5. Distributions to holders of Subsequently Allowed Claims or
Subsequently Allowed Interests. Unless another date is agreed on by the Debtor
and the holder of a particular Subsequently Allowed Claim or Subsequently
Allowed Interest, the Debtor shall, on the later of the Effective Date and the
tenth (10th) day after the Allowed Amount of such theretofore Disputed Claim or
Disputed Interest is determined, distribute to such holder with respect to such
Subsequently Allowed Claim or Subsequently Allowed Interest (as the case may
be):
(a) Distribution of cash. To the extent such holder is entitled to a
distribution of Cash, that amount, in Cash, from the Cash held
in reserve for such holder with respect to such theretofore
Disputed Claim and, to the extent such reserve is insufficient,
from any other source of Cash otherwise available to the Debtor,
equal to that amount of Cash which would have been distributed
to such holder on the Effective Date (or on such other date or
dates of distribution as provided in Article III) had such
holder's Subsequently Allowed Claim been an Allowed Claim on the
Effective Date or on any such later date plus interest thereon
calculated at the average rate of interest actually earned by
the Debtor from time to time (net of any costs of investment) on
all Cash reserved pursuant to Section 5.4 of the Plan from the
Effective Date (or from such other date or dates of distribution
as provided in Article III) through the date on or about which
distribution is made to such holder; and
(b) Distribution of New Payless Common Stock. To the extent such
holder is entitled to a distribution of New Payless Common
Stock, from the New Payless Common Stock held in reserve with
respect to such theretofore Disputed Claims or Disputed
Interests, that number of shares (rounded in accordance with
paragraph 5.8 of the Plan) of New Payless Common Stock reserved
equal to the number of shares allocable to such holder based on
the Face Amount of its Claim or Interest multiplied by the
Subsequent Allowance Fraction.
Except as hereinabove provided, the holder of a Subsequently Allowed Claim or
Subsequently Allowed Interest shall not be entitled to any interest on the
Allowed Amount of its Claim or Interest, regardless of when distribution thereon
is made to or received by such holder.
5.6. Fluctuation in value of securities. The market value of securities
held in reserve for distribution by the Debtor is likely to fluctuate; the
Debtor does not represent or warrant that the value of any such securities will
not decline after the Effective Date (or after such other date of distribution
as provided in Article III) or otherwise assume any risk of loss which the
holder of a
<PAGE> 23
Subsequently Allowed Claim or Subsequently Allowed Interest may suffer by reason
of any decline in value of a reserved security pending determination of the
Allowed Amount of a Disputed Claim or Disputed Interest. Any appreciation or
depreciation in the value of any reserved securities shall be borne by the party
to whom such security is ultimately distributed.
5.7. Excess reserves; Subsequent Distributions. As each Disputed Claim
becomes a Subsequently Allowed Claim, the Debtor shall become obligated to
distribute on the next Distribution Date to the holders of Allowed Claims of the
Class that would have been entitled to receive such property had such Disputed
Claim never been a Disputed Claim, all property reserved for, but not
distributed to, the holder of such Subsequently Allowed Claim (including
interest, if any earned thereon) as a consequence of the Allowed Amount of such
Claim having been fixed at less than the Face Amount thereof.
5.8. Rounding; Fractional Shares. Whenever any payment of a fraction of
a cent in Cash would otherwise be called for, the actual payment shall reflect a
rounding of such fraction to the nearest whole cent (rounding down in case of
fractions of .5 or less). Whenever any delivery of a fractional share of New
Payless Common Stock shall otherwise be called for, no such fractional shares
shall be so delivered, but rather the provisions of paragraph 5.13 of the Plan
shall be applicable.
5.9. Unclaimed Property. The Debtor shall make distributions of
property to holders of Claims and Interests at those times and in the manner set
forth in the Plan. Subject to the provision of paragraph 5.16 of the Plan, in
the event that any distribution of property remains unclaimed for a period of
two years (or if said second anniversary is not a Business Day, then the next
Business Day after said second anniversary) after it has been delivered (or
after such delivery has been attempted) or otherwise made available in
accordance with the Plan to the holder entitled thereto, such unclaimed property
shall, on the next Business Day after such second anniversary, be forfeited by
such holder, whereupon all such unclaimed property shall be distributed on the
next Distribution Date to the holders of Allowed Claims or Allowed Interests of
the Class that would have been entitled to receive such property had such holder
theretofore entitled thereto never been such a holder.
5.10. Transmittal of distributed property and notices. Except as may
otherwise be agreed to by the Debtor and the holder of a particular Claim or
Interest, any property or notice to which such holder shall become entitled
under the provisions of this Plan, shall be delivered to such holder by regular
mail, postage prepaid, in an envelope addressed to such holder as he or his
authorized agent may direct in a request filed, on or before the Effective Date,
with the Court (or filed, after the Effective Date, with the Company), but if no
such request is filed, to the address shown in the Debtor's Schedules, or, if a
different address is stated in a proof of claim duly filed, to such address. In
all cases where delivery or distribution is effectuated by mail, the date of
delivery or distribution shall be the date of mailing. Property delivered in
accordance with this paragraph will be deemed delivered to the holder regardless
of whether such property is actually received by such holder. Notwithstanding
any provision of the Plan to the contrary, any payment or other distribution
which the Debtor is required, by this Plan, to make to the holder of an Allowed
Claim on the Distribution Date or on any other date, shall be deemed timely made
if
<PAGE> 24
made on the Distribution Date or on such other date, as the case may be, or
within three (3) Business Days thereafter; however, any interest calculations
required to be made, shall continue to be made only through the Distribution
Date or such other date, as the case may be. Notwithstanding the foregoing or
any other provision of the Plan, Class 2A Effective Date Payments shall be made
by wire transfer on the Effective Date without offset, reduction or credit of
any kind whatsoever.
5.11. Full and final satisfaction. All payments and distributions under
this Plan shall be in full and final satisfaction, settlement, release and
discharge of all Claims and Interests.
5.12. Allocation of distribution with respect to certain Claims. All
payments and distributions made under this Plan with respect to a particular
Claim shall be allocated first to the principal and then to the accrued and
unpaid interest components of the Allowed Amount of such Claim; provided,
however, that this Section 5.12 shall not be applicable to Class 1, Class 2A,
Class 2B, Class 2C or Class 2D.
5.13. Fractional Shares and De Minimis Distributions. Whenever the Plan
would require the distribution to any holder of a Claim or Interest of a
fractional share of New Payless Common Stock, the fraction will not be issued to
the holder. Instead, on the 180th day after the Effective Date, the Debtor will
pay to the holder Cash equal to the value of the fractional share the holder
would otherwise receive. The value of each fraction shall be computed by
multiplying the fraction by the average of the closing prices of New Payless
Common Stock on the Nasdaq National Market System (or, if the New Payless Common
Stock is not listed on the Nasdaq National Market System, such other listing for
such Stock as is otherwise obtained in accordance with Section 12.5 of the Plan)
for the period of twenty trading days ending on or immediately before the 170th
day after the Effective Date. Notwithstanding any other provision of the Plan,
no distribution of less than $5 shall be made pursuant to this Section 5.13.
5.14. De Minimis Distributions. Notwithstanding any provision of the
Plan otherwise requiring that a distribution be made of Cash and/or securities
on any Distribution Date, if the Company determines that the amount of Cash or
quantity of securities required to be so distributed does not warrant (given the
anticipated time and expenses to be incurred to accomplish the distribution)
making such distribution, the Cash and/or securities otherwise available for
distribution shall be held by the Company and shall be added to the distribution
to be made on the next Distribution Date.
5.15. Cramdown. In the event any Class of Claims votes against the
Plan, and such Plan is not revoked or withdrawn in accordance with Section 14.7
of the Plan, the terms of this Plan may be modified or amended by the Debtor
with the consent of the Required Existing Lenders and the Required Exit Lenders
in their respective judgments reasonably exercised to the extent necessary to
effect a "cramdown" on such dissenting Class. The Debtor may make such
modifications or amendments to this Plan with such consent, and such
modifications or amendments shall be filed with the Court and served on all
parties in interest entitled to receive notice of the hearing on the
confirmation of the Plan at least 10 days prior to such hearing.
<PAGE> 25
5.16. Surrender of Outstanding Securities.
(a) Except as otherwise provided herein, each holder of a
certificated security evidencing an Allowed Interest (including
Class 4A and Class 5A) shall surrender such certificated
security to the Debtor or the Company with a duly executed
letter of transmittal. No distribution hereunder shall be made
to or on behalf of any holder of such Interest unless and until
such certificated security is received or the nonavailability of
such certificated security is established to the satisfaction of
the Debtor or the Company. The Debtor or the Company may
reasonably require security and/or indemnity from the purported
holder of such certificated security to hold it harmless in
respect of such certificated security and any distributions made
in respect thereof.
(b) Each holder of an existing debt security (including the holders
of Class 2B Claims and the holders of Class 3A Claims in respect
of the Senior Subordinated Notes, but not including the holders
of Allowed Class 2A Claims) and each holder of an existing
security with respect to a Class 2C Claim will surrender
instruments representing such existing debt security or existing
security held by it to the Debtor or the Company, as applicable
in exchange for the distributions to be made to such holders
under the Plan. No distribution shall be made to any holder of
such an existing debt security or existing security that has not
so surrendered such instruments held by it, subject, however to
section 5.16(c).
(c) Any holder of a Claim based on an existing debt security or
existing security which has been lost, stolen, mutilated, or
destroyed shall, in lieu of surrendering such existing debt
security or existing security as provided in this paragraph,
deliver to the Debtor or the Company (i) evidence satisfactory
to the Debtor or the Company of the loss, theft, mutilation or
destruction of such existing debt security or existing security
and (ii) such security or indemnity as may be reasonably
required by the Debtor or the Company to save it harmless with
respect thereto. Upon compliance with this subparagraph by a
holder of a Claim based on an existing debt security or existing
security, such holder shall, for all purposes under this Plan,
be deemed to have surrendered such existing debt security or
existing security.
(d) Any holder of an existing debt security or existing security who
shall not have surrendered or be deemed to have surrendered
instruments representing its existing debt security or existing
security within two years after the Effective Date shall receive
no distributions on such claim under this Plan and shall be
forever barred from asserting any claim thereon.
(e) At any time after the initial distribution to the holders of
existing debt securities or existing securities contemplated by
the Plan, the Company shall hold the New Payless Common Stock
not so distributed because the holder of an existing debt
security or existing security has not surrendered to the Debtor
or the Company its instrument or certificate representing its
existing debt security or existing security.
<PAGE> 26
Until the second year after the Effective Date, any property so
held by the Company will be held in trust for the benefit of
holders of existing debt securities or existing securities
entitled to receive such property.
5.17. Disputed Payments. If any dispute arises as to the identity of a
holder of an Allowed Claim or an Allowed Interest who is to receive any
distribution, the Company may, in lieu of making such distribution to such
person, make such distribution into an escrow account until the disposition
thereof shall be determined by the Bankruptcy Court or by written agreement
among the interested parties to such dispute.
5.18. Withholding Taxes. Any federal or state withholding taxes or
other amounts required to be withheld under any applicable law shall be deducted
and withheld from any distributions hereunder.
5.19. Voting of Certain Securities. New Payless Common Stock that is
unclaimed or is property held in Disputed Claims reserves shall be voted at any
meeting of the stockholders of the Company in proportion to the vote of the
publicly held shares of New Payless Common Stock voted at any such meeting.
5.20. Claims Incurred After the Confirmation Date. Claims incurred
after the date and time of entry of the Confirmation Order shall not be subject
to application or proof of claim and may be paid by the Company in the ordinary
course of business and without further Bankruptcy Court approval.
ARTICLE VI.
MEANS OF IMPLEMENTATION OF PLAN
6.1. On the Effective Date, the Corporate Reorganization shall be
effectuated by means of the Agreement and Plan of Merger to reincorporate
Payless under the laws of the State of Delaware becoming effective. The
Agreement and Plan of Merger shall authorize the issuance of a sufficient number
of shares of New Payless Common Stock to satisfy the Debtor's obligations under
the Plan, and the Company's certificate of incorporation shall be in form and
substance similar to that to be annexed as Exhibit B to the Plan on or prior to
the Confirmation Date, which document shall be satisfactory in form and
substance to the Debtor, the Required Existing Lenders, the Required Exit
Lenders and the Unsecured Creditors' Committee in their respective judgments
reasonably exercised. The Company's bylaws shall be in form and substance
similar to those to be annexed as Exhibit C to the Plan on or prior to the
Confirmation Date, which document shall be satisfactory in form and substance to
the Debtor, the Required Existing Lenders, the Required Exit Lenders and the
Unsecured Creditors' Committee in their respective judgments reasonably
exercised.
6.2. On the Effective Date, the Company shall continue to operate its
businesses, except as otherwise contemplated hereby.
<PAGE> 27
6.3. On the Effective Date, the conditions to closing under the Exit
Facility shall be satisfied or waived by the requisite creditors (if they so
elect in accordance with the New Credit Agreement) and the Exit Facility shall
become available to the Company for its financing requirements.
6.4. Payments to be Made on Account of Allowed Class 2A Claims. The
manner of disposition of the inventory at the 29 stores to be closed pursuant to
the Business Plan shall be satisfactory to the Required Existing Lenders in
their judgment reasonably exercised. Notwithstanding any term or provision of
this Plan, between the Confirmation Date and the Effective Date, the Debtor
shall continue to pay all interest (on a current basis), and the letter of
credit and other fees and amounts owing (including, without limitation, cash
management fees, overdraft repayments and all reasonable out-of-pocket expenses
and reasonable attorneys' and advisors' fees and disbursements) as adequate
protection to the holders of Allowed Class 2A Claims.
ARTICLE VII.
CONDITIONS TO EFFECTIVENESS OF THE PLAN
7.1. Conditions to Effective Date of Plan. Except as otherwise provided
in Section 7.2 of the Plan, it shall be a condition to the occurrence of the
Effective Date that:
(a) The Debtor and the Exit Lenders shall have closed (as such term
is used therein) the Exit Facility contemporaneously with the
Effective Date and all conditions thereto shall have been
satisfied or waived by the Exit Lenders;
(b) The DIP Facility shall have terminated, and all amounts owing
thereunder shall have been paid in full, in cash;
(c) The Confirmation Order shall have been entered, in form and
substance acceptable to the Debtor, the Required Existing
Lenders and the Required Exit Lenders, in their respective
judgments reasonably exercised, and shall have become a Final
Order; and
(d) The Corporate Reorganization, if any, shall have been
consummated substantially contemporaneously with the Effective
Date.
7.2. Waiver of Conditions. The conditions contained in Section 7.1 of
the Plan may be waived on or before the Effective Date by the Debtor, the
Required Existing Lenders and the Required Exit Lenders and the Unsecured
Creditors' Committee in their respective judgments reasonably exercised;
provided, however, that the consent of the Unsecured Creditors' Committee shall
not be required for the waiver of the condition set forth in Section 7.1(c) that
the Confirmation Order shall have become a Final Order; and provided further,
that the condition set forth in Section 7.1(d) may be waived on or before the
Effective Date with the consent of the Debtor only. To be effective any such
waiver must be in writing and filed with the Bankruptcy Court.
<PAGE> 28
ARTICLE VIII.
TREATMENT OF EXECUTORY CONTRACTS
8.1. Assumption. On the Confirmation Date (but subject to the
occurrence of the Effective Date), the Debtor shall be deemed to have assumed,
in accordance with ss. 365 of the Code, any and all executory contracts and
unexpired leases to which the Debtor is a party, except those which: (a) prior
to the Confirmation Date shall have been rejected; (b) at the Confirmation Date
are the subject of pending motions to reject or are included on a list to be
delivered to the Bankruptcy Court at or before the hearing on the confirmation
of the Plan or (c) are stock options referred to in Section 3.8 of the Plan .
The dollar amount of any monetary default of the Debtor existing (as of the
Confirmation Date) under a particular unexpired lease or executory contract, as
may be agreed to by the parties thereto or as may be determined by the
Bankruptcy Court, shall constitute an Administrative Expense upon the assumption
of such executory contract or unexpired lease.
ARTICLE IX.
MANAGEMENT OF THE COMPANY
9.1. Officers and Directors.
(a) On the Effective Date, the Company's Board of Directors shall be
reconstituted to consist of two individuals designated by the Unsecured
Creditors' Committee; five individuals designated by the Required Existing
Lenders; and two individuals designated by the Board of Directors of the Debtor,
the term of each director to be acceptable to the Debtor, the Prepetition Agent,
the Required Existing Lenders and the Unsecured Creditors' Committee, and the
identity of the directors shall be disclosed at or prior to the hearing before
the Bankruptcy Court to consider the confirmation of the Plan.
(b) The persons who will serve as the Chief Executive Officer, the President and
the Chief Financial Officer of the Company commencing on the Effective Date will
be disclosed at or prior to the hearing before the Bankruptcy Court to consider
the confirmation of the Plan. The capability and expertise of all proposed
executive officers and directors of the Company must be satisfactory to the
Prepetition Agent, the Required Existing Lenders and the Required Exit Lenders.
9.2. Management Stock Option Program. The Company may adopt a
management stock option program on terms approved by the Company's Board of
Directors providing for the issuance of stock options to the Company's
management from time to time on or after the Effective Date exercisable into New
Payless Common Stock.
<PAGE> 29
ARTICLE X.
WAIVER OF RIGHTS OF SUBORDINATION
10.1. Each holder of a Claim against the Debtor (a) by virtue of the
acceptance of the Plan by the requisite majority in number and amount of its
Class, or (b) by virtue of the acceptance of the Plan by such holder, waives,
releases and relinquishes any and all rights arising under any Prepetition
subordination agreement, whether arising out of contract or under applicable
law, including, without limitation, ss. 510 of the Code (other than ss. 510(c)),
to the payment and distributions of consideration made or to be made under the
Plan or otherwise to any other holder of a Claim against the Debtor.
Notwithstanding anything contained herein to the contrary, all rights of
subordination arising under ss. 509 of the Code shall be preserved and shall be
unaffected by operation of this Section 10.1 of the Plan.
ARTICLE XI.
DISCHARGE; RELEASE OF CLAIMS AND COLLATERAL
11.1. Discharge; Injunction. Except as otherwise provided in the
Confirmation Order or in the Plan (e.g., with respect to Allowed Class 2A Claims
and Allowed Class 2B Claims), upon the Effective Date the Debtor shall be
discharged, pursuant to ss. 1141(d)(1) of the Code, from all Claims and all
debts that arose before the Confirmation Date and from any liability of a kind
specified in ss. 502(g), ss. 502(h) or ss. 502(i) of the Code, whether or not:
(a) a proof of the Claim is filed or deemed filed under ss.502 of the
Code;
(b) such Claim is allowed under ss. 502 of the Code; or
(c) the holder of such Claim has accepted the Plan.
In accordance with ss. 524 of the Code, the discharge provided by this Section
11.1 and ss. 1141 of the Code, inter alia, acts as an injunction against the
commencement or continuation of any action, employment of process or act to
collect, offset or recover the Claims or Interests discharged hereby.
11.2. Release of collateral for Class 2D Claims. Unless otherwise
agreed between the Debtor and the holder of a particular Class 2D Claim, each
holder of a Class 2D Claim shall on or immediately before the Effective Date
turn over and release to the Debtor any and all property of the Debtor which
secures such holder's Class 2D Claim. Such holder shall execute whatever
documents or forms the Debtor may reasonably require to evidence, as a matter of
record, such holder's release of the collateral; provided, however, that such
collateral will be deemed released for all purposes, whether or not any such
documents or forms have been executed. On the Confirmation Date, the property of
the debtor-in-possession shall revert to the Company free and clear of any and
all liens or encumbrances, except as otherwise provided in the Plan or as agreed
by the Debtor and the holder of a particular Class 2D Claim.
<PAGE> 30
11.3. Revesting. Except as otherwise provided in the Confirmation Order
or in the Plan (e.g., with respect to Allowed Class 2A Claims, Allowed Class 2B
Claims, Allowed Class 2C Claims and Allowed Class 2D Claims), on the Effective
Date all property comprising the estate created in the Chapter 11 Case by ss.
541 of the Code shall revest in the Company, free and clear of all Claims,
liens, charges, encumbrances and Interests of creditors and equity security
holders. As of the Effective Date, the Company may operate its businesses and
use, acquire and dispose of property and settle and compromise claims or
interests without supervision of the Bankruptcy Court free of any restrictions
of the Code or Bankruptcy Rules, other than those restrictions expressly imposed
by the Plan, the Confirmation Order, the Post-Consummation Facility and the Exit
Facility. Without limiting the foregoing, the Company may pay the charges it
incurs after the Effective Date for reasonable professional fees, disbursements,
expenses or related support services without any application to the Bankruptcy
Court.
11.4. Release by the Debtor of certain potential claims. On the date
that is 10 days before the Confirmation Date, but subject to the occurrence of
the Effective Date, the Debtor shall be deemed to have released, waived and
relinquished any and all rights or claims they may have or had to avoid,
pursuant to ss.ss. 544, 547 and 548 of the Code, any transfer made by the Debtor
of an interest in its property prior to the Filing Date, or to offset any such
right or claim against any Claim made or asserted against the Debtor; provided,
however, that no such right or claim shall be deemed released in connection with
any adversary proceeding or contested matter pending on such 10th day before the
Confirmation Date. Notwithstanding anything to the contrary contained herein or
in the Existing Credit Facility or the Exit Facility, any recoveries received by
or on behalf of the Debtor in respect of any such adversary proceeding or
contested matter shall be used to reduce the then outstanding balance of
revolving credit loans, if any, under the DIP Facility or the Exit Facility (as
the case may be) (without any reduction in the amount of the commitment
thereunder) and the balance, if any, shall be paid to the Debtor and used by it
for general corporate purposes.
11.5. Survival of indemnification obligations; Maintenance of Liability
Insurance. The obligations of the Debtor to indemnify those directors, officers,
employees, agents, advisors, professional persons and representatives of the
Debtor, who have served in such capacity since the Filing Date and continue to
so serve on the Confirmation Date, pursuant to the Debtor's articles of
incorporation, bylaws and applicable statutes in respect of all present and
future actions, suits and proceedings against any of such officers, directors,
employees, agents, advisors, professional persons and representatives, based
upon any act or omission related to service with or for or on behalf of the
Debtor, shall not be discharged or impaired by confirmation or consummation of
the Plan but shall survive unaffected by the reorganization contemplated by the
Plan as obligations of the Company, regardless of such confirmation,
consummation and reorganization. To the extent practicable, the current
directors and officers liability insurance policies maintained by the Debtor, or
replacement policies affording substantially similar coverage and protection,
shall be continued in effect after the Effective Date by the Company.
11.6. Certain other releases. On the Confirmation Date, but subject to
the occurrence of the Effective Date:
<PAGE> 31
(a) each holder of a Claim or Interest whose Claim or Interest is in
a Class in which one or more members receives a distribution
under the Plan, shall be deemed, by virtue of such receipt under
the Plan, to have unconditionally waived, discharged and
released all rights, claims and causes of action in respect of
the Debtor and its business affairs prior to the Effective Date
that such holder had or might have had against any other holder
of a Claim or Interest (including such other holder's agents,
advisors, professional persons, representatives, parent
corporations, subsidiaries, affiliates, directors, officers and
employees) to the extent, but only to the extent, that such
rights, claims or causes of action are capable of assertion in a
derivative or other representative capacity;
(b) the Debtor, on its own behalf, unconditionally waives,
discharges and releases all rights, claims and causes of action
in respect of the Debtor and its business affairs prior to the
Effective Date that the Debtor had or might have had against the
Debtor's employees, agents, advisors, professional persons and
representatives of the Debtor; and
(c) pursuant toss.1141(d) of the Code, each holder of a Claim or
Interest (i) who has accepted the Plan, (ii) whose Claim or
Interest is in a Class that has accepted the Plan as determined
in accordance withss.ss.1126(c) and (d) of the Code,
respectively, or that is deemed to have accepted the Plan in
accordance withss.ss.1126(f) of the Code, or (iii) who is
entitled to receive a distribution of property pursuant to the
Plan, shall be deemed, by virtue of such holder's acceptance of
the Plan, acceptance of the Plan by such holder's Class, or such
holder's receipt of a distribution of property or acceptance of
rights granted under the Plan, to have unconditionally waived,
discharged and released all rights, claims, and causes of action
that such holder had or might have had against the Debtor;
provided, however, that (x) notwithstanding anything to the contrary contained
in this Section 11.6, neither the directors nor the officers of the Debtor are
released or discharged from any claims which any holder of any Claim or Interest
may have against any such director or officer, (y) the releases set forth in
this Section 11.6 do not extend to liabilities with respect to the Payless
Cashways, Inc. Amended Retirement Plan (the "Pension Plan"), and (z) such
waiver, discharge and release shall not apply to any debt instruments or
securities of the Debtor distributed pursuant to the Plan.
11.7. Release of Bank Parties. Notwithstanding Section 11.6 of the
Plan, on the Confirmation Date, but as of, and subject to the occurrence of, the
Effective Date, the Debtor (on its own behalf, and on behalf of all the Debtor's
shareholders derivatively) and every holder of a Claim or Interest hereby
irrevocably waive, release and discharge all current and former Existing Lenders
and DIP Lenders, the Underwriters, the Prepetition Agent, the Agent and any
predecessor Prepetition Agent or Agent, CIBC as Hedging Bank and Letter of
Credit Bank under the Existing Credit Facility, the holders of Cash Management
Obligations under the Existing Credit Facility, the Fronting Banks under the DIP
Facility, the former Foreign Exchange Bank under the Existing Credit Facility,
and all persons or entities who were their respective directors, officers,
<PAGE> 32
employees, agents, advisors, professional persons, representatives, parent
corporations, subsidiaries and affiliates (collectively, the "Bank Parties"),
from any and all causes of action, claims and other liabilities based upon any
act or omission related to the Debtor and its business affairs, including,
without limitation, any extensions of credit or other financial services or
accommodations made or not made to the Debtor prior to the Effective Date. The
Confirmation Order shall specifically provide for the foregoing releases and
shall enjoin the prosecution of any such released claim, causes of action or
liability.
11.8. Survival of obligations pursuant to the Pension Plan. On the
Confirmation Date and thereafter, the Debtor shall continue to maintain the
Pension Plan for the benefit of its employees (including complying with
statutory minimum funding requirements). Accordingly, the obligations of the
Debtor with respect to the Pension Plan shall not be discharged or impaired by
confirmation or consummation of the Plan but shall survive unaffected by the
reorganization contemplated by the Plan as obligations of the Company.
ARTICLE XII.
PROVISIONS RELATING TO CORPORATE STRUCTURE
OF THE COMPANY UPON CONSUMMATION
12.1. Certificate of Incorporation. The certificate of incorporation of
the Company shall, as of Effective Date, become effective as provided in Section
6.1 of the Plan. The certificate of incorporation of the Company shall as of the
Effective Date be amended, consistent with ss. 1123(a)(6) of the Code, to
prohibit the issuance of non-voting equity securities.
12.2. Cancellation of Agreements and Interests. On the Effective Date,
all Old Payless Preferred Stock, Old Payless Common Stock, any unexercised
rights to purchase Old Payless Preferred Stock or Old Payless Common Stock and
agreements relating to the Existing Credit Facility (except to the extent
provided for in the New Credit Agreement), the Existing Prudential Facility and
the Existing Synthetic Lease Facility then outstanding (other than any
mortgages, deeds of trust and security and pledge agreements which may be
amended and restated or otherwise remain in effect) shall be deemed cancelled
and of no further force or effect, except as evidence of the entitlement of the
holder thereof to receive distributions of property from the Debtor under the
Plan.
12.3. Cancellation of Senior Subordinated Note Indentures. The rights
and obligations of Payless under the Senior Subordinated Note Indenture and the
Senior Subordinated Notes issued thereunder shall be terminated and cancelled as
of the Effective Date.
12.4. Cancellation of Stock Options. Immediately after the Effective
Date, all stock options referred to in Section 3.8 of the Plan shall be deemed
cancelled and of no further force or effect.
12.5. Stock Trading. The Company shall use its best efforts to have the
New Payless Common Stock traded on the Nasdaq National Market System.
<PAGE> 33
12.6. Corporate Reorganization. Substantially contemporaneously with
the Effective Date, the Corporate Reorganization, if any, shall be consummated.
As set forth in Section 14.12 of the Plan, no further action by stockholders or
directors of Debtor or otherwise shall be required in respect of the Corporate
Reorganization.
ARTICLE XIII.
RETENTION OF JURISDICTION
13.1. After the Effective Date, the Bankruptcy Court shall retain
jurisdiction of the Chapter 11 Cases pursuant to and for the purposes of ss.ss.
105(a) and 1127 of the Code and for the following purposes, inter alia:
(a) To consider any modification of the Plan under ss. 1127 of the
Code;
(b) To determine any and all objections to the allowance of Claims
and/or Interests;
(c) To determine any and all fee requests of professionals made
pursuant toss.ss. 330 and 503(b) of the Code;
(d) To determine any and all applications pending on the
Confirmation Date for the rejection and disaffirmance or
assumption or assignment of executory contracts, or any such
items contained in the list referred to in Section 8.1 of the
Plan, and the allowance of Claims resulting therefrom;
(e) To determine all controversies and disputes arising under, or in
connection with, the Plan and all agreements or releases
referred to in the Plan;
(f) To determine any and all applications, contested matters or
adversary proceedings pending on the Confirmation Date or filed
thereafter seeking to adjudicate the relative interests and
priorities in and to property of the Debtor's estate or
otherwise;
(g) To effectuate payments under, and performance of, the provisions
of the Plan; and
(h) To determine such other matters and for such other purposes as
may be provided for in the Confirmation Order.
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
14.1. Governing Law. Except to the extent the Code or Bankruptcy Rules
are applicable, the rights and obligations arising under this Plan shall be
governed by and construed and enforced in accordance with, the laws of the State
of Missouri.
<PAGE> 34
14.2. Headings. The headings of the Articles, Sections and subsections
of this Plan are inserted for convenience only and shall not affect the
interpretation of the Plan.
14.3. Successors and assigns. This Plan and all the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
14.4. Notices. Any notice, demand, claim, or other communication under
this Plan shall be in writing and shall be deemed to have been given upon
personal delivery thereof, or upon the fifth (5th) day following mailing
thereof, if sent by registered mail, return receipt requested, postage prepaid
to the last known address of the party to whom such notice is given.
14.5. Amendment and modification.
(a) Preconfirmation Amendment. The Debtor may modify the Plan at any
time prior to the entry of the Confirmation Order, with the consent of the
Required Existing Lenders and the Required Exit Lenders in their respective
judgments reasonably exercised; provided that the Plan, as modified, and the
disclosure statement pertaining thereto meet applicable Bankruptcy Code
requirements.
(b) Postconfirmation Amendment Not Requiring Resolicitation. After the
entry of the Confirmation Order, the Debtor may modify the Plan to remedy any
defect or omission or to reconcile any inconsistencies in the Plan or in the
Confirmation Order, as may be necessary to carry out the purposes and effects of
the Plan, provided that: (i) the Debtor obtains approval of the Bankruptcy Court
for such modification, after notice and a hearing; and (ii) such modification
shall not materially and adversely affect the interests, rights, treatment, or
distributions of any Class of Allowed Claims or Allowed Interests under the
Plan. Any waiver under Section 7.2 of the Plan shall not be considered to be a
modification of this Plan and no further Court approval need be obtained.
(c) Postconfirmation/Preconsummation Amendment Requiring
Resolicitation. After the Confirmation Date and before the Effective Date of the
Plan, the Debtor may modify the Plan in a way that materially and adversely
affects the interests, rights, treatment, or distributions of a class of Claims
or Interests; provided, however, that: (i) the Plan, as modified, meets
applicable Bankruptcy Code requirements; (ii) the Debtor obtains Court approval
for such modification, after notice and a hearing; (iii) such modification is
accepted by at least two-thirds in amount, and more than one-half in number, of
Allowed Claims and by at least two-thirds in amount of Allowed Interests voting
in each Class adversely affected by such modification; and (iv) the Debtor
complies with ss. 1125 of the Code with respect to the Plan as modified.
14.6. Severability. Should any provision in the Plan be determined to
be unenforceable, such determination shall in no way limit or affect the
enforceability and operative effect of any or all other provisions of the Plan.
In the event that any provision of the Plan would, by its inclusion in the Plan,
prevent or preclude the Bankruptcy Court from signing the Confirmation Order,
the Bankruptcy Court, on its own initiative or upon the request of a party in
interest, may modify or amend or permit the modification or amendment of such
provision, in whole or in part, as nec-
<PAGE> 35
essary to cure any defect or remove any impediment to the confirmation of the
Plan existing by reason of such provision; provided, however, that any such
modification or amendment shall in no way limit or affect the enforceability and
operative effect of any or all other provisions of this Plan; and provided
further that in the event of such modification or amendment the Debtor reserves
its right to revoke and withdraw the Plan.
14.7. Revocation and Withdrawal. The Debtor reserves the right to
revoke and withdraw this Plan prior to the Confirmation Date. If the Debtor
revokes or withdraws this Plan, then this Plan shall be deemed null and void and
nothing contained herein shall be deemed to constitute a waiver or release of
any claims by or against the Debtor or any other person or to prejudice in any
manner the rights of the Debtor or any person in any further proceedings
involving the Debtor.
14.8. Time. In computing any period of time prescribed or allowed by
this Plan, the day of the act or event from which the designated period begins
to run shall not be included. The last day of the period so computed shall be
included, unless it is not a Business Day, in which event the period runs until
the end of the next succeeding Business Day.
14.9. Rules of Construction. As used in the Plan, singular terms shall
include the plural, plural terms shall include the singular, and masculine
pronouns shall include all pronouns. Unless the Plan expressly provides
otherwise, the rules set forth in ss. 102 of the Code shall govern
interpretation of the provisions of the Plan.
14.10. Consent. Wherever the Plan requires that a particular act be
taken (or a particular act not be taken) with the consent of any person or
persons, such consent shall be valid only if such consent has been given in
writing and has been signed by the person or persons whose consent is required,
or by such person's or persons' duly authorized representative; provided,
however, that any consents given pursuant to Section 7.2 of the Plan may be
given orally at any court hearing at which a transcript is taken, in lieu of any
requirement of a writing. Consent given by a majority of the voting members of
the Unsecured Creditors' Committee shall be deemed to be the consent of the
Unsecured Creditors' Committee. Consent given by the holders of Allowed Claims
and Allowed Interests of a Class meeting the acceptance standards set forth in
ss. 1126 of the Code shall be deemed to be the consent of such Class.
14.11. Dissolution of Unsecured Creditors' Committee and Equity
Committee. Except as otherwise provided in any order of the Bankruptcy Court, on
the later of the Effective Date or the date the new board of directors takes
office, the duties of the Unsecured Creditors' Committee and the Equity
Committee shall terminate, except with respect to any appeal of any order in the
Chapter 11 Case, fee applications and any matters related to any proposed
modifications of the Plan. Notwithstanding the foregoing, the financial advisors
to the Unsecured Creditors' Committee shall continue to be paid by the Company
through the Potential Standstill Period (as hereinafter defined) for purposes of
monitoring on behalf of trade creditors those provisions of the Exit Facility
which provide, upon the satisfaction of certain conditions, for a thirty day
grace period with respect to financial covenant defaults, if any, during the
first two fiscal quarters ending after the Effective Date (the "Potential
Standstill Period").
<PAGE> 36
14.12. Corporate Action. The adoption of any new or amended and
restated certificates of incorporation and by-laws of the Debtor or the Company
and the other matters provided for under the Plan involving the corporate
structure of the Debtor or the Company (including, without limitation, the
Corporate Reorganization), or corporate action, as the case may be, to be taken
by or required of the Debtor or the Company shall be deemed to have occurred and
be effective as provided herein and shall be authorized and approved in all
respects, without any requirement of further action by stockholders or directors
of the Debtor or the Company. Without limiting the foregoing, the Debtor and the
Company shall be authorized, without any further act or action required, to
issue all securities and any instruments required to be issued hereunder,
including sufficient New Payless Common Stock in respect of any exercise of
stock options referenced in Section 9.2 of the Plan.
14.13. Effectuating Documents and Further Transactions. The Debtor
shall be authorized to execute, deliver, file or record such documents,
contracts, instruments, releases, and other agreements and take such other
action as may be necessary to effectuate and further evidence the terms and
conditions of the Plan.
14.14. Limitation of Liability. Neither the Debtor, the Unsecured
Creditors' Committee and the Equity Committee (including their respective
members), the Bank Parties, nor any of their respective officers, directors,
employees, agents, advisors, professional persons and representatives shall have
or incur any liability to any entity for any action taken or omitted to be taken
in connection with or related to the formulation, preparation, dissemination,
implementation, confirmation, or consummation of the Plan, the Disclosure
Statement, or any contract, release, or other agreement or document created or
entered into, or any other action taken or omitted to be taken, in connection
with the Plan; provided, however, that the provisions of this section shall have
no effect on the liability of any entity that would otherwise result from any
action or omission to the extent that such action or omission is determined in a
final order of a court of competent jurisdiction to have constituted gross
negligence or willful misconduct.
14.15. Trustee's Compensation. The Trustee shall be entitled to
receive, out of the distributions to be made pursuant to Section 4.4 or 4.5 of
the Plan to the holders of Class 3A Claims or Class 3B Claims, in each case in
respect of the Senior Subordinated Notes, such compensation for its services and
reimbursement for its expenses (including fees and expenses of its Counsel) as
shall be found to be reasonable by the Bankruptcy Court pursuant to ss.
1129(a)(4) of the Code. To secure its right to receive the payments described
above in this Section 14.15, the Trustee shall have a lien prior to the interest
of the holders of Class 3A Claims or Class 3B Claims, in each case in respect of
the Senior Subordinated Notes, on all distributions to be made pursuant to
Section 4.4 or 4.5 of the Plan to such holders, and in connection therewith,
notwithstanding anything to the contrary contained in the Plan, all such
distributions shall be paid by the Debtor to the Trustee for further
distribution by the Trustee to such holders. Such lien shall survive the
satisfaction and discharge of the Senior Subordinated Note Indenture.
<PAGE> 37
Dated: Kansas City, Missouri
October 9, 1997
Submitted by:
PAYLESS CASHWAYS, INC.
By: /s/ David Stanley
--------------------------------------
David Stanley
Chief Executive Officer
<PAGE> 1 Exhibit 10.1
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 30th day of June, 1997, between
Payless Cashways, Inc., an Iowa corporation (the "Company"), and Susan M.
Stanton (the "Executive").
WHEREAS, the Company and the Executive have entered into an employment agreement
dated February 8, 1993 (the "Employment Agreement"), as amended by Amendment No.
1 to Employment Agreement dated October 17, 1996 ("Amendment No. 1");
WHEREAS, the parties mutually desire to amend the Employment Agreement and
Amendment No. 1;
NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the parties agree as follows:
1. All references to the date of "March 1, 1998" contained within
Amendment No. 1 are hereby deleted and the date of "March 1, 1999" is
substituted in lieu thereof. The reference to the year "1998" contained within
Paragraph 4 of Amendment No. 1 is hereby deleted and the year "1999" is
substituted in lieu thereof.
2. A new Paragraph 6(g)(vi) is hereby inserted in the Employment
Agreement, as follows:
"Outplacement Benefits. The Company, at its expense, will provide to
the Executive such outplacement benefits as would be appropriate for a
senior officer of a company substantially equivalent in size to the
Company in terms of sales, profits, number of employees, geographic
location and organizational structure, as determined by a national
outplacement service provider selected by Company."
In witness whereof, the parties have executed this Amendment No. 2 to Employment
Agreement as of the day and year written above.
PAYLESS CASHWAYS, INC. EXECUTIVE
By: /s/ David Stanley /s/ Susan M. Stanton
------------------------------------- ------------------------
Chairman and Chief Executive Officer Susan M. Stanton
Approval by the Compensation Committee of the Board of Directors of the Company
is hereby confirmed.
/s/ John Weitnauer, Jr.
------------------------------------------
John Weitnauer, Jr.
<PAGE> 1 Exhibit 4.2
Exhibit C to Revolving
Credit Agreement
SECURITY AND PLEDGE AGREEMENT
SECURITY AND PLEDGE AGREEMENT (the "Agreement"), dated as of July 21, 1997, by
and between PAYLESS CASHWAYS, INC., an Iowa corporation (the "Grantor"), a
debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code, and
CANADIAN IMPERIAL BANK OF COMMERCE, as coordinating agent and collateral agent
(in such capacity, the "Agent") for the lenders (the "Lenders") party to the
Credit Agreement (as hereinafter defined) and the Fronting Banks and
Underwriters (each as therein defined):
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Agent, the Lenders, the Fronting Banks, the Underwriters and the
Grantor are entering into a Revolving Credit Agreement, dated as of the date
hereof (as amended, amended and restated, modified or supplemented from time to
time, the "Credit Agreement"); and
WHEREAS, unless otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined; and
WHEREAS, it is a condition precedent to the making of Loans and the
issuance of Letters of Credit that the Grantor shall have granted a security
interest, pledge and lien on substantially all of the Grantor's assets and
properties and the proceeds thereof to the Agent pursuant to Sections 364(c)(2),
364(c)(3) and 364(d) of the Bankruptcy Code; and
WHEREAS, the grant of such security interest, pledge and lien has been
authorized pursuant to Section 364(c)(2), 364(c)(3) and 364(d)(1) of the
Bankruptcy Code by the Interim Order and, after the entry thereof, will have
been so authorized by the Final Order (collectively, the "Order"); and
WHEREAS, to supplement the Order without in any way diminishing or
limiting the effect of the Order or the security interest, pledge and lien
granted thereunder, the parties hereto desire to set forth more fully their
respective rights in connection with such security interest, pledge and lien;
and
WHEREAS, this Agreement has been approved by the Order;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make Loans and the Fronting Banks to issue Letters of Credit, the
Grantor hereby agrees with the Agent as follows:
SECTION 1. Grant of Security and Pledge. The Grantor hereby transfers,
grants, bargains, sells, conveys, hypothecates, assigns, pledges and sets over
to the Agent for its benefit and the ratable benefit of the Lenders, the
Fronting Banks and the Underwriters and hereby grants to the Agent for its
benefit and the ratable benefit of the Lenders, the Fronting Bank and the
Underwriters, a perfected pledge and security interest in all of the Grantor's
right, title and interest in and to the following (the "Collateral"), which
pledge and security interest shall be (x) for all purposes senior to, and shall
prime pursuant to Section 364(d)(1) of the Bankruptcy Code, all of the existing
Liens that secure the obligations of the Grantor under the Existing Agreements
and any Liens granted after the Filing Date to provide adequate protection in
respect of the Existing Agreements, (y) junior to the Prudential Lien
hereinafter referred to and subject to the prior rights of the Credit Card Banks
under the GE Credit Program Documents with respect to certain accounts
receivable, returned merchandise and general intangibles financed thereunder and
Commerce under the Commerce Bank Agreement with respect to certain documents,
inventory and related collateral and (z) subject to the Carve-Out:
(a) all present and future accounts, accounts receivable and
other rights of the Grantor to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether now
existing or hereafter arising and wherever arising, and
<PAGE> 2
whether or not they have been earned by performance (collectively, the
"Accounts"); it being agreed that the security interest and lien granted hereby
in and on any Account representing a GECC Receivable, Contractor Receivable
or Monogram Receivable (each as hereinafter defined) shall only attach to
those of such Receivables which the Borrower purchases pursuant to the terms
of the GE Credit Program Documents and, as to such Receivables, shall be
subject and subordinate to perfected security interests in or liens on such
Account in favor of any Credit Card Bank, as well as to any rights of set-off
or recoupment of the Credit Card Banks in respect of such Account;
(b) all goods and merchandise now owned or hereafter acquired
by the Grantor wherever located, whether in the possession of the Grantor or of
a bailee or other person for sale, storage, transit, processing, use or
otherwise consisting of whole goods, components, supplies, materials, or
consigned, returned or repossessed goods) which are held for sale or lease or to
be furnished (or have been furnished) under any contract of service or which are
raw materials, work-in-process, finished goods or materials used or consumed in
the Grantor's business or processed by or on behalf of the Grantor
(collectively, the "Inventory"); it being agreed that the security interest and
lien granted hereby in and on any Inventory constituting returned merchandise in
respect of a Contractor Receivable or a Monogram Receivable shall be subject and
subordinate to perfected security interests in or liens on such Inventory in
favor of any Credit Card Bank;
(c) all machinery, all manufacturing, distribution, selling,
data processing and office equipment, all furniture, furnishings, appliances,
fixtures and trade fixtures, tools, tooling, molds, dies, vessels, aircraft and
all other goods of every type and description (other than Inventory) which are
used or bought for use primarily in business, in each instance whether now owned
or hereafter acquired by the Grantor and wherever located (collectively, the
"Equipment");
(d) all cars, trucks, trailers, construction and earth moving
equipment and other vehicles covered by a certificate of title law of any state
wherever located and whether now owned or hereafter acquired, and, in any event,
shall include, without limitation, the vehicles listed on Schedule 7 hereto, and
all tires and other appurtenances to any of the foregoing (collectively, the
"Vehicles");
(e) all rights, interests, choses in action, causes of action,
claims and all other intangible property of the Grantor of every kind and nature
(other than Accounts, Trademarks, Patents and Copyrights), in each instance
whether now owned or hereafter acquired by the Grantor, including, without
limitation, all general intangibles; all corporate and other business records;
all loans, royalties, and other obligations receivable; all inventions, designs,
trade secrets, computer programs, software, printouts and other computer
materials, goodwill, registrations, copyrights, licenses, franchises, customer
lists, credit files, correspondence, and advertising materials; all customer and
supplier contracts, firm sale orders, rights under license and franchise
agreements, and other contracts and contract rights; all interests in
partnerships and joint ventures; all tax refunds and tax refund claims; all
right, title and interest under leases, subleases, licenses and concessions and
other agreements relating to real or personal property; all payments due or made
to the Grantor in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of any property by any person or governmental authority;
all deposit accounts (general or special) with any bank or other financial
institution; all credits with and other claims against carriers and shippers;
all rights to indemnification; all reversionary interests in pension and profit
sharing plans and reversionary, beneficial and residual interest in trusts; all
proceeds of insurance of which the Grantor is beneficiary; and all letters of
credit, guaranties, liens, security interest and other security held by or
granted to the Grantor; and all other intangible property, whether or not
similar to the foregoing; in
<PAGE> 3
each instance, however and wherever arising, but
excluding any contract, agreement or license which prohibits the assignment or
encumbrance by the Grantor of such contract, agreement or license (or of its
rights thereunder), except to the extent that such prohibition would be
ineffective pursuant to Section 9-318(4) of the Uniform Commercial Code as in
effect in the State of New York (collectively, the "General Intangibles"); it
being agreed that the security interest and lien granted hereby in and on any
General Intangibles representing a GECC Receivable or other obligation of any
Credit Card Bank to the Grantor shall be subject and subordinate to perfected
security interests in or liens on such General Intangible in favor of any Credit
Card Bank, as well as to any rights of set-off or recoupment of such Credit Card
Bank in respect of such General Intangible;
(f) all chattel paper, all instruments, all notes (including,
but not limited to, the notes listed on Schedule 8 annexed hereto and made a
part hereof) (the "Pledged Notes") and debt instruments and all payments
thereunder and instruments and other property from time to time delivered in
respect thereof or in exchange therefor, and all bills of lading, warehouse
receipts and other documents of title and documents, in each instance whether
now owned or hereafter acquired by the Grantor;
(g) all property or interests in property now or hereafter
acquired by the Grantor which may be owned or hereafter may come into the
possession, custody or control of the Agent or any of the Lenders or the
Fronting Banks or any agent or affiliate of the Agent or any of the Lenders in
any way or for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise), and all rights and interests of the
Grantor, now existing or hereafter arising and however and wherever arising, in
respect of any and all (i) notes, drafts, letters of credits, stocks, bonds, and
debt and equity securities, whether or not certificated, and warrants, options,
puts and calls and other rights to acquire or otherwise relating to the same;
(ii) money (including all cash and cash equivalents held in the Letter of Credit
Accounts (as defined and referred to in the Credit Agreement)); (iii) proceeds
of loans, including, without limitation, Loans made under the Credit Agreement;
and (iv) insurance proceeds and books and records relating to any of the
property covered by this Agreement; together, in each instance, with all
accessions and additions thereto, substitutions therefor, and replacements,
proceeds and products thereof;
(h) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos and other source or business identifiers, prints and labels on which said
trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos and other source
or business identifiers, have appeared or appear, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, and
all registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, or any other country or political subdivision thereof (except for
"intent to use" applications for trademark or service mark registrations filed
pursuant to Section 1(b) of the Lanham Act, unless and until an Amendment to
Allege Use or a Statement of Use under Sections 1(c) of said Act has been
filed), all whether now owned or hereafter acquired by the Grantor, including,
but not limited to, those described in Schedule 3 annexed hereto and made a part
hereof, and all reissues, extensions or renewals thereof and all licenses
thereof together, in each case, with the goodwill of the business connected with
the use of, and symbolized by each such trademark, service marks, trade name and
trade dress (all of the foregoing being herein referred to as the "Trademarks");
(i) all letters patent of the United States or any other
country, and all registrations
<PAGE> 4
and recordings thereof, including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by the Grantor, including,
but not limited to, those described in Schedule 4 annexed hereto and made apart
hereof, and (ii) all reissues, continuations, continuations-in-part or
extensions thereof and all licenses thereof (all of the foregoing being herein
referred to as the "Patents");
(j) all copyrights of the United States, or any other country,
and all registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof, or
any other country or political subdivision thereof, all whether now owned or
hereafter acquired by the Grantor, including, but not limited to, those
described in Schedule 5 hereto and all renewals and extensions thereof and all
licenses thereof (all of the foregoing being herein referred to as the
"Copyrights");
(k) all books, records, ledger cards and other property at any
time evidencing or relating to the Accounts, Inventory, Equipment, Vehicles,
General Intangibles, Trademarks, Patents or Copyrights;
(l) (i) all the shares of capital stock owned by the Grantor,
listed on Schedule 6 hereto of the issuers listed thereon (individually, an
"Issuer", and collectively, the "Issuers") and all shares of capital stock of
any Issuer obtained in the future by the Grantor and the certificates
representing or evidencing all such shares (the "Pledged Shares"); (ii) all
other property which may be delivered to and held by the Agent in respect of the
Pledged Shares pursuant to the terms hereof; (iii) subject to Section 9 below,
all dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed, in respect of, in exchange for or upon the
conversion of the securities referred to in clauses (i) and (ii) above; and (iv)
subject to Section 9 below, all rights and privileges of the Grantor, as
applicable, with respect to the securities and other property referred to in
clauses (i), (ii) and (iii) (the items referred to in clauses (i) through (iv)
being collectively called the "Pledged Stock Collateral");
(m) all other personal property of the Grantor, whether
tangible or intangible, and whether now owned or hereafter acquired; and
(n) all proceeds and products of any of the foregoing, in any
form, including, without limitation, any claims against third parties for loss
or damage to or destruction of any or all of the foregoing.
As used herein, the following terms shall have the following meanings:
"Contractor Receivables" shall mean those certain commercial credit
accounts sold by the Grantor or extended directly to a Grantor customer by a
Credit Card Bank (including any documents, instruments, chattel paper or
intangibles evidencing any such transferred receivable or the transaction giving
rise thereto) (i) pursuant to the terms of the GE Credit Program Documents or
(ii) to any other Person pursuant to any similar contractual arrangement (but in
such case solely to the extent such an arrangement is permitted by Section 5.9
of the Credit Agreement).
"Credit Card Banks" shall mean General Electric Capital Corporation and
Monogram Credit Card Bank of Georgia.
<PAGE> 5
"Existing Credit Agreement" shall mean that certain Amended and
Restated Credit Agreement, dated as of October 3, 1996, among the Grantor, the
Existing Lenders, the Agent, CIBC as Letter of Credit Bank and the Co-Agents
named therein, as amended, amended and restated, supplemented or modified from
time to time.
"Existing Lenders" shall mean, collectively, those certain financial
institutions which have provided loans and other extensions of credit to the
Grantor under, among other agreements, the Existing Credit Agreement, together
with any successors or assigns thereof.
"GECC Receivables" shall mean receivables (including any documents,
instruments, chattel paper or intangibles evidencing any such transferred
receivable or the transaction giving rise thereto) (i) payable to the Grantor by
Credit Card Banks pursuant to the terms of the GE Credit Program Documents
arising out of sales of merchandise or services made by the Grantor or (ii)
payable to or purchased by any other Person pursuant to any similar contractual
arrangement solely to the extent such an arrangement is permitted by Section 5.9
of the Credit Agreement.
"GE Credit Program Documents" shall mean (a) the Amended and Restated
Monogram Credit Card Bank of Georgia Program Agreement, dated as of July 20,
1997, between the Grantor and Monogram Credit Card Bank of Georgia, as such
agreement may hereafter be amended, restated, supplemented or modified from time
to time to the extent permitted by the Credit Agreement, together with any
agreements entered into by the Grantor and Monogram Credit Card Bank of Georgia,
or any affiliate, in replacement of such agreement to the extent permitted by
the Credit Agreement; and (b) the Second Amended and Restated Commercial Credit
Account Purchase and Service Program Agreement, dated as of July 20, 1997,
between the Grantor and General Electric Capital Corporation, as such agreement
may hereafter be further amended, restated, supplemented or modified from time
to time to the extent permitted by the Credit Agreement, together with any
agreement entered into by the Grantor and General Electric Capital Corporation,
or any affiliate, in replacement of such agreement to the extent permitted by
the Credit Agreement.
"Monogram Receivables" shall mean all obligations now or hereafter
owing to, and all rights now or hereafter acquired by, Monogram Credit Card Bank
of Georgia arising out of any of the private label credit card sales referred to
in clause (i) of the definition of "GECC Receivables."
"Prudential" shall mean the Prudential Insurance Company of America.
"Prudential Lien" shall mean Liens in existence on the date hereof
granted under the Prudential Real Estate Financing.
"Prudential Loan Agreement" shall mean the Loan Agreement, dated June
20, 1989, by and among the Borrower, Knox Home Centers, Inc., Somerville and
Prudential, as the same has been and may hereafter be amended, amended and
restated, modified or supplemented to the extent permitted by this Agreement.
"Prudential Real Estate Financing" shall mean the financing by
Prudential provided for by the Prudential Loan Agreement and other documentation
executed and delivered in connection therewith.
<PAGE> 6
The Agent acknowledges that, for purposes of this Security and Pledge
Agreement, (i) the private label credit card sales and commercial account sales
referred to in clause (i) of the definition of "GECC Receivables" constitute
extensions of credit directly from Monogram to cardholders or true sales of
accounts and indebtedness from the Grantor to GECC, (ii) the Grantor has no
right, title or interest in or to any Monogram Receivables or Contractor
Receivables, except to the extent the Grantor purchases such receivables
pursuant to the terms of the GE Credit Program Documents and (iii) except to the
extent so purchased by the Grantor, no Monogram Receivable or Contractor
Receivable shall constitute Collateral (or any category of property included
within the definition thereof) for purposes of this Security and Pledge
Agreement. The Agent agrees with the Grantor that neither the security interest
created herein nor any related financing statements may be assigned by the Agent
unless, prior to any such assignments, such financing statements are amended (a)
to include the definition of "GE Credit Program Documents" set forth herein, and
(b) specifically to exclude the Monogram Receivables and the Contractor
Receivables from the collateral covered by such financing statements.
SECTION 2. Security for Obligations. This Agreement and the Collateral
secure the prompt and complete payment and performance when due of all
obligations of the Grantor, now or hereafter existing, under the Credit
Agreement, the Notes and the other Loan Documents, whether for principal,
interest, fees, expenses or otherwise, including (without limitation) all
obligations of the Grantor now or hereafter existing under or in respect of this
Agreement including, but not limited to, (a) the due and punctual payment of
principal of and interest on the Loans and the Notes and the reimbursement of
all amounts drawn under Letters of Credit, and (b) the due and punctual payment
of the Fees, indemnities and all other present and future, fixed or contingent,
direct or indirect, monetary obligations of the Grantor to the Lenders, the
Fronting Banks, the Underwriters and the Agent under the Loan Documents (all
such obligations of the Grantor being herein called the "Obligations").
SECTION 3. Delivery of Pledged Stock Collateral and Pledged Notes;
Other Action. Upon written request by the Agent (and without further order of
the Bankruptcy Court), all certificates or instruments representing or
evidencing the Pledged Stock Collateral and the Pledged Notes shall be delivered
to and held by the Agent pursuant hereto and shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Agent. Upon the occurrence and during the
continuance of any Event of Default, the Agent shall have the right (for the
ratable benefit of the Lenders), at any time in its discretion and without
notice to the Grantor, to transfer to or to register in the name of the Agent or
any of its nominees any or all of the Pledged Stock Collateral and all of the
Pledged Notes.
SECTION 4. Representations and Warranties. The Grantor represents and
warrants as follows:
(a) All of the Inventory and/or Equipment is located at the
places specified in Schedule 1 hereto. The chief places of business and chief
executive offices of the Grantor and the offices where the Grantor keeps its
records concerning any Accounts and all originals of all chattel paper which
evidence any Account are located at the places specified in Schedule 2 hereto.
All trade names under which the Grantor has sold and will sell Inventory are
listed on Schedule 3 hereto.
<PAGE> 7
(b) The Grantor owns the Collateral free and clear of any
lien, security interest, charge or encumbrance except for the security interest
created by this Agreement and except as permitted under Section 6.1 of the
Credit Agreement. No effective financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any recording
office, except (x) such as may have been filed in favor of the Agent relating to
this Agreement or in connection with the Existing Credit Agreement in favor of
the Agent thereunder and (y) in favor of any holder of a Lien otherwise
permitted under Section 6.1 of the Credit Agreement.
(c) As of the Filing Date, the Grantor does not own any
material Trademarks, Patents or Copyrights or have any material Trademarks,
Patents or Copyrights registered in, or the subject of pending applications in,
the United States Patent and Trademark Office or any similar office or agency in
any other country or any political subdivision thereof, other than those
described in Schedules 3, 4 and 5 hereto. The registrations for the Collateral
disclosed on such Schedules 3, 4 and 5 hereto are valid and subsisting and in
full force and effect. None of the material Patents or Copyrights have been
abandoned or dedicated.
(d) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(e) The Grantor is the legal and beneficial owner of the
Pledged Shares described on Schedule 6 free and clear of any lien, security
interest, option or other charge or encumbrance, except for the security
interest created by this Agreement and the Orders and Liens created pursuant to
the Existing Agreement and except as disclosed on Schedule 6.
(f) The Pledged Shares described in Section 1(l) hereof
constitute all of the issued and outstanding shares of stock of each of the
Issuers and no Issuer is under any contractual obligation to issue any
additional shares of stock or any other securities, rights or indebtedness.
(g) The Vehicles listed on Schedule 7 hereto constitute a
complete and correct list of all Vehicles owned by the Grantor as of the
Effective Date.
(h) The Pledged Notes delivered at any time by the Grantor to
the Agent in accordance with this Agreement or the Credit Agreement shall at all
times constitute all of the Pledged Notes owned by the Grantor at each such
time.
(i) Except for the Orders, no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant and pledge by the Grantor
of the security interests granted hereby or for the execution, delivery or
performance of this Agreement by the Grantor or (ii) for the perfection of the
security interests or the exercise by the Agent of its rights and remedies
hereunder.
SECTION 5. Further Assurances.
(a) The Grantor agrees that from time to time, at the expense
of the Grantor, it will promptly execute and deliver all further instruments and
documents, and take all further action,
<PAGE> 8
that may be necessary, or that the Agent may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Agent to exercise and enforce any of its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, and without further order of the Bankruptcy Court,
the Grantor will execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary,
or as the Agent may reasonably request, in order to perfect and preserve the
security interests granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Grantor where
permitted by law.
(c) The Grantor will furnish to the Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
(d) The Grantor hereby agrees from time to time hereafter,
that upon the acquisition or creation of additional Pledged Notes, that it will
execute and deliver to the Agent, for the benefit of the Lenders, the Fronting
Banks and the Underwriters, such additional Pledged Notes, in each case,
accompanied by appropriate endorsements executed in blank.
SECTION 6. As to Equipment and Inventory. The Grantor shall:
(a) Keep the Equipment and Inventory (other than Inventory
sold in the ordinary course of business) at the places specified therefor in
Schedule 1 hereto or, upon 30 days' prior written notice to the Agent, at other
places in jurisdictions where all action required by Section 5 shall have been
taken to assure the continuation of the perfection of the security interest of
the Agent (for its benefit and the ratable benefit of the Lenders, the Fronting
Banks and the Underwriters) with respect to the Equipment and Inventory.
(b) Maintain or cause to be maintained in good repair, working
order and condition, excepting ordinary wear and tear and damage due to
casualty, all of the Equipment, and make or cause to be made all appropriate
repairs, renewals and replacements thereof, to the extent not obsolete and
consistent with past practice of the Grantor, as quickly as practicable after
the occurrence of any loss or damage thereto which are necessary or reasonably
desirable to such end.
(c) With respect to the Inventory: (a) the Grantor shall at
all times maintain records with respect to Inventory reasonably satisfactory to
the Agent, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, the Grantor's cost therefor and
daily withdrawals therefrom and additions thereto; (b) the Grantor shall conduct
a physical count of the Inventory at least once each year, but at any time or
times as the Agent may request on or after an Event of Default occurs and is
continuing, and promptly following such physical inventory shall supply the
Agent with a report in the form and with such specificity as may be reasonably
satisfactory to the Agent concerning such physical count; (c) the Grantor shall
not remove any Inventory from the locations set forth or permitted herein,
without the prior written consent of the Agent, except for sales of Inventory
and returns of Inventory to vendors, in each case
<PAGE> 9
in the ordinary course of the Grantor's business and except to move Inventory
directly from one location set forth or permitted herein to another such
location; (d) in addition to the requirements set forth above, upon the Agent's
request, the Grantor shall, at its expense, conduct through the Asset Support
Group or another inventory counting service reasonably acceptable to the Agent,
or shall permit the Agent to conduct (if the Agent so elects), a physical count
of the Inventory in form, scope and methodology reasonably acceptable to the
Agent no more than once in any twelve (12) month period, but at any time or
times as the Agent may request on or after an Event of Default occurs and is
continuing, the results of which shall be reported directly by such inventory
counting service to the Agent and the Grantor shall promptly deliver
confirmation in a form satisfactory to the Agent that appropriate adjustments
have been made to the Inventory records of the Grantor to reconcile the
Inventory count to the Grantor's Inventory records; (e) the Grantor shall
produce, use, store and maintain the Inventory, with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including, but not limited to, the requirements
of the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders related thereto); (f) the Grantor retains all of its
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; and (g) the Grantor shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate the Grantor to repurchase such Inventory
(other than in the ordinary course of business consistent with past practices
and policies of the Grantor or current market practice).
SECTION 7. As to Accounts.
(a) The Grantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning the
Accounts, and the offices where it keeps all originals of all chattel paper
which evidence Accounts, at the location therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent, at such other locations in a
jurisdiction where all actions required by Section 5 shall have been taken with
respect to the Accounts. The Grantor will hold and preserve such records and
chattel paper and will permit representatives of the Agent, at any time during
normal business hours, to inspect and make abstracts from such records and
chattel paper in accordance with Section 5.6 of the Credit Agreement.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall continue to collect in accordance with its customary practice, at
its own expense, all amounts due or to become due to the Grantor under the
Accounts and, prior to the occurrence of an Event of Default, the Grantor shall
have the right to adjust, settle or compromise the amount or payment of any
Account, or release wholly or partly any account debtor or obligor thereof, or
allow any credit or discount thereon, all in accordance with its customary
practices. In connection with such collections, the Grantor may, upon the
occurrence and during the continuation of an Event of Default, take (and at the
direction of the Agent shall take) such action as the Grantor or the Agent may
reasonably deem necessary or advisable to enforce collection of the Accounts;
provided, that upon written notice by the Agent to the Grantor, following the
occurrence and during the continuation of an Event of Default, of its intention
so to do, the Agent shall have the right to notify the account debtors or
obligors under any Accounts of the assignment of such Accounts to the Agent and
to direct such account debtors or obligors to make payment of all amounts due or
to become due to the Grantor thereunder directly to the Agent and, upon such
notification and at the expense of the Grantor, to enforce collection of any
such Accounts, to take possession of and indorse and collect any checks,
<PAGE> 10
drafts, notes, acceptances or other instruments for payment of moneys due under
any Account, to file any claim or take any other action or proceeding in any
court of law or equity otherwise deemed appropriate by the Agent for the purpose
of collecting any such money and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Grantor might
have done. After receipt by the Grantor of the notice referred to in the proviso
to the preceding sentence, (i) all amounts and proceeds (including instruments)
received by the Grantor in respect of the Accounts shall be received in trust
for the benefit of the Agent (for the ratable benefit of the Lenders, the
Fronting Banks and the Underwriters) hereunder, shall be segregated from other
funds of the Grantor and shall be forthwith paid over to the Agent in the same
form as so received (with any necessary endorsement) to be held as cash
collateral and either (A) released to the Grantor if such Event of Default shall
have been cured or waived or (B) if such Event of Default shall be continuing,
paid to the Agent and applied to the Obligations, and (ii) the Grantor shall not
adjust, settle or compromise the amount or payment of any Account, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
(c) The Grantor will keep and maintain at its own cost and
expense satisfactory and complete records with respect to the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Accounts, and the Grantor shall make available any
such books and records to the Agent or to its representatives during normal
business hours at the request of the Agent.
SECTION 8. As to Trademarks, Patents and Copyrights.
(a) Except with respect to any Trademark that the Grantor
shall reasonably determine is of negligible economic value to it (and so advise
the Agent in writing), the Grantor shall, either itself or through licensees,
(i) continue to use the Trademarks on each and every trademark class of goods
applicable to its current line as reflected in its current catalogs, brochures
and price lists in order to maintain the Trademarks in full force free from any
claim of abandonment for nonuse, (ii) maintain as in the past the quality of
products and services offered under the Trademarks, (iii) employ the Trademarks
with the appropriate notice of registration, (iv) not adopt or use any mark
which is confusingly similar or a colorable imitation of the Trademarks unless
the Agent shall obtain a perfected security interest therein and (v) not (and
will not permit any licensee thereof to) do any act or knowingly omit to do any
act whereby any Trademark may become invalidated.
(b) The Grantor will not do any act, or omit to do any act,
whereby the Patents or Copyrights may become abandoned or dedicated and the
Grantor shall notify the Agent immediately if it knows of any reason or has
reason to know that any application or registration may become abandoned or
dedicated.
(c) The Grantor will not, either itself or through any agent,
employee, licensee or designee, (i) file an application for the registration of
any Patent or Trademark with the United States Patent and Trademark Office or
any similar office or agency in any other country or any political subdivision
thereof or (ii) file any assignment of any patent or trademark, which the
Grantor may acquire from a third party, with the United States Patent and
Trademark Office or any similar office or agency in any other country or any
political subdivision thereof, unless the Grantor shall, within 15 days after
the date of such filing, notify the Agent thereof, and, upon request of the
Agent, execute and deliver any and all assignments, agreements, instruments,
documents and papers as the
<PAGE> 11
Agent may request to evidence the Agent's interest in such Patent or Trademark
and the goodwill and general intangibles of the Grantor relating thereto or
represented thereby, and the Grantor hereby constitutes the Agent its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all lawful acts of such attorney being hereby ratified and confirmed;
such power being coupled with an interest is irrevocable until the full payment
and performance of the Obligations, the expiration or cancellation of all of the
Letters of Credit and the termination of the Commitment.
(d) The Grantor will take all reasonable and necessary steps
in any proceeding before the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, to maintain each application and
registration of all material Trademarks, Patents and Copyrights, including,
without limitation, filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings.
(e) The Grantor will, without further order of the Bankruptcy
Court, perform all acts and execute and deliver all further instruments and
documents, including, without limitation, assignments for security in form
suitable for filing with the United States Patent and Trademark Office, and the
United States Copyright Office, respectively, reasonably requested by the Agent
at any time to evidence, perfect, maintain, record and enforce the Agent's
interest in all material Trademarks, Patents and Copyrights or otherwise in
furtherance of the provisions of this Agreement, and the Grantor hereby
authorizes the Agent to execute and file one or more accurate financing
statements (and similar documents) or copies thereof or of this Agreement with
respect to material Patents, Trademarks and Copyrights signed only by the Agent.
(f) The Grantor will, upon acquiring knowledge of any use by
any person of any term or design likely to cause confusion with any material
Trademark, promptly notify the Agent of such use, and if requested by the Agent,
shall join with the Agent, at the Grantor's expense, in such action as the
Agent, in its reasonable discretion, may deem advisable for the protection of
the Agent's interest in and to the Trademarks.
SECTION 9. As to the Pledged Stock Collateral; Voting Rights;
Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be continuing:
(i) the Grantor shall be entitled to exercise any and
all voting and other consensual rights pertaining to the Pledged
Stock Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement; provided, that the
Grantor shall not exercise or shall refrain from exercising any
such right if, in the Agent's reasonable judgment, such action
would have a material adverse effect on the value of the Pledged
Stock Collateral or any part thereof;
(ii) notwithstanding the provisions of Section 1
hereof, the Grantor shall be entitled to receive and retain any
and all dividends paid in respect of the Pledged Stock Collateral;
provided, that any and all
(A) dividends paid or payable other than in
cash in respect of, and instruments and other
property received, receivable or otherwise
distributed in respect of, or in exchange for, any
Pledged Stock Collateral, and
(B) dividends and other distributions paid
or payable in cash in respect of any Pledged Stock
Collateral in connection with a partial or total
liquidation or dissolution or in connection with a
reduction of capital, capital surplus or
paid-in-surplus,
shall be, and shall be forthwith delivered to the Agent to hold
as, Pledged Stock
<PAGE> 12
Collateral and shall, if received by the
Grantor, be received in trust for the benefit of the Agent, be
segregated from the other property or funds of the Grantor, and be
forthwith delivered to the Agent as Pledged Stock Collateral in
the same form as so received (with any necessary endorsement); and
(iii) the Agent shall execute and deliver (or
cause to be executed and delivered) to the Grantor all such
proxies and other instruments as the Grantor may reasonably
request for the purpose of enabling the Grantor to exercise
the voting and other rights which it is entitled to exercise
pursuant to paragraph (i) above and to receive the dividends
which it is authorized to receive and retain pursuant to
paragraph (ii) above;
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) upon written notice from the Agent to
the Grantor to such effect, all rights of the Grantor to
exercise the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to
Section 9(a)(i) and to receive the dividends which it would
otherwise be authorized to receive and retain pursuant to
Section 9(a)(ii) shall cease, and all such rights shall
thereupon become vested in the Agent, who shall thereupon
have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged
Stock Collateral any such dividends; and
(ii) all dividends which are received by the Grantor
contrary to the provisions of paragraph (i) of this Section
9(b) shall be received in trust for the benefit of the Agent,
shall be segregated from other funds of the Grantor and shall
be forthwith paid over to the Agent as Pledged Stock
Collateral in the same form as so received (with any necessary
endorsement).
SECTION 10. Vehicles. The Grantor will maintain each Vehicle in
good operating condition, ordinary wear and tear and immaterial impairments
of value and damage by the elements excepted, and will provide all
maintenance, service and repairs necessary for such purpose. Promptly after
the date hereof and, with respect to any Vehicles acquired by the Grantor
subsequent to the date hereof, all applications for certificates of title
indicating the Agent's first priority Lien on the Vehicle covered by such
certificate, and any other necessary documentation, shall be filed by the
Grantor in each office in each jurisdiction which the Agent shall deem
advisable to perfect or protect its Liens on the Vehicles. In connection
with the foregoing, the Grantor shall notify the Agent, in writing, within
30 days after the date of acquisition, of each Vehicle acquired subsequent
to the date hereof.
SECTION 11. Insurance. The Grantor shall, at its own expense,
maintain insurance with respect to the Inventory and Equipment in such
amounts, against such risks, in such form and with such insurers, as is
provided for in Section 5.3 of the Credit Agreement. Following an Event of
Default and during its continuance, the Grantor shall, at the request of
the Agent, duly execute and deliver instruments of assignment of such
insurance policies and cause the respective insurers to acknowledge notice
of such assignment.
Upon the occurrence and during the continuance of any Event of
Default, all insurance payments in respect of such Inventory and Equipment
shall be held, paid to the Agent and applied to the Obligations.
SECTION 12. Transfers to Others; Liens; Additional Shares.
The Grantor shall not:
<PAGE> 13
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except for dispositions
otherwise permitted by the Credit Agreement.
(b) Create or suffer to exist any lien, security interest
or other charge or encumbrance upon or with respect to any of the
Collateral to secure any obligation of any person or entity, except for the
security interest created by this Agreement and the Orders, or except as
otherwise permitted by the Credit Agreement.
(c) The Grantor agrees that it will (i) cause each of the
Issuers not to issue any stock or other securities in addition to or
substitution for the Pledged Shares issued by such Issuer, except to the
Grantor and (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all such additional shares of
stock or other securities of each Issuer of the Pledged Shares.
SECTION 13. Agent's Appointment as Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact (which
appointment shall be irrevocable and deemed coupled with an interest), with
full authority in the place and stead of the Grantor and in the name of the
Grantor or otherwise, from time to time in the Agent's discretion, upon and
during the occurrence and continuation of an Event of Default, to take any
action and to execute any instrument which the Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(i) to obtain and adjust insurance required to
be paid to the Agent pursuant to Section 11;
(ii) to ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the
Collateral;
(iii) to receive, endorse, and collect any drafts
or other instruments, documents and chattel paper, in
connection with clause (i) or (ii) above;
(iv) to receive, endorse and collect all
instruments made payable to the Grantor representing any
dividend or other distribution in respect of the Pledged Stock
Collateral or any part thereof and to give full discharge for
the same;
(v) to file any claims or take any action or
institute or defend any proceedings which the Agent may deem
necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Agent
with respect to any of the Collateral;
(vi) to direct any party liable for any payment in
respect of or arising out of any of the Collateral to make payment
of any and all moneys due or to become due thereunder directly to
the Agent or as the Agent shall direct;
(vii) to settle, compromise or adjust any suit,
action or proceeding described in clause (v) above and, in
connection therewith, to give such discharges or releases as the
Agent may deem appropriate;
(viii) to set off or cause to be set off amounts in
any account maintained with any Lender, Underwriter or Fronting
Bank or otherwise enforce rights against any of the Collateral in
the possession of any Lender, Underwriter or Fronting Bank; and
<PAGE> 14
(ix) generally, to sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Agent were the
absolute owner thereof for all purposes, and to do, at the Agent's
option and the Grantor's expense, at any time, or from time to
time, all acts and things which the Agent deems necessary to
protect, preserve or realize upon the Collateral and the Agent's
Liens thereon and to effect the intent of this Agreement, all as
fully and effectively as the Grantor might do.
SECTION 14. Agent May Perform. If the Grantor fails
to perform any agreement contained herein, the Agent may itself
perform, or cause performance of, such agreement, and the expenses
of the Agent incurred in connection therewith shall be payable by
the Grantor under Section 17(b).
SECTION 15. The Agent's Duties. The powers conferred
on the Agent hereunder are solely to protect its interest and the
interests of the Lenders in the Collateral and shall not impose
any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights
pertaining to any Collateral, including, without limitation,
ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any
Pledged Stock Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters. Neither the Agent nor
any of the Lenders, Fronting Banks or Underwriters, nor any of
their respective directors, officers, employees, attorneys,
experts or agents shall be liable for failure to demand, collect
or realize upon all or any part of the Collateral or for any delay
in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Grantor or
otherwise. The Grantor releases the Agent, the Fronting Banks, the
Underwriters and the Lenders and their respective directors,
officers, employees, attorneys, experts and agents from any
claims, causes of action and demands at any time arising out of or
with respect to this Agreement, the Collateral, and/or any actions
taken or omitted to be taken by the Agent with respect thereto
(other than any claims, causes of action and demands arising
solely from the gross negligence or willful misconduct of the
party which desires to be so released as determined by a final
order or judgment of a court of competent jurisdiction), and the
Grantor hereby agrees to hold the Lenders and their respective
directors, officers, employees, attorneys, experts and agents
harmless from and with respect to any and all such claims, causes
of action and demands. The agreements of the Grantor contained in
this Section 15 shall survive the payment and performance of the
Obligations, the expiration or cancellation of all of the Letters
of Credit, the termination of the Commitment and the termination
of the security interests granted hereby.
SECTION 16. Remedies. If any Event of Default
shall have occurred and be continuing, and subject to the
provisions of Section 7 of the Credit Agreement:
(a) The Agent may exercise in respect of the
Collateral, in addition
<PAGE> 15
to other rights and remedies provided for
herein or otherwise available to it, and without application to or
order of the Bankruptcy Court, all the rights and remedies of a
secured party on default under the Uniform Commercial Code and
also may (i) require the Grantor to, and the Grantor hereby agrees
that it will at its expense and upon request of the Agent
forthwith, assemble all or part of the Collateral as directed by
the Agent and make it available to the Agent at a place to be
reasonably designated by the Agent and (ii) without notice except
as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Agent
may deem commercially reasonable. The Grantor agrees that, to the
extent notice of such sale shall be required by law, at least ten
days' notice to the Grantor of the time and place of any public
sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral regardless of notice of
sale having been given. The Agent may adjourn any public or
private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(b) The Agent may instruct the Grantor not to
make any further use of the Patents, Copyrights or Trademarks or
any mark similar thereto for any purpose.
(c) The Agent may license, whether general,
special or otherwise, and whether on an exclusive or nonexclusive
basis, any of the Trademarks, Patents or Copyrights throughout the
world for such term or terms, on such conditions, and in such
manner, as the Agent shall in its sole discretion determine.
(d) The Agent may (without assuming any
obligations or liability thereunder), at any time, enforce (and
shall have the exclusive right to enforce) against any licensee or
sublicensee all rights and remedies of the Grantor in, to and
under any one or more license agreements with respect to the
Collateral, and take or refrain from taking any action under any
thereof, and the Grantor hereby releases the Agent from, and
agrees to hold the Agent free and harmless from and against any
claims arising out of, any action taken or omitted to be taken
with respect to any such license agreement.
(e) In the event of any such license, assignment,
sale or other disposition of the Collateral, or any of it, the
Grantor shall supply its know-how and expertise in connection with
the manufacture and sale of the products bearing or relating to
Trademarks, Patents or Copyrights, and its customer lists and
other records relating to the Trademarks, Patents or Copyrights
and to the distribution of said products, to the Agent or its
designee.
(f) In order to implement the assignment, sale or
other disposal of any of the Trademarks, Patents or Copyrights,
the Agent may, at any time, pursuant to the authority granted in
Section 13 hereof, execute and deliver on behalf of the Grantor,
one or more instruments of assignment of the Trademarks, Patents
or Copyrights (or any application of registration thereof), in
form suitable for filing, recording or registration in any
country.
(g) All cash proceeds received by the Agent in
respect of any sale of, collection from, or other realization upon
all or any part of the Collateral may, in the discretion of the
Agent, be held by the Agent as collateral for, and then or at any
<PAGE> 16
time thereafter applied (after payment of any amounts payable to
the Agent pursuant to Section 17) in whole or in part against, all
or any part of the Obligations in such order as the Agent shall
elect. Any surplus of such cash or cash proceeds held by the Agent
and remaining after payment in full of all the Obligations shall
be paid over to the Grantor or to whomsoever may be lawfully
entitled to receive such surplus.
(h) If at any time when the Agent shall determine
to exercise its right to sell all or any part of the Pledged Stock
Collateral pursuant to this Section 16, such Pledged Stock
Collateral or the part thereof to be sold shall not be effectively
registered under the Securities Act of 1933, as amended, and as
from time to time in effect, and the rules and regulations
thereunder (the "Securities Act"), the Agent is hereby expressly
authorized to sell such Pledged Stock Collateral or such part
thereof by private sale in such manner and under such
circumstances as the Agent may deem necessary or advisable in
order that such sale may legally be effected without such
registration. Without limiting the generality of the foregoing, in
any such event the Agent, in compliance with applicable securities
laws, (a) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such
Pledged Stock Collateral or such part thereof shall have been
filed under such Securities Act, (b) may approach and negotiate
with a restricted number of potential purchasers to effect such
sale and (c) may restrict such sale to purchasers as to their
number, nature of business and investment intention including
without limitation to purchasers each of whom will represent and
agree to the satisfaction of the Agent that such purchaser is
purchasing for its own account, for investment, and not with a
view to the distribution or sale of such Pledged Stock Collateral,
or part thereof, it being understood that the Agent may cause or
require the Grantor, and the Grantor hereby agrees upon the
written request of the Agent, to cause (i) a legend or legends to
be placed on the certificates to be delivered to such purchasers
to the effect that the Pledged Stock Collateral represented
thereby have not been registered under the Securities Act and
setting forth or referring to restrictions on the transferability
of such securities; and (ii) the issuance of stop transfer
instructions to such Issuer's transfer agent, if any, with respect
to the Pledged Stock Collateral, or, if such Issuer transfers its
own securities, a notation in the appropriate records of such
Issuer. In the event of any such sale, the Grantor does hereby
consent and agree that the Agent shall incur no responsibility or
liability for selling all or any part of the Pledged Stock
Collateral at a price which the Agent may deem reasonable under
the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were
public and deferred until after registration as aforesaid.
(i) Until the payment in full in cash and
performance of all Obligations, the expiration or cancellation of
all of the Letters of Credit and the termination of the Commitment
and at any time when an Event of Default has occurred and is
continuing: (i) the Grantor will perform any and all reasonable
actions requested by the Agent to enforce the Agent's security
interest in the Inventory and all of the Agent's rights hereunder,
such as leasing warehouses to the Agent or its designee, placing
and maintaining signs, appointing custodians, transferring
Inventory to warehouses, and delivering to the Agent warehouse
receipts and documents of title in the
<PAGE> 17
Agent's name; (ii) if any
Inventory is in the possession of control of any of the Grantor's
agents, contractors or processors or any other third party, the
Grantor will notify the Agent thereof and will notify such agents,
contractors or processors or third party of the Agent's security
interest therein and, upon request, instruct them to hold all such
Inventory for the Agent's and the Grantor's account, as their
interests may appear, and subject to the Agent's instructions;
(iii) the Agent shall have the right to hold all Inventory subject
to the security interest granted hereunder; and (iv) the Agent
shall have the right to take possession of the Inventory or any
part thereof and to maintain such possession on the Grantor's
premises or to remove any or all of the Inventory to such other
place or places as the Agent desires in its sole discretion. If
the Agent exercises its right to take possession of the Inventory,
the Grantor, upon the Agent's demand, will assemble the Inventory
and make it available to the Agent at the Grantor's premises at
which it is located.
SECTION 17. Indemnity and Expenses.
(a) The Grantor agrees to indemnify the Agent from and against
any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities directly arising from the Agent's own gross
negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Agreement,(ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.
(c) The Grantor assumes all responsibility and liability
arising from the use of the Trademarks, Patents and Copyrights, and the Grantor
hereby indemnifies and holds the Agent harmless from and against any claim,
suit, loss, damage or expense (including reasonable attorneys' fees) arising out
of any alleged defect in any product manufactured, promoted or sold by the
Grantor in connection with any Trademark or out of the manufacture, promotion,
labelling, sale or advertisement of any such product by the Grantor except as
the same may have resulted from the gross negligence or willful misconduct of
the Agent.
(d) The Grantor agrees that the Agent does not assume, and
shall have no responsibility for, the payment of any sums due or to become due
under any agreement or contract included in the Collateral or the performance of
any Obligations to be performed under or with respect to any such agreement or
contract by the Grantor, and except as the same may have resulted from the gross
negligence or willful misconduct of the Agent, the Grantor agrees to indemnify
and hold the Agent harmless with respect to any and all claims by any person
relating thereto.
SECTION 18. Security Interest Absolute. All rights of the Agent and
security interests hereunder, and all Obligations of the Grantor hereunder,
shall be absolute and unconditional,
<PAGE> 18
irrespective of any circumstance which might constitute a defense available
to, or a discharge of, any guarantor or other obligor in respect of the
Obligations.
SECTION 19. Amendments; Etc. No amendment or waiver of any provision of
this Agreement, nor any consent to any departure by the Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
party against whom enforcement is sought, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
SECTION 20. Louisiana Remedies. For purposes of executory process under
applicable Louisiana law (and only for such purposes), upon the occurrence and
during the continuance of an Event of Default, the Grantor hereby acknowledges
the indebtedness owed under the Obligations, CONFESSES JUDGMENT thereon and
consents that judgment be rendered and signed, whether during the court's term
or during vacation, in favor of the Agent, for the benefit of the Lenders, the
Fronting Banks and the Underwriters, for the full amount of the Obligations.
Upon the occurrence of an Event of Default, and in addition to all of its
rights, powers and remedies under this Agreement and applicable law, the Agent
may, at its option, cause all or any part of the Collateral located in Louisiana
(the "Louisiana Collateral") to be seized and sold under executory process or
under writ of fieri facias issued in execution of an ordinary judgment obtained
upon the Obligations, without appraisement to the highest bidder, for cash or
under such terms as the Agent deems acceptable. The Grantor hereby waives all
and every appraisement of the Louisiana Collateral and waives and renounces the
benefit of appraisement of the Louisiana Collateral seized and sold under
executory or other legal process. The Grantor agrees to waive, and does hereby
specifically waive:
(1) the benefit of appraisement provided for in
Articles 2332, 2336, 2723 and 2724,
Louisiana Code of Civil Procedure, and all
other laws conferring such benefits;
(2) the demand and three days delay accorded by
Articles 2639 and 2721, Louisiana Code of
Civil Procedure;
(3) the notice of seizure required by Articles
2293 and 2721, Louisiana Code of Civil
Procedure;
(4) the three days delay accorded by Articles
2331 and 2722, Louisiana Code of Civil
Procedure;
(5) the benefit of the other provisions of
Articles 2331, 2722 and 2723, Louisiana
Code of Civil Procedure;
(6) the benefit of the provisions of any other
articles of the Louisiana Code of Civil
Procedure not specifically mentioned above;
and
(7) all rights of division and discussion with
respect to the Obligations.
Pursuant to the authority contained in La.R.S. 9:5136 through 9:5140.1, the
Grantor and the Agent
<PAGE> 19
do hereby expressly designate the Agent or its designee to
be keeper or receiver ("Keeper") for the benefit of the Agent or any assignee of
the Agent, such designation to take effect immediately upon any seizure of any
of the Louisiana Collateral under writ of executory process or under writ of
sequestration or fieri facias as an incident to an action brought by the Agent.
It is hereby agreed that the Keeper shall be entitled to receive as
compensation, in excess of its reasonable costs and expenses incurred in the
administration or preservation of the Louisiana Collateral, an amount equal to
the lesser of $200 per day or four percent of the gross revenues of the
Louisiana Collateral and the payment of such fees shall be secured by the
security interest in the Louisiana Collateral granted in this Agreement. The
designation of Keeper made herein shall not be deemed to require Mortgagee to
provoke the appointment of a Keeper.
SECTION 21. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and shall be given in accordance with
the applicable provisions of the Credit Agreement.
SECTION 22. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the payment and performance in full of the Obligations,
the expiration or cancellation of all of the Letters of Credit and the
termination of the Commitment, (ii) be binding upon the Grantor, its successors
and assigns and (iii) inure, together with the rights and remedies of the Agent
hereunder, to the benefit of the Agent and each of the Lenders, the Fronting
Banks and the Underwriters and their respective successors, transferees and
assigns. Upon the payment and performance in full of the Obligations, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Grantor subject to any existing liens, security
interests or encumbrances on such Collateral. Upon any such termination, the
Agent will, at the Grantor's expense, execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
SECTION 23. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York and by Federal law (including,
without limitation, the Bankruptcy Code) to the extent the same has pre-empted
the law of the State of New York or such other jurisdiction.
SECTION 24. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
IN WITNESS WHEREOF, the Grantor and the Agent have caused this Security
and Pledge Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
GRANTOR:
<PAGE> 20
PAYLESS CASHWAYS, INC.
By: /s/ Stephen A. Lightstone
---------------------------------
Title: Senior Vice President
AGENT:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Agent
By: /s/ Robert N. Greer
---------------------------------
Title: Assistant General Manager
<PAGE> 1 Exhibit 10.3
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 30th day of June, 1997, between
Payless Cashways, Inc., an Iowa corporation (the "Company"), and G. Michael
Buchen (the "Executive").
WHEREAS, the Company and the Executive have entered into an employment agreement
dated October 17, 1996 (the "Employment Agreement"); and
WHEREAS, the parties mutually desire to amend the Employment Agreement;
NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the parties agree as follows:
1. All references to the date of "March 1, 1998" contained within the
Employment Agreement are hereby deleted and the date of "March 1, 1999" is
substituted in lieu thereof.
In witness whereof, the parties have executed this Amendment No. 1 to Employment
Agreement as of the day and year written above.
PAYLESS CASHWAYS, INC. EXECUTIVE
By: /s/ David Stanley /s/ G. Michael Buchen
------------------------------------ ---------------------
Chairman and Chief Executive Officer G. Michael Buchen
Approval by the Compensation Committee of the Board of Directors of the Company
is hereby confirmed.
/s/ John Weitnauer, Jr.
-----------------------
John Weitnauer, Jr.
<PAGE> 1 Exhibit 10.4
EXECUTIVE CHANGE-IN-CONTROL AGREEMENT
AGREEMENT between Payless Cashways, Inc. ( the "Corporation"), and
Richard E. Nawrot (the "Executive").
WITNESSETH:
WHEREAS, the Compensation Committee, having full authority to act for
the Board of Directors of the Corporation in this matter, has approved the
Corporation entering into Change-in-Control Agreements with key executives of
the Corporation;
WHEREAS, the Executive is a key executive of the Corporation and has
been selected by the Board of Directors of the Corporation as a key executive to
receive a Change-in-Control Agreement;
WHEREAS, in connection with any proposal from a third person concerning
a possible business combination with, or acquisition of equity securities of,
the Corporation, the Board believes it imperative that the Corporation and the
Board be able to rely upon the Executive to continue in his or her position, and
that they be able to receive and rely upon his or her advice, if they request
it, as to the best interests of the Corporation and its shareholders, without
concern that he or she might be distracted by the personal uncertainties and
risks created by such a proposal; and
WHEREAS, in connection with any such proposals, in addition to the
Executive's regular duties, he or she may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Corporation and its
shareholders, and to take such other actions as the Board might determine to be
appropriate;
NOW, THEREFORE, to assure the Corporation that it will have the
continued dedication of the Executive and the availability of his or her advice
and counsel notwithstanding the possibility, threat, or occurrence of a bid to
take over control of the Corporation, and to induce the Executive to remain in
the employ of the Corporation, and for other good and valuable consideration,
the Corporation and the Executive agree as follows:
1. Term of Agreement. This Agreement will commence on June 26, 1997 and
shall continue in effect for a one-year term, which term shall be automatically
extended for successive one-year terms commencing on June 26, 1998 and on each
June 26 thereafter unless either party shall have given written notice to the
other at least forty-five (45) days prior to such date that the term shall not
be so extended; provided, however, if a "Change in Control of the Corporation"
(as defined in Section 2 hereof) shall have occurred prior to the end of the
term of this Agreement as it may be so extended, the term of this Agreement
shall continue in effect for a period of twenty-four (24) months beyond the
month in which such Change in Control of the Corporation occurred.
<PAGE> 2
2. Change in Control of the Corporation. No benefits shall be payable
hereunder unless there shall have been a Change in Control of the Corporation,
as set forth below. For purposes of this Agreement, a "Change in Control of the
Corporation" shall mean and deemed to have occurred if:
(i) any person, as defined in Sections 3(a)(9) and 13(d) 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 Corporation having
25% or more of the voting power in the election of directors of the Corporation,
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 Corporation's capital stock on the date hereof; or
(ii) the occurrence within any twelve-month period while this
Agreement is in effect of a change in the Board of Directors of the Corporation
with the result that the Incumbent Members (as defined below) do not constitute
a majority of the Corporation's Board of Directors. 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.
3. Termination Following a Change in Control of the Corporation. If any
of the events described in Section 2 hereof constituting a Change in Control of
the Corporation shall have occurred, you shall be entitled to the benefits
provided in Subsection 4(d) hereof upon the subsequent termination of your
employment within the following twenty-four (24) month period unless such
termination is (i) because of your death, Disability or Retirement, (ii) by the
Corporation for Cause, or (iii) by you other than for Good Reason.
(a) Disability; Retirement. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, the
Corporation may terminate your employment for "Disability." Termination by the
Corporation or you of your employment by reason of "Retirement" shall mean
termination on or after attainment of your "normal retirement age," as defined
in the Payless Cashways, Inc. Amended Retirement Plan as of the date hereof, or
in accordance with any retirement arrangement established with your consent with
respect to you.
<PAGE> 3
(b) Cause. Termination by the Corporation of your employment
for "Cause" shall mean termination upon (i) the willful and continued failure by
you to substantially perform your duties with the Corporation (other than any
such failure resulting from termination by you for Good Reason), after a demand
for substantial performance is delivered to you that specifically identifies the
manner in which the Corporation believes that you have not substantially
performed your duties, and you have failed to resume substantial performance of
your duties on a continuous basis within fourteen (14) days of receiving such
demand, (ii) the willful engaging by you in conduct which is demonstrably and
materially injurious to the Corporation, monetarily or otherwise, or (iii) your
conviction of a felony or conviction of a misdemeanor which impairs your ability
substantially to perform your duties with the Corporation. For purposes of this
Subsection, no act, or failure to act, on your part shall be deemed "willful"
unless done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best interest of the
Corporation.
(c) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of the Corporation of any one or more of the following:
(i) the assignment to you of duties inconsistent with
your present duties, responsibilities and status as the Senior Vice
President-Information Systems of the Corporation or a reduction or
alteration in the nature or status of your responsibilities from those
in effect immediately prior to the date of Change in Control of the
Corporation;
(ii) a reduction by the Corporation in your base
salary as in effect on the date hereof, or as in effect as of the date
of Change in Control of the Corporation, if greater ("Base Salary");
(iii) the Corporation's requiring you to be based at
a location in excess of forty-five (45) miles from the location where
you are currently based;
(iv) the failure by the Corporation to continue in
effect the Corporation's Corporate Management Annual Incentive
Compensation Program, Deferred Compensation Plan for Key Employees,
Employee Stock Option Plans, any other of the Corporation's employee
benefit plans, policies, practices, or arrangements in which you
participate, unless a comparable plan has been established with respect
to you, or the failure by the Corporation to continue your
participation therein on substantially the same basis, both in terms of
the amount of benefits provided and the level of your participation
relative to other participants, as existed as of the date of Change in
Control of the Corporation; and
<PAGE> 4
(v) the failure of the Corporation to obtain a
satisfactory agreement from any successor to the Corporation to assume
and agree to perform this Agreement, as contemplated in Section 7
hereof.
Your right to terminate your employment pursuant to this
Subsection (c) shall not be affected by your incapacity due to physical or
mental illness. Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.
(d) Notice of Termination. Any termination by the Corporation
for Cause or Disability or by you for Good Reason shall be communicated by
Notice of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated. Such "Notice of
Termination" shall specify the "Date of Termination," as defined in Subsection
(e) below, provided that in the event of a termination for Cause or Disability
by the Corporation, such Date of Termination will be no sooner than thirty (30)
days following Notice of Termination. Any purported termination by the
Corporation of your employment for Cause or Disability that is not effected
pursuant to a Notice of Termination satisfying the requirements of this
Subsection (d) shall be deemed to be a termination without Cause by the
Corporation and you will be entitled to the benefits under Section 4(d) below.
(e) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination where required or in any other case
upon ceasing to perform services to the Corporation; provided that if within
thirty (30) days after any Notice of Termination one party in good faith
notifies the other party that a dispute exists concerning the termination, the
Date of Termination, shall be the date finally determined to be the Date of
Termination, either by mutual written agreement of the parties or by a binding
and final arbitration award; provided, however, that in no case shall the Date
of Termination be subsequent to the Term of this Agreement.
4. Compensation Upon Termination or During Disability. Following a
Change in Control of the Corporation, as defined in Section 2 hereof, upon
termination of your employment or during a period of disability you shall be
entitled to the following benefits:
(a) During any period that you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your Base Salary at the rate in effect at
the commencement of any such period plus all other amounts to which you are
entitled under any compensation plan of the Corporation at the time such
payments are due, until your employment is terminated pursuant to Subsection
3(a) hereof. Thereafter, your benefits shall be determined in accordance with
the Corporation's retirement, insurance, and other applicable programs and plans
then in effect.
<PAGE> 5
(b) If your employment shall be terminated by the Corporation
for Cause or by you other than for Good Reason, the Corporation shall pay you
your full Base Salary through the Date of Termination at the rate in effect at
the time Notice of Termination is given or on the Date of Termination if no
Notice of Termination is required hereunder, plus all other amounts to which you
are entitled under any compensation plan of the Corporation at the time such
payments are due, and the Corporation shall have no further obligations to you
under this Agreement.
(c) If your employment terminates by reason of your
Retirement, or by reason of your death, the Corporation shall pay you your full
Base Salary through the date of retirement or death, plus all other amounts to
which you are entitled under any compensation plan of the Corporation at the
time such payments are due, and any other benefits shall be determined in
accordance with the Corporation's retirement, survivor's benefits, insurance,
and other applicable programs and plans then in effect.
(d) If your employment by the Corporation shall be terminated
(i) by the Corporation other than for Cause, Retirement, or Disability, or (ii)
by you for Good Reason, you shall be entitled to the benefits (the "Severance
Payments") provided below:
(1) the Corporation shall pay you your full Base
Salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, or the Date of Termination where
no Notice of Termination is required hereunder;
(2) the Corporation will pay as severance benefits to
you, not later than the fifteenth (15) day following the Date of
Termination, a lump sum severance payment equal to the sum of:
(i) one year's annual Base Salary if you
have been employed by the Corporation for one year or less prior to
your Date of Termination, or two years' annual Base Salary if you have
been employed by the Corporation for a period of time in excess of one
year prior to your Date of Termination. For purposes of this section,
"Base Salary" shall mean the salary in effect immediately prior to the
occurrence of the circumstances giving rise to such termination, or, if
greater, the salary in effect as of the date of Change in Control of
the Corporation. And,
(ii) two times your average bonus for the
prior three years, or such fewer number of years as you were entitled
to participate in the plan, under the Corporation's Corporate
Management Annual Incentive Compensation Program. However, if you are
participating in the Corporate Management Annual Incentive Compensation
Program for the first time at the Date of Termination, you will receive
two times your annual Target Incentive Pay.
<PAGE> 6
(3) the Corporation will arrange to provide you, at
the Corporation's expense, with benefits under the Corporation's
Hospital/Medical Plan, and all group Life Insurance Plans, and any
other Welfare Plans then existing, or benefits substantially similar to
the benefits you were receiving immediately prior to the Notice of
Termination under the named plans, for a period of one year if you have
been employed by the Corporation for one year or less prior to your
Date of Termination, or for a period of two years if you have been
employed by the Corporation for a period of time in excess of the year
prior to your Date of Termination, such benefits specifically being in
addition to any and all rights you may have under the plan and under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA); but
benefits otherwise receivable by you pursuant to this Subsection (3)
shall be reduced to the extent comparable benefits are actually
received by you from a subsequent employer during the such period
following your termination, and any such benefits actually received by
you shall be reported to the Corporation;
(4) to the extent that benefits under each of the
Corporation's pension plans and the Corporation's Supplemental
Retirement Plan are computed on the basis of either the salary and
benefits paid while in the Corporation's employ or the term of your
employment with the Corporation, the benefits payable and your
eligibility therefor shall be determined as though you were employed by
the Corporation under this Agreement for and had attained the age that
you would have attained at the end of the Severance Period.
(5) the Corporation will pay your reasonable costs of
using a qualified outplacement service. You must initiate the use of
such outplacement counseling within thirty (30) days following Date of
Termination. The assumption of these costs by the Corporation also
includes incidental expenses which are customarily paid for a
terminated employee occupying a position similar to your position on
Date of Termination.
(e) If you are within twenty-four (24) months of age
sixty-five (65), or older, your Severance Payments or Alternative Severance
Payments (as defined below) provided for in Subsections (d)(2) and (d)(3) above
shall be multiplied by a fraction, the numerator of which is the greater of
twelve (12) or the number of months until age sixty-five (65), and the
denominator of which is twenty-four (24).
(f)(1) Notwithstanding any other provision contained in this
Agreement, if any payments made or payable to you, whether pursuant to this
Agreement or otherwise, would be subject to the excise tax ("Excise Tax")
imposed under Section 4999 of the code, then (i) the amounts otherwise payable
pursuant to this Agreement ("Agreement Payments") shall be reduced, but not
below zero, if such reduction would result in your retaining a larger amount,
after-taxes, including the Excise Tax, than if you had received all of the
Agreement Payments or (ii) the aggregate present value of the "parachute
payments" (as hereinafter defined) other than Agreement Payments shall also be
reduced, but not below zero, if such reduction would result in your
<PAGE> 7
retaining a larger amount after taxes, including the Excise Tax, than if you had
received all of the "parachute payments" other than Agreement Payments.
If the application of the preceding sentence should require a
reduction in Agreement Payments or other "parachute payments," such reduction
shall be implemented first, by reducing any noncash benefits to the extent
necessary. In each case, the reductions shall be made starting with the payment
or benefit to be made on the latest date following the Date of Termination and
reducing payments or benefits in reverse chronological order therefrom.
(2) Any determination as to which amounts paid or payable to
you constitute "parachute payments" and the present value thereof shall be made
in accordance with Section 280G of the Code and any rulings and regulations
promulgated thereunder and shall be made within fifteen (15) days after the Date
of Termination by a nationally recognized firm of independent accountants
selected by you (the "Auditing Firm"). The Auditing Firm shall provide detailed
supporting calculations both to the Corporation and you within fifteen (15)
business days of the Date of Termination or such earlier time as is requested by
the Corporation. Any such determination by the Auditing Firm shall be binding
upon the Corporation and you.
(3) It is possible that as a result of a mistake of fact or
the clarification of the application of Sections 280G and 4999 of the Code
subsequent to the making of Agreement Payments or "parachute payments" to you,
the Auditing Firm will determine that because of the provisions of Section 4(f)
hereof, either Agreement Payments or "parachute payments" have been made that
would not have been made ("Overpayments") or that additional Agreement Payments
or "parachute payments," would have been made ("Underpayments"), in either case
had the mistake been discovered or the clarification been known at the time of
payment. In the event that the Auditing Firm determines that an Overpayment has
been made, any such Overpayment shall be treated for all purposes as a loan to
you which you shall repay to the Corporation together with interest at the
applicable Federal Rate provided for in Section 7872(f)(2) of the Code (the
"Federal Rate"), provided, however, that no amount shall be payable by you to
the Corporation (or if paid by you to the Corporation shall be returned to you)
if and to the extent such payment would not reduce the amount which is subject
to taxation under Section 4999 of the Code. In the event that the Auditing Firm
determines that an Underpayment has occurred, any such Underpayment shall be
paid by the Corporation to you within fifteen (15) business days of the
determination by the Auditing Firm of such Underpayment together with interest
at the Federal Rate.
(g) The Corporation shall also pay to you all legal fees and
expenses incurred by you as a result of such termination of employment
(including all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right or
benefit provided by this Change-in-Control Agreement or in connection with any
tax audit or proceeding to the extent attributable to the application of IRC
Section 4999 of the Code to any payment or benefit provided hereunder).
<PAGE> 8
(h) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Section 4, except for
benefits as described in this Subsection 4(d)(3), be reduced by any compensation
earned by you as a result of employment by another employer after the Date of
Termination, or otherwise.
(5) Withholding of Taxes. The Corporation may withhold from any amounts
payable under this Agreement all Federal, State, City, or other taxes as legally
shall be required.
(6) Limitation of Effect. This Agreement shall have no effect on any
termination of your employment prior to a Change in Control of the Corporation.
(7) Successors; Binding Agreement.
(a) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Corporation or of any
division or subsidiary thereof employing you to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle you to compensation from the Corporation in the same amount
and on the same terms as you would be entitled hereunder if you terminated your
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement shall insure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement, to your devisee, legatee,
or other designee, or if there is not such designee, to your estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement.
9. Modifications. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by you and such officer as may be specifically
designated by the Board.
<PAGE> 9
10. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
12. Governing Law; Resolution of Disputes. This Agreement and the
rights and obligations hereunder shall be governed by and construed in
accordance with the laws of the State of Missouri. Any dispute arising out of
this Agreement shall, at the Executive's election, be determined by arbitration
under the rules of the American Arbitration Association then in effect or by
litigation. Whether the dispute is to be settled by arbitration or litigation,
the venue for the arbitration or litigation shall be Kansas City, Missouri or,
at the Executive's election, if the Executive is no longer residing or working
in the Kansas City, Missouri, metropolitan area, in a court in the judicial
district encompassing the city in which the Executive resides; provided, that,
if the Executive is not then residing in the United States, the election of the
Executive with respect to such venue shall be either Kansas City, Missouri or a
court in the judicial district encompassing that city in the United States among
the 30 cities having the largest population (as determined by the most recent
United States Census data available at the Termination Date) which is closest to
the Executive's residence. The parties consent to personal jurisdiction in each
trial court in the selected venue having subject matter jurisdiction
notwithstanding their residence or situs, and each party irrevocably consents to
service of process in the manner provided hereunder for the giving of notices.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
26th day of June, 1997.
PAYLESS CASHWAYS, INC.
BY: /s/ E. J. Holland, Jr.
------------------------------
Name: E. J. Holland, Jr.
Title: Sr. VP-Administration/
Secretary
Agreed to this 26th day of June, 1997.
By: /s/ Richard E. Nawrot
-------------------------------------
Name: Richard E. Nawrot
Title: Sr. VP-Information Systems
Attest:
/s/ Richard G. Luse
- ------------------------------------
Richard G. Luse, Assistant Secretary
<PAGE> 1 Exhibit 10.5
EXECUTIVE CHANGE-IN-CONTROL AGREEMENT
AGREEMENT between Payless Cashways, Inc. ( the "Corporation"), and E.
J. Holland, Jr. (the "Executive").
WITNESSETH:
WHEREAS, the Compensation Committee, having full authority to act for
the Board of Directors of the Corporation in this matter, has approved the
Corporation entering into Change-in-Control Agreements with key executives of
the Corporation;
WHEREAS, the Executive is a key executive of the Corporation and has
been selected by the Board of Directors of the Corporation as a key executive to
receive a Change-in-Control Agreement;
WHEREAS, in connection with any proposal from a third person concerning
a possible business combination with, or acquisition of equity securities of,
the Corporation, the Board believes it imperative that the Corporation and the
Board be able to rely upon the Executive to continue in his or her position, and
that they be able to receive and rely upon his or her advice, if they request
it, as to the best interests of the Corporation and its shareholders, without
concern that he or she might be distracted by the personal uncertainties and
risks created by such a proposal; and
WHEREAS, in connection with any such proposals, in addition to the
Executive's regular duties, he or she may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Corporation and its
shareholders, and to take such other actions as the Board might determine to be
appropriate;
NOW, THEREFORE, to assure the Corporation that it will have the
continued dedication of the Executive and the availability of his or her advice
and counsel notwithstanding the possibility, threat, or occurrence of a bid to
take over control of the Corporation, and to induce the Executive to remain in
the employ of the Corporation, and for other good and valuable consideration,
the Corporation and the Executive agree as follows:
1. Term of Agreement. This Agreement will commence on June 26, 1997 and
shall continue in effect for a one-year term, which term shall be automatically
extended for successive one-year terms commencing on June 26, 1998 and on each
June 26 thereafter unless either party shall have given written notice to the
other at least forty-five (45) days prior to such date that the term shall not
be so extended; provided, however, if a "Change in Control of the Corporation"
(as defined in Section 2 hereof) shall have occurred prior to the end of the
term of this Agreement as it may be so extended, the term of this Agreement
shall continue in effect for a period of twenty-four (24) months beyond the
month in which such Change in Control of the Corporation occurred.
<PAGE> 2
2. Change in Control of the Corporation. No benefits shall be payable
hereunder unless there shall have been a Change in Control of the Corporation,
as set forth below. For purposes of this Agreement, a "Change in Control of the
Corporation" shall mean and deemed to have occurred if:
(i) any person, as defined in Sections 3(a)(9) and 13(d) 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 Corporation having
25% or more of the voting power in the election of directors of the Corporation,
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 Corporation's capital stock on the date hereof; or
(ii) the occurrence within any twelve-month period while this
Agreement is in effect of a change in the Board of Directors of the Corporation
with the result that the Incumbent Members (as defined below) do not constitute
a majority of the Corporation's Board of Directors. 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.
3. Termination Following a Change in Control of the Corporation. If any
of the events described in Section 2 hereof constituting a Change in Control of
the Corporation shall have occurred, you shall be entitled to the benefits
provided in Subsection 4(d) hereof upon the subsequent termination of your
employment within the following twenty-four (24) month period unless such
termination is (i) because of your death, Disability or Retirement, (ii) by the
Corporation for Cause, or (iii) by you other than for Good Reason.
(a) Disability; Retirement. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, the
Corporation may terminate your employment for "Disability." Termination by the
Corporation or you of your employment by reason of "Retirement" shall mean
termination on or after attainment of your "normal retirement age," as defined
in the Payless Cashways, Inc. Amended Retirement Plan as of the date hereof, or
in accordance with any retirement arrangement established with your consent with
respect to you.
(b) Cause. Termination by the Corporation of your employment
for "Cause" shall mean termination upon (i) the willful and continued failure by
you to substantially perform your duties with the Corporation (other than any
such failure
<PAGE> 3
resulting from termination by you for Good Reason), after a demand for
substantial performance is delivered to you that specifically identifies the
manner in which the Corporation believes that you have not substantially
performed your duties, and you have failed to resume substantial performance of
your duties on a continuous basis within fourteen (14) days of receiving such
demand, (ii) the willful engaging by you in conduct which is demonstrably and
materially injurious to the Corporation, monetarily or otherwise, or (iii) your
conviction of a felony or conviction of a misdemeanor which impairs your ability
substantially to perform your duties with the Corporation. For purposes of this
Subsection, no act, or failure to act, on your part shall be deemed "willful"
unless done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best interest of the
Corporation.
(c) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of the Corporation of any one or more of the following:
(i) the assignment to you of duties inconsistent with
your present duties, responsibilities and status as the Senior Vice
President-Administration/Secretary of the Corporation or a reduction or
alteration in the nature or status of your responsibilities from those
in effect immediately prior to the date of Change in Control of the
Corporation;
(ii) a reduction by the Corporation in your base
salary as in effect on the date hereof, or as in effect as of the date
of Change in Control of the Corporation, if greater ("Base Salary");
(iii) the Corporation's requiring you to be based at
a location in excess of forty-five (45) miles from the location where
you are currently based;
(iv) the failure by the Corporation to continue in
effect the Corporation's Corporate Management Annual Incentive
Compensation Program, Deferred Compensation Plan for Key Employees,
Employee Stock Option Plans, any other of the Corporation's employee
benefit plans, policies, practices, or arrangements in which you
participate, unless a comparable plan has been established with respect
to you, or the failure by the Corporation to continue your
participation therein on substantially the same basis, both in terms of
the amount of benefits provided and the level of your participation
relative to other participants, as existed as of the date of Change in
Control of the Corporation; and
(v) the failure of the Corporation to obtain a
satisfactory agreement from any successor to the Corporation to assume
and agree to perform this Agreement, as contemplated in Section 7
hereof.
<PAGE> 4
Your right to terminate your employment pursuant to this
Subsection (c) shall not be affected by your incapacity due to physical or
mental illness. Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.
(d) Notice of Termination. Any termination by the Corporation
for Cause or Disability or by you for Good Reason shall be communicated by
Notice of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated. Such "Notice of
Termination" shall specify the "Date of Termination," as defined in Subsection
(e) below, provided that in the event of a termination for Cause or Disability
by the Corporation, such Date of Termination will be no sooner than thirty (30)
days following Notice of Termination. Any purported termination by the
Corporation of your employment for Cause or Disability that is not effected
pursuant to a Notice of Termination satisfying the requirements of this
Subsection (d) shall be deemed to be a termination without Cause by the
Corporation and you will be entitled to the benefits under Section 4(d) below.
(e) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination where required or in any other case
upon ceasing to perform services to the Corporation; provided that if within
thirty (30) days after any Notice of Termination one party in good faith
notifies the other party that a dispute exists concerning the termination, the
Date of Termination, shall be the date finally determined to be the Date of
Termination, either by mutual written agreement of the parties or by a binding
and final arbitration award; provided, however, that in no case shall the Date
of Termination be subsequent to the Term of this Agreement.
4. Compensation Upon Termination or During Disability. Following a
Change in Control of the Corporation, as defined in Section 2 hereof, upon
termination of your employment or during a period of disability you shall be
entitled to the following benefits:
(a) During any period that you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your Base Salary at the rate in effect at
the commencement of any such period plus all other amounts to which you are
entitled under any compensation plan of the Corporation at the time such
payments are due, until your employment is terminated pursuant to Subsection
3(a) hereof. Thereafter, your benefits shall be determined in accordance with
the Corporation's retirement, insurance, and other applicable programs and plans
then in effect.
(b) If your employment shall be terminated by the Corporation
for Cause or by you other than for Good Reason, the Corporation shall pay you
your full Base Salary through the Date of Termination at the rate in effect at
the time Notice of Termination is given or on the Date of Termination if no
Notice of Termination is
<PAGE> 5
required hereunder, plus all other amounts to which you are entitled under any
compensation plan of the Corporation at the time such payments are due, and the
Corporation shall have no further obligations to you under this Agreement.
(c) If your employment terminates by reason of your
Retirement, or by reason of your death, the Corporation shall pay you your full
Base Salary through the date of retirement or death, plus all other amounts to
which you are entitled under any compensation plan of the Corporation at the
time such payments are due, and any other benefits shall be determined in
accordance with the Corporation's retirement, survivor's benefits, insurance,
and other applicable programs and plans then in effect.
(d) If your employment by the Corporation shall be terminated
(i) by the Corporation other than for Cause, Retirement, or Disability, or (ii)
by you for Good Reason, you shall be entitled to the benefits (the "Severance
Payments") provided below:
(1) the Corporation shall pay you your full Base
Salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, or the Date of Termination where
no Notice of Termination is required hereunder;
(2) the Corporation will pay as severance benefits to
you, not later than the fifteenth (15) day following the Date of
Termination, a lump sum severance payment equal to the sum of:
(i) one year's annual Base Salary if you
have been employed by the Corporation for one year or less prior to
your Date of Termination, or two years' annual Base Salary if you have
been employed by the Corporation for a period of time in excess of one
year prior to your Date of Termination. For purposes of this section,
"Base Salary" shall mean the salary in effect immediately prior to the
occurrence of the circumstances giving rise to such termination, or, if
greater, the salary in effect as of the date of Change in Control of
the Corporation. And,
(ii) two times your average bonus for the
prior three years, or such fewer number of years as you were entitled
to participate in the plan, under the Corporation's Corporate
Management Annual Incentive Compensation Program. However, if you are
participating in the Corporate Management Annual Incentive Compensation
Program for the first time at the Date of Termination, you will receive
two times your annual Target Incentive Pay.
(3) the Corporation will arrange to provide you, at
the Corporation's expense, with benefits under the Corporation's
Hospital/Medical Plan, and all group Life Insurance Plans, and any
other Welfare Plans then existing, or benefits substantially similar to
the benefits you were receiving immediately prior to the Notice of
Termination under the named plans, for a period of one year if you have
been employed by the Corporation for one year or
<PAGE> 6
less prior to your Date of Termination, or for a period of two years if
you have been employed by the Corporation for a period of time in
excess of the year prior to your Date of Termination, such benefits
specifically being in addition to any and all rights you may have under
the plan and under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (COBRA); but benefits otherwise receivable by you pursuant to
this Subsection (3) shall be reduced to the extent comparable benefits
are actually received by you from a subsequent employer during the such
period following your termination, and any such benefits actually
received by you shall be reported to the Corporation;
(4) to the extent that benefits under each of the
Corporation's pension plans and the Corporation's Supplemental
Retirement Plan are computed on the basis of either the salary and
benefits paid while in the Corporation's employ or the term of your
employment with the Corporation, the benefits payable and your
eligibility therefor shall be determined as though you were employed by
the Corporation under this Agreement for and had attained the age that
you would have attained at the end of the Severance Period.
(5) the Corporation will pay your reasonable costs of
using a qualified outplacement service. You must initiate the use of
such outplacement counseling within thirty (30) days following Date of
Termination. The assumption of these costs by the Corporation also
includes incidental expenses which are customarily paid for a
terminated employee occupying a position similar to your position on
Date of Termination.
(e) If you are within twenty-four (24) months of age
sixty-five (65), or older, your Severance Payments or Alternative Severance
Payments (as defined below) provided for in Subsections (d)(2) and (d)(3) above
shall be multiplied by a fraction, the numerator of which is the greater of
twelve (12) or the number of months until age sixty-five (65), and the
denominator of which is twenty-four (24).
(f)(1) Notwithstanding any other provision contained in this
Agreement, if any payments made or payable to you, whether pursuant to this
Agreement or otherwise, would be subject to the excise tax ("Excise Tax")
imposed under Section 4999 of the code, then (i) the amounts otherwise payable
pursuant to this Agreement ("Agreement Payments") shall be reduced, but not
below zero, if such reduction would result in your retaining a larger amount,
after-taxes, including the Excise Tax, than if you had received all of the
Agreement Payments or (ii) the aggregate present value of the "parachute
payments" (as hereinafter defined) other than Agreement Payments shall also be
reduced, but not below zero, if such reduction would result in your retaining a
larger amount after taxes, including the Excise Tax, than if you had received
all of the "parachute payments" other than Agreement Payments.
If the application of the preceding sentence should require a
reduction in Agreement Payments or other "parachute payments," such reduction
shall be implemented first, by reducing any noncash benefits to the extent
necessary. In each case, the reductions shall be made starting with the payment
or benefit to be made on
<PAGE> 7
the latest date following the Date of Termination and reducing payments or
benefits in reverse chronological order therefrom.
(2) Any determination as to which amounts paid or payable to
you constitute "parachute payments" and the present value thereof shall be made
in accordance with Section 280G of the Code and any rulings and regulations
promulgated thereunder and shall be made within fifteen (15) days after the Date
of Termination by a nationally recognized firm of independent accountants
selected by you (the "Auditing Firm"). The Auditing Firm shall provide detailed
supporting calculations both to the Corporation and you within fifteen (15)
business days of the Date of Termination or such earlier time as is requested by
the Corporation. Any such determination by the Auditing Firm shall be binding
upon the Corporation and you.
(3) It is possible that as a result of a mistake of fact or
the clarification of the application of Sections 280G and 4999 of the Code
subsequent to the making of Agreement Payments or "parachute payments" to you,
the Auditing Firm will determine that because of the provisions of Section 4(f)
hereof, either Agreement Payments or "parachute payments" have been made that
would not have been made ("Overpayments") or that additional Agreement Payments
or "parachute payments," would have been made ("Underpayments"), in either case
had the mistake been discovered or the clarification been known at the time of
payment. In the event that the Auditing Firm determines that an Overpayment has
been made, any such Overpayment shall be treated for all purposes as a loan to
you which you shall repay to the Corporation together with interest at the
applicable Federal Rate provided for in Section 7872(f)(2) of the Code (the
"Federal Rate"), provided, however, that no amount shall be payable by you to
the Corporation (or if paid by you to the Corporation shall be returned to you)
if and to the extent such payment would not reduce the amount which is subject
to taxation under Section 4999 of the Code. In the event that the Auditing Firm
determines that an Underpayment has occurred, any such Underpayment shall be
paid by the Corporation to you within fifteen (15) business days of the
determination by the Auditing Firm of such Underpayment together with interest
at the Federal Rate.
(g) The Corporation shall also pay to you all legal fees and
expenses incurred by you as a result of such termination of employment
(including all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right or
benefit provided by this Change-in-Control Agreement or in connection with any
tax audit or proceeding to the extent attributable to the application of IRC
Section 4999 of the Code to any payment or benefit provided hereunder).
(h) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Section 4, except for
benefits as described in this Subsection 4(d)(3), be reduced by any compensation
earned by you as a result of employment by another employer after the Date of
Termination, or otherwise.
<PAGE> 8
(5) Withholding of Taxes. The Corporation may withhold from any amounts
payable under this Agreement all Federal, State, City, or other taxes as legally
shall be required.
(6) Limitation of Effect. This Agreement shall have no effect on any
termination of your employment prior to a Change in Control of the Corporation.
(7) Successors; Binding Agreement.
(a) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Corporation or of any
division or subsidiary thereof employing you to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle you to compensation from the Corporation in the same amount
and on the same terms as you would be entitled hereunder if you terminated your
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement shall insure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement, to your devisee, legatee,
or other designee, or if there is not such designee, to your estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement.
9. Modifications. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by you and such officer as may be specifically
designated by the Board.
10. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
<PAGE> 9
12. Governing Law; Resolution of Disputes. This Agreement and the
rights and obligations hereunder shall be governed by and construed in
accordance with the laws of the State of Missouri. Any dispute arising out of
this Agreement shall, at the Executive's election, be determined by arbitration
under the rules of the American Arbitration Association then in effect or by
litigation. Whether the dispute is to be settled by arbitration or litigation,
the venue for the arbitration or litigation shall be Kansas City, Missouri or,
at the Executive's election, if the Executive is no longer residing or working
in the Kansas City, Missouri, metropolitan area, in a court in the judicial
district encompassing the city in which the Executive resides; provided, that,
if the Executive is not then residing in the United States, the election of the
Executive with respect to such venue shall be either Kansas City, Missouri or a
court in the judicial district encompassing that city in the United States among
the 30 cities having the largest population (as determined by the most recent
United States Census data available at the Termination Date) which is closest to
the Executive's residence. The parties consent to personal jurisdiction in each
trial court in the selected venue having subject matter jurisdiction
notwithstanding their residence or situs, and each party irrevocably consents to
service of process in the manner provided hereunder for the giving of notices.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
26th day of June, 1997.
PAYLESS CASHWAYS, INC.
BY:
/s/ David Stanley
-------------------------
Name: David Stanley
Title: Chairman and Chief
Executive Officer
Agreed to this 26th day of
June, 1997.
By: /s/ E. J. Holland, Jr.
--------------------------------
Name: E. J. Holland, Jr.
Title: Sr. VP-Administration/Secretary
Attest:
/s/ Richard G. Luse
- ------------------------------------
Richard G. Luse, Assistant Secretary
<PAGE> 1 Exhibit 10.6
EXECUTIVE CHANGE-IN-CONTROL AGREEMENT
AGREEMENT between Payless Cashways, Inc. ( the "Corporation"), and
Robert S. Islinger (the "Executive").
WITNESSETH:
WHEREAS, the Compensation Committee, having full authority to act for
the Board of Directors of the Corporation in this matter, has approved the
Corporation entering into Change-in-Control Agreements with key executives of
the Corporation;
WHEREAS, the Executive is a key executive of the Corporation and has
been selected by the Board of Directors of the Corporation as a key executive to
receive a Change-in-Control Agreement;
WHEREAS, in connection with any proposal from a third person concerning
a possible business combination with, or acquisition of equity securities of,
the Corporation, the Board believes it imperative that the Corporation and the
Board be able to rely upon the Executive to continue in his or her position, and
that they be able to receive and rely upon his or her advice, if they request
it, as to the best interests of the Corporation and its shareholders, without
concern that he or she might be distracted by the personal uncertainties and
risks created by such a proposal; and
WHEREAS, in connection with any such proposals, in addition to the
Executive's regular duties, he or she may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Corporation and its
shareholders, and to take such other actions as the Board might determine to be
appropriate;
NOW, THEREFORE, to assure the Corporation that it will have the
continued dedication of the Executive and the availability of his or her advice
and counsel notwithstanding the possibility, threat, or occurrence of a bid to
take over control of the Corporation, and to induce the Executive to remain in
the employ of the Corporation, and for other good and valuable consideration,
the Corporation and the Executive agree as follows:
1. Term of Agreement. This Agreement will commence on June 26, 1997 and
shall continue in effect for a one-year term, which term shall be automatically
extended for successive one-year terms commencing on June 26, 1998 and on each
June 26 thereafter unless either party shall have given written notice to the
other at least forty-five (45) days prior to such date that the term shall not
be so extended; provided, however, if a "Change in Control of the Corporation"
(as defined in Section 2 hereof) shall have occurred prior to the end of the
term of this Agreement as it may be so extended, the term of this Agreement
shall continue in effect for a period of twenty-four (24) months beyond the
month in which such Change in Control of the Corporation occurred.
<PAGE> 2
2. Change in Control of the Corporation. No benefits shall be payable
hereunder unless there shall have been a Change in Control of the Corporation,
as set forth below. For purposes of this Agreement, a "Change in Control of the
Corporation" shall mean and deemed to have occurred if:
(i) any person, as defined in Sections 3(a)(9) and 13(d) 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 Corporation having
25% or more of the voting power in the election of directors of the Corporation,
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 Corporation's capital stock on the date hereof; or
(ii) the occurrence within any twelve-month period while this
Agreement is in effect of a change in the Board of Directors of the Corporation
with the result that the Incumbent Members (as defined below) do not constitute
a majority of the Corporation's Board of Directors. 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.
3. Termination Following a Change in Control of the Corporation. If any
of the events described in Section 2 hereof constituting a Change in Control of
the Corporation shall have occurred, you shall be entitled to the benefits
provided in Subsection 4(d) hereof upon the subsequent termination of your
employment within the following twenty-four (24) month period unless such
termination is (i) because of your death, Disability or Retirement, (ii) by the
Corporation for Cause, or (iii) by you other than for Good Reason.
(a) Disability; Retirement. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, the
Corporation may terminate your employment for "Disability." Termination by the
Corporation or you of your employment by reason of "Retirement" shall mean
termination on or after attainment of your "normal retirement age," as defined
in the Payless Cashways, Inc. Amended Retirement Plan as of the date hereof, or
in accordance with any retirement arrangement established with your consent with
respect to you.
<PAGE> 3
(b) Cause. Termination by the Corporation of your employment
for "Cause" shall mean termination upon (i) the willful and continued failure by
you to substantially perform your duties with the Corporation (other than any
such failure resulting from termination by you for Good Reason), after a demand
for substantial performance is delivered to you that specifically identifies the
manner in which the Corporation believes that you have not substantially
performed your duties, and you have failed to resume substantial performance of
your duties on a continuous basis within fourteen (14) days of receiving such
demand, (ii) the willful engaging by you in conduct which is demonstrably and
materially injurious to the Corporation, monetarily or otherwise, or (iii) your
conviction of a felony or conviction of a misdemeanor which impairs your ability
substantially to perform your duties with the Corporation. For purposes of this
Subsection, no act, or failure to act, on your part shall be deemed "willful"
unless done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best interest of the
Corporation.
(c) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of the Corporation of any one or more of the following:
(i) the assignment to you of duties inconsistent with
your present duties, responsibilities and status as the Senior Vice
President-Marketing of the Corporation or a reduction or alteration in
the nature or status of your responsibilities from those in effect
immediately prior to the date of Change in Control of the Corporation;
(ii) a reduction by the Corporation in your base
salary as in effect on the date hereof, or as in effect as of the date
of Change in Control of the Corporation, if greater ("Base Salary");
(iii) the Corporation's requiring you to be based at
a location in excess of forty-five (45) miles from the location where
you are currently based;
(iv) the failure by the Corporation to continue in
effect the Corporation's Corporate Management Annual Incentive
Compensation Program, Deferred Compensation Plan for Key Employees,
Employee Stock Option Plans, any other of the Corporation's employee
benefit plans, policies, practices, or arrangements in which you
participate, unless a comparable plan has been established with respect
to you, or the failure by the Corporation to continue your
participation therein on substantially the same basis, both in terms of
the amount of benefits provided and the level of your participation
relative to other participants, as existed as of the date of Change in
Control of the Corporation; and
<PAGE> 4
(v) the failure of the Corporation to obtain a
satisfactory agreement from any successor to the Corporation to assume
and agree to perform this Agreement, as contemplated in Section 7
hereof.
Your right to terminate your employment pursuant to this
Subsection (c) shall not be affected by your incapacity due to physical or
mental illness. Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.
(d) Notice of Termination. Any termination by the Corporation
for Cause or Disability or by you for Good Reason shall be communicated
by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice
which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
your employment under the provision so indicated. Such "Notice of
Termination" shall specify the "Date of Termination," as defined in
Subsection (e) below, provided that in the event of a termination for
Cause or Disability by the Corporation, such Date of Termination will
be no sooner than thirty (30) days following Notice of Termination. Any
purported termination by the Corporation of your employment for Cause
or Disability that is not effected pursuant to a Notice of Termination
satisfying the requirements of this Subsection (d) shall be deemed to
be a termination without Cause by the Corporation and you will be
entitled to the benefits under Section 4(d) below.
(e) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination where required or in any
other case upon ceasing to perform services to the Corporation;
provided that if within thirty (30) days after any Notice of
Termination one party in good faith notifies the other party that a
dispute exists concerning the termination, the Date of Termination,
shall be the date finally determined to be the Date of Termination,
either by mutual written agreement of the parties or by a binding and
final arbitration award; provided, however, that in no case shall the
Date of Termination be subsequent to the Term of this Agreement.
4. Compensation Upon Termination or During Disability. Following a
Change in Control of the Corporation, as defined in Section 2 hereof, upon
termination of your employment or during a period of disability you shall be
entitled to the following benefits:
(a) During any period that you fail to perform your full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness, you shall continue to receive your Base Salary at the rate in effect at
the commencement of any such period plus all other amounts to which you are
entitled under any compensation plan of the Corporation at the time such
payments are due, until your employment is
<PAGE> 5
terminated pursuant to Subsection 3(a) hereof. Thereafter, your benefits shall
be determined in accordance with the Corporation's retirement, insurance, and
other applicable programs and plans then in effect.
(b) If your employment shall be terminated by the Corporation
for Cause or by you other than for Good Reason, the Corporation shall pay you
your full Base Salary through the Date of Termination at the rate in effect at
the time Notice of Termination is given or on the Date of Termination if no
Notice of Termination is required hereunder, plus all other amounts to which you
are entitled under any compensation plan of the Corporation at the time such
payments are due, and the Corporation shall have no further obligations to you
under this Agreement.
(c) If your employment terminates by reason of your
Retirement, or by reason of your death, the Corporation shall pay you your full
Base Salary through the date of retirement or death, plus all other amounts to
which you are entitled under any compensation plan of the Corporation at the
time such payments are due, and any other benefits shall be determined in
accordance with the Corporation's retirement, survivor's benefits, insurance,
and other applicable programs and plans then in effect.
(d) If your employment by the Corporation shall be terminated
(i) by the Corporation other than for Cause, Retirement, or Disability, or (ii)
by you for Good Reason, you shall be entitled to the benefits (the "Severance
Payments") provided below:
(1) the Corporation shall pay you your full Base
Salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, or the Date of Termination where
no Notice of Termination is required hereunder;
(2) the Corporation will pay as severance benefits to
you, not later than the fifteenth (15) day following the Date of
Termination, a lump sum severance payment equal to the sum of:
(i) one year's annual Base Salary if you
have been employed by the Corporation for one year or less prior to
your Date of Termination, or two years' annual Base Salary if you have
been employed by the Corporation for a period of time in excess of one
year prior to your Date of Termination. For purposes of this section,
"Base Salary" shall mean the salary in effect immediately prior to the
occurrence of the circumstances giving rise to such termination, or, if
greater, the salary in effect as of the date of Change in Control of
the Corporation. And,
(ii) two times your average bonus for the
prior three years, or such fewer number of years as you were entitled
to participate in the plan, under the Corporation's Corporate
Management Annual Incentive Compensation Program. However, if you are
participating in the Corporate Management Annual Incentive Compensation
Program for the first time at the
<PAGE> 6
Date of Termination, you will receive two times your annual Target
Incentive Pay.
(3) the Corporation will arrange to provide you, at
the Corporation's expense, with benefits under the Corporation's
Hospital/Medical Plan, and all group Life Insurance Plans, and any
other Welfare Plans then existing, or benefits substantially similar to
the benefits you were receiving immediately prior to the Notice of
Termination under the named plans, for a period of one year if you have
been employed by the Corporation for one year or less prior to your
Date of Termination, or for a period of two years if you have been
employed by the Corporation for a period of time in excess of the year
prior to your Date of Termination, such benefits specifically being in
addition to any and all rights you may have under the plan and under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA); but
benefits otherwise receivable by you pursuant to this Subsection (3)
shall be reduced to the extent comparable benefits are actually
received by you from a subsequent employer during the such period
following your termination, and any such benefits actually received by
you shall be reported to the Corporation;
(4) to the extent that benefits under each of the
Corporation's pension plans and the Corporation's Supplemental
Retirement Plan are computed on the basis of either the salary and
benefits paid while in the Corporation's employ or the term of your
employment with the Corporation, the benefits payable and your
eligibility therefor shall be determined as though you were employed by
the Corporation under this Agreement for and had attained the age that
you would have attained at the end of the Severance Period.
(5) the Corporation will pay your reasonable costs of
using a qualified outplacement service. You must initiate the use of
such outplacement counseling within thirty (30) days following Date of
Termination. The assumption of these costs by the Corporation also
includes incidental expenses which are customarily paid for a
terminated employee occupying a position similar to your position on
Date of Termination.
(e) If you are within twenty-four (24) months of age
sixty-five (65), or older, your Severance Payments or Alternative Severance
Payments (as defined below) provided for in Subsections (d)(2) and (d)(3) above
shall be multiplied by a fraction, the numerator of which is the greater of
twelve (12) or the number of months until age sixty-five (65), and the
denominator of which is twenty-four (24).
(f)(1) Notwithstanding any other provision contained in this
Agreement, if any payments made or payable to you, whether pursuant to this
Agreement or otherwise, would be subject to the excise tax ("Excise Tax")
imposed under Section 4999 of the code, then (i) the amounts otherwise payable
pursuant to this Agreement ("Agreement Payments") shall be reduced, but not
below zero, if such reduction would result in your retaining a larger amount,
after-taxes, including the Excise Tax, than if you had received all of the
Agreement Payments or (ii) the aggregate present value of
<PAGE> 7
the "parachute payments" (as hereinafter defined) other than Agreement Payments
shall also be reduced, but not below zero, if such reduction would result in
your retaining a larger amount after taxes, including the Excise Tax, than if
you had received all of the "parachute payments" other than Agreement Payments.
If the application of the preceding sentence should require a
reduction in Agreement Payments or other "parachute payments," such reduction
shall be implemented first, by reducing any noncash benefits to the extent
necessary. In each case, the reductions shall be made starting with the payment
or benefit to be made on the latest date following the Date of Termination and
reducing payments or benefits in reverse chronological order therefrom.
(2) Any determination as to which amounts paid or payable to
you constitute "parachute payments" and the present value thereof shall be made
in accordance with Section 280G of the Code and any rulings and regulations
promulgated thereunder and shall be made within fifteen (15) days after the Date
of Termination by a nationally recognized firm of independent accountants
selected by you (the "Auditing Firm"). The Auditing Firm shall provide detailed
supporting calculations both to the Corporation and you within fifteen (15)
business days of the Date of Termination or such earlier time as is requested by
the Corporation. Any such determination by the Auditing Firm shall be binding
upon the Corporation and you.
(3) It is possible that as a result of a mistake of fact or
the clarification of the application of Sections 280G and 4999 of the Code
subsequent to the making of Agreement Payments or "parachute payments" to you,
the Auditing Firm will determine that because of the provisions of Section 4(f)
hereof, either Agreement Payments or "parachute payments" have been made that
would not have been made ("Overpayments") or that additional Agreement Payments
or "parachute payments," would have been made ("Underpayments"), in either case
had the mistake been discovered or the clarification been known at the time of
payment. In the event that the Auditing Firm determines that an Overpayment has
been made, any such Overpayment shall be treated for all purposes as a loan to
you which you shall repay to the Corporation together with interest at the
applicable Federal Rate provided for in Section 7872(f)(2) of the Code (the
"Federal Rate"), provided, however, that no amount shall be payable by you to
the Corporation (or if paid by you to the Corporation shall be returned to you)
if and to the extent such payment would not reduce the amount which is subject
to taxation under Section 4999 of the Code. In the event that the Auditing Firm
determines that an Underpayment has occurred, any such Underpayment shall be
paid by the Corporation to you within fifteen (15) business days of the
determination by the Auditing Firm of such Underpayment together with interest
at the Federal Rate.
(g) The Corporation shall also pay to you all legal fees and
expenses incurred by you as a result of such termination of employment
(including all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right or
benefit provided by this Change-in-Control Agreement or in connection with any
tax audit or proceeding to the extent attributable
<PAGE> 8
to the application of IRC Section 4999 of the Code to any payment or benefit
provided hereunder).
(h) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Section 4, except for
benefits as described in this Subsection 4(d)(3), be reduced by any compensation
earned by you as a result of employment by another employer after the Date of
Termination, or otherwise.
(5) Withholding of Taxes. The Corporation may withhold from any amounts
payable under this Agreement all Federal, State, City, or other taxes as legally
shall be required.
(6) Limitation of Effect. This Agreement shall have no effect on any
termination of your employment prior to a Change in Control of the Corporation.
(7) Successors; Binding Agreement.
(a) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Corporation or of any
division or subsidiary thereof employing you to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle you to compensation from the Corporation in the same amount
and on the same terms as you would be entitled hereunder if you terminated your
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement shall insure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement, to your devisee, legatee,
or other designee, or if there is not such designee, to your estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement.
9. Modifications. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by you and such officer as may be specifically
designated by the Board.
<PAGE> 9
10. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
12. Governing Law; Resolution of Disputes. This Agreement and the
rights and obligations hereunder shall be governed by and construed in
accordance with the laws of the State of Missouri. Any dispute arising out of
this Agreement shall, at the Executive's election, be determined by arbitration
under the rules of the American Arbitration Association then in effect or by
litigation. Whether the dispute is to be settled by arbitration or litigation,
the venue for the arbitration or litigation shall be Kansas City, Missouri or,
at the Executive's election, if the Executive is no longer residing or working
in the Kansas City, Missouri, metropolitan area, in a court in the judicial
district encompassing the city in which the Executive resides; provided, that,
if the Executive is not then residing in the United States, the election of the
Executive with respect to such venue shall be either Kansas City, Missouri or a
court in the judicial district encompassing that city in the United States among
the 30 cities having the largest population (as determined by the most recent
United States Census data available at the Termination Date) which is closest to
the Executive's residence. The parties consent to personal jurisdiction in each
trial court in the selected venue having subject matter jurisdiction
notwithstanding their residence or situs, and each party irrevocably consents to
service of process in the manner provided hereunder for the giving of notices.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
26th day of June, 1997.
PAYLESS CASHWAYS, INC.
BY: /s/ E. J. Holland, Jr.
----------------------------
Name: E. J. Holland, Jr.
Title: Sr. VP-Administration/
Secretary
Agreed to this 26th day of June, 1997.
By: /s/ Robert S. Islinger
--------------------------
Name: Robert S. Islinger
Title: Sr. VP-Marketing
Attest:
/s/ Richard G. Luse
- ------------------------------------
Richard G. Luse, Assistant Secretary
