<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
Commission file number 1-8897
CONSOLIDATED STORES CORPORATION
A Delaware Corporation
IRS No. 06-1119097
1105 North Market Street, Suite 1300
P.O. Box 8985
Wilmington, Delaware 19899
(302) 478-4896
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
------------------- -------------------
Common Stock $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate 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, and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate if the disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this FORM 10-K or any amendment to this
FORM 10-K [ ]
The aggregate market value (based on the closing price on the New York Stock
Exchange) of the Common Stock of the Registrant held by non affiliates of the
Registrant was $2,441,296,449 on April 3, 1997. For purposes of this response,
executive officers and directors are deemed to be the affiliates of the
Registrant and the holdings by non affiliates was computed as 67,114,679 shares.
The number of shares of Common Stock $.01 par value per share, outstanding as of
April 3, 1997, was 67,339,903 and there were no shares of Non-Voting Common
Stock, $.01 par value per share outstanding at that date.
Documents Incorporated by Reference
-----------------------------------
Portions of the Registrant's Proxy Statement are incorporated by reference into
Part III.
FORM 10-K
<PAGE> 2
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
TABLE OF CONTENTS
<TABLE>
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Page
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PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to Vote of Security Holders 13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures 41
PART III
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners and Management 41
Item 13. Certain Relationships and Related Transactions 41
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41
</TABLE>
FORM 10-K Page 2
<PAGE> 3
PART I
Item 1 Business
INDUSTRY OVERVIEW
Closeout retailing is one of the fastest-growing segments of the retail industry
in the United States. Closeout retailers provide a valuable service to
manufacturers by purchasing excess product that generally result from production
overruns, package changes, discontinued products and returns. Closeout retailers
also take advantage of generally low prices in the off-season by buying and
warehousing seasonal merchandise for future sale. As a result of these lower
costs of goods sold, closeout retailers can offer merchandise at prices
significantly lower than those offered by traditional retailers.
Recent trends in the retail industry are favorable to closeout retailers. These
trends include retailer consolidations and just-in-time inventory processes,
which have resulted in a shift of inventory risk from retailers to
manufacturers. In addition, in order to maintain their market share in an
increasingly competitive environment, manufacturers are introducing new products
and new packaging on a more frequent basis. The Company believes that these
trends have helped make closeout retailers an integral part of manufacturers'
overall distribution process. As a result, manufacturers are increasingly
looking for larger, more sophisticated closeout retailers, such as the Company,
that can purchase larger quantities of merchandise and can control the
distribution and advertising of specific products.
THE COMPANY
The Company is the nation's largest closeout retailer with 1,798 stores located
in all 50 states and Puerto Rico. The Company operates 614 retail closeout
stores under the names Odd Lots and Big Lots (Closeout Stores) in the
midwestern, southern and mid-Atlantic regions of the United States, and 1,184
retail toy and closeout toy stores throughout the United States and Puerto Rico,
primarily under the names Kay-Bee Toys, KB Toy Works, and KB Toy Outlet (Toy
Stores). Kay-Bee is the largest enclosed shopping mall-based toy retailer in the
United States. 1,042 of the Toy Stores were acquired as of May 5, 1996 in the
acquisition of Kay-Bee Center, Inc. from Melville Corporation (Acquisition). As
a value retailer focused on closeout merchandise, the Company seeks to provide
the budget-conscious consumer with a broad range of quality, name-brand products
at exceptional values. The Company's name-brand closeout merchandise primarily
consists of products obtained from manufacturers' excess inventories, which
generally result from production overruns, package changes, discontinued
products and returns.
The Company's Closeout Stores typically offer merchandise at prices 15% to 35%
below those offered by other discount retailers and up to 70% below those
offered by traditional retailers. The Company's Closeout Stores offer a wide
variety of name-brand consumer products, including food items, health and beauty
aids, electronics, housewares, tools, paint, lawn and garden, hardware, sporting
goods, toys and softlines. In addition, these stores supplement their broad
offering of items in core product categories with a changing mix of new
merchandise and seasonal goods such as back-to-school and holiday merchandise.
The Toy Stores offer a broad variety of closeout toys, as well as currently
promoted retail toys (known as "in-line toys") and traditional toy merchandise.
The Company has been in the toy retailing business since its inception and has
operated stand-alone toy stores since its purchase of Toy Liquidators in 1994.
The Acquisition has allowed the Company to expand significantly its retail toy
store business at a relatively low cost. In addition, as a result of the
Acquisition, the Company will more than double its purchases of closeout toys
and become the largest purchaser of closeout toys in the United States. The
Company expects that this combined
FORM 10-K Page 3
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purchasing power will enhance its ability to source high-quality closeout toys
for all of its stores at competitive prices.
In the fourth quarter the Company announced its plan to discontinue operations
of the All For One and iTZADEAL! businesses. Closure of the 165 store division
is anticipated to be completed by the end of 1997.
BUSINESS STRATEGY
The Company's goal is to build upon its leadership position in closeout
retailing, one of the fastest growing segment of the retailing industry, by
expanding its market presence in its existing and in new markets. The Company
has adopted a business strategy of pursuing growth by capitalizing on the
following competitive strengths: (i) its ability to offer name-brand products at
discounted prices; (ii) its purchasing expertise and strong buying
relationships; (iii) its ability to lease low cost store sites in strip shopping
centers, enclosed shopping malls and outlet malls on favorable terms; (iv) its
ability to efficiently warehouse and distribute large quantities of merchandise;
and (v) its focus on cost control.
- OFFERING NAME-BRAND MERCHANDISE AT DEEPLY DISCOUNTED PRICES The
success of the Company's closeout business depends upon its ability to
select and purchase quality merchandise at attractive prices in order
to maintain a balance of product in certain core merchandising
categories along with a changing mix of merchandise. As a retailer
focused on closeout merchandise, the Company's goal is to provide
budget-conscious consumers with a broad range of quality name-brand
products at exceptional values. The Company purchases large quantities
of name-brand closeout merchandise from manufacturers' excess
inventories, which generally result from production overruns, package
changes, discontinued products and returns. The Company also takes
advantage of the availability of factory reconditioned products and
lower priced, private-label merchandise in selected product categories
in order to provide additional value to its customers. Primarily as a
result of its strong supplier relationships and purchasing expertise,
the Company offers substantial everyday savings on a wide variety of
name-brand consumer products, including food items, health and beauty
aids, electronics, housewares, tools, paint, lawn and garden,
hardware, sporting goods, toys and softlines, typically offering
merchandise at prices 15% to 35% below those offered by other discount
retailers and up to 70% below those offered by traditional retailers.
In addition, the Company supplements its broad offering of consumer
items in core product categories with a changing mix of new
merchandise, including seasonal goods, such as holiday and
back-to-school merchandise.
- PURCHASING EXPERTISE AND STRONG BUYING RELATIONSHIPS An integral part
of the Company's business is the sourcing and purchasing of quality
name-brand merchandise. The Company has built strong relationships
with many name-brand manufacturers and has capitalized on its
purchasing power in the closeout and toy marketplace in order to
source merchandise that provides exceptional value to customers. As
the largest retailer of closeout merchandise in the United States, the
Company generally has the ability to purchase all of a manufacturer's
closeout merchandise in specific product categories and to control
distribution in accordance with vendor instructions, thus providing a
high level of service and convenience to these manufacturers. The
success of the Company's toy business depends in part upon its ability
to purchase in-line toys at competitive prices and on competitive
terms.
Furthermore, the Company's strong buying relationships and financial
flexibility enable it to purchase merchandise off-season, typically at
lower costs. The Company purchases merchandise from over 3,000
domestic and foreign vendors which provides multiple sources for each
product category. The Company has significantly expanded its vendor
base over the past several fiscal years as a result of its size,
credibility, financial strength and seasoned buying team. The Company
believes that its management has long standing relationships with its
suppliers and is competitively positioned to continue to seek new
sources.
FORM 10-K Page 4
<PAGE> 5
- LOW COST SITE SELECTION The Company has developed a real estate
strategy for its Closeout Stores emphasizing smaller-sized stores in
strip shopping center locations in mid-sized cities and small towns.
The Company believes its ability to obtain these sites on attractive
terms has been enhanced by the ongoing consolidation in the retailing
industry and the migration of many retailers to larger-sized stores.
The Company seeks to enter into three to five year leases (with
renewal options) that provide for low rents and generally strives to
minimize the capital required to open a store. In addition to
enhancing the Company's ability to provide value to its customers,
this strategy has led to an attractive store level return on
investment.
- EFFICIENT WAREHOUSE/DISTRIBUTION OPERATIONS Since 1990, the Company
has focused on increasing the efficiency and reducing the cost of its
operations in order to improve profitability and enhance its
competitive position. The Company believes it operates the largest
retail warehouse/distribution center of its kind in the United States,
which covers 3,558,000 square feet. The size of this facility enables
the Company to store large quantities of merchandise purchased
off-season at low prices for distribution to its stores at a later
date. This highly automated facility uses bar code scanning and
high-speed sortation systems to process and distribute large
quantities of constantly changing merchandise in a timely and
cost-efficient manner. The Company will begin implementation of a
sophisticated new information system in its closeout business in
fiscal 1997 that will enable it to more effectively allocate and
manage inventory by SKU. These systems are expected to improve
comparable store sales and inventory turns and reduce the need to move
merchandise between stores. The Company intends to continue to invest
in its infrastructure in order to increase efficiency, reduce cost and
support its expanding operations.
- FOCUS ON COST CONTROL The Company maintains a disciplined approach to
cost control in all aspects of its business including store expenses,
corporate expenses, store leases, fixtures, leasehold improvements,
distribution, transportation and inventory management. In addition to
its low cost approach to store leasing and efficient warehousing and
distribution methods, the Company has implemented numerous expense
savings programs in areas such as store payroll, shrink control,
accident prevention and other store-related expense categories.
The Company believes that the combination of its strengths in merchandising,
purchasing, site selection, distribution and cost-containment has made it a
low-cost, value retailer well-positioned for future growth.
GROWTH STRATEGY
The Company's growth strategy is to increase net sales and earnings through (i)
new store expansion, (ii) comparable store sales increases and (iii) selective
acquisitions.
- NEW STORE EXPANSION The Company has historically increased retail
selling space by approximately 10% to 15% per fiscal year.
CLOSEOUT STORES
Currently, the Company's Closeout Stores are primarily located in the
midwestern, southern, and mid-Atlantic regions of the United States.
The closeout business has been able to operate profitably a large
number of stores in relatively close proximity in markets with
favorable demographics and suitable store sites. For example, the
Company operates 108 of the total 614 Closeout Stores in Ohio.
Management believes that there are substantial opportunities to
increase store counts in existing markets. In addition, the Company
believes the southwestern and western areas of the United States have
significant longer term growth potential for Closeout Stores because
the Company has few stores in these regions. The Company plans to open
approximately 85 to 95 new Closeout Stores, net of store closings, in
fiscal 1997.
FORM 10-K Page 5
<PAGE> 6
TOY STORES
The Company has a large presence in enclosed shopping malls with 911 Toy
Stores where the Company is usually the exclusive toy store. The Company
expects to increase the number of enclosed shopping mall-based toy stores
in the coming years. 273 Toy Stores are located in strip shopping centers
and outlet malls. The Company plans to open approximately 100 to 115 new
Toy Stores, net of store closings in fiscal 1997. The smaller strip
shopping center stores strive to appeal to customers seeking value and the
convenience not offered by toy superstores. The Company believes that the
opening of toy stores in strip shopping centers has significant potential
for growth over the next several years.
- - COMPARABLE STORE SALES INCREASES The Company continually seeks to increase
comparable store sales and has undertaken several initiatives which it
believes should positively affect comparable store sales over the next
several years. The Company has achieved positive same store sales in each
of the last six fiscal years.
CLOSEOUT STORES
The Company is seeking to attract new customers and gradually increase the
size of its average transaction by introducing and expanding key
merchandise categories such as toys, electronics (including telephones,
answering machines and portable stereos), and furniture and gradually
modifying its merchandise mix to include a greater percentage of items with
higher average retail price points. In addition, the Company has a
television advertising program in certain markets. The Company intends to
expand and refine its use of television advertising to increase awareness
of its stores and to attract new and repeat customers. Furthermore, the
Company will implement an improved inventory management system that the
Company expects will allow it to improve its process for allocating
specific products to individual stores based on the item's sales
performance and inventory levels.
TOY STORES
The Company expects that this increased purchasing power will enhance its
ability to source high-quality closeout toys for all of its stores at
competitive prices. In addition, the Company intends to gradually increase
the percentage of higher-margin closeout toys in order to increase both
gross margins and the value offered to customers.
- - SELECTIVE ACQUISITIONS The Company has grown, in part, through selective
acquisitions and believes that the current trend in retailing will present
opportunities for further strategic acquisitions.
RETAIL OPERATIONS
CLOSEOUT STORES
The Company's Closeout Stores carry a wide variety of name-brand consumer
products, including food items, health and beauty aids, electronics, housewares,
tools, paint, lawn and garden, hardware, sporting goods, toys and softlines. The
Closeout Stores also sell factory reconditioned products and lower-priced,
private-label merchandise in selected product categories. These core categories
of merchandise are carried on a continual basis, although the specific
name-brands offered may change frequently. The Company also supplements its
broad selection of consumer products in core product categories with seasonal
goods and holiday merchandise. Closeout Stores are located predominantly in
strip shopping centers located in the midwestern, southern and mid-Atlantic
regions of the United States. Individual stores range in size from 5,202 to
70,417 selling square feet and average approximately 20,092 selling square feet.
In selecting suitable new store locations, the Company generally seeks retail
space between 22,000 square feet and 30,000 square feet in size. The average
cost to open a new store in a leased facility
FORM 10-K Page 6
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is approximately $710,000, including inventory. The Company plans to open 85 to
95 new stores, net of store closings, during fiscal 1997, all of which will be
leased. Because of their low operating costs, the Closeout Stores are generally
profitable within their first full year of operation. Management regularly
monitors all stores against established profitability standards and evaluates
underperforming stores on an individual basis.
TOY STORES
The Company's Toy Stores are located in enclosed shopping malls, outlet malls,
and strip shopping centers. Enclosed mall and strip shopping center Toy Stores
carry a combination of in-line toys and close-out merchandise. Toy Stores
located in outlet malls carry primarily close-out toys supplemented by selected
in-line toys. The Company's 1,184 Toy Stores are located in enclosed shopping
malls, outlet malls and strip shopping centers across the United States and
Puerto Rico. Enclosed shopping mall-based stores range in size from 1,942 to
10,709 selling square feet and average approximately 3,265 selling square feet.
Outlet mall stores range in size from 2,313 to 5,616 selling square feet and
average approximately 4,004 selling square feet. Strip shopping center stores
range in size from 2,068 to 14,870 selling square feet, and the Company believes
the average size of new strip shopping center stores will be approximately 6,000
to 8,000 square feet. During fiscal 1997, the Company estimates it will open 50
to 60 Toy Stores, net of store closings, in strip shopping centers and mills, 10
to 20 Toy Stores, net of store closings, in outlet malls, and the balance of
openings in malls, all of which will be leased. In seeking suitable new store
locations, the Company generally seeks retail space in both high-traffic strip
shopping centers and outlet malls. The approximate average cost, including
inventory, to open a new outlet mall store or strip shopping center store is
$200,000 to $240,000, and $500,000 to open a mall store. In addition, 194
temporary Toy Stores were operated principally in enclosed shopping malls during
the 1996 fall/winter holiday season. These temporary stores, which carried
primarily closeout merchandise, were open for approximately six to eight weeks
and provide increased sales and profits during the peak holiday selling season
by utilizing vacant store space obtained on favorable terms. The average size of
the temporary stores was approximately 4,100 square feet.
PURCHASING
An integral part of the Company's business is its ability to select and purchase
quality closeout merchandise directly from manufacturers and other vendors at
prices substantially below those paid by conventional retailers. As a result of
the Acquisition, the Company will more than double its purchases of closeout
toys and become the largest purchaser of closeout toys in the United States. The
Company expects that this combined purchasing power will enhance its ability to
source high quality closeout toys for all of its stores at competitive prices.
The Company has a seasoned buying team with extensive purchasing experience,
which has enabled the Company to develop successful long-term relationships with
many of the largest and most recognized consumer-product manufacturers in the
United States. As a result of these relationships and the Company's experience
and reputation in the closeout industry, many manufacturers offer purchase
opportunities to the Company prior to attempting to dispose of their merchandise
through other channels. The Company regularly purchases manufacturers' excess
inventories, which generally result from production overruns, package changes,
discontinued products and returns. Due to its size, credibility and financial
strength, the Company frequently purchases all or substantially all of a given
manufacturer's closeout products, thus providing a superior level of service and
convenience to its vendors. The Company supplements its traditional name-brand
closeout purchases with a limited amount of program buys and private-label
merchandise.
The success of the Company's closeout business depends upon its ability to
select and purchase quality merchandise at attractive prices in order to
maintain a balance of product in certain core merchandising categories along
with a changing mix of merchandise. The Company has no continuing contracts for
the purchase of closeout merchandise and relies on buying opportunities from
both existing and new sources, for which it competes with other closeout
merchandisers and wholesalers. In addition, the success of the Company's toy
business depends in part
FORM 10-K Page 7
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upon its ability to purchase in-line toys at competitive prices and on
competitive terms. The Company believes that its management has long standing
relationships with its suppliers and is competitively positioned to continue to
seek new sources to maintaining an adequate continuing supply of quality
merchandise at attractive prices.
The Company's merchandise is purchased from over 3,000 foreign and domestic
suppliers providing the Company with multiple sources for each product category.
In fiscal 1996 and 1995, Consolidated Stores' top ten vendors accounted for
approximately 23% and 12%, respectively, of total purchases with no one vendor
accounting for more than 4.3% and 1.8%, respectively. Additionally, during
fiscal 1996 the Company's top ten toy vendors, on a combined basis, would have
provided approximately 47% of the Company's toy merchandise.
The Company purchases approximately 20% to 25% of its products directly from
overseas suppliers, and a material amount of its domestically purchased
merchandise is also manufactured abroad, including products such as seasonal
items, toys, tools, housewares, giftware and novelties. As a result, a
significant portion of the Company's merchandise supply is subject to certain
risks including increased import duties and more restrictive quotas, loss of
"most favored nation" trading status, currency fluctuations, work stoppages,
transportation delays, economic uncertainties including inflation, foreign
government regulations, political unrest and trade restrictions, including
retaliation by the United States against foreign practices. While the Company
believes that alternative domestic and foreign sources could supply merchandise
to the Company, an interruption or delay in supply from China or the Company's
other foreign sources, or the imposition of additional duties, taxes or other
charges on these imports, could have a material adverse effect on the Company's
results of operations and financial condition.
ADVERTISING and PROMOTION
The Company uses a variety of marketing approaches to promote its stores to the
public. These approaches vary by business, by market and by the time of year.
The Company promotes grand openings of its stores through a variety of print and
radio promotions. In general, the Company utilizes only those marketing methods
that it believes provide an immediate and measurable return on investment.
CLOSEOUT STORES
The Company's marketing program for its Closeout Stores is designed to create an
awareness of the broad range of quality, name-brand merchandise available at low
prices. The Company utilizes a combination of weekly advertising circulars in
all markets and television advertising in select markets. The Company currently
distributes approximately 22 million four-page circulars 42 weeks out of the
year. The method of distribution includes a combination of newspaper inserts and
direct mail. These circulars are created in-house and are distributed regionally
in order to take advantage of market differences caused by climate or other
factors. The circulars generally feature 25 to 30 products that vary each week.
The Company selects certain markets to run television promotions based upon
factors unique to each market, including the number of stores, cost of local
media and results of preliminary testing. The Company runs multiple 30-second
television spots per week, each of which feature four to six highly
recognizable, name-brand products. In-store promotions include periodic
loudspeaker announcements featuring special bargains as well as humorous
in-store signage to emphasize the significant values offered to the customer.
Historically, the Closeout Stores total advertising expense as a percent of
total net sales has been approximately 3.0%.
TOY STORES
Kay-Bee Toys stores use a combination of a holiday promotion catalog as well as
periodic in-store sales and store signs to promote their products. Advertising
costs were 2.0% of total net sales in 1996. Kay-Bee Toys stores re-
FORM 10-K Page 8
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ceive the benefit of large amounts of customer traffic in enclosed shopping
malls. Similarly, KB Toy Works and KB Outlet stores have relied primarily on
existing customer traffic and in-store signs to promote their products.
WAREHOUSING and DISTRIBUTION
An important aspect of the Company's purchasing strategy involves its ability to
warehouse and distribute merchandise quickly and efficiently. The Company's
primary 3,558,000 square foot owned warehouse/distribution center is located in
Columbus, Ohio and utilizes two high-speed tilt tray sortation systems with a
combined output of approximately 1,225,000 cartons per week. These systems
include a fully automated warehouse management system that incorporates
high-speed bar code scanning to efficiently sort and load high merchandise
volumes for immediate store delivery. Another important part of the Company's
closeout purchasing strategy is its ability to buy large quantities of
merchandise off-season at low prices. As a result, the Company must warehouse
the merchandise until the appropriate season and therefore maintains higher
inventories than most conventional retailers. The Company's primary
warehouse/distribution center has approximately 200,000 pallet positions for the
warehousing of merchandise.
At February 1, 1997 total warehouse space utilized by the Closeout Stores is
approximately 3,294,000 square feet comprised of a shared portion of the primary
warehouse/distribution center and two leased facilities; one in Ohio and one in
Georgia. Typically, a Closeout Store receives additional inventory once a week
(usually within 24 hours of dispatch) via a dedicated trucking fleet and outside
transportation companies. Substantially all the closeout merchandise sold by the
Closeout Stores is received at the primary warehouse/distribution center and is
processed for retail sale, as necessary, and distributed to the retail location
or wholesale customer.
For its Toy Stores as of February 1, 1997, the Company has six
warehouse/distribution centers, including a shared portion of the primary
warehouse/distribution center, located in Alabama, Arizona, Kentucky,
Massachusetts, Ohio, and Pennsylvania, totaling approximately 2,101,000 square
feet. These warehouse/distribution centers use automated warehouse management
systems that include bar code scanning and radio frequency technology to allow
for high accuracy and efficient product processing from vendors to retail
stores. The combined shipping capacity of these warehouse/distribution centers
is approximately 180,000 cartons per week.
In addition to these locations, the Company leases additional temporary space at
locations near the warehouse/distribution centers to store its expanded
inventory.
In January 1997, the Company announced it had entered into a purchase agreement
to acquire a 665,000 square foot distribution and warehouse facility located in
Alabama. The transaction is expected to be completed in the summer of 1997 with
operations of the facility commencing early in 1998. In February 1997, the
Company acquired a 360,000 square foot distribution facility located in New
Jersey.
FORM 10-K Page 9
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Statistics, exclusive of commitments for future warehouse/distribution centers,
by type and locations is as follows:
Number Square Footage
---------------------- ----------------------
State Owned Leased Owned Leased
- ------------------------------------------------------------------
(In thousands)
Alabama -- 1 -- 279
Arizona 1 -- 300 --
Georgia -- 1 -- 250
Kentucky -- 1 -- 300
Massachusetts 1 -- 254 --
Ohio 1 4 3,558 1,314
Pennsylvania -- 1 -- 147
- -----------------------------------------------------------------
3 8 4,112 2,290
=================================================================
INFORMATION SYSTEMS
Over the last five fiscal years the Company has continued to enhance its
information systems to support growth and the operations of its business. The
Company's current systems incorporate fully integrated distribution, allocation,
purchase order management, open-to-buy, point of sale and finance functions and
represent a combination of externally purchased software packages as well as
internally developed software. Current systems enable the Company to take
advantage of operating efficiencies resulting from bar-code scanning and
automated allocation.
The Company will continue to roll out its next generation of inventory
management systems for its Closeout Stores. Upon completion, the new system will
provide a number of features that the Company believes will improve inventory
turns, decrease markdowns and lower operating expenses. These features include
the ability to manage inventories on a micro-SKU basis as compared to its
previous macro-SKU based system. Additionally, the new system will incorporate
current inventory ownership by SKU by store when allocating merchandise, whereas
the existing system allocates inventory based on sales potential without the
benefit of store-owned inventory data. The Company has planned a multi-phased
roll out for this system, allowing for thorough testing and review prior to
start up.
OTHER OPERATIONS
The Company also sells merchandise wholesale from its corporate office in
Columbus, Ohio. The inventory consists almost entirely of merchandise obtained
through the same or shared opportunistic purchases of the retail operation.
Advertising of wholesale merchandise is conducted primarily at trade shows and
by mailings to past and potential customers. Wholesale customers include a wide
and varied range of major national and regional retailers, as well as smaller
retailers, manufacturers, distributors and wholesalers.
ASSOCIATES
At February 1, 1997, the Company had approximately 38,000 active associates
comprised of 12,600 full-time and 25,400 part-time associates. Temporary
associates hired during the fall/winter holiday selling season increased the
number of associates to a peak of approximately 56,500. Approximately two-thirds
of the associates employed throughout the year are employed on a part-time
basis. The relationship with associates is considered to be good, and the
Company is not a party to any labor agreements.
FORM 10-K Page 10
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COMPETITIVE CONDITIONS
The retail industry is highly competitive. The Company's Closeout Stores
compete with discount stores (such as Wal-Mart(R), KMart(R) and Target(R)),
deep discount drugstore chains and other value-oriented specialty retailers.
The Company's Toy Stores compete directly with local and regional enclosed
shopping mall-based toy retailers, destination toy stores (such as Toys "R"
Us(R)) and discount retailers with toy departments and indirectly with enclosed
shopping mall-based retailers such as concept stores and theme-based stores
that feature toys or toy-related merchandise. Certain of the Company's
competitors have greater financial, distribution, marketing and other resources
than the Company.
ITEM 2 PROPERTIES
RETAIL OPERATIONS
All stores are in leased facilities. Store leases generally provide for fixed
monthly rental payments plus the payment, in most cases, of real estate taxes,
utilities, insurance and maintenance. Toy Store leases generally include mall
advertising charges. In some locations, the leases provide formulas requiring
the payment of a percentage of sales as additional rent. Such payments are
generally only required when sales reach a specified level. The typical lease
for the Company's closeout stores is for an initial term of three to five years
with multiple, three to five year renewal options, while the typical lease for
the Toy Stores is for an initial term of 10 years with various renewal options.
The following tables set forth store lease expiration and state location
information for existing store leases at February 1, 1997.
<TABLE>
<CAPTION>
Number of Leases Expiring Without
Number of Leases Expiring Renewal Options
------------------------------------ ------------------------------------
Fiscal Year Closeout Toy Total Closeout Toy Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 96 181 277 29 90 119
1998 83 168 251 15 152 167
1999 127 179 306 28 147 175
2000 132 135 267 23 114 137
2001 115 140 255 19 111 130
2002 and beyond 61 381 442 12 276 288
- -------------------------------------------------------------------------------------------
614 1,184 1,798 126 890 1,016
===========================================================================================
</TABLE>
FORM 10-K Page 11
<PAGE> 12
<TABLE>
<CAPTION>
Number of Stores Open
========================================================================================
Closeout Toy Total Closeout Toy Total
---------------------------------- ----------------------------------
<S> <C> <C> <C> <S> <C> <C> <C>
Alabama 22 17 39 Nebraska 1 8 9
Alaska -- 4 4 Nevada -- 6 6
Arizona -- 18 18 New Hampshire -- 8 8
Arkansas -- 8 8 New Jersey -- 37 37
California -- 112 112 New Mexico -- 8 8
Colorado -- 17 17 New York 15 84 99
Connecticut -- 31 31 North Carolina 30 32 62
Delaware -- 5 5 North Dakota -- 4 4
Florida 59 62 121 Ohio 108 52 160
Georgia 37 29 66 Oklahoma 8 12 20
Hawaii -- 8 8 Oregon -- 9 9
Idaho -- 6 6 Pennsylvania 22 65 87
Illinois 20 42 62 Puerto Rico -- 15 15
Indiana 38 32 70 Rhode Island -- 4 4
Iowa 1 11 12 South Carolina 21 17 38
Kansas 7 7 14 South Dakota -- 2 2
Kentucky 33 15 48 Tennessee 37 27 64
Louisiana 11 17 28 Texas 21 73 94
Maine -- 7 7 Utah -- 8 8
Maryland 3 36 39 Vermont -- 3 3
Massachusetts -- 39 39 Virginia 26 41 67
Michigan 35 41 76 Washington -- 25 25
Minnesota -- 12 12 West Virginia 22 10 32
Mississippi 11 7 18 Wisconsin 10 22 32
Missouri 16 23 39 Wyoming -- 3 3
Montana -- 3 3
Closeout Toy Total
------------------------------------
Total Stores 614 1,184 1,798
Number of states and
Puerto Rico 25 51
</TABLE>
WAREHOUSE and DISTRIBUTION
See Warehousing and Distribution in Item I above.
CORPORATE
Approximately 150,000 square feet located on site of the Company's primary
warehouse/distribution facility in Columbus, Ohio is utilized for corporate
offices and business offices of the Closeout Stores and wholesale operations.
Toy Store executive offices occupy 140,000 square feet of leased space in
Pittsfield, Massachusetts.
FORM 10-K Page 12
<PAGE> 13
ITEM 3 LEGAL PROCEEDINGS
The Company is party to various legal proceedings arising from its ordinary
course of operations and believes that the outcome of these proceedings,
individually and in the aggregate, will be immaterial.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Offices Held Officer Since
- ---------------------------- ------------ ----------------------------------------------------- ---------------
<S> <C> <C> <C>
William G. Kelley 51 Chairman of the Board and Chief Executive Officer 1990
Michael L. Glazer 49 President 1995
Albert J. Bell 37 Sr. Vice President, Legal, Real Estate, Secretary
and General Counsel 1988
Charles Freidenberg 51 Sr. Vice President - Merchandising 1995
C. Matthew Hunnell 34 Sr. Vice President - Merchandising 1995
Michael J. Potter 35 Sr. Vice President and Chief Financial Officer 1991
James A. McGrady 46 Vice President and Treasurer 1991
Mark D. Shapiro 37 Vice President and Controller 1994
</TABLE>
William G. Kelley is a Director of the Company and has served in his present
capacity as Chairman of the Board and Chief Executive Officer since 1990. Mr.
Kelley is also a director of National City Bank, Columbus.
Michael L. Glazer has served on the Company's Board of Directors since 1991 and
previous to his appointment as President of the Company in 1995 he held
positions as Executive Vice President and President of The Bombay Company, a
home furnishings retailer.
Albert J. Bell has served as the Company's general counsel for over five years
and has been employed by the Company since 1987.
Charles Freidenberg has been with the Company since 1983 and has held senior
management positions in the merchandising area for the past five years.
C. Matthew Hunnell has been with the Company since 1983 and has held senior
management positions in the merchandising area for the past five years.
Michael J. Potter has been with the Company since 1991 and previous to his
appointment as Sr. Vice President and Chief Financial Officer in 1994 Mr. Potter
was Vice President and Controller for the Company.
James A. McGrady has been with the Company since 1986 and previous to his
appointment as Vice President and Treasurer in 1991 he was Assistant Controller.
Mark D. Shapiro has been with the Company since 1992 and prior to his
appointment as Vice President and Controller served as Assistant Controller.
FORM 10-K Page 13
<PAGE> 14
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange (NYSE) under
the symbol "CNS." The following table reflects the high and low sales price per
share of common stock as quoted from the NYSE composite transactions for the
fiscal period indicated. Prices have been restated to reflect a 5 for 4 common
stock split effected by a distribution of shares on December 24, 1996, to
stockholders of record on December 10, 1996.
<TABLE>
<CAPTION>
1996 1995
High Low High Low
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
First Quarter $29 45/64 $16 19/32 $16 45/64 $13
Second Quarter 32 13/32 24 18 13/32 12 19/32
Third Quarter 35 13/32 26 19/64 20 3/32 16 29/32
Fourth Quarter 34 13/64 28 45/64 20 1/2 15 1/2
</TABLE>
As of April 3, 1997, there were 1,233 holders of record of the Company's common
stock.
The Company has followed a policy of reinvesting earnings in the business and
consequently has not paid any cash dividends. At the present time, no change in
this policy is under consideration by the Board of Directors. The payment of
cash dividends in the future will be determined by the Board of Directors in
consideration of business conditions then existing, including the Company's
earnings, financial requirements and condition, opportunities for reinvesting
earnings, and other factors.
ITEM 6 SELECTED FINANCIAL DATA
The statement of earnings data and the balance sheet data has been derived from
the Company's consolidated financial statements and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and Notes
thereto included elsewhere herein.
FORM 10-K Page 14
<PAGE> 15
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
================================================================================
February 1, February 3, January 28, January 29, January 30, February 1,
1997 1996* 1995 1994 1993 1992
===========================================================================================================================
($ In thousands except earnings per share)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Closeout Stores $1,431,873 $1,286,675 $1,112,087 $941,471 $837,805 $744,896
Toy Stores 1,178,224 76,689 45,937 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Retail 2,610,097 1,363,364 1,158,024 941,471 837,805 744,896
Other 37,419 42,652 27,030 21,537 18,489 18,916
- ---------------------------------------------------------------------------------------------------------------------------
2,647,516 1,406,016 1,185,054 963,008 856,294 763,812
- ---------------------------------------------------------------------------------------------------------------------------
Cost of sales:
Closeout Stores 826,478 738,675 638,533 531,605 479,536 441,351
Toy Stores 687,413 40,598 22,467 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Retail 1,513,891 779,273 661,000 531,605 479,536 441,351
Other 28,610 32,281 20,163 16,358 13,895 14,047
- ---------------------------------------------------------------------------------------------------------------------------
1,542,501 811,554 681,163 547,963 493,431 455,398
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 1,105,015 594,462 503,891 415,045 362,863 308,414
Selling and administrative expenses 908,468 475,798 402,411 337,363 300,569 270,921
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit 196,547 118,664 101,480 77,682 62,294 37,493
Other (expense) - net (16,689) (7,313) (5,114) (3,106) (3,398) (5,660)
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
income taxes and extraordinary charge 179,858 111,351 96,366 74,576 58,896 31,833
Income taxes 66,547 41,218 38,546 29,833 22,630 12,096
Income from continuing operations before
extraordinary charge 113,311 70,133 57,820 44,743 36,266 19,737
(Loss) income from discontinued operations (27,538) (5,727) (2,600) (1,716) 844 361
Extraordinary charge (1,856) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 83,917 $ 64,406 $ 55,220 $ 43,027 $ 37,110 $ 20,098
===========================================================================================================================
Income (loss) per common and
common equivalent share of stock:
Continuing operations $ 1.69 $ 1.15 $ 0.96 0.75 $ 0.61 $ 0.34
Discontinued operations (0.41) (0.09) (0.04) (0.03) 0.01 0.01
Extraordinary charge (0.03) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
$ 1.25 $ 1.06 $ 0.92 $ 0.72 $ 0.62 $ 0.35
===========================================================================================================================
Weighted average common and common
equivalent shares outstanding (In
thousands) 67,233 61,129 60,096 59,970 59,595 57,246
===========================================================================================================================
<FN>
* Fiscal 1995 is comprised of 53 weeks.
</TABLE>
FORM 10-K Page 15
<PAGE> 16
SELECTED FINANCIAL DATA - continued
<TABLE>
<CAPTION>
Fiscal Year Ended
============================================================================
February 1, February 3, January 28, January 29, January 30, February 1,
1997 1996* 1995 1994 1993 1992
===========================================================================================================================
($ In thousands except earnings per share)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 469,290 $ 253,858 $ 210,601 $174,529 $142,305 $120,275
Total assets $ 1,330,503 $ 639,815 $ 551,620 $468,220 $390,942 $329,321
Long-term obligations $ 151,292 $ 25,000 $ 40,000 $ 50,000 $ 50,000 $ 50,000
Stockholders' equity $ 682,085 $ 389,564 $ 315,234 $258,535 $209,459 $170,520
STORE OPERATING DATA:
Year end gross square footage (000's):
Closeout Stores 17,072 15,072 13,607 11,981 10,545 9,878
Toy Stores 5,267 552 401 -- -- --
New stores opened:
Closeout Stores 85 67 79 71 47 37
Toy Stores (1)1,095 30 82 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
1,180 97 161 71 47 37
Stores closed:
Closeout Stores 12 14 23 20 24 16
Toy Stores 22 1 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
34 15 23 20 24 16
Stores open at end of year:
Closeout Stores 614 541 488 432 381 358
Toy Stores 1,184 111 82 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
1,798 652 570 432 381 358
===========================================================================================================================
<FN>
(1) Includes 1,042 Kay-Bee toy acquired May 5, 1996.
</TABLE>
FORM 10-K Page 16
<PAGE> 17
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE
SECURITIES LITIGATION REFORM ACT OF 1995
When used in this discussion and the financial statements that follow, the
words, "expect(s)", "feel(s)", "believe(s)", "will", "may", "anticipate(s)" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect the occurrence of unanticipated events.
Readers are also urged to carefully review and consider the various disclosures
made by the Company which attempt to advise interested parties of the factors
which affect the Company's business, including the following Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in this report, as well as, the Company's periodic reports on Forms
10-Q and 8-K filed with the Securities and Exchange Commission.
OVERVIEW
The Company is the nation's largest closeout retailer with 1,798 stores located
in all 50 states and Puerto Rico. The Company operates 614 retail closeout
stores under the names Odd Lots and Big Lots (Closeout Stores) in the
midwestern, southern and mid-Atlantic regions of the United States, and 1,184
retail toy and closeout toy stores throughout the United States and Puerto Rico,
primarily under the names Kay-Bee Toys, KB Toy Works, and KB Toy Outlet (Toy
Stores). The Company believes that Kay-Bee is the largest enclosed shopping
mall-based toy retailer in the United States. 1,042 of the Toy Stores were
acquired as of May 5, 1996 in the acquisition of Kay-Bee Center, Inc. from
Melville Corporation. As a value retailer focused on closeout merchandise, the
Company seeks to provide the budget-conscious consumer with a broad range of
quality, name-brand products at exceptional values. The Company's name-brand
closeout merchandise primarily consists of products obtained from manufacturers'
excess inventories, which generally result from production overruns, package
changes, discontinued products and returns.
In the fourth quarter of 1996 the Company adopted a plan to close its single
price point and small specialty stores operating under the names of All For One
and iTZADEAL!. Closures of the 165 stores open at February 1, 1997, are
anticipated to be completed throughout fiscal 1997. Accordingly, the operating
results for this business are reported as a discontinued operation at February
1, 1997, and prior years operating results have been restated to reflect
continuing operations.
The following table compares components of the statements of earnings of
Consolidated Stores as a percent to net sales.
FORM 10-K Page 17
<PAGE> 18
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------
1996 1995 1994
======================================================================================
<S> <C> <C> <C>
Net sales:
Closeout Stores 54.1% 91.5% 93.8%
Toy Stores 44.5 5.5 3.9
- --------------------------------------------------------------------------------------
Total Retail 98.6 97.0 97.7
Other 1.4 3.0 2.3
- --------------------------------------------------------------------------------------
Total net sales 100.0 100.0 100.0
- --------------------------------------------------------------------------------------
Gross Profit:
Closeout Stores 42.3 42.6 42.6
Toy Stores 41.7 47.1 51.1
- --------------------------------------------------------------------------------------
Total Retail 42.0 42.8 42.9
Other 23.5 24.3 25.4
- --------------------------------------------------------------------------------------
Total Gross Profit 41.7 42.3 42.5
Selling and administrative expenses 34.3 33.8 34.0
- --------------------------------------------------------------------------------------
Operating profit 7.4 8.5 8.5
- --------------------------------------------------------------------------------------
Interest expense 0.6 0.4 0.5
Other expense (income) -- 0.1 (0.1)
- --------------------------------------------------------------------------------------
Income from continuing operations before income
taxes and extraordinary charge 6.8 8.0 8.1
Income taxes 2.5 2.9 3.2
- --------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary charge 4.3 5.1 4.9
Loss from discontinued operations (1.0) (0.4) (0.2)
Extraordinary charge (0.1) -- --
- --------------------------------------------------------------------------------------
Net income 3.2% 4.7% 4.7%
======================================================================================
</TABLE>
The Company has historically experienced, and expects to continue to experience,
seasonal fluctuations with a significant percentage of its net sales and income
being realized in the fourth fiscal quarter. In addition, the Company's
quarterly results can be affected by the timing of store openings and closings,
the amount of net sales contributed by new and existing stores and the timing of
certain holidays. The following table illustrates the seasonality in the net
sales and operating income.
<TABLE>
<CAPTION>
Quarter
-------------------------------------------
First Second Third Fourth
==============================================================================================
<S> <C> <C> <C> <C>
FISCAL 1996(1)
Percent net sales of full year 12.1% 20.1% 22.6% 45.2%
Operating income (loss) percentage of full year 5.3 (0.2) 3.4 91.5
(1) Reflects acquisition of KAY-Bee Toys at the
beginning of the second quarter.
FISCAL 1995
Percent net sales of full year 19.3% 21.5% 23.7% 35.5%
Operating income percentage of full year 6.7 15.2 18.1 60.0
</TABLE>
FORM 10-K Page 18
<PAGE> 19
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES Net sales increased to $2,647.5 million in fiscal 1996 from $1,406.0
million in fiscal 1995, an increase of $1,241.5 million, or 88.3%. This increase
was attributable to Kay-Bee Toy net sales of $1,037.2 million, sales from 138
new stores and comparable store sales increases of 7.7%, offset in part by the
closing of 34 stores. In addition, fiscal 1995 was a 53-week fiscal year,
compared to fiscal 1996 which had 52 weeks.
Closeout Stores net sales increased $145.2 million, or 11.3%, to $1,431.9
million in fiscal 1996 from $1,286.7 million in fiscal 1995. Net sales of Toy
Stores increased $1,101.5 million, principally as a result of the acquisition
of the toy stores discussed above.
GROSS PROFIT Gross profit increased to $1,105.0 million in fiscal 1996 from
$594.5 million in fiscal 1995, an increase of $510.5 million, or 85.9%. As a
percentage of net sales, gross profit decreased to 41.7% in fiscal 1996 from
42.3% in fiscal 1995. Closeout Stores gross profit was 42.3% in 1996 compared to
42.6% in 1995. Toy Stores gross profit was 41.7% in 1996 compared to 47.1% in
1995. The decline in Toy Stores gross profit is principally attributable to the
higher percentage of lower margin in-line toys in the Kay-Bee merchandise mix
compared to the primarily closeout selection offered by the Toy Stores in prior
years. The Company anticipates gradually increasing the mix of closeout toys
offered in its Kay-Bee Toy stores throughout fiscal 1997.
SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses
increased to $908.5 million in fiscal 1996 from $475.8 million in fiscal 1995,
an increase of $432.7 million, or 90.9%. This increase is attributable to the
acquisition of the Kay-Bee Toy Stores. As a percentage of net sales, selling and
administrative expenses increased slightly to 34.3% in fiscal 1996 from 33.8% in
fiscal 1995. Historically the Kay-Bee Toy stores cost structure has resulted in
a higher percentage ratio of selling and administrative expenses to net sales.
INTEREST EXPENSE Interest expense increased to $16.8 million in fiscal 1996
from $5.6 million in fiscal 1995. The increase was attributable to higher
weighted average debt levels principally to support requirements associated with
the operations of the increased number of Toy Stores, increased effective
interest rates on seasonal borrowings throughout the fiscal year, and debt
associated with the issuance of $100 million of subordinated debentures related
to the acquisition of Kay-Bee Center, Inc. The increase in the effective
interest rate was offset to some extent by the early extinguishment of $35
million of senior debt.
INCOME TAXES The effective tax rate of the Company was 37.0% in fiscal 1996 and
1995. The Company surrendered its corporate-owned life insurance program in 1996
and will not realize future tax benefits therefrom in the future.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES Net sales increased to $1,406.0 million in fiscal 1995 from $1,185.1
million in fiscal 1994, an increase of $220.9 million, or 18.6%. This increase
was attributable to net sales of $109.1 million from 97 new stores and
comparable store sales increases of 5.3%, offset in part by the closing of 15
stores. The increase in comparable store sales was attributable to improved
product offerings and merchandise mix as well as a continued refinement and
expansion of the Company's television advertising program, which was introduced
in the fall of 1994. Comparable store sales were negatively impacted during the
fall/winter holiday selling season by abnormally inclement weather in many of
the Company's markets. In addition, fiscal 1995 was a 53-week fiscal year,
compared to fiscal 1994 which had 52 weeks.
Net sales of The Closeout Stores increased $174.6 million, or 15.7%, to $1,286.7
million in fiscal 1995 from $1,112.1 million in fiscal 1994. Toy Stores net
sales increased $30.8 million, or 67.1%, to $76.7 million in fiscal
FORM 10-K Page 19
<PAGE> 20
1995 from $45.9 million in fiscal 1994. This increase was largely attributable
to a full year of operations of the Toy Stores acquired in May 1994, as well as
net sales of $11.3 million from 30 new Toy Stores.
GROSS PROFIT Gross profit increased to $594.5 million in fiscal 1995 from
$503.9 million in fiscal 1994, an increase of $90.6 million, or 18.0%. As a
percentage of net sales, gross profit decreased to 42.3% in fiscal 1995 from
42.5% in fiscal 1994. The decrease in gross margin was attributable to decreases
in gross margin of the Toy Stores. Gross margin at the Toy Stores was high in
fiscal 1994 due to the advantageous terms under which the Company purchased the
inventory in May 1994. Gross margin for the Closeout Stores remained constant in
fiscal 1995 compared to fiscal 1994.
SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses
increased to $475.8 million in fiscal 1995 from $402.4 million in fiscal 1994,
an increase of $73.4 million, or 18.2%. As a percentage of net sales, selling
and administrative expenses decreased slightly to 33.8% in fiscal 1995 from
34.0% in fiscal 1994 as a result of the continued leveraging of fixed expenses
over a larger store base and comparable store sales increases.
INTEREST EXPENSE The slight decrease was attributable to higher weighted
average debt levels, resulting in part from increased seasonal borrowings to
support higher average inventory levels, and increased effective interest rates
on seasonal borrowings throughout the fiscal year, offset by scheduled principal
payments of $15.0 million on the senior debt.
INCOME TAXES The effective tax rate of the Company was 37.0% in fiscal 1995
compared to 40.0% in fiscal 1994. The reduction in the effective tax rate was
attributable to the full fiscal year effect of corporate-owned life insurance,
which was adopted in November 1994, as well as lower effective state and local
income tax rates. This reduction was partially offset by the federally
legislated elimination of the Targeted Jobs Tax Credit ("TJTC").
CAPITAL RESOURCES AND LIQUIDITY
The primary sources of liquidity for the Company have been cash flow from
operations and borrowings under available credit facilities. Total debt as a
percent of total capitalization (total debt and stockholders equity) was 20.8%
at February 1, 1997, compared with 8.2% and 13.7% at each of the respective
prior fiscal year ends. Working capital increased from $210.6 million at the end
of fiscal 1994 to $469.3 million at the end of fiscal 1996. Capital expenditures
for the last three fiscal years were $93.6 million, $48.1 million and $41.6
million, respectively, and were used primarily to fund new store openings and
distribution center expansions.
Concurrent with the acquisition of Kay-Bee Center, Inc. the Company terminated
its existing revolving credit agreement and entered into a Revolving Credit
Facility dated May 3, 1996, as amended June 28, 1996, with a syndicate of
financial institutions to provide senior bank financing in an aggregate
principal amount of up to $600 million. The Revolving Credit Facility consists
of a revolving loan facility (the "Revolver") with the amount available
thereunder equal to $450 million and a letter of credit facility with up to $200
million available for the issuance of documentary and standby letters of credit.
The facility has a maturity date of May 3, 1999. At May 4, 1996, the Company
borrowed $320 million under the Revolver to finance the acquisition of Kay-Bee
Center, Inc. and repay certain existing indebtedness under the prior revolving
credit agreement and senior notes.
Additionally, from time-to-time the Company utilizes uncommitted credit
facilities, subject to the terms of the Revolving Credit Facility, to supplement
short-term borrowing requirements. At February 1, 1997, approximately $382
million was available for direct borrowings under the Revolver and $70 million
of uncommitted credit facilities were available, subject to the terms of the
revolving credit facility.
FORM 10-K Page 20
<PAGE> 21
In connection with the acquisition of Kay-Bee Center, Inc. the Company issued
$100 million of Subordinated Notes. The Subordinated Notes mature in the year
2000 and bear interest at a rate of 7% per annum, payable semiannually. The
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, after two years from their issuance, at a premium to their principal, plus
accrued interest.
In the second quarter of 1996 the Company completed an offering of 6,406,250
shares of common stock, including a underwriters' over-allotment of 156,250
shares. Net proceeds to the Company of approximately $190.6 million were
utilized to repay a portion of the borrowings incurred to finance the
acquisition of Kay-Bee Center, Inc.
The Company's capital structure has changed significantly from the issuance of
common stock and increased credit facilities. The Company continues to believe
that it will have adequate resources to fund ongoing operating requirements and
future capital expenditures related to the expansion of existing businesses and
development of new projects. Additionally, management is not aware of any
current trends, events, demands, commitments, or uncertainties which reasonably
can be expected to have a material impact on the liquidity, capital resources,
financial position or results of operations of the Company.
FORM 10-K Page 21
<PAGE> 22
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Consolidated Stores Corporation:
We have audited the accompanying consolidated balance sheets of CONSOLIDATED
STORES CORPORATION and subsidiaries as of February 1, 1997, and February 3,
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended February
1, 1997. Our audits also included the financial statement schedule listed in the
Index at Item 14(a)2. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of CONSOLIDATED STORES
CORPORATION and subsidiaries at February 1, 1997, and February 3, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
Dayton, Ohio
February 24, 1997
FORM 10-K Page 22
<PAGE> 23
<TABLE>
<CAPTION>
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Fiscal Year
1996 1995 1994
====================================================================================================
Net sales $2,647,516 $1,406,016 $1,185,054
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costs and expenses:
Cost of sales 1,542,501 811,554 681,163
Selling and administrative expenses 908,468 475,798 402,411
Interest expense 16,759 5,607 5,646
Other expense (income) - net (70) 1,706 (532)
- ----------------------------------------------------------------------------------------------------
2,467,658 1,294,665 1,088,688
- ----------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
and extraordinary charge 179,858 111,351 96,366
Income taxes 66,547 41,218 38,546
- ----------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary charge 113,311 70,133 57,820
Loss from discontinued operations (27,538) (5,727) (2,600)
Extraordinary charge (1,856) -- --
- ----------------------------------------------------------------------------------------------------
Net income $ 83,917 $ 64,406 $ 55,220
====================================================================================================
Income (loss) per common and common
equivalent share of stock:
Continuing operations $ 1.69 $ 1.15 $ 0.96
Discontinued operations (0.41) (0.09) (0.04)
Extraordinary charge (0.03) -- --
- ----------------------------------------------------------------------------------------------------
$ 1.25 $ 1.06 $ 0.92
====================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
FORM 10-K Page 23
<PAGE> 24
<TABLE>
<CAPTION>
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
February 1, February 3,
1997 1996
=============================================================================================
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 30,044 $ 12,999
Accounts receivable 9,342 8,957
Inventories 792,665 388,346
Prepaid expenses 35,820 18,265
Deferred income taxes 58,647 23,449
- ---------------------------------------------------------------------------------------------
Total current assets 926,518 452,016
- ---------------------------------------------------------------------------------------------
Property and equipment - net 380,095 177,323
Other assets 23,890 10,476
- ---------------------------------------------------------------------------------------------
$1,330,503 $639,815
=============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 295,701 $129,223
Accrued liabilities 68,590 41,519
Income taxes 65,045 17,416
Current maturities of long-term obligations 27,892 10,000
- ---------------------------------------------------------------------------------------------
Total current liabilities 457,228 198,158
- ---------------------------------------------------------------------------------------------
Long-term obligations 151,292 25,000
Deferred income taxes 36,996 19,879
Other noncurrent liabilities 2,902 7,214
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock - authorized 2,000,000 shares, $.01 par -- --
value: none issued
Common stock - authorized 90,000,000 shares, $.01 par 670 478
value; issued 66,958,488 shares and 59,719,948 shares,
respectively
Nonvoting common stock - authorized 8,000,000 shares, $.01 -- --
par value; none issued
Additional paid-in capital 312,879 104,511
Retained earnings 369,022 285,105
Other adjustments (486) (530)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 682,085 389,564
- ---------------------------------------------------------------------------------------------
$1,330,503 $639,815
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORM 10-K Page 24
<PAGE> 25
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year
1996 1995 1994
========================================================================================
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 478 $ 469 $ 465
Issuance of common stock 51 -- --
5 for 4 stock split 134 -- --
Contribution to savings plan 1 1 1
Exercise of stock options and issue of
restricted stock 6 8 3
- ----------------------------------------------------------------------------------------
Balance at end of year $ 670 $ 478 $ 469
========================================================================================
Additional paid-in capital:
Balance at beginning of year $104,511 $ 93,872 $ 89,817
Issuance of common stock 190,588 -- --
5 for 4 stock split (134) -- --
Exercise of stock options and issue of
restricted stock 15,733 9,243 2,655
Contribution to savings plan 2,181 1,396 1,400
- ----------------------------------------------------------------------------------------
Balance at end of year $312,879 $104,511 $ 93,872
========================================================================================
Retained earnings:
Balance at beginning of year $285,105 $220,699 $165,479
Net income for the year 83,917 64,406 55,220
- ----------------------------------------------------------------------------------------
Balance at end of year $369,022 $285,105 $220,699
========================================================================================
Other adjustments:
Balance at beginning of year $ (530) $ 194 $ 2,774
Change in unrealized investment gain (1,436) 296 (3,048)
Minimum pension liability adjustment 1,480 (1,020) 468
- ----------------------------------------------------------------------------------------
Balance at end of year $ (486) (530) $ 194
========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORM 10-K Page 25
<PAGE> 26
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year
1996 1995 1994
==========================================================================================================
<S> <C> <C> <C>
Operating Activities
Net income $ 83,917 $ 64,406 $ 55,220
Adjustments to reconcile net income to net cash provided by
operating activities:
Discontinued operations 18,900 -- --
Depreciation and amortization 48,375 30,021 26,477
Deferred income taxes (18,081) (1,018) 256
Other 12,735 2,373 3,398
Change in assets and liabilities (76,365) (66,427) (25,693)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 69,481 29,355 59,658
- ----------------------------------------------------------------------------------------------------------
Investing Activities
Payment for acquired business (185,300) -- --
Capital expenditures (93,614) (48,091) (41,558)
Investment in corporate owned life insurance -- (6,870) (4,781)
Other 8,983 6,476 (1,973)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investment activities (269,931) (48,485) (48,312)
- ----------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of common stock 190,639 -- --
Proceeds from credit agreements, net 67,600 -- --
Payments of senior notes and long-term obligations (35,237) (15,000) --
Debt issue payments (10,393) -- --
Extinguishment of debt (2,946) -- --
Proceeds from exercise of stock options 4,116 5,028 1,030
Increase in deferred credits 3,716 1,745 3,107
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 217,495 (8,227) 4,137
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents $ 17,045 $ (27,357) $ 15,483
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FORM 10-K Page 26
<PAGE> 27
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
The Company is the nation's largest closeout retailer with stores located in all
50 states and Puerto Rico. As a value retailer specializing in close-out
merchandise and toys the Company operates 614 retail closeout specialty stores
offering name-brand merchandise at substantial discounts to traditional retail
prices under the names ODD LOTS and BIG LOTS in the midwestern, southern,
southwestern, and mid-Atlantic regions of the United States. Additionally, 1,184
retail toy and close-out toy stores were in operation throughout the United
States and Puerto Rico under the names KAY-BEE TOYS, KB TOY WORKS, and KB TOY
OUTLET. The Company believes that KAY-BEE is the largest enclosed mall-based toy
retailer in the United States.
Fiscal Year
- -----------
The Company follows the concept of a 52/53 week fiscal year which ends on the
Saturday nearest to January 31. Fiscal year 1995 ending February 3, 1996, is
comprised of 53 weeks.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions have
been eliminated. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions which affect reported amounts of assets and liabilities and
disclosure of significant contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of highly liquid investments which are
unrestricted as to withdrawal or use, and which have an original maturity of
three months or less. Cash equivalents are stated at cost which approximates
market value.
Inventories
- -----------
Retail inventories are stated at the lower of cost or market primarily on the
retail method. Other inventories are stated at the lower of cost (first-in,
first-out method) or market.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization are provided on the straight line method for
financial reporting purposes. Service lives are principally forty years for
buildings and from four to ten years for other property and equipment.
Investments
- -----------
Noncurrent investments in equity securities are classified as Other assets in
the consolidated balance sheets and are stated at fair value. Unrealized gains
on equity securities classified as available-for-sale are recorded as a separate
component of stockholders' equity net of applicable income taxes. The Company's
investment in corporate owned life insurance is recorded net of policy loans as
Other assets.
FORM 10-K Page 27
<PAGE> 28
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- continued
Deferred Credits
- ----------------
Deferred credits associated with purchase commitments are classified as other
noncurrent liabilities and are recognized when earned as a reduction of the
related inventory purchase cost.
Pre-opening Costs
- -----------------
Non-capital expenditures associated with opening new stores are charged to
expense over the first twelve months of store operations.
ACQUISITION
Effective May 5, 1996, the Company acquired Kay-Bee Center, Inc. (KAY-BEE) from
Melville Corporation for a initial purchase price of approximately $315 million
(subject to post-closing adjustments), consisting of $215 million in cash and
$100 million of subordinated notes, issued to Melville Corporation. Post-closing
adjustments recorded in the third quarter 1996, reduced the cash component of
the purchase price by $29.7 million to $185.3 million. This acquisition was
accounted for as a purchase with the results of KAY-BEE included from the
acquisition date. At May 5, 1996, KAY-BEE operated 1,042 toy stores located in
all 50 states and Puerto Rico primarily under the names Kay-Bee Toys and Toy
Works.
The following summary, prepared on a pro forma basis, combines the results of
operations as if KAY-BEE had been acquired at the beginning of the fiscal years
presented. Included in the pro forma presentation is the impact of certain
purchase adjustments directly attributable to the acquisition which are expected
to have a continuing impact.
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
============================================================================
Unaudited
<S> <C> <C>
Net sales $2,823,907 $2,491,438
- ----------------------------------------------------------------------------
Income from continuing operations before $ 96,392 $ 32,539
extraordinary charge
- ----------------------------------------------------------------------------
Net income $ 66,998 $ 26,810
=============================================================================
Income per common and common
equivalent share of stock:
Continuing operations $ 1.39 $ 0.48
- -----------------------------------------------------------------------------
Net income $ 0.97 $ 0.40
=============================================================================
</TABLE>
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the KAY-BEE acquisition been consummated as of the beginning of the
fiscal years presented. Additionally, the pro forma financial information is not
intended to be a prediction of future results and it does not reflect any
synergies that may be achieved from the combined operations.
FORM 10-K Page 28
<PAGE> 29
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DISCONTINUED OPERATIONS
In the fourth quarter of 1996 the Company adopted a plan to close its single
price point and small specialty stores operating under the names of All For One
and iTZADEAL!. Closures of the 165 stores open at February 1, 1997, are
anticipated to be completed throughout fiscal 1997. Accordingly, the operating
results for this business are reported as a discontinued operation at February
1, 1997, and prior years operating results have been restated to reflect
continuing operations. Summary operating results and financial information of
this discontinued operation are as follows:
<TABLE>
<CAPTION>
Fiscal Year
(In thousands) 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Net sales $ 84,253 $ 106,283 $ 93,590
- --------------------------------------------------------------------------------
Gross profit $ 38,134 $ 49,698 $ 46,259
- --------------------------------------------------------------------------------
Loss before income taxes $ (13,710) $ (9,091) $ (4,333)
Income tax benefit 5,072 3,364 1,733
- --------------------------------------------------------------------------------
(8,638) (5,727) (2,600)
Loss on store closures, net of tax (18,900) -- --
- --------------------------------------------------------------------------------
$ (27,538) $ (5,727) $ (2,600)
================================================================================
</TABLE>
INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
=================================================================
<S> <C> <C>
Retail $770,858 $368,569
Other 21,807 19,777
-----------------------------------------------------------------
$792,665 $388,346
=================================================================
</TABLE>
INCOME TAXES
The provision for income taxes on continuing operations is comprised of the
following:
<TABLE>
<CAPTION>
Fiscal Year
(In thousands) 1996 1995 1994
==========================================================================
<S> <C> <C> <C>
Federal - Currently payable $ 64,316 $ 35,441 $ 33,012
Deferred (7,018) (754) (1,685)
State and Local 8,126 6,531 7,219
Foreign 1,123 -- --
--------------------------------------------------------------------------
$ 66,547 $ 41,218 $ 38,546
==========================================================================
</TABLE>
FORM 10-K Page 29
<PAGE> 30
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAXES - continued
A reconciliation between the statutory federal income tax rate and the effective
tax rate follows:
<TABLE>
<CAPTION>
Fiscal Year
(In thousands) 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Statutory Federal income tax rate 35.0% 35.0% 35.0%
Effect of:
State and local income taxes 2.9 3.8 4.9
Work Opportunity and Targeted jobs tax credit (0.1) (0.2) (1.1)
Corporate owned life insurance investments (1.0) (2.2) (0.5)
Other 0.2 0.6 1.7
- --------------------------------------------------------------------------------
Effective tax rate 37.0% 37.0% 40.0%
================================================================================
</TABLE>
Deferred taxes reflect the effects of temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Components of the Company's deferred tax
assets and liabilities are presented in the following table.
<TABLE>
<CAPTION>
(In thousands) 1996 1995
===========================================================================
<S> <C> <C>
Deferred tax assets:
Uniform inventory capitalization $16,230 $ 8,186
Discontinued operations 11,458 802
Inventory valuation allowance 9,061 2,309
Deferred credits 1,596 1,293
Other (each less than 5% of total assets) 20,302 10,859
- ---------------------------------------------------------------------------
Total deferred tax assets 58,647 23,449
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 19,731 15,144
Unrealized gain -- 880
Other 17,265 3,855
- ---------------------------------------------------------------------------
Total deferred tax liabilities 36,996 19,879
- ---------------------------------------------------------------------------
Net deferred tax assets $21,651 $ 3,570
===========================================================================
</TABLE>
Net income taxes paid were $19,053,000, $35,158,000, and $29,613,000 in 1996,
1995, and 1994, respectively.
FORM 10-K Page 30
<PAGE> 31
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
LONG-TERM OBLIGATIONS
Long-term debt was comprised of the following on the dates indicated:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
==================================================================
<S> <C> <C>
Credit Agreements $ 67,600 $ --
7% Subordinated Notes 100,000 --
10.5% Senior Notes -- 35,000
9.25% Mortgage Note 7,880 --
Capital leases 3,704 --
------------------------------------------------------------------
179,184 35,000
Less current portion 27,892 10,000
------------------------------------------------------------------
$151,292 $25,000
==================================================================
</TABLE>
Annual maturities of long-term debt for the next five fiscal years are: 1997,
$27,892,000; 1998, $321,000; 1999, $352,000; 2000, $40,387,000 and 2001,
$100,425,000.
Interest paid, including capitalized interest of $229,000, $147,000 and $788,000
in each of the respective previous three fiscal years, was $16,857,000 in 1996,
$10,705,000 for 1995, and $8,110,000 in 1994.
CREDIT AGREEMENTS
Concurrent with the acquisition of KAY-BEE the Company terminated its then
existing revolving credit agreement and entered into a Revolving Credit Facility
dated May 3, 1996, as amended June 28, 1996, with a syndicate of financial
institutions to provide unsecured senior bank financing in an aggregate
principal amount of up to $600 million. The Revolving Credit Facility consists
of a revolving loan facility (the "Revolver") with the amount available
thereunder equal to $450 million and a letter of credit facility with up to $200
million available for the issuance of documentary and standby letters of credit.
The facility has a maturity date of May 3, 1999, and requires the maintenance of
certain standard financial ratios and prohibits the payment of cash dividends.
At February 1, 1997, approximately $382,000,000 was available for direct
borrowings under the Revolving Credit Facility. The Company was contingently
liable for outstanding letters of credit and related debt instruments totaling
$88,000,000 at February 1, 1997. Direct borrowings under the Revolver at
February 1, 1997, were at a rate of 6.0% to 6.4% and there were no direct
borrowings outstanding pursuant to any credit agreements at February 3, 1996.
Additionally, $70,000,000 of uncommitted short-term credit facilities are
available, subject to provisions of the revolving credit agreement, at February
1, 1997. No borrowings were outstanding under uncommitted credit facilities at
February 1, 1997, or February 3, 1996.
SUBORDINATED NOTES
In connection with the acquisition of KAY-BEE the Company issued $100,000,000 of
Subordinated Notes. The Subordinated Notes mature in the year 2000 and bear
interest at a rate of 7% per annum, payable semiannually. The Subordinated Notes
are redeemable, subject to provisions of the Revolving Credit Agreement, at the
option of the Company, in whole or in part, after two years from their issuance,
at a premium to their principal, plus accrued interest. Provisions of the
Subordinated Notes provide, among other matters, limitations on; additional
indebtedness, payments of certain indebtedness, and asset sales. The estimated
fair value at February 1, 1997, was $97,523,000 and the related carrying amount
was $100,000,000.
FORM 10-K Page 31
<PAGE> 32
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
LONG-TERM OBLIGATIONS - continued
EXTRAORDINARY CHARGE
During the second quarter of 1996 the Company recorded an extraordinary charge
in connection with the early extinguishment of $35 million of 10.5% senior
notes. The charge before income taxes was $2.9 million.
COMMITMENTS
The Company has commitments to certain vendors for future inventory purchases
totaling approximately $71,915,000 at February 1, 1997. Terms of the commitments
provide for these inventory purchases to be made through fiscal 1998 or later as
may be extended. There are no annual minimum purchase requirements.
EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company has a qualified defined benefit pension plan covering substantially
all of its employees hired on or before March 31, 1994, and a non-qualified
supplemental defined benefit pension plan effective January 1, 1996, covering a
select group of highly compensated employees to ensure the overall retirement
pension benefits frozen for such group of employees under the qualified plan.
Benefits under each plan are based on credited years of service and the
employee's compensation during the last five years of employment. The Company's
funding policy is to contribute annually the amount required to meet ERISA
funding standards and to provide not only for benefits attributed to service to
date but also for those anticipated to be earned in the future.
The components of net periodic pension cost are comprised of the following:
<TABLE>
<CAPTION>
Fiscal Year
(In thousands) 1996 1995 1994
========================================================================================
<S> <C> <C> <C>
Service cost - benefits earned in the period $2,849 $1,642 $1,671
Interest cost on projected benefit obligation 1,174 811 689
Investment return on plan assets (917) (631) (575)
Net amortization and deferral 922 303 529
- ----------------------------------------------------------------------------------------
Net periodic pension cost $4,028 $2,125 $2,314
========================================================================================
Assumptions used in each year of the actuarial computations were:
Discount rate 7.1% 6.5% 8.4%
Rate of increase in compensation levels 5.5% 5.5% 5.0%
Expected long-term rate of return 9.0% 9.0% 9.0%
</TABLE>
FORM 10-K Page 32
<PAGE> 33
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EMPLOYEE BENEFIT PLANS - continued
The following table sets forth the funded status of the Company's defined
benefit plan.
<TABLE>
<CAPTION>
(In thousands) 1996 1995
==============================================================================================
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $11,733 $10,857
Non-vested benefits 3,011 2,091
- -----------------------------------------------------------------------------------------------
Accumulated benefit obligation $14,744 $12,948
===============================================================================================
Actuarial present value of projected benefit obligation $20,539 $18,572
Plan assets at fair value, primarily cash equivalents, U.S.
Government securities and obligations, and publicly traded
stocks and mutual funds 14,152 8,910
- -----------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (6,387) (9,662)
Unrecognized prior service cost (812) (947)
Unrecognized net obligation at transition 225 239
Unrecognized net loss 7,059 9,454
- -----------------------------------------------------------------------------------------------
Prepaid (Accrued) pension cost $ 85 $ (916)
===============================================================================================
</TABLE>
The minimum pension liability relating to certain unfunded pension obligations
at February 1, 1997, was $771,000.
SAVINGS PLAN
The Company has a savings plan with a 401(k) deferral feature and a Top Hat Plan
with a similar deferral feature for all eligible employees. Provisions of
$3,272,000, $1,650,000, and $1,564,000 have been charged to operations in fiscal
1996, 1995, and 1994, respectively.
LEASES
Leased property consists primarily of the Company's retail stores and certain
warehouse space. Many of the store leases have rent escalations and provide that
the Company pay for real estate taxes, utilities, liability insurance and
maintenance. Certain leases provide for contingent rents, in addition to the
fixed monthly rent, based on a percentage of store sales above a specified
level. In addition, some leases provide options to extend the original terms for
an additional two to twenty years. Minimum lease commitments as of February 1,
1997, are as follows:
FORM 10-K Page 33
<PAGE> 34
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
LEASES - continued
<TABLE>
<CAPTION>
(In thousands) Capital Operating
Leases Leases
==========================================================================
<S> <C> <C>
1997 $ 472 $136,407
1998 472 117,067
1999 472 96,272
2000 472 72,420
2001 472 50,210
Subsequent to 2001 4,676 108,749
- --------------------------------------------------------------------------
Total future minimum lease payments 7,036 $581,125
Less: interest 3,332 =========
- -------------------------------------------------------------
Present value of minimum lease payments $3,704
=============================================================
</TABLE>
Total rental expense charged to continuing operations for operating leases of
stores and warehouses consisted of the following:
<TABLE>
<CAPTION>
Fiscal Year
(In thousands) 1996 1995 1994
=========================================================================
<S> <C> <C> <C>
Minimum rentals $163,070 $62,109 $51,237
Contingent rents 5,466 540 279
- -------------------------------------------------------------------------
$168,536 $62,649 $51,516
=========================================================================
</TABLE>
STOCKHOLDERS' EQUITY
STOCK SPLIT
On November 19, 1996, the Board of Directors authorized a 5 for 4 stock split
payable to stockholders of record on December 10, 1996. The stock split,
distributed December 24, 1996, resulted in the issuance of 13,388,264 new shares
of common stock. All references in the financial statements to average number of
shares outstanding and related prices, per share amounts, and stock option data
have been restated to reflect the split.
PUBLIC OFFERING OF COMMON STOCK
In June 1996, the Company issued 6,406,250, adjusted for the 5 for 4 split,
shares of common stock. Net proceeds to the Company totaled $190,639,000 and
were utilized to repay a portion of the borrowings incurred to finance the
acquisition of Kay-Bee.
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income per common and common equivalent share are based on the weighted average
number of shares outstanding during each period including the additional number
of shares which would have been issuable upon exercise of stock options,
assuming that the Company used the proceeds received to purchase additional
shares at market value. The average number of common and common equivalent
shares outstanding during fiscal 1996, 1995 and 1994 were 67,233,323,
61,128,496, and 60,096,453, respectively.
FORM 10-K Page 34
<PAGE> 35
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
STOCKHOLDERS' EQUITY - continued
STOCKHOLDER RIGHTS PLAN
Each share of the Company's common stock has one Right attached. The Rights
trade with the common stock and only become exercisable, or transferable apart
from the common stock, ten business days after a person or group (Acquiring
Person) acquires beneficial ownership of, or commences a tender or exchange
offer for, 20% or more of the Company's common stock. Each Right, under certain
circumstances, entitles its holder to acquire a fraction of a share of Series A
Junior Participating Preferred Stock at a price of $35, subject to adjustment.
If 20% of the Company's common stock is acquired, or a tender offer to acquire
20% of the Company's common stock is made, each Right not owned by an Acquiring
Person will entitle the holder to purchase Company common stock having a market
value of twice the exercise price of the Rights.
In addition, at any time there is a 20% or more stockholder of the Company, the
Rights will entitle a holder to buy a number of shares of common stock of the
acquiring company having a market value of twice the exercise price of each
Right. The Rights may be redeemed by the Company at $.01 per Right at any time
until the tenth day following public announcement that a 20% position has been
acquired. The Rights expire on April 18, 1999, and at no time have voting
power.
PREFERRED STOCK
In conjunction with the Stockholder Rights Plan the Company has reserved 600,000
shares of preferred stock for issuance thereunder.
STOCK PLANS
STOCK COMPENSATION PLANS
At February 1, 1997, the Company has three stock-based compensation plans, which
are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for the Consolidated Stores Corporation 1996 Performance
Incentive Plan (Incentive Plan). Total compensation cost that has been charged
against income for its Director Stock Option Plan (DSOP) and Restricted Stock
Plan (RSP) was $7,037,000, $750,000 in 1996 and 1995, respectively. Had
compensation cost for the Company's Incentive Plan been determined consistent
with FASB Statement 123, the Company's net income and income per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
=================================================================
<S> <C> <C>
Net Income (in thousands):
As reported $83,917 $64,406
Pro forma 80,460 63,318
Income per common and common
equivalent share:
As reported $ 1.25 $ 1.06
Pro forma 1.20 1.04
</TABLE>
FORM 10-K Page 35
<PAGE> 36
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
STOCK PLANS - continued
FIXED STOCK OPTION PLANS
The Consolidated Stores Corporation 1996 Performance Incentive Plan (Incentive
Plan) was approved by stockholders in 1996. The Incentive Plan provides for the
issuance of stock options, restricted stock, performance units, stock equivalent
units, and stock appreciation rights (SAR's). The number of newly issued shares
of common stock available for issuance under the Incentive Plan is 2,500,000
plus an additional 1% of the total number of issued shares, including any
Treasury Stock, at the start of the Company's fiscal year plus shares available
but not issued in previous years of the Incentive Plan. Total newly issued
shares of common stock available for use under the Incentive Plan shall not
exceed 15% of the total issued and outstanding Common Stock as of any
measurement date. A minimum of 8,375,000 shares of common stock are available
for issuance and the term of each award is determined by a committee of the
Board of Directors charged with administering the Incentive Plan. Stock options
granted under the Incentive Plan may be either nonqualified or incentive stock
options and the exercise price may not be less than the fair market value, as
defined, of the underlying common stock on the date of award. The award price of
an SAR is to be a fixed amount, not less than 100% of the fair market value of a
share of common stock at the date of award. Upon an effective change in control
of the Company all awards outstanding under the Incentive Plan automatically
vest.
Prior to 1996 the Company had a Stock Option Plan (Plan) which expired in 1995.
The Plan provided that all options be granted at an exercise price at least
equal to the fair market value of the common stock at the date of grant. Options
generally became exercisable one year following the original date of grant in
five equal annual installments.
The Company has a Director Stock Option Plan (DSOP), for non-employee directors,
pursuant to which up to 625,000 shares of the Company's common stock may be
issued upon exercise of options granted thereunder. The DSOP is administered by
the Compensation Committee of the Board of Directors pursuant to an established
formula. Neither the Board of Directors, nor the Compensation Committee,
exercise any discretion in administration of the DSOP. Grants are made annually,
90 days following the annual meeting of stockholders, at an exercise price equal
to 100% of the fair market value on the date of grant. The present formula
provides for an annual grant of 5,000 options to each non-employee director
which becomes fully exercisable over a three year period, 20% the first year and
40% each subsequent year, beginning one subsequent to grant.
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: no dividend yield
for any year; expected volatility of 42% and 32%; risk-free interest rates of
6.0% and 4.9%; and expected lives of 2.5 and 2.4 years.
A summary of the status of the Incentive Plan and DSOP as of February 1, 1997,
and February 3, 1996, and changes during the fiscal years ended on those dates
is presented below:
FORM 10-K Page 36
<PAGE> 37
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
STOCK PLANS - continued
1996 1995
=========================================================================== ============================
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------------ ------------ ------------- ---------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 6,689,753 $ 7.80 5,782,840 $ 6.43
Granted 1,852,700 32.71 2,510,215 15.00
Exercised 457,282 9.07 1,044,519 4.78
Forfeited 56,696 14.32 558,783 3.13
- ----------------------------------------------------------------------------------------------------------
Options outstanding at end of year 8,028,475 $ 11.20 6,689,753 $ 7.80
==========================================================================================================
Options exercisable at end of year 3,803,347 3,264,781
Weighted average fair value of options granted $10.30 $3.67
during the year
</TABLE>
The following table summarizes information about fixed stock options outstanding
at February 1, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------
Range of
Exercise Prices Weighted
- --------------------- Average Weighted Weighted
less Number of Remaining Average Number of Average
Greater than or Options Contractual Exercise Options Exercise
than equal to Outstanding Life (Years) Price Exercisable Price
- --------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1 $10 2,520,441 4.1 $ 4.93 2,509,893 $ 4.91
$10 $20 3,656,584 7.7 14.49 1,293,454 14.12
Greater than $20 1,851,450 9.9 32.69 -- --
- -----------------------------------------------------------------------------------------------
8,028,475 7.1 $11.20 3,803,347 $ 8.04
===============================================================================================
</TABLE>
RESTRICTED STOCK
The Company's RSP permits the granting of 625,000 shares of restricted stock
awards to key employees, officers and directors. The shares are restricted as to
the right of sale and other disposition until vested as determined by the Board
of Directors. The Plan provides that on any event that results in a change in
effective control of the Company, all awards of restricted stock would become
vested as of the date of such change in effective control. The Plan terminates
in 1997 or when sooner terminated by the Company's Board of Directors.
As of February 1, 1997, no restricted shares were outstanding with respect to
restrictions which had not lapsed and shares available for grant totaled
216,340.
FORM 10-K Page 37
<PAGE> 38
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
ADDITIONAL DATA
The following is a summary of certain financial data:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
================================================================================
<S> <C> <C>
Property and equipment - at cost:
Land $ 11,311 $ 7,700
Buildings 105,615 64,119
Fixtures and equipment 430,208 233,278
Transportation equipment 18,695 6,962
- -------------------------------------------------------------------------------
565,829 312,059
Construction-in-progress 693 9,689
- -------------------------------------------------------------------------------
566,522 321,748
Less accumulated depreciation 186,427 144,425
- -------------------------------------------------------------------------------
$380,095 $177,323
===============================================================================
Accrued liabilities:
Salaries and wages $45,941 $16,152
Property, payroll and other taxes 20,267 24,120
Other 2,382 1,247
- -------------------------------------------------------------------------------
$68,590 $41,519
===============================================================================
</TABLE>
The following analysis supplements changes in assets and liabilities presented
in the consolidated statements of cash flows.
<TABLE>
<CAPTION>
Fiscal Year
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable $ 15,046 $ (3,433) $ (659)
Inventories (183,980) (86,214) (49,252)
Prepaid expenses (7,304) (4,266) (2,329)
Accounts payable 75,102 25,822 24,031
Accrued liabilities (23,947) 3,230 6,657
Income taxes 48,718 (1,566) (4,141)
- -----------------------------------------------------------------------------
$ (76,365) $(66,427) $(25,693)
=============================================================================
</TABLE>
FORM 10-K Page 38
<PAGE> 39
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BUSINESS GROUP INFORMATION
The Company is a value retailer specializing in close-out merchandise and toys.
Operations are comprised of three business groups; Closeout, Toys, and other
operations which include the Company's wholesale operations. The Closeout Stores
offer name-brand merchandise at substantial discounts to traditional retail
prices and operate under the names ODD LOTS and BIG LOTS in the midwestern,
southern, southwestern, and mid-Atlantic regions of the United States. Toy
Stores offer traditional in-line toys and closeout toys and operate throughout
the United States and Puerto Rico under the names KAY-BEE TOYS, KB TOY WORKS,
and KB TOY OUTLET. The Company believes that KAY-BEE is the largest enclosed
mall-based toy retailer in the United States. Business group information
follows:
<TABLE>
<CAPTION>
Fiscal Year
(In thousands) 1996 1995 1994
================================================================================
Revenues:
<S> <C> <C> <C>
Closeout $ 1,431,873 $ 1,286,675 $ 1,112,087
Toys 1,178,224 76,689 45,937
Other 37,419 42,652 27,030
- --------------------------------------------------------------------------------
$ 2,647,516 $ 1,406,016 $ 1,185,054
================================================================================
Operating profit (loss):
Closeout $ 110,927 $ 111,063 $ 93,432
Toys 96,474 7,438 6,696
Other and corporate (10,854) 163 1,352
- --------------------------------------------------------------------------------
$ 196,547 $ 118,664 $ 101,480
================================================================================
Depreciation and amortization:
Closeout $ 28,788 $ 25,369 $ 21,943
Toys 15,358 534 350
Other and corporate 4,229 4,118 4,184
- --------------------------------------------------------------------------------
$ 48,375 $ 30,021 $ 26,477
================================================================================
Capital expenditures:
Closeout $ 42,327 $ 41,353 $ 38,844
Toys 49,009 2,419 2,364
Other and corporate 2,278 4,319 350
- --------------------------------------------------------------------------------
$ 93,614 $ 48,091 $ 41,558
================================================================================
<CAPTION>
Identifiable assets were comprised of the following:
(In thousands) 1996 1995
================================================================================
<S> <C> <C>
Closeout $ 643,777 $ 530,785
Toys 619,688 23,201
Other and corporate 67,038 85,829
- --------------------------------------------------------------------------------
$1,330,503 $ 639,815
================================================================================
</TABLE>
FORM 10-K Page 39
<PAGE> 40
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
Quarter
----------------------------------------------------
(In thousands except per share data) First Second Third Fourth* Year
- -------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C>
Net sales $ 321,969 $ 532,547 $ 597,314 $ 1,195,686 $ 2,647,516
- --------------------------------------------------------------------------------------------------------------
Gross margin $ 135,108 $ 216,749 $ 255,084 $ 498,074 $ 1,105,015
- -------------------------------------------------------------------------------------------------------------
Income (loss):
Continuing operations $ 5,887 $ (3,402) $ 1,041 $ 109,785 $ 113,311
Discontinued operations (2,281) (3,317) (4,059) (17,881) (27,538)
Extraordinary charge -- (1,856) -- -- (1,856)
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,606 $ (8,575) $ (3,018) $ 91,904 $ 83,917
==============================================================================================================
Income (loss) per common and common
equivalent share of stock:
Continuing operations $ 0.10 $ (0.05) $ 0.02 $ 1.58 $ 1.69
Discontinued operations (0.04) (0.05) (0.06) (0.26) (0.41)
Extraordinary charge -- (0.03) -- -- (0.03)
- --------------------------------------------------------------------------------------------------------------
$ 0.06 $ (0.13) $ (0.04) $ 1.32 $ 1.25
===============================================================================================================
1995
Net sales $ 271,113 $ 302,563 $ 333,010 $ 499,330 $ 1,406,016
- ---------------------------------------------------------------------------------------------------------------
Gross margin $ 112,432 $ 127,337 $ 140,947 $ 213,746 $ 594,462
- ---------------------------------------------------------------------------------------------------------------
Income (loss):
Continuing operations $ 4,467 $ 10,638 $ 12,065 $ 42,963 $ 70,133
Discontinued operations (1,471) (1,885) (1,921) (450) (5,727)
- ----------------------------------------------------------------------------------------------------------------
Net income $ 2,996 $ 8,753 $ 10,144 $ 42,513 $ 64,406
================================================================================================================
Income (loss) per common and common
equivalent share of stock:
Continuing operations $ 0.07 $ 0.17 $ 0.20 $ 0.70 $ 1.15
Discontinued operations (0.02) (0.03) (0.03) (0.01) (0.09)
- ----------------------------------------------------------------------------------------------------------------
$ 0.05 $ 0.14 $ 0.17 $ 0.69 $ 1.06
================================================================================================================
</TABLE>
* The fourth quarter of 1995 is a fourteen week period.
Income (loss) per share calculations are based on the weighted average number of
common and common equivalent shares outstanding for each period and the sum of
the quarters may not necessarily be equal to the full year income (loss) per
share amount.
FORM 10-K Page 40
<PAGE> 41
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEMS 10-13
Pursuant to Instruction G(3) to Form 10-K, the information required in Items 10
- - 13 is incorporated by reference from the Company's definitive proxy statement
which will be filed with the Commission pursuant to Regulation 14A on or about
April 22, 1997.
Information regarding Executive Officers of the Company is furnished in a
separate item captioned "Executive Officers of the Company" in Part I of this
report.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements, Financial Statement Schedules
and Exhibits
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Financial Statements
Independent Auditors' Report 22
Consolidated Statements of Income 23
Consolidated Balance Sheets 24
Consolidated Statements of Stockholders' Equity 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 27
2. Financial Statement Schedules
Schedule Description
-------- ----------------------------------
II Valuation and Qualifying Accounts 45
</TABLE>
All other financial statements and schedules not listed in the preceding indexes
are omitted as the information is not applicable or the information is presented
in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of the fiscal
year ended February 1, 1997.
FORM 10-K Page 41
<PAGE> 42
(c) Exhibits
Exhibits marked with an asterisk (*) are filed herewith.
Exhibit No. Document
- ----------- ---------------------------------------------------------------
3(a) Form of Restated Certificate of Incorporation of the Company
(Exhibit 4(a) to the Company Registration Statement (No. 33-6086)
on Form S-8 and incorporated herein by reference)
3(b) Amended and Restated By-laws of the Company (Exhibit 3(c) to the
Company's Annual Report on Form 10-K for the year ended February
3, 1990 and incorporated herein by reference)
3(c) Amendment to By-laws dated April 14, 1992 (Exhibit 3(c) to the
Company's Annual Report on Form 10-K for the year ended February
1, 1992 and incorporated herein by reference)
4(a) Specimen Stock Certificate (Exhibit 4(a) to the Company's Annual
Report on Form 10-K for the year ended February 1, 1992 and
incorporated herein by reference)
4(b) Summary of Rights to Purchase Preferred Stock (Exhibit 4(b) to
the Company's Annual Report on Form 10-K for the year ended
February 3, 1990 and incorporated herein by reference)
4(c) Rights Agreement between the Company and National City Bank
(Exhibit 4(c) to the Company's Annual Report on Form 10-K for the
year ended February 3, 1990 and incorporated herein by reference)
4(d) Form of Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock of the Company
(Exhibit 4(d) to the Company's Annual Report on Form 10-K for the
year ended February 3, 1990 and incorporated herein by reference)
10(a)* Consolidated Stores Corporation 1996 Performance Incentive Plan
as Amended and Restated on July 23, 1996
10(a)(i) Consolidated Stores Corporation Directors Stock Option Plan
(Exhibit 10(q) to the Company's Registration Statement (No.
33-42502) on Form S-8 and incorporated herein by reference)
10(a)(ii) Consolidated Stores Corporation Amended and Restated Directors
Stock Option Plan (Exhibit 10(c)(ii) to the Company's Annual
Report on Form 10-K for the year ended February 1, 1992 and
incorporated herein by reference)
10(b) Consolidated Stores Corporation Supplemental Savings Plan
(Exhibit 10(r) to the Company's Registration Statement (No.
33-42692) on Form S-8 and incorporated herein by reference)
10(c) CSIC Pension Plan and Trust dated March 1, 1976 (Exhibit
10(h)(ii) to the Company's Registration Statement (No. 2-97642)
on Form S-1 and incorporated herein by reference)
10(c)(i) Amendment to CSIC Pension Plan and Trust (Exhibit 10(h)(ii) to
the Company's Registration Statement (No. 2-97642) on Form S-1
and incorporated herein by reference)
10(c)(ii) Amendment No. 2 to CSIC Pension Plan and Trust (Filed as an
Exhibit to the Company's Registration Statement (No. 33-6086) on
Form S-8 and incorporated herein by reference)
FORM 10-K Page 42
<PAGE> 43
Exhibit No. Document
- ----------- ----------------------------------------------------------------
10(d)* Amended and Restated Credit Agreement dated as of May 3, 1996, by
and among Consolidated Stores Corporation, an Ohio corporation
(the "Borrower"), the BANKS (as defined), and The Bank of New
York, in its capacity as Syndication Agent and as Managing Agent,
National City Bank of Columbus, in its capacity as Administrative
Agent ("Administrative Agent") and as Managing Agent, PNC Bank,
Ohio, National Association, in its capacity as Arranger, as
Documentation Agent (the "Documentation Agent") and as Managing
Agent, Bank One, Columbus, N.A., in its capacity as Managing
Agent, and National City Bank in its capacity as Managing Agent
10(e) Consolidated Stores Corporation 7% Senior Subordinated Note due
May 4, 2000 (Exhibit 10(b) to the Company's Current Report on
Form 8-K dated May 10, 1996, and incorporated herein by
reference)
10(e)(i) Indenture, dated as of May 5, 1996, between Consolidated Stores
Corporation, an Ohio corporation, and The Bank of New York, a New
York banking corporation (the "Trustee") for the equal and
ratable benefit of the Holders of the Company's Subordinated
Notes due May 4, 2000 (Exhibit 10(b)(i) to the Company's Current
Report on Form 8-K dated May 10, 1996, and incorporated herein by
reference)
10(e)(ii)* First Supplemental Indenture, dated as of January 22, 1997, among
Consolidated Stores Corporation, an Ohio corporation, and The
Bank of New York, a New York banking corporation
10(f) Stock Purchase Agreement dated as of March 25, 1996 between
Melville Corporation and Consolidated Stores Corporation relating
to the purchase and sale of 100% of the Common Stock of Kay-Bee
Center, Inc. (Exhibit B to the Company's Current Report on Form
8-K dated April 8, 1996, and incorporated herein by reference)
10(f)(i) Amendment No. 1 to Stock Purchase Agreement dated as of March 25,
1996 between Melville Corporation and Consolidated Stores
Corporation relating to the purchase and sales of 100% of the
Common Stock of Kay-Bee Center, Inc. (Exhibit 10 to the Company's
Current Report on Form 8-K dated May 10, 1996, and incorporated
herein by reference)
10(g) Employment Agreement with William G. Kelley (Exhibit 10(r) to the
Company's Annual Report on Form 10-K for the year ended February
3, 1990 and incorporated herein by reference)
10(g)(i) Amendment No. 1 to Employment Agreement with William G. Kelley
(Exhibit 10(f)(i) to the Company's Annual Report on Form 10-K for
the year ended February 3, 1996 and incorporated herein by
reference)
10(h) Employment Agreement with Armen Bahadurian (Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995, and incorporated herein by reference)
10(i) Employment Agreement with Charles Freidenberg (Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995, and incorporated herein by reference)
10(j) Employment Agreement with Michael L. Glazer (Exhibit 10(c) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995, and incorporated herein by reference)
10(k) Employment Agreement with C. Matthew Hunnell (Exhibit 10(d) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995, and incorporated herein by reference)
10(l) Consolidated Stores Corporation 1987 Restricted Stock Plan as
amended and restated (Exhibit 10(p)(i) to the Company's Annual
Report on Form 10-K for the year ended February 3, 1990 and
incorporated by reference herein)
FORM 10-K Page 43
<PAGE> 44
Exhibit No. Document
- ---------- ---------------------------------------------------------------
10(m) Consolidated Stores Corporation Savings Plan and Trust, as
amended and restated (Exhibit 10(q)(i) to the Company's Annual
Report on Form 10-K for the year ended February 3, 1990 and
incorporated by reference herein)
10(n)* The Consolidated Stores Corporation Key Associate Annual
Incentive Compensation Plan
10(o) Form of Executive Severance Agreement of the Company (Exhibit
10(s)(i) to the Company's Annual Report on Form 10-K for the year
ended February 3, 1990 and incorporated herein by reference)
10(p) Consolidated Stores Executive Benefits Plan (Exhibit 10(t) to the
Company's Annual Report on Form 10-K for the year ended February
3, 1990 and incorporated herein by reference)
21* List of subsidiaries of the Company
23* Consent of Deloitte & Touche LLP
24 Power of Attorney for William G. Kelley, Michael L. Glazer and
Michael J. Potter (Exhibit 24 included in Part II of the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.1 Power of Attorney for David T. Kollat (Exhibit 24.1 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.2 Power of Attorney for Nathan P. Morton (Exhibit 24.2 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.3 Power of Attorney for Dennis B. Tishkoff (Exhibit 24.4 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.4 Power of Attorney for William A. Wickham (Exhibit 24.5 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
24.5 Power of Attorney for Sheldon M. Berman (Exhibit 24.6 to the
Company's Registration Statement (No. 333-2545) on Form S-3 and
incorporated herein by reference)
27 Financial Data Schedule
FORM 10-K Page 44
<PAGE> 45
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS(a)
(In thousands)
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning of Cost and Other End of
Period Expense Accounts Deductions Period
- ----------------------------------------- ------------ ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended February 1, 1997:
Inventory valuation allowance (1) $4,906 $2,878 $10,200(b) $9,958 $8,026
---------- -------- --------- -------- ----------
Fiscal year ended February 3, 1996:
Inventory valuation allowance (1) $4,706 $1,307 $ -- $1,107 $4,906
---------- -------- --------- -------- ----------
Fiscal year ended January 28, 1995:
Inventory valuation allowance (1) $5,918 $2,573 $ -- $3,785 $4,706
--------- -------- --------- -------- ----------
<FN>
- --------------------------
(a) Restated to reflect continuing operations.
(b) Value from company acquired.
(1) Consists primarily of reserve for markdowns of aged goods and similar
inventory reserves.
</TABLE>
FORM 10-K Page 45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on behalf
by the undersigned, thereunto duly authorized.
CONSOLIDATED STORES CORPORATION
Date: April 18, 1997 By: /s/ William G. Kelley
--------------------------------
William G. Kelley
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: April 18, 1997 /s/ William G. Kelley
--------------------------------------
William G. Kelley
Chairman of the Board and Chief
Executive Officer
Date: April 18, 1997 /s/ Michael L. Glazer
--------------------------------------
Michael L. Glazer
President
Date: April 18, 1997 /s/ Michael J. Potter
--------------------------------------
Michael J. Potter
Senior Vice President, Chief Financial
and Accounting Officer
Date: April 18, 1997
Sheldon M. Berman Nathan Morton
Michael L. Glazer Dennis B. Tishkoff
William G. Kelley William A. Wickham
David T. Kollat
Directors
Albert J. Bell, by signing his name hereto, does hereby sign this Form 10-K
pursuant to the Powers of Attorney executed by the Directors named, filed with
the Securities and Exchange Commission on behalf of such Directors, all in the
capacities indicated and on the date stated, such persons being a majority of
the Directors of the Registrant.
/s/ Albert J. Bell
--------------------------------------
Albert J. Bell
Attorney-in-Fact
Dated: April 18, 1997
FORM 10-K Page 46
<PAGE> 1
EXHIBIT 10(a)
CONSOLIDATED STORES CORPORATION
1996 PERFORMANCE INCENTIVE PLAN
AS AMENDED AND RESTATED ON JULY 23, 1996
1. PURPOSE. The Consolidated Stores Corporation 1996 Performance
Incentive Plan (the "Plan") has been adopted to promote the long-term success of
Consolidated Stores Corporation (the "Company") for the benefit of the Company's
stockholders by encouraging and creating significant ownership of Consolidated
Stores Corporation Common Stock, $.01 par value ("Common Stock" or "shares"), by
employees of the Company and its subsidiary corporations ("Subsidiaries"), as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code"). Additional purposes of the Plan include generating meaningful incentive
to participants to make substantial contributions to the Company's future
success and to enhance the Company's abilities to attract and retain persons who
will make such contributions. These purposes are to be accomplished through
stock options, restricted stock, performance units, and stock equivalent units.
2. EFFECTIVE DATE. The Plan shall be effective as of January 1, 1996,
subject to approval and modification by the Company's stockholders no later than
September 1, 1996. Awards may occur and shares may be issued under the Plan on
or after January 1, 1996 and prior to stockholder approval, subject to the
condition that any transactions under the Plan shall be rescinded in the event
that stockholders have not approved the Plan by September 1, 1996.
3. COMMON SHARES AVAILABLE. Subject to adjustments contemplated by
Section 4, the maximum number of newly issued shares of Common Stock that will
be available for issuance under the Plan shall be 2,000,000 shares, plus an
additional one percent (1%) of the total number of issued shares of Common Stock
(including treasury shares) as of the start of each of the Company's fiscal
years (currently comprised of a 52/53 week Fiscal Year which ends on the
Saturday nearest to January 31) that the Plan is in effect (including shares
exchanged in exercising stock options as contemplated by Section 5). Any shares
available but unissued in any given fiscal year shall continue to be available
for use in subsequent fiscal years. In any event, the total awards of stock
options or restricted stock outstanding and shares available for use under the
Plan combined with any awards of stock options or restricted stock outstanding
from the Company's 1987 Restricted Stock Plan, Executive Stock Option and Stock
Appreciation Rights Plan, and Director Stock Option Plan, respectively, shall
not exceed fifteen percent (15%) of the total shares of issued and outstanding
Common Stock as of any measurement date. The aggregate number of shares that can
be issued under the Plan by virtue of the exercise of incentive stock options
("ISO"), which are intended to be qualified under Section 422 of the Code, shall
be limited to 5,000,000 shares. Any shares that may be issued under the Plan may
be either authorized but unissued shares or issued shares reacquired by the
Company and that are being held as treasury shares, or shares acquired and held
for the benefit of the Plan pursuant to a written agreement with the Company. In
the event that the Committee enters into such an agreement with one or more
third persons to acquire shares of the Company's Common Stock in the market for
use by the Plan, such market acquired shares shall not be subject to or included
in any calculations of shares available in any fiscal year.
4. ADJUSTMENTS AND REORGANIZATIONS. The Committee may make such
adjustments to Awards made under the Plan (including the terms, exercise price
and otherwise) as it deems appropriate in the event of changes that impact the
Company, the Company's share price, or share status, provided that any such
actions are consistently and equitably applied to all affected participants;
provided, that, notwithstanding any other provision hereof, insofar as any Award
is subject to performance goals established to qualify payments thereunder as
"performance-based compensation" as described in Section 162(m) of the Code, the
Committee shall have no power to adjust such Awards other than (i) discretion to
decrease (but not increase) compensation and (ii) the power to adjust Awards for
corporate transactions, in either case to the extent permissible under
regulations interpreting Code Section 162(m).
<PAGE> 2
In the event of any stock dividend, stock split, extraordinary
dividend, combination or exchange of shares, merger, reorganization,
consolidation, recapitalization, spin-off or other distribution (other than
normal cash dividends) of Company assets to stockholders, or any other change
affecting the number of shares or the Company's capitalization, such
proportionate adjustments, if any, as the Committee in its discretion may deem
appropriate to reflect such change shall be made with respect to (i) aggregate
number of shares that may be issued under the Plan; (ii) the number of shares
relating to each outstanding Award made or assumed under the Plan; and (iii) the
price per share for any outstanding stock options awarded or assumed under the
Plan. If an equitable adjustment cannot be made or the Committee determines that
future adjustments are necessary, the Committee shall make such equitable
adjustment under the Plan as it determines will fairly preserve the intended
benefits of the Plan to the participants and the Company. In addition, any
shares issued by the Company through the assumption or substitution of
outstanding securities or commitments to issue securities from an acquired
company or other entity shall not reduce the shares available for issuance under
the Plan.
5. SHARE USAGE. If Awards made or assumed under the Plan expire or are
canceled without either the issuance of shares or a settlement in cash in lieu
of the issuance of shares, the shares of stock covered by such Awards shall
remain available for issuance under the Plan. Further, any shares which are
exchanged (whether actual or constructive) by a participant as full or partial
payment to the Company of the purchase price of shares being acquired through
the exercise of a stock option awarded or assumed under the Plan shall be added
to the aggregate number of shares available for issuance, but not added to the
maximum number of shares available for issuance pursuant to ISO Awards.
6. TERM OF THE PLAN. The term of this Plan shall be from January 1,
1996, until 5:00 p.m. Eastern time on February 3, 2006, unless sooner terminated
by the Board. Outstanding Awards shall continue to be effective and governed by
this Plan until they expire by their terms as provided in their respective Award
Agreements even though their expiration dates may be subsequent to the
termination of this Plan.
7. PLAN ADMINISTRATION.
7.1 Committee. A committee appointed by the Board (the
"Committee") shall be responsible for administering this Plan. The
Committee shall be comprised of three or more members of the Board who
shall, to the extent required, qualify to administer this Plan as
contemplated by Rule 16b-3 under the Securities Exchange Act of 1934
(the "1934 Act") (or any successor rule) and "Outside Directors" as
that term is used in Section 162(m) of the Code and regulations
promulgated thereunder. Without limiting the foregoing, except as
otherwise designated by the Board, the Committee shall be the
Compensation Committee of the Board.
7.2 Powers of the Committee. Subject only to the express
restrictions and limitations otherwise set forth in the Plan, the
Committee shall have sole, absolute and full authority and power to:
(a) Interpret this Plan and undertake such actions
and make such determinations and decisions as it deems
necessary and appropriate to carry out the Plan intent;
(b) Determine eligibility of participants and select
individuals to receive Awards;
(c) Determine the nature and amount of each Award;
(d) Decide the type of Award instrument to be made to
each participant and the terms and conditions applicable to
each such Award;
<PAGE> 3
(e) Award instruments in isolation, in addition to,
in tandem with, or in substitution for other instruments made
under this Plan or Awards made under any other plan of the
Company or any options assumed under the Plan;
(f) Enter into agreements evidencing Awards made
under this Plan and their respective terms and conditions
("Award Agreements");
(g) Correct any defect, supply any omission,
reconcile any inconsistency in the Plan or any Award
instrument in the manner and to the extent the Committee deems
necessary or desirable;
(h) Establish, amend and rescind rules and
regulations relating to this Plan, provided that no such rule
or regulation shall be effective to the extent that its effect
would cause the Plan or any transaction to not comply with
Rule 16b-3 under the 1934 Act; and
(i) Take any other action necessary to the
administration of this Plan, provided that no such action
shall be effective to the extent that the effect of the action
would cause the Plan or any transaction to not comply with
Rule 16b-3 under the 1934 Act.
7.3 Delegation of Authority. The Committee may designate
persons other than members of the Committee or the Board to carry-out
its responsibilities subject to such limitations, restrictions and
conditions as it may prescribe, except that the Committee may not
delegate its authority with regards to the awarding of options to
persons subject to Sections 16(a) and 16(b) of the 1934 Act. Further,
the Committee may not delegate its authority if such delegation would
cause this Plan not to comply with the requirements of Rule 16b-3 or
any successor rule under the 1934 Act.
7.4 Documentation of Awards. All Awards made under this Plan
shall be evidenced by written agreements or such other appropriate
documentation as the Committee shall determine.
7.5 Indemnification. The Company may make such indemnification
arrangements for the Committee and its delegated appointees as shall be
permitted by its Articles of Incorporation, Bylaws and any applicable
law.
8. ELIGIBILITY. Any salaried employee, consultant or advisor of the
Company and its Subsidiaries shall be eligible to be designated, in the
discretion of the Committee, a participant of this Plan, provided such
eligibility would not jeopardize this Plan's compliance with Rule 16b-3 under
the 1934 Act or any successor rule. For purposes of this Plan, a consultant or
advisor shall be eligible only if bona fide services are being rendered pursuant
to a valid written agreement between the consultant or advisor and the Company,
and the services rendered are not in connection with the offer or sale of
securities in a capital-raising transaction.
9. AWARDS. Awards may be made singly, in combination or in tandem to
the extent allowable under the Code and regulations promulgated thereunder.
Awards may also be made in combination or in tandem with, in replacement of, as
alternatives to, or as the payment form for, Awards or rights under any other
employee benefit or compensation plan of the Company and Subsidiaries, including
any such employee benefit or compensation plan of any acquired entity. Each
Award shall be created upon and evidenced by an Award Agreement. No Award shall
be required to be similar to any other Award made by the Committee.
<PAGE> 4
9.1 Stock Options. A stock option shall confer on a
participant the right to purchase a specified number of shares from the
Company subject to the terms and conditions of the stock option Award.
Options awarded under the Plan may be: (i) Options which are intended
to qualify and are clearly identified as ISOs under Section 422 of the
Internal Revenue Code of 1986 as amended (the "Code") (ISOs); (ii)
Options which are not so intended to qualify under Section 422 of the
Code (NQSOs); or (iii) both of the foregoing if awarded separately, not
in tandem. Any stock option not specifically designated as intended to
qualify as an ISO shall constitute an NQSO.
In the case of Options intended to be ISOs, the exercise price
per share shall not be less than the fair market value of the
underlying common stock on the date of the Award. The fair market
value, determined at the time of awarding the Option to a participant,
of shares of Common Stock with respect to which ISOs are exercisable
for the first time by such participant during any calendar year (under
all plans of the participant's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000. In the case of an
optionee who owns stock possessing more than ten percent (10%) of the
total combined voting power or value of all classes of stock of the
Corporation or its parent or subsidiary corporations (as determined
under Section 424(d), (e) and (f) of the Code) at the time an Option
which is intended to qualify as an ISO under Section 422 of the Code is
awarded, the price per share of Common Stock at which such Option may
be exercised shall not be less than 110% of the fair market value of
the Common Stock at the time such Option is awarded.
NQSOs may be awarded to any Plan participant without regard to
such fair market value limitation, provided that in any event the
exercise price of any NQSO shall be at least the price per share of the
fair market value of the underlying Common Stock on the date of the
Award.
In any award of stock options under this Plan, the fair market
value of the Common Stock shall be the volume weighted average trading
price of the Common Stock on the New York Stock Exchange on the Award
Date.
The Committee shall have the discretion to award SARs with or
without stock options to purchase shares of Common Stock on such terms
and conditions provided in the Award Agreement as it deems appropriate
(including any limit on aggregate appreciation). The Committee may
award an SAR concurrently with the award of an Option or, in the case
of an Option which is not an ISO, with respect to an outstanding
option. A tandem Option/SAR will allow a participant to surrender an
Option or portion thereof and to receive payment from the Corporation
in an amount equal to the excess of the aggregate fair market value of
the shares of Common Stock with respect to which the Option is
surrendered over the aggregate option price of such shares. An SAR
shall be exercisable no sooner than six (6) months after it is awarded
and thereafter at any time prior to its stated expiration date, but
only to the extent the related Option may be exercised. SARs may be
settled in shares of Common Stock, cash or a combination of shares and
cash, as provided in the SAR Award Agreement. Shares as to which any
Option is so surrendered shall not be available for future option
Awards hereunder.
The Award price per share of Common Stock of a SAR shall be
fixed in the Award Agreement and shall not be less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on
the date of the Award. The Fair Market Value shall be determined in the
same manner as described above.
<PAGE> 5
9.2 Performance Units. The Committee shall have the discretion
to award instruments which designate an Award of cash or its
equivalent, which upon satisfaction of the criteria set forth in the
Award Agreement may become payable to the Award recipient in the form
of cash, stock, stock options, annuities, or such other form as is
deemed appropriate by the Committee. Performance Units may vest in such
manner as described in Section 10 below, subject to the provision of
Section 13 and upon satisfaction of such criteria as the Committee
shall deem appropriate. At the discretion of the Committee, Performance
Units may but need not convert into securities or derivative securities
at such time or times and in such manner as is set forth in the Award
Agreement.
9.3 Restricted Stock. The Committee shall have the discretion
to award shares of any series or class of common stock of the
Corporation which have been duly listed with one or more stock
exchanges, and which have been duly authorized and reserved for
purposes of the Plan; provided that such shares shall be restricted
against any disposition, transfer or negotiation by sale,
hypothecation, pledge or otherwise except in keeping with the vesting
and other criteria established by the Committee at the time of Award
("Restricted Stock"). The Committee shall establish vesting criteria
consistent with Sections 10 sand 11, respectively.
9.4 Stock Equivalent Units. The Committee shall have the
discretion to create and award one or more series or class of Stock
Equivalent Units. The Committee shall set forth the specific terms
appurtenant to each series or class of Stock Equivalent Units. No Stock
Equivalent Units shall at any time be deemed to constitute or convey
equity ownership, or a fractional share thereof in the Company, its
assets, or in any other person, entity or assets; and all Stock
Equivalent Units shall be restricted against any disposition, transfer
or negotiation by sale, hypothecation, pledge or otherwise.
10. PERFORMANCE-BASED COMPENSATION. Unless expressly waived (either
with respect to an individual or a class of individuals) in writing by the
Committee, Awards of Performance Units, Restricted Stock, and Stock Equivalent
Units are subject to the provisions of this Section 10 in addition to other
provisions of this Plan to the extent that the Committee intends to establish
performance goals applicable to Performance Units, Restricted Stock, and Stock
Equivalent Units awarded to participants in such a manner as shall permit
payouts with respect thereto to qualify as "performance-based compensation" as
described in Section 162(m)(4)(C) of the Code. In the event of an express waiver
by the Committee, any award of Restricted Stock that does not require vesting
based upon one or more of the provisions described in this Section 10, in any
event shall not fully vest within a period of less than three (3) years from the
date of the award.
10.1 Awards subject to this Section must vest solely on the
attainment of one or more objective performance goals unrelated to
term of employment. Awards will also be subject to the general
vesting of Award provisions provided in Section 15.
10.2 The Committee must establish the goals in writing no
later than ninety (90) days after commencement of the period of
service to which the performance goal relates. The outcome of the
goal must be substantially uncertain at the time the Committee
actually established the goal.
10.3 The performance goal must state, in terms of an objective
formula or standard, the method for computing the amount payable to
the participant if the goal is attained.
10.4 The performance goal formula or standard must specify the
individual employee(s) or class of employees to which it applies.
<PAGE> 6
10.5 The terms of the objective formula or standard must
prevent any discretion being exercised by the Committee to later
increase the amount payable that otherwise would be due upon attainment
of the goal.
10.6 The material terms of the performance goal must be
disclosed to and subsequently approved in a separate vote by the
stockholders before the payout is executed, unless they conform to one
or any combination of the following:
(a) Earnings per common and common
equivalent share of stock from continuing operations as
disclosed in the Company's annual report to stockholders for a
particular fiscal year, or
(b) Common stock price, or
(c) Total stockholder return expressed on a
dollar or percentage basis as is customarily disclosed in the
proxy statement accompanying the notice of annual meetings of
stockholders, or
(d) Income from continuing operations, or
(e) Percentage increase in comparable store
sales (stores open two or more years at the beginning of the
fiscal year) as disclosed in the Company's annual report, or
(f) Any of items (a), (b), (c), (d) or (e)
with respect to any subsidiary, affiliate or business unit of
the Company whether or not such information is included in the
Company's annual report to stockholders, proxy statement or
notice of annual meeting of stockholders.
(g) Total Stockholder Return Ranking
Position meaning the relative placement of the Company's Total
Stockholder Return compared to those publicly held companies
in the Company's peer group as established by the Committee
prior to the beginning of a vesting period or such later date
as permitted under the Code. The peer group shall be comprised
of not less than eight (8) and not more than sixteen (16)
companies, including the Company.
A combination of target criteria may be used
with a particular Award Agreement.
10.8 The Committee must certify in writing prior to payout
that the performance goals and any other material terms were in fact
satisfied.
10.9 Any terms used in this Section 10 are to be interpreted
consistently with Section 162(m) of the Code and regulations
promulgated thereunder.
11. LIMITATIONS ON AWARDS.
11.1 Stock Options and SARs. In no event shall the number of
shares of Common Stock subject to Stock Options plus the number of
shares underlying SARs awarded to any one participant for any fiscal
year exceed 1,000,000 shares.
If an option is canceled before it expires, the canceled
option continues to be counted against the maximum number of shares for
which options may be awarded to that individual for that fiscal year.
If, after an Award, the exercise price of an option is reduced, the
transaction is treated as a cancellation of the option and the award of
a new option. In such a case, both the option that is deemed canceled
and the new
<PAGE> 7
option that is deemed awarded reduce the maximum number of shares that
can be awarded to any one participant. Similar treatment is afforded to
SARs where, after an Award is made, the Award price is reduced.
11.2 Performance and Stock Equivalent Units. With respect to
these units, the maximum amount of compensation that may be paid
(within the meaning of Section 162(m) of the Code) to any one
participant with respect to any one fiscal year shall be $2,000,000
(the "Annual Payment Limit"). In the event that the vesting of any
Award, other than that caused by Section 18, would result in a payment
in excess of the Annual Payment Limit, the balance in excess of the
Annual Payment Limit shall be paid in the next succeeding fiscal year.
11.3 Restricted Stock. In no event shall the number of
Restricted Stock shares awarded to any one participant for any fiscal
year exceed 1,000,000 shares.
12. EXERCISE OF OPTIONS AND SARS. Subject to the provisions of the Plan, an
Option or an SAR may be exercised at such time or times after the date of Award
thereof as may be determined by the Committee at the time of Award, subject to
earlier exercise by operation of Section 18 hereof; provided, however, no SAR
shall be exercisable for six (6) months after it is awarded.
In case the employment of any participant to whom an Option or SAR
shall have been granted shall be terminated for any reason other than the
participant's death or permanent and total disability within the meaning of
Section 422 of the Code, such Option or SAR may be exercised by the participant
only during a period not exceeding three (3) months after the date of such
termination (but no later than the end of the fixed term of the Option or SAR)
and only for the number of shares of Common Stock for which the Option or SAR
could have been exercised at the time participant ceased to be an employee.
If a participant to whom an Option or SAR shall have been granted shall
die or become permanently and totally disabled within the meaning of Section 422
of the Code while in the employ of the Corporation, such Option or SAR may be
exercised by the participant or the participant's personal representative only
during a period not exceeding one (1) year after the date of the participant's
death or permanent and total disability (but no later than the end of the fixed
term of the Option or SAR) and only for the number of shares of Common Stock for
which the Option or SAR could have been exercised at the time the participant
died or became permanently and totally disabled.
In no event may an Option or SAR be exercised after the expiration of
its fixed term.
The recipient of a stock option Award shall pay for the shares at time
of exercise in cash or such other form as the Committee may approve, including
shares valued at their fair market value on the date of exercise, or in a
combination of payment forms; provided however, that Company stock surrendered
to satisfy all or a portion of the exercise price was held by the participant of
the stock option for at least six (6) months. For purposes of this paragraph,
shares of Common Stock tendered as payment of a stock option exercise shall have
a fair market value equal to the volume weighted average trading price of the
Common Stock as reported by the New York Stock Exchange on the Exercise Date.
Each Option or SAR awarded under the Plan shall be exercised by
execution by the holder of written notice of such exercise and delivery thereof
to the Corporation at its principal office at 300 Phillipi Road, Columbus, Ohio
43228-0512, or such other address as the Committee may designate, which notice
shall in the case of Options specify the number of shares of Common Stock being
purchased, together with payment in full for the shares of Common Stock for
which the Option is exercised and in the case of SARs specify the number of SARs
exercised, the Options to which such SARs are connected and the cash or the
number of shares of Common Stock to be received. Such
<PAGE> 8
notice shall comply with such other reasonable requirements as the Committee may
establish. Unless the Committee determines to require full payment of the option
price in cash, part or all of the option price may be paid in whole shares of
Common Stock duly endorsed, or with attached stock powers in blank duly
endorsed, for transfer to the Corporation, provided that an additional cash
payment is made in such amount as may be required to pay any and all applicable
withholding taxes.
No person, estate or other entity shall have any of the rights of a
stockholder with reference to shares of Common Stock subject to an Option or SAR
or any Award which converts into Common Stock, or with reference to any share of
Restricted Stock until a certificate for the shares without restriction has been
delivered to the participant.
An Option or SAR granted under the Plan may be exercised for any lesser
number of shares of Common Stock than the full amount for which it could be
exercised, except that an Option or SAR may not be exercised for a fractional
share. Such a partial exercise of an Option or SAR shall not affect the right to
exercise the Option or SAR from time-to-time in accordance with the Plan for the
remaining shares subject to the Option or SAR.
13. TRADING RESTRICTIONS. The Committee may require that any security,
derivative security, restricted stock, or any Award whether or not it involves
any of the foregoing, be restricted against the transfer, pledge, conversion,
exercise, sale (direct or indirect), or hypothecation, or against any other
event, as the Committee may deem appropriate. Such restrictions may take the
form of legends appearing on the stock certificate or other instrument
evidencing such security, derivative security, or other Award.
The Committee may establish and enforce from time-to-time restrictions
on any participant in this Plan with respect to any trading of other
transactions or any nature which involve any instruments awarded under this
Plan. Such restrictions may include, but shall not be limited to, quarterly
trading periods which require transactions to occur only at specific times or
under certain conditions.
14. DEFERRAL. The Committee may require or permit participants to defer
payout of Awards under such rules or procedures as it may establish under each
Award Agreement. The deferral shall be executed by a written, irrevocable
election by the participant at such time and in such manner as the Committee at
its discretion, shall determine, including but not limited to any deferral which
could be subject to a Company plan, if available at such time. The Committee
shall determine reasonable bases to account for the delay in payout and, where
appropriate, shall determine such bases consistent with Code Section 162(m) and
the regulations thereunder (to preserve the Company's tax deduction). Such bases
may include, for example, the actual rate of return on a predetermined
investment (including any decrease as well as any increase in the value of an
investment) during the deferral period (whether or not the assets are actually
invested therein).
15. VESTING OF AWARDS. Awards consisting of any form of instrument
under this Plan shall vest in the manner designated by the Committee and set
forth in the Award instrument provided, however, that, except as provided in the
following paragraph, no Award awarded pursuant to this Plan shall vest in less
than six (6) months after the date the Award is awarded, and may be based upon
the occurrence of events or the satisfaction of criteria which may consist of
any measurable standard or combination of standards, and which may include,
though shall not be limited to, any one or more of (i) one or more personal
performance measurements, (ii) one or more Company performance measurements,
(iii) one or more Company Stock performance measurements, or (iv) passage of
time; provided, however, that the term of any stock option which is intended to
qualify as an ISO shall not exceed ten (10) years from the date of Award; and
provided, further, that in the case of an optionee who owns stock possessing
more than ten percent (10%) of the total combined voting power or value of all
classes of stock of the Corporation or its parent or subsidiary corporations (as
determined under Section 424(d), (e) and (f) of the Code) at the time any stock
option is awarded, the term of such stock option shall not exceed five (5) years
from the date of Award.
<PAGE> 9
16. TRUST DEPOSITS. The Committee may establish one or more revocable
and/or irrevocable trusts into which it may elect to deposit cash, securities or
derivative securities, or other property for the benefit of any one or more
Award recipients, which trust and its contents shall be deemed subject to the
general creditors of the Company. The Committee may also establish one or more
irrevocable trusts into which it may elect to deposit cash, securities or
derivative securities, or other property for the benefit of any one or more
Award recipients, which trust and its assets shall not be subject to the claims
of the Company's creditors.
17. NON-TRANSFERABILITY. Each Award granted hereunder shall not be
assignable or transferable other than by will or the laws of descent and
distribution or pursuant to a Qualified Domestic Relations Order; provided,
however, that a participant may, to the extent and in a manner specified by the
Committee: (a) designate in writing a beneficiary to exercise his Award after
the participant's death; (b) transfer an option (other than an ISO), SAR or
Performance Unit to a revocable inter vivos trust as to which the participant is
both the settlor and the trustee; and (c) if the Award Agreement expressly
permits, transfer an Award (other than Restricted Stock or an ISO) for no
consideration to any of the following permissible transferees (each a
"Permissible Transferee"): (w) any member of the immediate family of the
participant to whom such Award was granted, (x) any trust solely for the benefit
of members of the participant's immediate family, or (y) any partnership whose
only partners are members of the participant's immediate family; and further
provided that (i) the transferee shall remain subject to all of the terms and
conditions applicable to such Award prior to such transfer; and (ii) any such
transfer shall be subject to and in accordance with the rules and regulations
prescribed by the Committee in accordance with Section 7. For the purposes of
this Section 17, "Immediate Family" means, with respect to a particular
participant, such participant's spouse, children and grandchildren.
Notwithstanding the foregoing, each Award (other than restricted stock)
granted hereunder to a participant who is an "insider" pursuant to Section 16 of
the 1934 Act ("Section 16 participant") shall not be assignable or transferable
other than by will or the laws of descent and distribution unless the Committee
has determined that such restrictions are not then required for grants under
this Plan to satisfy the requirements for the exemption provided by Rule 16b-3
under the 1934 Act (in the form then applicable to the Company), in which event
the restrictions set forth in clause (c) of the preceding paragraph shall apply
to any such transfer. Notwithstanding the foregoing, a Section 16 participant
may, in a manner specified by the Committee and to the extent provided by this
Plan, designate a beneficiary to exercise an Award after the participant's
death.
Each share of restricted stock shall be non-transferable until such
share becomes nonforfeitable.
18. CHANGE IN CONTROL. Notwithstanding any provisions in this Plan to
the contrary, but subject to the last sentence of this Section 18, if there
occurs any event that results in a Change in Effective Control of the Company,
then all of the Awards outstanding under the Plan shall automatically become
vested in the Award recipient upon the consummation of such event. As used
herein, "Change in Effective Control" means any one or more of the following:
(i) any person or group (as defined for purposes of section 13(d) of the
Securities Exchange Act of 1934) becomes the beneficial owner of, or has the
right to acquire (by contract, option, warrant, conversion of convertible
securities or otherwise), 20% or more of the outstanding equity securities of
the Company entitled to vote for the election of directors; (ii) a majority of
the Board of Directors of the Company is replaced within any period of two (2)
years or less by directors not nominated and approved by a majority of the
Directors in office at the beginning of such period (or their successors so
nominated and approved), or a majority of the Board of Directors at any date
consists of persons not so nominated and approved; or (iii) the stockholders of
the Company approve an agreement to merge or consolidate with another
corporation or an agreement to sell or otherwise dispose of all or substantially
all of the Company's assets (including without limitation, a plan of
liquidation). Provided, however, the other provisions of this Section 18
notwithstanding, the term "Change in Control" shall not mean any transaction,
merger, consolidation, or reorganization in which Consolidated or CSC exchange
or offer to exchange newly issued or treasury shares in an
<PAGE> 10
amount of 20% or more, but less than 50%, of the outstanding equity securities
of Consolidated or CSC entitled to vote for the election of directors, for 51%
or more of the outstanding equity securities entitled to vote for the election
of at least the majority of the directors of a corporation other than
Consolidated or CSC or an Affiliate thereof (the "Acquired Corporation"), or for
all or substantially all of the assets of the Acquired Corporation.
19. SECTION 83(B) ELECTION. The Committee may prohibit a participant
from making an election under Section 83(b) of the Code. If the Committee has
not prohibited such election, and if the participant elects to include in such
participant's gross income in the year of transfer the amounts specified in
Section 83(b) of the Code, the participant shall notify the Company of such
election within ten (10) days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Section 83(b) of the Code.
20. NOTICE OF DISPOSITION OF COMMON STOCK PRIOR TO THE EXPIRATION OF
SPECIFIED ISO HOLDING PERIODS. The Company may require that a participant
exercising an ISO give a written representation to the Company, satisfactory in
form and substance, upon which the Company may rely, that the participant will
report to the Company any disposition of shares acquired via an ISO exercise
prior to the expiration of the holding periods specified by Section 422(a)(1) of
the Code.
21. TAX WITHHOLDING. The Company shall have the right to (i) make
deductions from any settlement of an Award made under the Plan, including the
delivery or vesting of shares, or require shares or cash or both be withheld
from any Award, in each case in an amount sufficient to satisfy withholding of
any federal, state or local taxes required by law, or (ii) take such other
action as may be necessary or appropriate to satisfy any such withholding
obligations. The Committee may determine the manner in which such tax
withholding may be satisfied, and may permit shares of Common Stock (rounded up
to the next whole number) to be used to satisfy required tax withholding based
on the Fair Market Value of any such shares of Common Stock, as of the
Settlement Date of the applicable Award.
22. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Except as
expressly determined by the Committee, settlements of Awards received by
participants under this program shall not be deemed a part of a participant's
regular, recurring compensation for purposes of calculating payments or benefits
from any Company benefit or severance program (or parachute impact severance pay
law of any country). The above notwithstanding, the Company may adopt other
compensation programs, programs or arrangements as it deems appropriate or
necessary in its absolute discretion.
23. GENERAL PROVISIONS. The following provisions are applicable to the
Plan generally:
23.1 Future Rights. No person shall have any claim or rights
to be awarded an option under the Plan, and no option holder shall have
any rights under the Plan to be retained in the employ of the Company.
23.2 Stockholder Rights. Only upon the issuance of shares to a
participant or its agent (and only in respect to such shares) shall the
participant obtain the rights of stockholders, subject however, to any
limitations imposed by the terms of the applicable option.
23.3 No Fractional Shares. No fractional shares shall be
issued under the Plan and cash shall be paid in lieu of any fractional
shares in settlement of stock options exercised under the Plan.
<PAGE> 11
23.4 Unfunded Plan. The Plan shall be unfunded and shall not
create (or be construed to create) a trust or a separate fund or funds.
Likewise, the Plan shall not establish any fiduciary relationship
between the Company and any participant or other person. To the extent
any person holds any rights by virtue of an option awarded under the
Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company.
23.5 Successors and Assigns. The Plan shall be binding on all
successors and assigns of a participant, including, without limitation,
the estate of such participant and the executor, administrator or
trustee of such estate, or any receiver or trustee in bankruptcy or
representative of the participant's creditors.
23.6 Indemnification of Committee and Agents. In addition to
such other rights of indemnification as they may have as members of the
Board, the members of the Committee, and any employees or directors
acting as agents of, or carrying out the intentions of, the Committee
shall be indemnified by the Corporation against the reasonable
expenses, including attorney's fees, actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a part by reason of any action taken or failure to act under or in
connection with the Plan or any Option or SAR, and against all amounts
paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Corporation) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such member is liable
for negligence or misconduct in the performance of the participant's
duties; provided that within sixty (60) days after institution of any
such action, suit or proceeding the member shall in writing offer the
Corporation the opportunity, at its own expense, to handle and defend
the same.
23.7 Plan Amendment. The Committee may amend the Plan as it
deems necessary or appropriate to better achieve the purposes of the
Plan, except that no amendment without the approval of the Company's
stockholders shall be made which would:
(a) Increase the total number of shares available for issuance
under the Plan (subject to the Committee's discretion provided for in
Section 4); or
(b) Cause the Plan not to comply with Rule 16b-3 or any
successor rule under the 1934 Act.
23.8 Governing Law. The validity, construction and effect of
the Plan and any actions taken under or relating to the Plan shall be
determined in accordance with the laws of the State of Delaware and
applicable Federal law.
Amended and restated this 23rd day of July, 1996.
Consolidated Stores Corporation
/s/ William G. Kelley
------------------------------------
Chairman and Chief Executive Officer
Attest:
/s/ Albert J. Bell
- --------------------------------------
Senior Vice President, General Counsel
and Secretary
<PAGE> 1
EXHIBIT 10(d)
$600,000,000 REVOLVING CREDIT FACILITY
AMENDED AND RESTATED CREDIT AGREEMENT
by and among
CONSOLIDATED STORES CORPORATION, an Ohio corporation, as Borrower
and
THE BANKS PARTY HERETO
and
THE BANK OF NEW YORK, As Syndication Agent and Managing Agent
and
NATIONAL CITY BANK OF COLUMBUS, As Administrative Agent and Managing Agent
and
PNC BANK, OHIO, NATIONAL ASSOCIATION, As Arranger, Documentation Agent and
Managing Agent
and
BANK ONE, COLUMBUS, N.A., as Managing Agent
and
NATIONAL CITY BANK, as Managing Agent
DATED AS OF MAY 3, 1996
<PAGE> 2
EXHIBIT 10(d)
<TABLE>
1. CERTAIN DEFINITIONS .......................................................................2
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1.1 Certain Definitions ..........................................................2
1.2 Construction ................................................................17
1.2.1 Number: Inclusion ................................................18
1.2.2 Determination ....................................................18
1.2.3 Documentation Agent's Discretion and Consent .....................18
1.2.4 Documents Taken as a Whole .......................................18
1.2.5 Headings .........................................................18
1.2.6 Implied References to this Agreement .............................18
1.2.7 Persons ..........................................................18
1.2.8 Modifications to Documents .......................................19
1.2.9 From, To and Through .............................................19
1.2.10 Shall; Will ......................................................19
1.2.11 Operative Date ...................................................19
1.3 Accounting Principles .......................................................19
2. REVOLVING CREDIT FACILITY ................................................................19
2.1 Revolving Credit Commitments ................................................19
2.2 Nature of Banks' Obligations with Respect to Revolving Credit Loans .........20
2.3 Commitment Fees .............................................................20
2.4 Reduction of Revolving Credit Commitments ...................................21
2.4.1 Voluntary Reduction of Revolving Credit Commitments ..............21
2.4.2 Mandatory Reduction of Revolving Credit Commitments ..............22
2.5 Revolving Credit Loan Requests ..............................................22
2.6 Making Revolving Credit Loans ...............................................23
2.7 Revolving Credit Notes ......................................................23
2.8 Use of Proceeds .............................................................23
2.9 Letters of Credit Subfacility ...............................................24
2.9.1 Issuance of Letters of Credit ....................................24
2.9.2 Participations ...................................................25
2.9.3 Letter of Credit Fees ............................................25
2.9.4 Disbursements, Reimbursement .....................................28
2.9.5 Documentation ....................................................29
2.9.6 Determinations to Honor Drawing Requests .........................30
2.9.7 Nature of Participation and Reimbursement Obligations ............30
2.9.8 Indemnity ........................................................31
2.9.9 Liability for Acts and Omissions .................................32
</TABLE>
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EXHIBIT 10(d)
<TABLE>
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2.10 Swing Loans .................................................................33
2.10.1 Swing Loan Commitment ............................................33
2.10.2 Swing Loan Requests ..............................................33
2.10.3 Making of Swing Loans ............................................33
2.10.4 Swing Note .......................................................33
2.10.5 Repayment of Swing Loans with Revolving Credit
Loans Borrowings..................................................34
3. INTEREST RATES............................................................................34
3.1 Interest Rate Options .......................................................34
3.1.1 Revolving Credit Interest Rate Options .............................35
3.2 Interest Period .............................................................36
3.2.1 Ending Date and Business Day. ....................................36
3.2.2 Amount of Borrowing Tranche ......................................36
3.2.3 Termination Before Expiration Date ...............................36
3.2.4 Renewals .........................................................37
3.3 Interest After Default ......................................................37
3.3.1 Letters of Credit Fees, Interest Rate ............................37
3.3.2 Other Obligations ................................................37
3.3.3 Acknowledgment ...................................................37
3.4 Euro-Rate Unascertainable ...................................................37
3.4.1 Unascertainable ..................................................37
3.4.2 Illegality; Increased Costs; Deposits Not Available ..............38
3.4.3 Administrative Agent's and Bank's Rights .........................38
3.5 Selection of Interest Rate Options ..........................................39
4.PAYMENTS...................................................................................39
4.1 Payments ....................................................................39
4.2 Pro Rata Treatment of Banks .................................................40
4.3 Interest Payment Dates ......................................................40
4.4 Voluntary Prepayments .......................................................40
4.4.1 Right to Prepay ..................................................40
4.5 Mandatory Prepayments .......................................................42
4.5.1 Sale of Assets ...................................................42
4.5.2 Payment to Reduce Revolving Credit Loans Made Pursuant
to Section 2.9.4 .................................................42
4.5.3 Payment to Reduce Revolving Credit Loans if Revolving Credit
Commitments are Reduced Pursuant to Section 2.4.2 ................42
</TABLE>
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EXHIBIT 10(d)
<TABLE>
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4.5.4 Application Among Interest Rate Options ..........................42
4.6 Additional Compensation in Certain Circumstances ............................43
4.6.1 Increased Costs or Reduced Return Resulting From
Taxes, Reserves, Capital Adequacy Requirements,
Expenses, Etc.....................................................43
4.6.2 Indemnity ........................................................44
5. REPRESENTATIONS AND WARRANTIES............................................................45
5.1 Representations and Warranties ..............................................45
5.1.1 Organization and Qualification ...................................45
5.1.2 Capitalization and Ownership .....................................45
5.1.3 Subsidiary Matters ...............................................45
5.1.4 Power and Authority ..............................................46
5.1.5 Validity and Binding Effect ......................................46
5.1.6 No Conflict ......................................................46
5.1.7 Litigation .......................................................46
5.1.8 Title to Properties ..............................................47
5.1.9 Financial Statements .............................................47
5.1.10 Margin Stock .....................................................48
5.1.11 Full Disclosure ..................................................48
5.1.12 Taxes ............................................................49
5.1.13 Consents and Approvals ...........................................49
5.1.14 No Event of Default; Compliance with Instruments .................49
5.1.15 Patents, Trademarks, Copyrights, Licenses, Etc. ..................49
5.1.16 Insurance ........................................................50
5.1.17 Compliance with Laws. ............................................50
5.1.18 Material Contracts ...............................................50
5.1.19 Investment Companies .............................................50
5.1.20 Plans and Benefit Arrangements ...................................50
5.1.21 Employment Matters ...............................................52
5.1.22 Environmental Matters ............................................53
5.1.23 Senior Debt Status ...............................................55
5.1.24 Acquisition ......................................................55
5.2 Subsidiaries Other than Material Subsidiaries ...............................55
5.3 Updates to Schedules ........................................................56
6. CONDITIONS OF LENDING.....................................................................56
6.1 First Revolving Credit Loans ................................................56
6.1.1 Officer's Certificate ............................................56
6.1.2 Secretary's Certificate ..........................................57
6.1.3 Delivery of Loan Documents .......................................57
6.1.4 Opinion of Counsel ...............................................57
6.1.5 Legal Details ....................................................58
6.1.6 Payment of Fees ..................................................58
</TABLE>
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EXHIBIT 10(d)
<TABLE>
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6.1.7 Consents .........................................................58
6.1.8 Officer's Certificate Regarding MACs .............................58
6.1.9 No Violation of Laws .............................................58
6.1.10 No Actions or Proceedings ........................................58
6.1.11 Insurance Policies; Certificates of Insurance ....................59
6.1.12 Termination of Existing Bank Facility ............................59
6.2 Each Additional Revolving Credit Loan .......................................59
6.3 Syndication .................................................................59
6.3.1 Syndication Representation and Warranties ........................59
6.3.2 Syndication Documents ............................................60
7. COVENANTS ................................................................................60
7.1 Affirmative Covenants .......................................................60
7.1.1 Preservation of Existence, Etc. ..................................60
7.1.2 Payment of Liabilities, Including Taxes, Etc. ....................61
7.1.3 Maintenance of Insurance .........................................61
7.1.4 Maintenance of Properties and Leases .............................61
7.1.5 Maintenance of Patents, Trademarks, Etc. .........................61
7.1.6 Visitation Rights ................................................62
7.1.7 Keeping of Records and Books of Account ..........................62
7.1.8 Plans and Benefit Arrangements ...................................62
7.1.9 Compliance with Laws .............................................62
7.1.10 Use of Proceeds ..................................................63
7.1.11 Subordination of Intercompany Loans ..............................63
7.2 Negative Covenants. .........................................................63
7.2.1 Indebtedness. ....................................................63
7.2.2 Liens ............................................................64
7.2.3 Guaranties .......................................................64
7.2.4 Loans and Investments ............................................64
7.2.5 Dividends and Related Distributions ..............................65
7.2.6 Liquidations, Mergers, Consolidations, Acquisitions ..............65
7.2.7 Dispositions of Assets or Subsidiaries ...........................66
7.2.8 Affiliate Transactions ...........................................67
7.2.9 Subsidiaries, Partnerships and Joint Ventures ....................67
7.2.10 Continuation of or Change in Business ............................67
7.2.11 Plans and Benefit Arrangements ...................................68
7.2.12 Fiscal Year ......................................................69
7.2.13 Issuance of Stock ................................................69
7.2.14 Changes in Organizational Documents ..............................69
7.2.15 Capital Expenditures and Leases ..................................69
7.2.16 Minimum Fixed Charge Coverage Ratio ..............................70
7.2.17 Total Indebtedness to Total Capitalization Ratio .................71
7.2.18 Minimum Tangible Net Worth .......................................72
7.2.19 Minimum Working Capital Ratio ....................................72
7.2.20 Amendments to Certain Documents ..................................72
</TABLE>
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EXHIBIT 10(d)
<TABLE>
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7.2.21 Outstanding Revolving Credit Loans ...............................72
7.2.22 No Prepayment of Subordinated Debt ...............................73
7.2.23 Inventory Purchases ..............................................73
7.3 Reporting Requirements ......................................................73
7.3.1 Quarterly Financial Statements ...................................73
7.3.2 Annual Financial Statements ......................................73
7.3.3 Certificate of the Borrower ......................................74
7.3.4 Notice of Default ................................................74
7.3.5 Notice of Litigation .............................................75
7.3.6 Certain Events ...................................................75
7.3.7 Budgets, Forecasts, Other Reports and Information ................75
7.3.8 Notices Regarding Plans and Benefit Arrangements .................76
8. DEFAULT...................................................................................78
8.1 Events of Default. ..........................................................78
8.1.1 Payments Under Loan Documents ....................................78
8.1.2 Breach of Warranty ...............................................78
8.1.3 Breach of Negative Covenants .....................................78
8.1.4 Breach of Other Covenants ........................................78
8.1.5 Defaults in Other Agreements or Indebtedness .....................79
8.1.6 Final Judgments or Orders ........................................79
8.1.7 Loan Document Unenforceable ......................................79
8.1.8 Notice of Lien or Assessment .....................................79
8.1.9 Insolvency .......................................................80
8.1.10 Events Relating to Plans and Benefit Arrangements ................80
8.1.11 Cessation of Business ............................................80
8.1.12 Change of Control ................................................81
8.1.13 Involuntary Proceedings ..........................................81
8.1.14 Voluntary Proceedings ............................................81
8.2 Consequences of Event of Default ............................................82
8.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings........................................82
8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings .............82
8.2.3 Set-off ..........................................................82
8.2.4 Suits, Actions, Proceedings ......................................83
8.2.5 Application of Proceeds ..........................................83
8.2.6 Other Rights and Remedies ........................................84
8.3 Notice of Sale ..............................................................84
9. THE MANAGING AGENTS ......................................................................84
9.1 Appointment .................................................................84
9.2 Delegation of Duties. .......................................................85
</TABLE>
<PAGE> 7
EXHIBIT 10(d)
<TABLE>
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9.3 Nature of Duties; Independent Credit Investigation ..........................85
9.4 Actions in Discretion of Documentation Agent and Administrative
Agent; Instructions from the Banks ..........................................86
9.5 Reimbursement and Indemnification of Administrative Agent
and Documentation Agent by the Borrower .....................................86
9.6 Exculpatory Provisions ......................................................87
9.7 Reimbursement and Indemnification by Banks of the
Documentation Agent, the Managing Agents the Syndication on
Agent and the Administrative Agent ..........................................87
9.8 Reliance by Documentation Agent, Administrative Agent,
Managing Agents and Syndication Agent .......................................88
9.9 Notice of Default ...........................................................88
9.10 Notices .....................................................................89
9.11 Banks in Their Individual Capacities ........................................89
9.12 Holders of Revolving Credit Notes ...........................................89
9.13 Equalization of Banks .......................................................89
9.14 Successor Administrative and Documentation Agents ...........................90
9.15 Other Fees ..................................................................91
9.16 Availability of Funds .......................................................91
9.17 Calculations ................................................................91
9.18 Beneficiaries ...............................................................91
9.19 Absence of Duties of Managing Agents and Syndication Agent ..................92
10. MISCELLANEOUS ...........................................................................92
10.1 Modifications, Amendments or Waivers ........................................92
10.1.1 Increase of Revolving Credit Commitment; Extension
or Expiration Date................................................92
10.1.2 Extension of Payment; Reduction of Principal Interest
or Fees; Modification of Terms of Payment.........................92
10.1.3 Release of Guarantor .............................................92
10.1.4 Miscellaneous ....................................................93
</TABLE>
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EXHIBIT 10(d)
<TABLE>
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10.2 No Implied Waivers; Cumulative Remedies; Writing Required ...................93
10.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes ...........93
10.4 Holidays ....................................................................94
10.5 Funding by Branch, Subsidiary or Affiliate ..................................94
10.5.1 Notional Funding .................................................94
10.5.2 Actual Funding ...................................................95
10.6 Notices. ....................................................................95
10.7 Severability ................................................................96
10.8 Governing Law. ..............................................................96
10.9 Prior Understanding .........................................................96
10.10 Duration; Survival ..........................................................96
10.11 Successors and Assigns ......................................................97
10.12 Confidentiality .............................................................98
10.13 Counterparts ................................................................98
10.14 Documentation Agent's or Bank's Consent .....................................98
10.15 Exceptions ..................................................................98
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL ......................................99
10.17 Tax Withholding Clause. . ...................................................99
10.18 Joinder of Guarantors .......................................................100
</TABLE>
<PAGE> 9
EXHIBIT 10(d)
LIST OF SCHEDULES AND EXHIBITS
SCHEDULE
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 2.9.1 - ROLLOVER LCS
SCHEDULE 5.1.1 - SUBSIDIARIES
SCHEDULE 5.1.3 - SUBSIDIARY MATTERS
SCHEDULE 5.1.13 - CONSENTS AND APPROVALS
SCHEDULE 5.1.18 - MATERIAL CONTRACTS
SCHEDULE 5.1.20 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 5.1.22 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 7.2.1 - EXISTING INDEBTEDNESS
SCHEDULE 7.2.4 - LOANS AND INVESTMENTS
EXHIBITS
EXHIBIT 1.1(A) - FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(G)(2) - FORM OF MASTER GUARANTY AGREEMENT
EXHIBIT 1.1(I)(1) - FORM OF INTERCOMPANY NOTE
EXHIBIT 1.1(I)(2) - FORM OF MASTER INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(R) - FORM OF REVOLVING CREDIT NOTE
EXHIBIT 1.1(S)(1) - FORM OF SWING LOAN NOTE
EXHIBIT 2.5 - FORM OF LOAN REQUEST
EXHIBIT 2.10.5 - FORM OF SWING LOAN REQUEST
EXHIBIT 6.1.4 - OPINION OF COUNSEL
EXHIBIT 7.3.3 - FORM OF COMPLIANCE CERTIFICATE
<PAGE> 10
EXHIBIT 10(d)
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of May 3, 1996 and is
made by and among CONSOLIDATED STORES CORPORATION, an Ohio corporation (the
"Borrower"), the BANKS (as hereinafter defined), and THE BANK OF NEW YORK, in
its capacity as Syndication Agent and as Managing Agent, NATIONAL CITY BANK OF
COLUMBUS, in its capacity as Administrative Agent ("Administrative Agent") and
as Managing Agent, PNC BANK, OHIO, NATIONAL ASSOCIATION, in its capacity as
Arranger, as Documentation Agent (the "Documentation Agent") and as Managing
Agent, BANK ONE, COLUMBUS, N.A., in its capacity as Managing Agent, and NATIONAL
CITY BANK in its capacity as Managing Agent.
WITNESSETH:
WHEREAS, the Borrower had requested a revolving credit facility in an
aggregate principal amount of $600,000,000; and
WHEREAS, the Banks which executed a Credit Agreement dated as of May 3,
1996 provided a revolving credit facility not to exceed $600,000,000; and
WHEREAS, such revolving credit facility was used to fund a portion of
the Borrower's acquisition of Kay-Bee Center, Inc., which acquisition was
consummated on May 5, 1996, and for certain other general corporate purposes
(including working capital);
WHEREAS, the May 3, 1996 revolving credit facility anticipated that the
Borrower would sell in an underwritten public offering at least $100,000,000 of
its common stock to the public and the Borrower has completed an underwritten
public offering of approximately $200,000,000 of its common stock;
WHEREAS, the May 3, 1996 revolving credit facility anticipated that the
Managing Agents would syndicate a substantial portion of their commitments to
other banks and the Managing Agents have completed such syndication; and
WHEREAS, the Banks are willing to provide a credit facility in an
aggregate principal amount of $600,000,000 upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
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1. CERTAIN DEFINITIONS
-------------------
1.1 Certain Definitions.
--------------------
In addition to words and terms defined elsewhere in this Agreement, the
following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
ACQUISITION shall mean the acquisition on May 5, 1996 (the
"Acquisition Date") of 100% of the common stock of Kay-Bee Center, Inc. by the
Borrower from Melville Corporation pursuant to that certain Stock Purchase
Agreement (the "Stock Purchase Agreement") dated as of March 25, 1996, as
amended as of May 3, 1996, between the Company and Melville Corporation.
ACQUISITION DATE shall have the meaning assigned to that term in
the definition of the term "Acquisition".
ADMINISTRATIVE AGENT shall mean National City Bank of Columbus, in
its capacity as Administrative Agent and its successors and assigns.
ADMINISTRATIVE AGENT'S FEE shall have the meaning assigned to that
term in Section 9.15.
AFFILIATE as to any Person shall mean any other Person (i) which
directly or indirectly controls, is controlled by, or is under common control
with such Person, (ii) which beneficially owns or holds 15% or more of any class
of the voting or other equity interests of such Person, or (iii) 15% or more of
any class of voting or other equity interests of which is beneficially owned or
held, directly or indirectly, by such Person. Control, as used in this
definition, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, including
the power to elect a majority of the directors or trustees of a corporation or
trust, as the case may be.
AGREEMENT shall mean this Amended and Restated Credit Agreement,
as the same may be supplemented or amended from time to time, including all
schedules and exhibits.
ANNUAL STATEMENTS shall have the meaning assigned to that term in
Section 5.1.9(i).
APPLICABLE DOCUMENTARY ACCEPTED TIME DRAFT LC PERCENTAGE shall
have the meaning assigned to that term in Section 2.9.3.1..
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APPLICABLE DOCUMENTARY LC PERCENTAGE shall have the meaning
assigned to that term in Section 2.9.3.1..
APPLICABLE STANDBY LC PERCENTAGE shall have the meaning assigned
to that term in Section 2.9.3.2.
ASSIGNMENT AND ASSUMPTION AGREEMENT shall mean an Assignment and
Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and the
Administrative Agent on behalf of the other Banks, substantially in the form of
EXHIBIT 1.1(A).
AUTHORIZED OFFICER shall mean those individuals, designated by
written notice to the Administrative Agent from the Borrower, authorized to
execute notices, reports and other documents on behalf of the Loan Parties
required hereunder. The Borrower may amend such list of individuals from time to
time by giving written notice of such amendment to the Administrative Agent.
BANKS shall mean the financial institutions named on SCHEDULE
1.1(B) and their respective successors and assigns as permitted hereunder, each
of which is referred to herein as a "Bank".
BASE RATE shall mean the greater of (i) the interest rate per
annum announced from time to time by National City Bank at its Principal Office
as its then prime rate, which rate may not be the lowest rate then being charged
commercial borrowers by National City Bank, or (ii) the Federal Funds Effective
Rate plus 1/2% per annum.
BASE TANGIBLE NET WORTH shall mean the sum of (i) $350,000,000
plus 50% of net income of the Company and its Subsidiaries for each fiscal
quarter in which net income was earned (as opposed to a net loss) from and after
February 3, 1996, through the date of determination as determined and
consolidated in accordance with GAAP and (ii) the net cash proceeds from the
sale of any capital stock or other equity interest of the Company less any sums
paid or owing by the Company since the date hereof with respect to the
redemption, repurchase or other retirement or cancellation of any of its capital
stock or other equity interests.
BENEFIT ARRANGEMENT shall mean at any time an "employee benefit
plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan nor
a Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.
BORROWER shall mean Consolidated Stores Corporation, a corporation
organized and existing under the laws of the State of Ohio.
BORROWING DATE shall mean, with respect to any Revolving Credit
Loan, the date for the making thereof or the renewal or conversion thereof at or
to the same or a different Interest Rate Option, which shall be a Business Day.
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<PAGE> 13
BORROWING TRANCHE shall mean specified portions of Revolving
Credit Loans outstanding as follows: (i) any Revolving Credit Loans to which a
Revolving Credit Euro-Rate Option applies under the applicable Loan Request by
the Borrower and which have the same Interest Period shall constitute one
Borrowing Tranche, and (ii) all Revolving Credit Loans to which a Revolving
Credit Base Rate Option applies shall constitute one Borrowing Tranche.
BUSINESS DAY shall mean any day other than a Saturday or Sunday or
a legal holiday on which commercial banks are authorized or required to be
closed for business in Columbus, Ohio or New York, New York, and, if the
applicable Business Day relates to any Revolving Credit Loan to which the
Revolving Credit Euro-Rate Option applies, such day must also be a day on which
dealings in Dollar deposits are carried on in the London interbank market.
CAPITALIZED LEASE shall mean any lease of Property by a Person as
lessee which is a capital lease in accordance with GAAP. CLOSING DATE shall mean
May 3, 1996. The closing shall take place at 10:00 a.m., Pittsburgh time, on the
Closing Date at the offices of Buchanan Ingersoll Professional Corporation,
Pittsburgh, Pennsylvania, or at such other time and place as the parties agree.
COMMITMENT FEE shall have the meaning assigned to that term in
Section 2.3.
COMPANY shall mean Consolidated Stores Corporation, a Delaware
corporation, which beneficially owns directly or indirectly all of the capital
stock of the Borrower and its Subsidiaries.
CONSOLIDATED CAPITAL EXPENDITURES means, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including that portion of Capitalized Leases which is capitalized on a
consolidated balance sheet of the Company and its Subsidiaries) by the Company
and its Subsidiaries during that period that, in conformity with GAAP, are
required to be included in or reflected in the property, plant or equipment or
similar fixed asset accounts reflected on a consolidated balance sheet of the
Company and its Subsidiaries.
CONSOLIDATED EBIT for any period of determination shall mean an
amount equal to (A) the sum of (i) the net income for such period plus (ii)
interest expense in respect of Indebtedness to the extent deducted in
determining net income for such period ("Interest Expense"), plus (iii) the
provision for taxes for such period based on income or profits to the extent
such income or profits were included in computing net income for such period,
minus (B) all extraordinary income and gains to net income to the extent
included in net income for such period, in each case of the Company and its
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
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<PAGE> 14
CONSOLIDATED INTEREST EXPENSE for any period of determination
shall be equal to the Interest Expense of the Company and its Subsidiaries as
determined in subclause (ii) of clause (A) of the definition of the term
"Consolidated EBIT" for such period on a consolidated basis in accordance with
GAAP.
CONSOLIDATED MATURING RENTALS shall mean the aggregate rental
amounts payable by the Company and its Subsidiaries for the most recent four (4)
full consecutive fiscal quarters immediately preceding the date of determination
under any lease of Property having a remaining term (including any required
renewals or any renewals at the option of the lessor or lessee) of less than one
year (but does not include any amounts payable under Capitalized Leases),
determined in accordance with GAAP.
CONSOLIDATED RENTALS shall mean the aggregate rental amounts
payable by the Company and its Subsidiaries for the most recent four (4) full
consecutive fiscal quarters immediately preceding the date of determination
under any lease of Property having a remaining term (including any required
renewals or any renewals at the option of the lessor or lessee) of one year or
more (but does not include any amounts payable under Capitalized Leases),
determined in accordance with GAAP.
CONSOLIDATED TANGIBLE NET WORTH shall mean as of any date of
determination total stockholders' equity less intangible assets of the Company
and its Subsidiaries as of such date determined and consolidated in accordance
with GAAP.
DOCUMENTARY LETTER OF CREDIT shall have the meaning assigned to
that term in Section 2.9.1.
DOCUMENTARY LETTER OF CREDIT OUTSTANDINGS shall mean at any time
the sum of (i) the aggregate undrawn face amount of outstanding Documentary
Letters of Credit (which excludes Documentary Letter of Credit of (Time Draft)
Outstandings) and (ii) without duplication, the aggregate amount of all unpaid
and outstanding Reimbursement Obligations relating to Documentary Letters of
Credit.
DOCUMENTARY LETTER OF CREDIT (TIME DRAFT) OUTSTANDINGS shall mean
at any time the aggregate face amount of all drafts outstanding under any
Documentary Letters of Credit which the applicable Issuing Letter of Credit Bank
has accepted for payment, but has not yet paid, because such drafts are payable
at a later date that has not yet occurred.
DOCUMENTATION AGENT shall mean PNC Bank, Ohio, National
Association, and its successors and assigns, in its capacity as Documentation
Agent.
DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall mean lawful
money of the United States of America.
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<PAGE> 15
ENVIRONMENTAL COMPLAINT shall mean any written complaint setting
forth a cause of action for personal or property damage or natural resource
damage or equitable relief, order, notice of violation, citation, request for
information issued pursuant to any Environmental Laws by an Official Body,
subpoena or other written notice of any type relating to, arising out of, or
issued pursuant, to any of the Environmental Laws or any Environmental
Conditions, as the case may be.
ENVIRONMENTAL CONDITIONS shall mean any conditions of the
environment, including the workplace, the ocean, natural resources (including
flora or fauna), soil, surface water, groundwater, any actual or potential
drinking water supply sources, substrata or the ambient air, relating to or
arising out of, or caused by, the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, emptying,
discharging, injecting, escaping, leaching, disposal, dumping, threatened
release or other management or mismanagement of Regulated Substances resulting
from the use of, or operations on, any Property.
ENVIRONMENTAL LAWS shall mean all federal, state, local and
foreign Laws and regulations, including permits, licenses, authorizations,
bonds, orders, judgments, and consent decrees issued, or entered into, pursuant
thereto, relating to pollution or protection of human health or the environment
or employee safety in the workplace.
ERISA shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
ERISA GROUP shall mean, at any time, the Company and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control and all other entities which, together
with the Borrower, are treated as a single employer under Section 414 of the
Internal Revenue Code.
EURO-RATE shall mean with respect to the Revolving Credit Loans
comprising any Borrowing Tranche to which the Revolving Credit Euro-Rate Option
applies for any Interest Period, the interest rate per annum determined by the
Administrative Agent by dividing (the resulting quotient rounded upward to the
nearest 1/16 of 1% per annum) (i) the rate of interest determined by the
Administrative Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the average of
the London interbank offered rates set forth on the "LIBO" page of the Reuters
Monitor Money Rate Service (or appropriate successor) or, if Reuters or its
successor ceases to provide such quotes, a comparable replacement determined by
the Administrative Agent, at approximately 11:00 a.m. London time two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Borrowing Tranche and having a maturity comparable to such
Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate may also be expressed by the following formula:
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<PAGE> 16
Average of London interbank offered rates
on LIBO page of Reuters Monitor Money
Euro-Rate = RATE SERVICE OR APPROPRIATE SUCCESSOR
-------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Revolving Credit Euro-Rate
Option outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The Administrative Agent shall give prompt
notice to the Borrower of the Euro-Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.
EURO-RATE RESERVE PERCENTAGE shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Managing Agents which is in effect during any relevant period, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including supplemental,
marginal and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as "Eurocurrency Liabilities") of a member bank
in such System.
EVENT OF DEFAULT shall mean any of the events described in Section
8.1.
EXECUTIVE OFFICER shall mean as to any designated Person a natural
Person who constitutes an executive officer of such designated Person for
purposes of item 401(b) of Regulation S-K promulgated under the Securities Act
of 1933 and the Securities Exchange Act of 1934.
EXISTING BANK FACILITY shall have the meaning ascribed thereto in
Section 2.8.
EXPIRATION DATE shall mean May 3, 1999.
FEDERAL FUNDS EFFECTIVE RATE for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; PROVIDED, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day of which such rate was announced.
FINANCIAL PROJECTIONS shall have the meaning assigned to that term
in Section 5.1.9(ii).
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<PAGE> 17
FIXED CHARGE COVERAGE RATIO shall mean on any date of
determination, the ratio of (i) the sum of (a) Consolidated EBIT for the most
recent four (4) full consecutive fiscal quarters immediately preceding the date
of determination plus (b) Consolidated Rentals plus (c) Consolidated Maturing
Rentals, to (ii) Fixed Charges.
FIXED CHARGES shall mean for any period of determination the sum
of (i) Consolidated Interest Expense for the most recent four (4) full
consecutive fiscal quarters immediately preceding the date of determination plus
(ii) Consolidated Rentals plus (iii) Consolidated Maturing Rentals.
GAAP shall mean generally accepted accounting principles as are in
effect from time to time, subject to the provisions of Section 1.3, and applied
on a consistent basis both as to classification of items and amounts.
GOVERNMENTAL ACTS shall have the meaning assigned to that term in
Section 2.9.8.
GUARANTOR shall mean each of the Company and the Subsidiaries of
the Company which is designated as a "Guarantor" on the signature page to the
Master Guaranty Agreement and each other Subsidiary of the Company which joins
the Master Guaranty Agreement and the other Loan Documents as a Guarantor after
the date hereof pursuant to Section 10.18.
GUARANTOR JOINDER shall mean a joinder to the Master Guaranty
Agreement as provided in the Master Guaranty Agreement.
GUARANTY of any Person shall mean any obligation of such Person
guaranteeing or in effect guaranteeing any liability or obligation of any other
Person in any manner, whether directly or indirectly, including any agreement to
indemnify or hold harmless any other Person, any performance bond or other
suretyship arrangement and any other form of assurance against loss, except
endorsement of negotiable or other instruments for deposit or collection in the
ordinary course of business.
HISTORICAL STATEMENTS shall have the meaning assigned to that term
in Section 5.1.9(i).
INDEBTEDNESS shall mean, as to any Person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such Person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations (contingent or
otherwise) under any letter of credit, currency swap agreement, interest rate
swap, cap, collar or floor agreement or other interest rate management device,
(iv) any other transaction (including forward sale or purchase agreements,
capitalized leases (but not operating leases) and conditional sales agreements)
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<PAGE> 18
having the commercial effect of a borrowing of money entered into by such Person
to finance its operations or capital requirements (but not including trade
payables, trade credits and accrued expenses incurred in the ordinary course of
business which are not represented by a promissory note or other evidence of
indebtedness and which are not more than thirty (30) days past due), or (v) any
Guaranty of Indebtedness for borrowed money. For purposes only of determining
the ratio of total indebtedness to total capitalization in Section 7.2.17, the
Seller Note shall be excluded from the term "Indebtedness" used in such section.
INTERCOMPANY LOANS shall mean loans made by one Loan Party to one
or more other Loan Parties or their Subsidiaries and, in the case of loans
between the Borrower and the Material Subsidiaries, evidenced by intercompany
notes (the "Intercompany Notes") in the form attached hereto as Exhibit
1.1(I)(1).
INTERCOMPANY NOTES shall have the meaning assigned to that term in
the definition of the term "Intercompany Loans".
INTEREST PAYMENT DATE shall mean each date specified for the
payment of interest in Section 4.3.
INTEREST PERIOD shall have the meaning assigned to such term in
Section 3.2.
INTEREST RATE OPTION shall mean any Revolving Credit Euro-Rate
Option or Revolving Credit Base Rate Option.
INTERNAL REVENUE CODE shall mean the Internal Revenue Code of
1986, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
ISSUING LETTER OF CREDIT BANK shall mean with respect to a Letter
of Credit either The Bank of New York (or an Affiliate of The Bank of New York)
or National City Bank of Columbus (or an Affiliate of National City Bank of
Columbus) which has issued that Letter of Credit pursuant to Section 2.9.
LABOR CONTRACTS shall mean all employment agreements, employment
contracts, collective bargaining agreements and other agreements among any Loan
Party or Subsidiary of a Loan Party and its employees.
LAW shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
LETTER OF CREDIT shall have the meaning assigned to that term in
Section 2.9.1.
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<PAGE> 19
LETTER OF CREDIT OUTSTANDINGS shall mean at any time the sum of
(i) the Documentary Letter of Credit Outstandings, (ii) the Standby Letter of
Credit Outstandings, (iii) the Documentary Letter of Credit (Time Draft)
Outstandings and (iv) without duplication, the aggregate amount of all unpaid
and outstanding Reimbursement Obligations.
LETTERS OF CREDIT FEES shall have the meaning assigned to that
term in Section 2.9.3.
LIEN shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge or other encumbrance or security arrangement of any
nature whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
LOAN DOCUMENTS shall mean this Agreement, the Master Guaranty
Agreement, the Master Intercompany Subordination Agreement, the Revolving Credit
Notes, and any other instruments, certificates or documents delivered or
contemplated to be delivered hereunder or thereunder or in connection herewith
or therewith, as the same may be supplemented or amended from time to time in
accordance herewith or therewith, and LOAN DOCUMENT shall mean any of the Loan
Documents.
LOAN PARTIES shall mean the Borrower and the Guarantors.
LOAN REQUEST shall have the meaning ascribed thereto in
Section 2.5.
MANAGING AGENTS shall mean all of the financial institutions
identified as a Managing Agent on the first page hereof, each of which is
referred to herein as a "Managing Agent", and their successors and assigns, in
their capacity as Managing Agents.
MASTER GUARANTY AGREEMENT shall mean the Master Guaranty and
Suretyship Agreement in substantially the form of EXHIBIT 1.1(G)(2) executed and
delivered by the Company and the other Guarantors to the Administrative Agent
for the benefit of the Banks.
MASTER INTERCOMPANY SUBORDINATION AGREEMENT shall mean a
subordination agreement among the Loan Parties in the form attached hereto as
EXHIBIT 1.1(I)(2).
MATERIAL ADVERSE CHANGE shall mean any set of circumstances or
events which (a) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of this Agreement
or any other Loan Document, (b) is or could reasonably be expected to be
material and adverse to the business, properties, assets, financial condition,
results of operations or prospects of the Loan Parties and their Subsidiaries
taken as a whole, (c) impairs materially or could reasonably be expected to
impair materially the ability of the Loan Parties and their Subsidiaries taken
as a whole to duly and punctually pay or
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<PAGE> 20
perform their Indebtedness, or (d) impairs materially or could reasonably be
expected to impair materially the ability of the Documentation Agent or any of
the Banks, to the extent permitted, to enforce their legal remedies pursuant to
this Agreement or any other Loan Document.
MATERIAL SUBSIDIARY shall mean any of C S Ross Company, an Ohio
corporation, CSIC Venture, Inc., a Delaware corporation, K.B. Consolidated,
Inc., an Ohio corporation, Kay-Bee Center, Inc., a California corporation, and
any Subsidiary of the Borrower (other than CW Kay-Bee, Inc. or Kay-Bee Toy &
Hobby Shops, Inc.) having at least 10% of the total consolidated assets of the
Company and its Subsidiaries or at least 10% of the total consolidated revenues
of the Company and its Subsidiaries for the 12-month period ending on the last
day of the most recent fiscal quarter of the Company.
MONTH, with respect to an Interest Period under the Revolving
Credit Euro-Rate Option, shall mean the interval between the days in consecutive
calendar months numerically corresponding to the first day of such Interest
Period. If any Euro-Rate Interest Period begins on a day of a calendar month for
which there is no numerically corresponding day in the month in which such
Interest Period is to end, the final month of such Interest Period shall be
deemed to end on the last Business Day of such final month.
MULTIEMPLOYER PLAN shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five plan years,
has made or had an obligation to make such contributions.
MULTIPLE EMPLOYER PLAN shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.
NOTICES shall have the meaning assigned to that term in Section
10.6.
OBLIGATION shall mean any obligation or liability of any of the
Loan Parties to the Documentation Agent, the Syndication Agent, the
Administrative Agent, the Managing Agents, the Issuing Letter of Credit Banks or
any of the Banks, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing, or due or to become
due, under or in connection with this Agreement, the Revolving Credit Notes, the
Letters of Credit or any other Loan Document.
OFFICIAL BODY shall mean any national, federal, state, local or
other government or political subdivision or any agency, authority, bureau,
central bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
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<PAGE> 21
PBGC shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any successor
thereto.
PERMITTED INVESTMENTS shall mean:
(i) direct obligations of the United States of America or any
agency or instrumentality thereof or obligations backed by the full faith and
credit of the United States of America maturing in twelve (12) months or less
from the date of acquisition;
(ii) commercial paper maturing in 180 days or less rated not lower
than A-1 by Standard & Poor's Ratings Services, a division of The McGraw Hill
Companies, Inc. or P-1 by Moody's Investors Service, Inc. on the date of
acquisition; and
(iii) demand deposits, time deposits or certificates of deposit
maturing within one year in commercial banks whose obligations are rated A-1, A
or the equivalent or better by Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc. on the date of acquisition.
PERMITTED LIENS shall mean:
(i) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business and which are not yet
due and payable;
(ii) Pledges or deposits made in the ordinary course of
business to secure payment of workmen's compensation, or
to participate in any fund in connection with workmen's
compensation, unemployment insurance, old-age pensions or
other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen, carriers,
or other like Liens, securing obligations incurred in the
ordinary course of business that are not yet due and
payable and Liens of landlords securing obligations to pay
lease payments that are not yet due and payable or in
default;
(iv) Good-faith pledges or deposits made in the ordinary course
of business to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money)
or leases, not in excess of the aggregate amount due
thereunder, or to secure statutory obligations, or surety,
appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;
(v) Encumbrances consisting of zoning restrictions, easements
or other restrictions on the use of real property, none of
which materially impairs the use of such property or the
value thereof, and none of which is violated in any
material respect by existing or proposed structures or
land use;
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<PAGE> 22
(vi) Liens and security interests in favor of the
Administrative Agent for the benefit of the Banks or any
Issuing Letter of Credit Bank in the application for a
Letter of Credit;
(vii) Liens on property leased by any Loan Party or Subsidiary
of a Loan Party or other interest or title of the lessor
under capital and operating leases not otherwise
prohibited by Section 7.2.15 securing obligations of such
Loan Party or Subsidiary to the lessor under such leases;
(viii) Any Lien existing on the date of this Agreement and
described on SCHEDULE 1.1(P), PROVIDED that the principal
amount secured thereby is not hereafter increased
(although it may be refinanced), and no additional assets
become subject to such Lien;
(ix) Purchase Money Security Interests to the extent that (X)
such Purchase Money Security Interests attach to inventory
purchased in the ordinary course of business pursuant to
customary payment terms and are not perfected by the
filing of financing statements or other public filings or
(Y) the aggregate amount of loans and deferred payments
secured by Purchase Money Security Interests not described
in the foregoing clause (X) do not exceed at any one time
outstanding $10,000,000 (excluding for the purpose of this
computation any loans or deferred payments secured by
Liens described on SCHEDULE 1.1(P));
(x) Liens relating to the licensing by Borrower, the other
Loan Parties or their Subsidiaries of intellectual
property;
(xi) Liens relating to a sublease entered into by a Loan Party
or its Subsidiary;
(xii) The following, (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful
proceedings diligently conducted so long as levy and
execution thereon have been stayed and continue to be
stayed or (B) if a final judgment is entered and such
judgment is discharged within thirty (30) days of entry or
(C) if payments thereof are covered in full (subject to
customary deductibles) by an insurance company of
reputable standing which insurance company has
acknowledged that the applicable policy applies to the
following and is not reserving any right to contest
applicability, and in any case they do not in the
aggregate, materially impair the ability of any Loan Party
to perform its Obligations hereunder or under the other
Loan Documents:
(1) Claims or Liens for taxes, assessments or charges by the
United States, or any department, agency or instrumentality
thereof, or by any state, county, municipal or other
governmental agency, including the PBGC, due and payable and
subject to interest or penalty, PROVIDED that the applicable
Loan Party maintains such reserves or other appropriate
provisions as shall be required by GAAP and pays all such
taxes, assessments or charges forthwith upon the commencement
of proceedings to foreclose any such Lien;
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<PAGE> 23
(2) Claims, Liens or encumbrances upon, and defects of title to,
real or personal property, including any attachment of personal
or real property or other legal process prior to adjudication
of a dispute on the merits; and
(3) Claims or Liens of mechanics, materialmen, warehousemen,
carriers, or other statutory nonconsensual Liens; and
(xiii) additional Liens securing Indebtedness not to exceed
$10,000,000.
PERSON shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, limited liability company, government or political subdivision or
agency thereof, or any other entity.
PLAN shall mean at any time an employee pension benefit plan
(including a Multiple Employer Plan, but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Internal Revenue Code and either (i) is maintained by
any member of the ERISA Group for employees of any member of the ERISA Group or
(ii) has at any time within the preceding five years been maintained by any
entity which was at such time a member of the ERISA Group for employees of any
entity which was at such time a member of the ERISA Group.
PNC BANK shall mean PNC Bank, Ohio, National Association, its
successors and assigns.
POTENTIAL DEFAULT shall mean any event or condition which with
notice, passage of time or a determination by the Managing Agents or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.
PRINCIPAL OFFICE shall mean the main banking office of the
Administrative Agent in Columbus, Ohio or the main banking office of a Managing
Agent at the address shown on the signature page hereto, as the case may be.
PROHIBITED TRANSACTION shall mean any prohibited transaction as
defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for
which neither an individual nor a class exemption has been issued by the United
States Department of Labor.
PROPERTY shall mean all real property, both owned and leased, of
any Loan Party or Subsidiary of a Loan Party.
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<PAGE> 24
PURCHASE MONEY SECURITY INTEREST shall mean Liens upon real or
personal property securing loans to any Loan Party or Subsidiary of a Loan Party
or deferred payments by such Loan Party or Subsidiary for the purchase of such
property.
PURCHASING BANK shall mean a Bank which becomes a party to this
Agreement by executing an Assignment and Assumption Agreement. RATABLE SHARE
shall mean the proportion that a Bank's Revolving Credit Commitment bears to the
Revolving Credit Commitments of all of the Banks.
REGULATED SUBSTANCES shall mean any substance including any solid,
liquid, semisolid, gaseous, thermal, thoriated or radioactive material, refuse,
garbage, wastes, chemicals, petroleum products, by-products and coproducts,
impurities, dust, scrap, and heavy metals defined as a "hazardous substance,"
"pollutant," "pollution," "contaminant," "hazardous or toxic substance,"
"extremely hazardous substance," "toxic chemical," "toxic waste," "hazardous
waste," "industrial waste," "residual waste," "solid waste," "municipal waste,"
"mixed waste," "infectious waste," "chemotherapeutic waste," "medical waste," or
"regulated substance" or any related materials, substances or wastes as now or
hereafter defined pursuant to any Environmental Laws, ordinances, rules,
regulations or other directives of any Official Body, the generation,
manufacture, extraction, processing, distribution, treatment, storage, disposal,
transport, recycling, reclamation, use, reuse, spilling, leaking, dumping,
injection, pumping, leaching, emptying, discharge, escape, release or other
management or mismanagement of which is regulated by the Environmental Laws.
REGULATION U shall mean Regulation U, T, G or X as promulgated by
the Board of Governors of the Federal Reserve System, as amended from time to
time.
REIMBURSEMENT OBLIGATION shall have the meaning assigned to such
term in Section 2.9.4.
REPORTABLE EVENT shall mean a reportable event described in
Section 4043 of ERISA and regulations thereunder with respect to a Plan or
Multiemployer Plan.
REQUIRED BANKS shall mean (i) prior to the termination of the
Revolving Credit Commitments, Banks whose Revolving Credit Commitments aggregate
at least 66 2/3% of the Revolving Credit Commitments of all of the Banks, and
(ii) after the termination of the Revolving Credit Commitments, Banks whose
outstanding Revolving Credit Loans and Ratable Share (as determined pursuant to
Section 2.9.2) in the face amount of outstanding Letters of Credit and
Reimbursement Obligations aggregate at least 66 2/3% of the total principal
amount of the Revolving Credit Loans and the face amount of Letters of Credit
and Reimbursement Obligations outstanding hereunder.
REVOLVING CREDIT BASE RATE OPTION shall mean the option of the
Borrower to have Revolving Credit Loans bear interest at the rate and under the
terms and conditions set forth in Section 3.1.1(i).
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<PAGE> 25
REVOLVING CREDIT COMMITMENT shall mean, as to any Bank at any time the
amount initially set forth opposite its name on SCHEDULE 1.1(B) in the column
labeled "Revolving Credit Commitment" and thereafter on Schedule I to the most
recent Assignment and Assumption Agreement, as the same may have been reduced
in accordance with Section 2.4 and REVOLVING CREDIT COMMITMENTS shall mean the
aggregate Revolving Credit Commitments of all of the Banks.
REVOLVING CREDIT EURO-RATE OPTION shall mean the option of the
Borrower to have Revolving Credit Loans bear interest at the rate and under the
terms and conditions set forth in Section 3.1.1(ii).
REVOLVING CREDIT EURO-RATE SPREAD shall have the meaning given to
such term in Section 3.1.1(ii).
REVOLVING CREDIT LOANS shall mean collectively and REVOLVING
CREDIT LOAN shall mean separately all loans or any loan made by the Banks or one
of the Banks to the Borrower pursuant to Section 2.1 or 2.9.4.
REVOLVING CREDIT NOTES shall mean collectively and REVOLVING
CREDIT NOTE shall mean separately all the Revolving Credit Notes of the Borrower
in the form attached hereto as EXHIBIT 1.1(R) evidencing the Revolving Credit
Loans together with all amendments, extensions, renewals, replacements,
refinancings or refundings thereof in whole or in part.
REVOLVING FACILITY USAGE shall mean at any time the sum of the
Revolving Credit Loans outstanding, the Swing Loans outstanding and the Letter
of Credit Outstandings.
ROLLOVER LCS shall mean those letters of credit identified on
Schedule hereof which were issued by the Issuing Letter of Credit Banks prior to
the date hereof upon the application of the Borrower or one of its Subsidiaries.
SELLER NOTE shall mean the senior subordinated term note or notes
originally issued to Melville Corporation in the principal amount of
$100,000,000 pursuant to that certain Indenture dated May 5, 1996 and any
replacement note or notes for such note or notes including notes which may be
issued to transferees of holders thereof.
SETTLEMENT DATE shall have the meaning assigned thereto in
Section 2.10.5.
SHARES shall have the meaning assigned to that term in
Section 5.1.2.
STANDBY LETTER OF CREDIT shall have the meaning assigned to that
term in Section 2.9.1.
STANDBY LETTER OF CREDIT OUTSTANDINGS shall mean at any time the
sum of (i) the aggregate undrawn face amount of outstanding Standby Letters of
Credit and (ii) without duplication, the aggregate amount of all unpaid and
outstanding Reimbursement Obligations relating to Standby Letters of Credit.
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<PAGE> 26
SUBSIDIARY of any Person at any time shall mean (i) any
corporation or trust of which 50% or more (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such Person or one or
more of such Person's Subsidiaries, or any partnership of which such Person is a
general partner or of which 50% or more of the partnership interests is at the
time directly or indirectly owned by such Person or one or more of such Person's
Subsidiaries, or (ii) any corporation, trust, partnership or other entity which
is controlled or capable of being controlled by such Person and/or one or more
of such Person's Subsidiaries.
SUBSIDIARY SHARES shall have the meaning assigned to that term in
Section 5.1.3.
SWING LENDER shall mean National City Bank of Columbus.
SWING LOAN COMMITMENT shall mean the Swing Lender's commitment to
make Swing Loans to the Borrower pursuant to Section 2.10 in an aggregate
principal amount up to but not in excess of $30,000,000.
SWING NOTE shall mean the Swing Note of the Borrower in the form
of EXHIBIT 1.1(S)(1) evidencing the Swing Loans, together with all amendments,
extensions, renewals, replacements, refinancings or refundings thereof in whole
or in part.
SWING LOAN REQUEST shall mean a request for Swing Loans made in
accordance with Section 2.10.
SWING LOANS shall mean collectively and SWING LOAN shall mean
separately all Swing Loans or any Swing Loan made by the Swing Lender to the
Borrower pursuant to Section.
SYNDICATION AGENT shall mean The Bank of New York in its capacity
as Syndication Agent.
SYNDICATION DATE shall mean June 28, 1996.
TRANSFEROR BANK shall mean the selling Bank pursuant to an
Assignment and Assumption Agreement.
1.2 CONSTRUCTION.
-------------
Unless the context of this Agreement otherwise clearly requires, the following
rules of construction shall apply to this Agreement and each of the other Loan
Documents:
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1.2.1 NUMBER; INCLUSION.
------------------
References to the plural include the singular, the plural, the
part and the whole; "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation";
1.2.2 DETERMINATION.
--------------
References to "determination" of or by the Administrative Agent
or the Banks shall be deemed to include good-faith estimates by the
Administrative Agent or the Banks (in the case of quantitative determinations)
and good-faith beliefs by the Administrative Agent or the Banks (in the case of
qualitative determinations) and such determination shall be conclusive absent
manifest error;
1.2.3 DOCUMENTATION AGENT'S DISCRETION AND CONSENT.
---------------------------------------------
Whenever the Documentation Agent or the Banks are granted the
right herein to act in its or their sole discretion or to grant or withhold
consent such right shall be exercised in good-faith;
1.2.4 DOCUMENTS TAKEN AS A WHOLE.
---------------------------
The words "hereof," "herein," "hereunder," "hereto" and similar
terms in this Agreement or any other Loan Document refer to this Agreement or
such other Loan Document as a whole and not to any particular provision of this
Agreement or such other Loan Document;
1.2.5 HEADINGS.
---------
The section and other headings contained in this Agreement or
such other Loan Document and the Table of Contents (if any) preceding this
Agreement or such other Loan Document are for reference purposes only and shall
not control or affect the construction of this Agreement or such other Loan
Document or the interpretation thereof in any respect;
1.2.6 IMPLIED REFERENCES TO THIS AGREEMENT.
-------------------------------------
Article, section, subsection, clause, schedule and exhibit
references are to this Agreement or such other Loan Document, as the case may
be, unless otherwise specified;
1.2.7 PERSONS.
--------
Reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are permitted
by this Agreement or such other Loan Document, as the case may be, and
reference to a Person in a particular capacity excludes such Person in any
other capacity;
-18-
<PAGE> 28
1.2.8 MODIFICATIONS TO DOCUMENTS.
---------------------------
Reference to any agreement (including this Agreement and any other Loan Document
together with the schedules and exhibits hereto or thereto), document or
instrument means such agreement, document or instrument as amended, modified,
replaced, substituted for, superseded or restated;
1.2.9 FROM, TO AND THROUGH.
---------------------
Relative to the determination of any period of time, "from" means "from and
including," "to" means "to but excluding," and "through" means "through and
including"; and
1.2.10 SHALL; WILL.
------------
References to "shall" and "will" are intended to have the same
meaning.
1.2.11 OPERATIVE DATE.
---------------
All references herein to representations, warranties and
information being as of the date hereof or the Closing Date shall be as of May
3, 1996 (or for representations, warranties and information relating to the
Acquisition and the Subsidiaries acquired thereby, as of May 5, 1996).
1.3 ACCOUNTING PRINCIPLES.
----------------------
Except as otherwise provided in this Agreement, all computations
and determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP. In the event that on or after the date hereof, a
material change occurs in GAAP, the Banks and the Borrower will consult in good
faith regarding whether such change in GAAP affects any financial covenants
contained herein that should be adjusted due to such change in GAAP.
2. REVOLVING CREDIT FACILITY
-------------------------
2.1 REVOLVING CREDIT COMMITMENTS.
Subject to the terms and conditions hereof and relying upon the representations
and warranties herein set forth, each Bank severally agrees to make Revolving
Credit Loans to the Borrower at any time or from time to time on or after the
date hereof to the Expiration Date in an aggregate principal amount not to
exceed at any one time such Bank's Revolving Credit Commitment minus such Bank's
Ratable Share of the Letter of Credit Outstandings. Within such limits of time
and amount and subject to the other provisions of this Agreement, the Borrower
may borrow, repay and reborrow pursuant to this Section 2.1; provided that in no
event shall (i) the Revolving Credit Loans exceed, at any one time, the sum of
$450,000,000 plus the amounts, if any, advanced by the Banks to all Issuing
Letter of Credit Banks with respect to disbursements under Letters of Credit
that have not been reimbursed by the Borrower as required by Section 2.9.4 or
(ii) the Revolving Facility Usage exceed, at any one time, the Revolving Credit
Commitments.
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<PAGE> 29
2.2 NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO REVOLVING CREDIT LOANS.
--------------------------------------------------------------------
Each Bank shall be obligated to participate in each request for Revolving Credit
Loans pursuant to Section in accordance with its Ratable Share. The aggregate of
each Bank's Revolving Credit Loans outstanding hereunder to the Borrower at any
time shall never exceed its Revolving Credit Commitment minus its Ratable Share
of the Letter of Credit Outstandings. The obligations of each Bank hereunder are
several. The failure of any Bank to perform its obligations hereunder shall not
affect the Obligations of the Borrower to any other party nor shall any other
party be liable for the failure of such Bank to perform its obligations
hereunder. The Banks shall have no obligation to make Revolving Credit Loans
hereunder on or after the Expiration Date.
2.3 COMMITMENT FEES.
----------------
Accruing from the date hereof until the Expiration Date, the Borrower agrees to
pay to the Administrative Agent for the account of each Bank, as consideration
for such Bank's Revolving Credit Commitment hereunder, a nonrefundable
commitment fee (the "Commitment Fee") equal to a percentage per annum (the
"Applicable Commitment Percentage") (computed on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed) times the average daily
difference between (i) the amount of such Bank's Revolving Credit Commitment as
the same may be constituted from time to time, and (ii) the sum of such Bank's
Revolving Credit Loans outstanding plus its Ratable Share of Letters of Credit
Outstanding. The Applicable Commitment Percentage shall be determined based upon
the Fixed Charge Coverage Ratio as follows:
<TABLE>
<CAPTION>
FIXED CHARGE COVERAGE RATIO APPLICABLE COMMITMENT PERCENTAGE (RATE PER ANNUM)
--------------------------- -------------------------------------------------
<S> <C>
greater than or equal to 2.20 to 1.00 0.175%
greater than or equal to 2.05 to 1.00 but less than 0.200%
2.20 to 1.00
greater than or equal to 1.90 to 1.00 but less than 0.225%
2.05 to 1.00
greater than or equal to 1.75 to 1.00 but less than 0.250%
1.90 to 1.00
less than 1.75 to 1.00 0.375%
</TABLE>
All Commitment Fees shall be payable quarterly in arrears on the first Business
Day of each March, June, September and December after the date hereof and on the
Expiration Date or upon acceleration of the Revolving Credit Notes.
Until the Borrower shall have delivered to the Administrative Agent a Compliance
Certificate covering the four fiscal periods ending on the Saturday nearest
April 30, 1997, the Fixed Charge Coverage Ratio shall be deemed to be 1.75 to
1.00. For each fiscal quarter subsequent to May 3, 1997, the Fixed Charge
Coverage Ratio shall be computed based on the Compliance Certificate for such
quarter. Any change in the Fixed Charge Coverage Ratio (and the Applicable
Commitment Percentage) shall be effective on the date on which the Compliance
Certificate evidencing the computation of such Fixed Charge Coverage Ratio is
delivered to the Administrative Agent; provided, however, that if the Compliance
Certificate evidencing the computation of the Fixed Charge Coverage Ratio is not
delivered on the date on which such Compliance Certificate is due to be
delivered under Section, the Fixed Charge Cov-
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<PAGE> 30
erage Ratio on and after the date on which such Compliance Certificate is due to
be delivered under Section 7.3.3 and until the date on which such Compliance
Certificate is delivered to the Administrative Agent shall be deemed to be less
than 1.75 to 1.00 and the Applicable Commitment Percentage for such period
computed accordingly.
2.4 REDUCTION OF REVOLVING CREDIT COMMITMENTS.
------------------------------------------
2.4.1 VOLUNTARY REDUCTION OF REVOLVING CREDIT COMMITMENTS.
----------------------------------------------------
The Borrower shall have the right at any time and from time to time upon not
less than three (3) Business Days' prior written notice to the Banks to
permanently reduce, in whole multiples of $10,000,000, or terminate the
Revolving Credit Commitments without penalty or premium, except as hereinafter
set forth, provided that any such reduction or termination shall be accompanied
by (a) the payment in full of any Commitment Fee then accrued on the amount of
such reduction or termination and (b) prepayment of the Revolving Credit Notes,
together with the full amount of interest accrued on the principal sum to be
prepaid (and all amounts referred to in Section 4.6 ) and the Borrower shall
deposit in a non-interest bearing account (provided that with the consent of the
Issuing Letter of Credit Banks and the Administrative Agent, such consent not to
be unreasonably withheld, such account may be an interest bearing account) with
the Administrative Agent, as cash collateral for its Obligations in respect of
the Letters of Credit and related applications and agreements, an amount equal
to the maximum amount currently or at any time thereafter available to be drawn
on all outstanding Letters of Credit, and the Borrower hereby pledges to the
Administrative Agent and the Banks, and grants to the Administrative Agent and
the Banks a security interest in, all such cash as security for such
Obligations, to the extent that the Revolving Facility Usage then exceeds the
Revolving Credit Commitments as so reduced or terminated. From time to time the
Administrative Agent shall return to the Borrower any excess of the amount held
in such account over the amount by which the Revolving Facility Usage then
exceeds the Revolving Credit Commitments. From the effective date of any such
reduction or termination, the obligations of Borrower to pay the Commitment Fee
pursuant to Section 2.3 shall correspondingly be reduced or cease.
-21-
<PAGE> 31
2.4.2 MANDATORY REDUCTION OF REVOLVING CREDIT COMMITMENTS.
----------------------------------------------------
The Revolving Credit Commitments shall be permanently reduced, with respect to
sales, transfers or leases permitted to be made pursuant to Section 7.2.7(iv),
to the extent that the aggregate after-tax net cash proceeds (including without
limitation cash, as and when collected, pursuant to any notes or other
securities received as consideration for such sale, transfer or lease), as
reasonably estimated by the Borrower, of all such sales, transfers or leases on
and after the date hereof are in excess of $25,000,000 and each Bank's Revolving
Credit Commitment shall be reduced by its Ratable Share of each such reduction
in the Revolving Credit Commitments.
2.5 REVOLVING CREDIT LOAN REQUESTS.
-------------------------------
Except as otherwise provided herein, the Borrower may from time to time prior
to the Expiration Date request the Banks to make Revolving Credit Loans, or
renew or convert the Interest Rate Option applicable to existing Revolving
Credit Loans pursuant to Section 3.2, by delivering to the Administrative
Agent, not later than 2:00 p.m., Columbus, Ohio time, (i) three (3) Business
Days prior to the proposed Borrowing Date with respect to the making of
Revolving Credit Loans to which the Revolving Credit Euro-Rate Option applies
or the conversion to or the renewal of the Revolving Credit Euro-Rate Option
for any Revolving Credit Loans; and (ii) one (1) Business Day prior to either
the proposed Borrowing Date with respect to the making of a Revolving Credit
Loan to which the Revolving Credit Base Rate Option applies or the last day of
the preceding Interest Period with respect to the conversion to the Revolving
Credit Base Rate Option for any Revolving Credit Loan, of a duly completed
request therefor substantially in the form of EXHIBIT 2.5 or a request by
telephone immediately confirmed in writing by letter, facsimile or telex in
such form (each, a "Loan Request"), it being understood that the
Administrative Agent may rely on the authority of any individual making such a
telephonic request without the necessity of receipt of such written
confirmation. Each Loan Request shall be irrevocable and shall specify (i) the
proposed Borrowing Date; (ii) the aggregate amount of the proposed Revolving
Credit Loans comprising each Borrowing Tranche, which shall be in integral
multiples of $1,000,000 and not less than $5,000,000 for each Borrowing Tranche
to which the Revolving Credit Euro-Rate Option applies and not less than the
lesser of $5,000,000 or the maximum amount available for Borrowing Tranches to
which the Revolving Credit Base Rate Option applies; (iii) whether the
Revolving Credit Euro-Rate Option or Revolving Credit Base Rate Option shall
apply to the proposed Revolving Credit Loans comprising the applicable
Borrowing Tranche; and (iv) in the case of a Borrowing Tranche to which the
Revolving Credit Euro-Rate Option applies, an appropriate Interest Period for
the proposed Revolving Credit Loans comprising such Borrowing Tranche.
-22-
<PAGE> 32
2.6 MAKING REVOLVING CREDIT LOANS.
------------------------------
The Administrative Agent shall, promptly after receipt by it of a Loan Request
pursuant to Section 2.5, notify the Banks of its receipt of the related Loan
Request specifying: (i) the proposed Borrowing Date of such Revolving Credit
Loans; (ii) the amount and type of each such Revolving Credit Loan and the
applicable Interest Period (if any); and (iii) the apportionment among the Banks
of such Revolving Credit Loans as determined by the Administrative Agent in
accordance with Section 2.2. Each Bank shall remit the principal amount of each
Revolving Credit Loan to the Administrative Agent such that the Administrative
Agent is able to, and the Administrative Agent shall, to the extent the Banks
have made funds available to it for such purpose, fund such Revolving Credit
Loans to the Borrower in Dollars and immediately available funds at the
Principal Office prior to 2:00 p.m., Columbus, Ohio time, on the applicable
Borrowing Date, PROVIDED that if the Administrative Agent assumes pursuant to
Section 9.16 that a Bank will make available to the Administrative Agent such
Bank's portion of a Revolving Credit Loan and such Bank fails to remit such
funds to the Administrative Agent in a timely manner, the Administrative Agent
may elect in its sole discretion to fund with its own funds the Revolving Credit
Loans of such Bank on such Borrowing Date, and such Bank shall be subject to the
repayment obligation in Section 9.16.
2.7 REVOLVING CREDIT NOTES.
-----------------------
The Obligation of the Borrower to repay the aggregate unpaid principal amount of
the Revolving Credit Loans made to it by each Bank, together with interest
thereon, shall be evidenced by a Revolving Credit Note payable to the order of
such Bank in a face amount equal to the Revolving Credit Commitment of such
Bank.
2.8 USE OF PROCEEDS.
----------------
The proceeds of the Revolving Credit Loans made on the Closing Date and on the
Acquisition Date were used to finance a portion of the Acquisition, to retire
the 10.50% senior notes issued pursuant to the several Note Purchase Agreements
dated August 1, 1987, to repay all Indebtedness owing pursuant to that certain
Credit Agreement dated May 27, 1994 among the Borrower, C.S. Ross Company and
certain financial institutions described therein (collectively the "Existing
Bank Facility") and for working capital and similar general corporate purposes.
The proceeds from Revolving Credit Loans made after the Acquisition Date shall
be used for working capital and similar general corporate purposes, but shall
not be used, directly or indirectly, to repay, purchase or otherwise retire or
to redeem, repurchase or otherwise acquire any capital stock of the Company.
Letters of Credit shall be used for commercial purposes of the Borrower and its
Subsidiaries in the ordinary course of business for the purchase of goods and
services and to assure the Borrower's or its Subsidiaries' performance of
workmen's compensation or liability or of refund, warranty, or other obligations
incurred in the ordinary course of business of the Borrower or its Subsidiaries.
-23-
<PAGE> 33
2.9 LETTERS OF CREDIT SUBFACILITY.
------------------------------
2.9.1 ISSUANCE OF LETTERS OF CREDIT.
------------------------------
Borrower or a Material Subsidiary may request the issuance of (or modification
of any issued) commercial letters of credit in connection with the Borrower's or
Subsidiary of the Borrower's purchase of goods and services (each a "Documentary
Letter of Credit") and standby letters of credit for the benefit of workmen's
compensation or liability insurers, state and federal agencies to assure
compliance with applicable Laws and other Persons in support of refund, warranty
or other obligations of the Borrower or a Subsidiary of the Borrower (each a
"Standby Letter of Credit" and together with Documentary Letters of Credit
referred to as "Letters of Credit" in the aggregate or individually as a "Letter
of Credit") on behalf of itself or another Loan Party by delivering by no later
than 10:00 a.m., Columbus, Ohio time, two (2) Business Days in the case of a
Documentary Letter of Credit and three (3) Business Days in case of a Standby
Letter of Credit prior to the requested date of issuance of such Letter of
Credit to the applicable Issuing Letter of Credit Bank with a copy to the
Administrative Agent a written notice specifying the proposed beneficiary, date
of issuance and expiry date for such Letter of Credit or modification to an
existing Letter of Credit and the nature of the transactions to be supported
thereby. Subject to the terms and conditions hereof and to the execution of a
completed application and agreement for letters of credit in such form as the
applicable Issuing Letter of Credit Bank may specify from time to time and in
reliance on the agreements of the Banks set forth in this Section 2.9, such
Issuing Letter of Credit Bank will issue a Letter of Credit provided that each
Letter of Credit shall (A) have a maximum maturity of 364 days from the date of
issuance, (B) in no event expire later than five Business Days prior to the
Expiration Date and provided further that in no event shall (i) the Letter of
Credit Outstandings exceed, at any one time, $200,000,000 or (ii) the Revolving
Facility Usage exceed, at any one time, the Revolving Credit Commitments. Each
of the Rollover LCs listed on SCHEDULE 2.9.1 shall be deemed to have been issued
hereunder on the Closing Date by the applicable Issuing Letter of Credit Bank
upon the request of the Borrower or a Material Subsidiary as indicated on
SCHEDULE 2.9.1 as a Documentary Letter of Credit or Standby Letter of Credit, as
the case may be, and shall be deemed to be a Letter of Credit for all purposes
of this Agreement. In the event of any conflict between the terms of this
Agreement and the terms of any Issuing Letter of Credit Bank's application and
agreement for letters of credit, the terms of this Agreement shall control
(provided that terms of any Issuing Letter of Credit Bank's application and
agreement for letters of credit which are in addition to those contained herein
and which do not expressly conflict with the terms contained herein shall not be
deemed to be in conflict with this Agreement).
-24-
<PAGE> 34
2.9.2 PARTICIPATIONS.
---------------
Immediately upon issuance of each Letter of Credit, and without further action,
each Bank shall be deemed to, and hereby agrees that it shall, have irrevocably
purchased for such Bank's own account and risk from the applicable Issuing
Letter of Credit Bank an individual participation interest in such Letter of
Credit and drawings thereunder in an amount equal to such Bank's Ratable Share
of the maximum amount which is or at any time may become available to be drawn
thereunder, and each Bank shall be responsible to reimburse such Issuing Letter
of Credit Bank immediately for its Ratable Share of any disbursement under any
Letter of Credit which has not been reimbursed by Borrower in accordance with
Section 2.9.4 by making its Ratable Share of the Revolving Credit Loans referred
to in Section 2.9.4 available to such Issuing Letter of Credit Bank. Upon the
request of any Bank and no less frequently than once in each calendar month, the
Administrative Agent shall notify each Bank of the amount of such Bank's
participation in Letters of Credit.
2.9.3 LETTER OF CREDIT FEES.
----------------------
The Borrower shall pay to the Administrative Agent for the ratable account of
the Banks (a) fees ("Documentary Letters of Credit Fees") with respect to
Documentary Letters of Credit and (b) fees ("Standby Letters of Credit Fees")
with respect to Standby Letters of Credit, in each case in the amounts set forth
in Sections 2.9.3.1 and 2.9.3.2 (as the same may be increased as provided in
Section 3.3). All Documentary Letters of Credit Fees and Standby Letters of
Credit Fees (collectively, "Letters of Credit Fees") shall be payable quarterly
in arrears commencing with the first Business Day of each March, June, September
and December following issuance of each Letter of Credit and on the earlier of
the Expiration Date or the acceleration of the Revolving Credit Notes.
2.9.3.1 DOCUMENTARY LETTER OF CREDIT FEES.
----------------------------------
Documentary Letters of Credit Fees on Documentary Letters of Credit shall be
determined by that percentage per annum set forth in the following table which
is applicable to the Fixed Charge Coverage Ratio then in effect (the "Applicable
Documentary LC Percentage") (computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed) times the average daily Documentary
Letter of Credit Outstandings. The Applicable Documentary LC Percentage shall be
determined as follows:
<TABLE>
<CAPTION>
FIXED CHARGE COVERAGE RATIO APPLICABLE DOCUMENTARY LC PERCENTAGE (RATE PER
--------------------------- ----------------------------------------------
ANNUM)
------
<S> <C>
greater than or equal to 2.20 to 1.00 0.250%
greater than or equal to 2.05 to 1.00 but less than 0.3125%
2.20 to 1.00
greater than or equal to 1.90 to 1.00 but less than 0.375%
2.05 to 1.00
greater than or equal to 1.75 to 1.00 but less than 0.500%
1.90 to 1.00
less than 1.75 to 1.00 0.625%
</TABLE>
-25-
<PAGE> 35
The Company shall also pay Documentary Letters of Credit Fees in respect of
Documentary Letter of Credit (Time Draft) Outstandings determined by that
percentage per annum set forth in the following table which is applicable to the
Fixed Charge Coverage Ratio then in effect (the "Applicable Documentary Accepted
Time Draft LC Percentage") (computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed) times the average daily Documentary
Letter of Credit (Time Draft) Outstandings. The Applicable Documentary Accepted
Time Draft LC Percentage shall be determined as follows:
<TABLE>
<CAPTION>
FIXED CHARGE COVERAGE RATIO APPLICABLE DOCUMENTARY ACCEPTED TIME DRAFT LC
--------------------------- ---------------------------------------------
PERCENTAGE (RATE PER ANNUM)
---------------------------
<S> <C>
greater than or equal to 2.20 to 1.00 0.500%
greater than or equal to 2.05 to 1.00 but less than 2.20 0.625%
to 1.00
greater than or equal to 1.90 to 1.00 but less than 2.05 0.750%
to 1.00
greater than or equal to 1.75 to 1.00 but less than 1.90 1.000%
to 1.00
less than 1.75 to 1.00 1.250%
</TABLE>
Until the Borrower shall have delivered to the Administrative Agent a Compliance
Certificate covering the four fiscal periods ending on the Saturday nearest
April 30, 1997, the Fixed Charge Coverage Ratio shall be deemed to be 1.75 to
1.00. For each fiscal quarter subsequent to May 3, 1997, the Fixed Charge
Coverage Ratio shall be computed based on the Compliance Certificate for such
quarter. Any change in the Fixed Charge Coverage Ratio (and the Applicable
Documentary LC Percentage and the Applicable Documentary Accepted Time Draft LC
Percentage) shall be effective on the date on which the Compliance Certificate
evidencing the computation of such Fixed Charge Coverage Ratio is delivered to
the Administrative Agent; provided, however, that if the Compliance Certificate
evidencing the computation of the Fixed Charge Coverage Ratio is not delivered
on the date on which such Compliance Certificate is due to be delivered under
Section 7.3.3, the Fixed Charge Coverage Ratio on and after the date on which
such Compliance Certificate is due to be delivered under Section 7.3.3 and until
the date on which such Compliance Certificate is delivered to the Administrative
Agent shall be deemed to be less than 1.75 to 1.00 and the Applicable
Documentary LC Percentage and the Applicable Documentary Accepted Time Draft LC
Percentage for such period computed accordingly.
The Borrower shall also pay to the applicable Issuing Letter of Credit Bank for
its sole account (i) a fronting fee as determined by such Issuing Letter of
Credit Bank and the Borrower and (ii) such Issuing Letter of Credit Bank's then
in effect customary issuance fees and administrative expense payable with
respect to its Documentary Letters of Credit as such Issuing Letter of Credit
Bank may generally charge or incur from time to time in connection with the
issuance, maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of commercial letters of credit, payable at such
times as such Issuing Letter of Credit Bank may specify.
2.9.3.2 STANDBY LETTER OF CREDIT FEES.
------------------------------
Standby Letters of Credit Fees shall be determined by that percentage per annum
set forth in the following table which is applicable to the Fixed Charge
Coverage Ratio then in effect (the "Applicable Standby LC Percentage") (computed
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) times the aver-
-26-
<PAGE> 36
age daily Standby Letter of Credit Outstandings. The Applicable Standby LC
Percentage shall be determined as follows:
<TABLE>
<CAPTION>
FIXED CHARGE COVERAGE RATIO APPLICABLE STANDBY LC PERCENTAGE (RATE
--------------------------- --------------------------------------
PER ANNUM)
----------
<S> <C>
greater than or equal to 2.20 to 1.00 0.500%
greater than or equal to 2.05 to 1.00 but less than 2.20 0.625%
to 1.00
greater than or equal to 1.90 to 1.00 but less than 2.05 0.750%
to 1.00
greater than or equal to 1.75 to 1.00 but less than 1.90 1.000%
to 1.00
less than 1.75 to 1.00 1.250%
</TABLE>
Until the Borrower shall have delivered to the Administrative Agent a Compliance
Certificate covering the four fiscal periods ending on the Saturday nearest
April 30, 1997, the Fixed Charge Coverage Ratio shall be deemed to be 1.75 to
1.00. For each fiscal quarter subsequent to May 3, 1997, the Fixed Charge
Coverage Ratio shall be computed based on the Compliance Certificate for such
quarter. Any change in the Fixed Charge Coverage Ratio (and the Applicable
Standby LC Percentage) shall be effective on the date on which the Compliance
Certificate evidencing the computation of such Fixed Charge Coverage Ratio is
delivered to the Administrative Agent; provided, however, that if the Compliance
Certificate evidencing the computation of the Fixed Charge Coverage Ratio is not
delivered on the date on which such Compliance Certificate is due to be
delivered under Section 7.3.3, the Fixed Charge Coverage Ratio on and after the
date on which such Compliance Certificate is due to be delivered under Section
7.3.3 and until the date on which such Compliance Certificate is delivered to
the Administrative Agent shall be deemed to be less than 1.75 to 1.00 and the
Applicable Standby LC Percentage for such period computed accordingly.
The Borrower shall also pay to the applicable Issuing Letter of Credit Bank for
its sole account (i) a fronting fee as determined by such Issuing Letter of
Credit Bank and the Borrower and (ii) such Issuing Letter of Credit Bank's then
in effect customary issuance fees and administrative expense payable with
respect to its Standby Letters of Credit as such Issuing Letter of Credit Bank
may generally charge or incur from time to time in connection with the issuance,
maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of standby letters of credit payable at such
times as such Issuing Letter of Credit Bank may specify.
-27-
<PAGE> 37
2.9.4 DISBURSEMENTS, REIMBURSEMENT.
-----------------------------
Borrower shall be obligated immediately to reimburse the applicable Issuing
Letter of Credit Bank (each a "Reimbursement Obligation") for all amounts which
such Issuing Letter of Credit Bank is required to pay pursuant to the Letters of
Credit issued by such Issuing Letter of Credit Bank on or before the date on
which the applicable Issuing Letter of Credit Bank is required to make payment
with respect to a draft presented thereunder; provided, however, that a
Reimbursement Obligation with respect to a Documentary Letter of Credit time
draft which has been accepted for payment by an Issuing Letter of Credit Bank
shall not arise until the date on which the applicable Issuing Letter of Credit
Bank is obligated to make a payment with respect to such draft which it has
accepted for payment. The applicable Issuing Letter of Credit Bank will promptly
notify (A) the Borrower of each demand or presentment for payment or draft
accepted for payment or other drawing under each Letter of Credit issued by such
Issuing Letter of Credit Bank, and (B) the Administrative Agent of the amount
required to be paid by such Issuing Letter of Credit Bank pursuant to each such
Letter of Credit. The Administrative Agent shall promptly notify each Bank of
the amount required to be paid by such Bank as a result of a drawing upon such
Letter of Credit if the applicable Issuing Letter of Credit Bank shall have
notified the Administrative Agent that the Borrower has not timely reimbursed
such Issuing Letter of Credit Bank for such draw. If such notice is received by
a Bank before 1:00 p.m., Columbus, Ohio time, such Bank shall deliver such
Bank's Ratable Share of such payment in immediately available funds to the
Administrative Agent on that Business Day. If such notice is received by a Bank
after 1:00 p.m., Columbus, Ohio time, such Bank shall before 10:00 a.m.,
Columbus, Ohio time, on the next succeeding Business Day deliver to the
Administrative Agent such Bank's Ratable Share of such payment as a Revolving
Credit Loan from such Bank in immediately available funds. Upon receipt of each
Bank's Ratable Share of such payment, the Administrative Agent shall immediately
deliver such Bank's Ratable Share of such payment to the applicable Issuing
Letter of Credit Bank.
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<PAGE> 38
2.9.5 DOCUMENTATION.
--------------
Each Loan Party agrees to be bound by the terms of each Issuing Letter of Credit
Bank's application and agreement for letters of credit and each Issuing Letter
of Credit Bank 's written regulations and customary practices relating to
letters of credit, though such interpretation may be different from such Loan
Party's own. In the event of a conflict between such application or agreement
and this Agreement, this Agreement shall govern (provided that terms of any
Issuing Letter of Credit Bank's application and agreement for letters of credit
which are in addition to those contained herein and which do not expressly
conflict with the terms contained herein shall be deemed not to be in conflict
with this Agreement). It is understood and agreed that, except in the case of
gross negligence or willful misconduct, the applicable Issuing Letter of Credit
Bank shall not be liable for any error, negligence and/or mistakes, whether of
omission or commission, in following any Loan Party's instructions or those
contained in the Letters of Credit issued by such Issuing Letter of Credit Bank
or any modifications, amendments or supplements thereto.
-29-
<PAGE> 39
2.9.6 DETERMINATIONS TO HONOR DRAWING REQUESTS.
-----------------------------------------
In determining whether to honor any request for drawing under any Letter of
Credit by the beneficiary thereof, the applicable Issuing Letter of Credit Bank
shall be responsible only to determine that the documents and certificates
required to be delivered under such Letter of Credit have been delivered and
that they appear to comply on their face with the requirements of such Letter of
Credit.
2.9.7 NATURE OF PARTICIPATION AND REIMBURSEMENT OBLIGATIONS.
------------------------------------------------------
The obligation of the Banks to participate in Letters of Credit pursuant to
Section 2.9.2 and the obligation of the Banks pursuant to Section 2.9.4 to fund
Revolving Credit Loans upon a draw under a Letter of Credit or to acquire
participations in Letters of Credit and the Obligations of the Borrower to
reimburse the applicable Issuing Letter of Credit Bank upon a draw under any
Letter of Credit pursuant to Section 2.9 shall be absolute unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
such sections under all circumstances, including the following circumstances:
(i) the failure of any Loan Party or any other Person to comply with
the conditions set forth in Sections 2.1, 2.5, 2.6 or 6.2 or as
otherwise set forth in this Agreement for the making of a
Revolving Credit Loan, it being acknowledged that such
conditions are not required for the making of a Revolving Credit
Loan under Section 2.9.4;
(i) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, set-off, defense or other right
which any Loan Party or any Bank may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any
Persons for whom any such transferee may be acting), such
Issuing Letter of Credit Bank or any Bank or any other Person or
whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any
underlying transaction between any Loan Party or Subsidiaries of
a Loan Party and the beneficiary for which any Letter of Credit
was procured);
(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 even if such Issuing Letter
of Credit Bank has been notified thereof;
(iv) payment by such Issuing Letter of Credit Bank under 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;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of any
Loan Party or Subsidiaries of a Loan Party;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto;
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<PAGE> 40
(viii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing;
(ix) the fact that an Event of Default or a Potential Default shall
have occurred and be continuing; and
(x) the fact that the Expiration Date shall have passed or this
Agreement or the Revolving Credit Commitments hereunder shall
have been terminated.
2.9.8 INDEMNITY.
----------
In addition to amounts payable as provided in Section 9.5, the Borrower hereby
agrees to pay and to protect, indemnify and save harmless each Issuing Letter of
Credit Bank from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which such
Issuing Letter of Credit Bank may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit, other than as a
result of (A) the gross negligence or willful misconduct of such Issuing Letter
of Credit Bank as determined by a final judgment of a court of competent
jurisdiction or (B) subject to the following clause (ii), the wrongful dishonor
by such Issuing Letter of Credit Bank of a proper demand for payment made under
any Letter of Credit or (ii) the failure of such Issuing Letter of Credit Bank
to honor a drawing under any such Letter of Credit as a result of any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto government or governmental authority (all such acts or omissions herein
called "Governmental Acts").
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<PAGE> 41
2.9.9 LIABILITY FOR ACTS AND OMISSIONS.
---------------------------------
As between any Loan Party and each Issuing Letter of Credit Bank, such Loan
Party assumes all risks of the acts and omissions of, or misuse of the Letters
of Credit by, the respective beneficiaries of the Letters of Credit. In
furtherance and not in limitation of the foregoing, the applicable Issuing
Letter of Credit Bank shall not be responsible for: (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for an issuance of any Letter of
Credit issued by such Issuing Letter of Credit Bank, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged (even if such Issuing Letter of Credit Bank shall have been notified
thereof); (ii) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any such Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (iii) failure of the
beneficiary of any such Letter of Credit to comply fully with any conditions
required in order to draw upon such Letter of Credit; (iv) errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (v)
errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of such Issuing Letter of Credit Bank, including
any Governmental Acts, and none of the above shall affect or impair, or prevent
the vesting of, any of such Issuing Letter of Credit Bank's rights or powers
hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth above, any action taken or omitted by any Issuing Letter of
Credit Bank under or in connection with the Letters of Credit issued by it or
any documents and certificates delivered thereunder, if taken or omitted in good
faith, shall not put such Issuing Letter of Credit Bank under any resulting
liability to the Borrower or any Banks.
The Banks and any Loan Party may not commence a proceeding against any Issuing
Letter of Credit Bank for wrongful disbursement under a Letter of Credit issued
by such Issuing Letter of Credit Bank as a result of acts or omissions
constituting gross negligence or willful misconduct of such Issuing Letter of
Credit Bank, until the Banks have made and the Borrower has repaid the Revolving
Credit Loans described in Section 2.9.4; provided, however, that nothing in this
Section 2.9 shall adversely affect the right of any Loan Party, after such
payment, to commence any proceeding against such Issuing Letter of Credit Bank
for any breach of its obligations hereunder.
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<PAGE> 42
2.10 SWING LOANS.
------------
2.10.1 SWING LOAN COMMITMENT.
----------------------
Subject to the terms and conditions hereof and relying upon the representations
and warranties herein set forth, and in order to facilitate loans and repayments
in amounts of $30,000,000 or less, the Swing Lender may, at its option,
cancelable at any time for any reason whatsoever, make swing loans (the "Swing
Loans") to the Borrower at any time or from time to time after the date hereof
to, but not including, the Expiration Date, in an aggregate principal amount up
to the Swing Loan Commitment, subject to reduction as provided herein and to be
made in accordance with the following provisions. The Swing Lender may in its
discretion make Swing Loans provided that the aggregate principal amount of the
Swing Loans and the Revolving Credit Loans of all of the Banks at any one time
outstanding plus the Letter of Credit Outstandings shall not exceed the
Revolving Credit Commitments. Within such limits of time and amount and subject
to the other provisions of this Agreement, the Borrower may borrow, repay and
reborrow pursuant to this Section 2.10.
2.10.2 SWING LOAN REQUESTS.
--------------------
Except as otherwise provided herein, the Borrower may from time to time prior to
the Expiration Date request the Swing Lender to make Swing Loans by delivery to
the Swing Lender not later than 12:00 p.m. Columbus, Ohio time on the proposed
Borrowing Date of a duly completed request therefor substantially in the form of
EXHIBIT 2.10.2 hereto or a request by telephone immediately confirmed in writing
by letter, facsimile or telex (each, a "Swing Loan Request"), it being
understood that the Swing Lender may rely on the authority of any individual
making such a telephonic request without the necessity of receipt of such
written confirmation. Each Swing Loan Request shall be irrevocable and shall
specify the proposed Borrowing Date and the principal amount of such Swing Loan,
which shall be not less than $100,000 and in integral multiples of $100,000.
2.10.3 MAKING OF SWING LOANS.
----------------------
So long as the Swing Lender elects to make Swing Loans, the Swing Lender shall,
after receipt by it of a Swing Loan Request pursuant to Section 2.10.2, fund a
Swing Loan to the Borrower in U.S. Dollars and immediately available funds at
its Principal Office prior to 2:00 p.m. Columbus, Ohio time on the related
Borrowing Date.
2.10.4 SWING NOTE.
-----------
The obligation of the Borrower to repay the unpaid principal amount of the Swing
Loans made to it by the Swing Lender together with interest thereon shall be
evidenced by a demand promissory note of the Borrower in substantially the form
attached hereto as EXHIBIT 1.1(S) payable to the order of the Swing Lender in a
face amount equal to the Swing Loan Commitment.
2.10.5 REPAYMENT OF SWING LOANS WITH REVOLVING CREDIT LOANS BORROWINGS.
----------------------------------------------------------------
The Swing Lender may at its option, exercisable at any time for any reason
whatsoever, and shall no later than the fifth (5th) Business Day following the
making of a Swing Loan if the outstanding Swing Loans exceed $15,000,000 on such
date (a "Settlement Date"), demand repayment of all Swing Loans (or at the Swing
Lender's option, such portion of the outstanding Swing Loans which results in
the aggregate of such Swing Loans not exceeding $15,000,000), and each Bank
shall make a Revolving Credit Loan in an amount equal to such Bank's Ratable
Share of the aggregate principal amount of the outstanding Swing Loans for which
repayment is demanded, plus, if the Swing Lender so requests, accrued interest
thereon, provided that no Bank shall be obligated in any event to make
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<PAGE> 43
Revolving Credit Loans in excess of its Revolving Credit Commitment less its
Ratable Share of Letter of Credit Outstandings. In that event, such Revolving
Credit Loans shall bear interest at the Base Rate Option and shall be deemed to
have been properly requested in accordance with Section 2.5 without regard to
any of the requirements of that provision. The Swing Lender shall provide notice
to the Administrative Agent (which may be a telephonic or written notice by
letter, facsimile or telex) that such Revolving Credit Loans are to be made
under this Section 2.10.5; the Administrative Agent shall then provide notice to
the Banks (which may be a telephonic or written notice by letter, facsimile or
telex) that such Revolving Credit Loans are to be made under this Section 2.10.5
and of the apportionment among the Banks, the Banks shall be unconditionally
obligated to fund such Revolving Credit Loans (whether or not the conditions
specified in Section 6.2 are then satisfied, including, without limitation, the
existence or continuance of any Event of Default) by the time the Administrative
Agent so requests, which shall not be earlier than 2:00 p.m. Columbus, Ohio,
time on the Business Day next succeeding the date the Banks receive such notice
from the Administrative Agent; and the Administrative Agent shall promptly
deliver the funds it receives from the Banks to the Swing Lender.
3. INTEREST RATES
--------------
3.1 INTEREST RATE OPTIONS.
----------------------
The Borrower shall pay interest in respect of the outstanding unpaid principal
amount of the Revolving Credit Loans as selected by it from the Revolving Credit
Base Rate Option or Revolving Credit Euro-Rate Option set forth below applicable
to the Revolving Credit Loans, it being understood that, subject to the
provisions of this Agreement, the Borrower may select different Interest Rate
Options and different Interest Periods to apply simultaneously to the Revolving
Credit Loans comprising different Borrowing Tranches and may convert to or renew
one or more Interest Rate Options with respect to all or any portion of the
Revolving Credit Loans comprising any Borrowing Tranche, PROVIDED that there
shall not be at any one time outstanding more than eight (8) Borrowing Tranches
in the aggregate among all the Revolving Credit Loans. If at any time the
designated rate applicable to any Revolving Credit Loan made by any Bank exceeds
such Bank's highest lawful rate, the rate of interest on such Bank's Revolving
Credit Loan shall be limited to such Bank's highest lawful rate.
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<PAGE> 44
3.1.1 REVOLVING CREDIT INTEREST RATE OPTIONS.
---------------------------------------
The Borrower shall have the right to select from the following Interest Rate
Options applicable to the Revolving Credit Loans:
(i) REVOLVING CREDIT BASE RATE OPTION: A fluctuating rate per annum
(computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed) equal to the Base Rate, such
interest rate to change automatically from time to time
effective as of the effective date of each change in the Base
Rate;
(i) REVOLVING CREDIT EURO-RATE OPTION: A rate per annum (computed on
the basis of a year of 360 days and actual days elapsed) equal
to the Euro-Rate plus a percentage rate per annum (the
"Revolving Credit Euro-Rate Spread") based on the Fixed Charge
Coverage Ratio, determined as follows:
<TABLE>
<CAPTION>
FIXED CHARGE COVERAGE RATIO REVOLVING CREDIT EURO-RATE SPREAD
--------------------------- ---------------------------------
<S> <C>
greater than or equal to 2.20 to 1.00 0.500%
greater than or equal to 2.05 to 1.00 but less than 2.20 0.625%
to 1.00
greater than or equal to 1.90 to 1.00 but less than 2.05 0.750%
to 1.00
greater than or equal to 1.75 to 1.00 but less than 1.90 1.000%
to 1.00
less than 1.75 to 1.00 1.250%
</TABLE>
Until the Borrower shall have delivered to the Administrative Agent a Compliance
Certificate covering the four fiscal periods ending on the Saturday nearest
April 30, 1997, the Fixed Charge Coverage Ratio shall be deemed to be 1.75 to
1.00. For each fiscal quarter subsequent to May 3, 1997, the Fixed Charge
Coverage Ratio shall be computed based on the Compliance Certificate for such
quarter. Any change in the Fixed Charge Coverage Ratio (and the applicable
Revolving Credit Euro-Rate Spread) shall be effective on the date on which the
Compliance Certificate evidencing the computation of such Fixed Charge Coverage
Ratio is delivered to the Administrative Agent; provided, however, that if the
Compliance Certificate evidencing the computation of the Fixed Charge Coverage
Ratio is not delivered on the date on which such Compliance Certificate is due
to be delivered under Section 7.3.3, the Fixed Charge Coverage Ratio on and
after the date on which such Compliance Certificate is due to be delivered under
Section 7.3.3 and until the date on which such Compliance Certificate is
delivered to the Administrative Agent shall be deemed to be less than 1.75 to
1.00 and the applicable Revolving Credit Euro-Rate Spread for such period
computed accordingly.
Swing Loans shall bear interest in accordance with Section 3.1.1(i) [Revolving
Credit Base Rate Option] except to the extent that the Swing Lender agrees in
writing to a different rate of interest; provided, however, that any Swing Loans
with respect to which the Swing Lender demands payment pursuant to Section
2.10.5 shall bear interest on
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<PAGE> 45
and after such demand for payment in accordance with Section 3.1.1(i) [Revolving
Credit Base Rate Option] notwithstanding any other interest rate agreed to by
the Administrative Agent.
3.2 INTEREST PERIODS.
-----------------
At any time when the Borrower shall select, convert to or renew a Revolving
Credit Euro-Rate Option, the Borrower shall notify the Administrative Agent
thereof at least three (3) Business Days prior to the effective date of such
Revolving Credit Euro-Rate Option by delivering a Loan Request. Such notice
shall specify an interest period (the "Interest Period") during which such
Interest Rate Option shall apply, such Interest Period to be one, two, three or
six Months, PROVIDED, that:
3.2.1 ENDING DATE AND BUSINESS DAY.
-----------------------------
Any Interest Period which would otherwise end on a date which is not a Business
Day shall be extended to the next succeeding Business Day unless such Business
Day falls in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day;
3.2.2 AMOUNT OF BORROWING TRANCHE.
----------------------------
Each Borrowing Tranche of a Revolving Credit Loan to which the Revolving Credit
Euro-Rate Option applies shall be in integral multiples of $1,000,000 and not
less than $5,000,000;
3.2.3 TERMINATION BEFORE EXPIRATION DATE.
-----------------------------------
The Borrower shall not select, convert to or renew an Interest Period for any
portion of the Revolving Credit Loans that would end after the Expiration Date;
and
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<PAGE> 46
3.2.4 RENEWALS.
---------
In the case of the renewal of a Revolving Credit Euro-Rate Option at the end of
an Interest Period, the first day of the new Interest Period shall be the last
day of the preceding Interest Period, without duplication in payment of interest
for such day.
3.3 INTEREST AFTER DEFAULT.
-----------------------
To the extent permitted by Law, upon the occurrence of an Event of Default and
until such time such Event of Default shall have been cured or waived:
3.3.1 LETTERS OF CREDIT FEES, INTEREST RATE.
--------------------------------------
The Letters of Credit Fees and the rate of interest for each Revolving Credit
Loan otherwise applicable pursuant to Section 2.9 or Section 3.1, respectively,
shall be increased by 2.0% per annum;
3.3.2 OTHER OBLIGATIONS.
------------------
Each other Obligation hereunder if not paid when due shall bear interest at a
rate per annum equal to the sum of the rate of interest applicable under the
Revolving Credit Base Rate Option plus an additional 2.0% per annum from the
time such Obligation becomes due and payable and until it is paid in full; and
3.3 ACKNOWLEDGMENT.
---------------
The Borrower acknowledges that the increased rates referred to in this Section
3.3 reflect, among other things, the fact that such Revolving Credit Loans or
other amounts have become a substantially greater risk given their default
status and that the Banks are entitled to additional compensation for such risk.
All such interest shall be payable by Borrower upon demand by the Administrative
Agent.
3.4 EURO-RATE UNASCERTAINABLE.
--------------------------
3.4.1 UNASCERTAINABLE.
----------------
If on any date on which a Euro-Rate would otherwise be determined, the
Administrative Agent shall have determined that:
(i) adequate and reasonable means do not exist for ascertaining such
Euro-Rate, or
(ii) a contingency has occurred which materially and adversely affects
the London interbank eurodollar market relating to the Euro-Rate,
then the Administrative Agent shall have the rights specified in
Section 3.4.3.
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<PAGE> 47
3.4.2 ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE.
----------------------------------------------------
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Revolving Credit Loan to
which a Revolving Credit Euro-Rate Option applies has been made
impracticable or unlawful by compliance by such Bank in good faith
with any Law or any interpretation or application thereof by any
Official Body or with any request or directive of any Official
Body (whether or not having the force of Law), or
(ii) such Revolving Credit Euro-Rate Option will not adequately and
fairly reflect the cost to such Bank of the establishment or
maintenance of any such Revolving Credit Loan, or
(iii) after making all reasonable efforts, deposits of the relevant
amount in Dollars for the relevant Interest Period for a Revolving
Credit Loan to which a Revolving Credit Euro-Rate Option applies,
are not available to such Bank with respect to such Revolving
Credit Loan in the London interbank market,
then such Bank shall have the rights specified in Section 3.4.3.
3.4.3 ADMINISTRATIVE AGENT'S AND BANK'S RIGHTS.
-----------------------------------------
In the case of any event specified in Section 3.4.1, the Administrative Agent
shall promptly so notify the Banks and the Borrower thereof, and in the case of
a determination specified in Section 3.4.2, such Bank shall promptly so notify
the Administrative Agent and endorse a certificate to such notice as to the
specific circumstances of such notice, and the Administrative Agent shall
promptly send copies of such notice and certificate to the other Banks and the
Borrower. Upon such date as shall be specified in such notice (which shall not
be earlier than the date such notice is given) the obligation of (A) the Banks,
in the case of such notice given by the Administrative Agent in respect of
Section 3.4.1, or (B) such Bank, in the case of such notice given by such Bank
in respect of Section 3.4.2, to allow the Borrower to select, convert to or
renew a Revolving Credit Euro-Rate Option shall be suspended until the
Administrative Agent shall have later notified the Borrower, or such Bank shall
have later notified the Administrative Agent, of the Administrative Agent's or
such Bank's, as the case may be, determination that the circumstances giving
rise to such previous determination no longer exist. If at any time the
Administrative Agent makes a determination under Section 3.4.1 and the Borrower
has previously notified the Administrative Agent of its selection of, conversion
to or renewal of a Revolving Credit Euro-Rate Option and such Interest Rate
Option has not yet gone into effect, such notification shall be deemed to
provide for selection of, conversion to or renewal of the Revolving Credit Base
Rate Option otherwise available with respect to the affected Revolving Credit
Loans. If any Bank notifies the Administrative Agent of a determination under
Section 3.4.2, the Borrower shall, subject to the Borrower's indemnification
Obligations under Section 4.6.2, as to any Revolving Credit Loan of such Bank to
which a Revolving Credit Euro-Rate Option applies, on the date specified in such
notice convert such Revolving Credit Loan to the Revolving Credit Base Rate
Option otherwise available with respect to such Revolving Credit Loan. Absent
due notice from the Borrower of conversion, such Revolving Credit Loan shall
automatically be converted to the Revolving Credit Base Rate Option otherwise
available with respect to such Revolving Credit Loan upon such specified date.
Upon any such conversion, the Borrower shall have the right to prepay Revolving
Credit Loans in the amount of such Revolving Credit Loan on the date of such
conversion without providing the notice otherwise required by Section 4.4.1.
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<PAGE> 48
3.5.1 SELECTION OF INTEREST RATE OPTIONS.
-----------------------------------
If the Borrower fails to select a new Interest Period to apply to any Borrowing
Tranche to which a Revolving Credit Euro-Rate Option applies at the expiration
of an existing Interest Period applicable to such Borrowing Tranche in
accordance with the provisions of Section 3.2, the Borrower shall be deemed to
have converted such Borrowing Tranche to the Revolving Credit Base Rate Option
commencing upon the last day of such Interest Period.
4. PAYMENTS
--------
4.1 PAYMENTS.
---------
All payments and prepayments to be made in respect of principal, interest,
Commitment Fees, Letters of Credit Fees, the Administrative Agent's Fee, or
other amounts due from the Borrower hereunder (other than the fees and expenses
referenced in Section 2.9.3.1 and Section 2.9.3.2 which are to be paid to the
Issuing Letter of Credit Bank as provided in such sections and the fees and
expenses referenced in Section 9.15, each of which shall be paid in accordance
with such sections) shall be payable prior to 11:00 a.m., Columbus, Ohio time,
on the date when due without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower, and without
set-off, counterclaim or other deduction of any nature, and an action therefor
shall immediately accrue. Payments of principal and interest on Revolving
Credit Loans and of Commitment Fees and Letters of Credit Fees shall be made to
the Administrative Agent at the Principal Office for the ratable accounts of
the Banks in Dollars and in immediately available funds, and the Administrative
Agent shall promptly distribute such amounts to the Banks in immediately
available funds. The Administrative Agent's and each Bank's statement of
account, ledger or other relevant record shall, in the absence of manifest
error, be conclusive as the statement of the amount of principal of and
interest on the Revolving Credit Loans and other amounts owing under this
Agreement and shall be deemed an "account stated."
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<PAGE> 49
4.2 PRO RATA TREATMENT OF BANKS.
----------------------------
Each borrowing of a Revolving Credit Loan shall be allocated to each Bank
according to its Ratable Share, and each selection of, conversion to or renewal
of any Interest Rate Option and each payment or prepayment by the Borrower with
respect to principal, interest, Commitment Fees, Letters of Credit Fees, or
other fees (except for the Administrative Agent's Fee and any Issuing Letter of
Credit Bank's fees) or amounts due from the Borrower hereunder to the Banks with
respect to the Revolving Credit Loans, shall (except as provided in Section
3.4.2 [Illegality, Increased Costs; Deposits not Available], 4.4 [Voluntary
Prepayments] or 4.6 [Additional Compensation in Certain Circumstances]) be made
in proportion to the applicable Revolving Credit Loans outstanding from each
Bank and, if no such Revolving Credit Loans are then outstanding, in proportion
to the Ratable Share of each Bank.
4.3 INTEREST PAYMENT DATES.
-----------------------
Interest on Revolving Credit Loans to which the Revolving Credit Base Rate
Option applies and on Swing Loans shall be due and payable in arrears on the
first Business Day of each March, June, September and December after the date
hereof and on the Expiration Date or upon acceleration of the Revolving Credit
Notes. Interest on Revolving Credit Loans to which the Revolving Credit
Euro-Rate Option applies shall be due and payable on the last day of each
Interest Period for those Revolving Credit Loans and, if any such Interest
Period is longer than three Months, also on the last day of every third Month
during such Interest Period. Without limitation on Section 4.4.1 interest on
mandatory prepayments of principal under Section 4.5 shall be due on the date
such mandatory prepayment is due. Interest on the principal amount of each
Revolving Credit Loan or other monetary Obligation shall be due and payable on
demand after such principal amount or other monetary Obligation becomes due and
payable (whether on the stated maturity date, upon acceleration or otherwise).
4.4 VOLUNTARY PREPAYMENTS.
----------------------
4.4.1 RIGHT TO PREPAY.
----------------
The Borrower shall have the right at its option from time to time to prepay the
Revolving Credit Loans and Swing Loans in whole or part without premium or
penalty (except as provided in Section 4.6) at any time with respect to any
Revolving Credit Loan to which the Revolving Credit Base Rate Option applies or
with respect to any Swing Loan,
(i) on the last day of the applicable Interest Period with respect to
Revolving Credit Loans to which a Revolving Credit Euro-Rate
Option applies, and
(ii) on the date specified in a notice by any Bank pursuant to Section
3.4.3 [Euro-Rate Unascertainable] with respect to any Revolving
Credit Loan to which a Revolving Credit Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Revolving Credit Loans,
it shall provide a prepayment notice to the Administrative Agent not later than
noon, Columbus, Ohio time on the Business Day prior to the date of prepayment of
Revolving Credit Loans setting forth the following information (provided no
notice from Borrower is required pursuant to subsection (iii) above):
(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made;
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<PAGE> 50
(y) a statement indicating the application of the prepayment to the
Revolving Credit Loans or Swing Loans; and
(z) the total principal amount of such prepayment, which shall not be
less than $1,000,000.
All prepayment notices shall be irrevocable. The principal amount of the
Revolving Credit Loans and Swing Loans for which a prepayment notice is given,
together with interest on such principal amount except with respect to Revolving
Credit Loans to which the Revolving Credit Base Rate Option applies, shall be
due and payable on the date specified in such prepayment notice as the date on
which the proposed prepayment is to be made. If the Borrower prepays a Revolving
Credit Loan pursuant to this section or prepays a Revolving Credit Loan pursuant
to Section 4.5 but fails to specify the applicable Borrowing Tranche which the
Borrower is prepaying, the prepayment shall be applied first to Revolving Credit
Loans to which the Revolving Credit Base Rate Option applies, then to Revolving
Credit Loans to which the Revolving Credit Euro-Rate Option applies. Any
prepayment hereunder shall be subject to the Borrower's Obligation to indemnify
the Banks under Section 4.6.2.
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<PAGE> 51
4.5 MANDATORY PREPAYMENTS.
----------------------
4.5.1 SALE OF ASSETS.
---------------
Within five (5) Business Days of any sale of assets authorized by Section
7.2.7(iv), the Borrower shall make a mandatory prepayment of principal on the
Revolving Credit Loans (together with accrued interest on such principal amount)
equal to the lesser of (i) the extent that the aggregate after-tax net cash
proceeds (including without limitation cash, as and when collected, pursuant to
any notes or other securities received as consideration for such sale, transfer
or lease), as reasonably estimated by the Borrower, of all such sales, transfers
or leases on and after the date hereof are in excess of $25,000,000 or (ii) the
amount of the outstanding Revolving Credit Loans;
4.5.2 PAYMENT TO REDUCE REVOLVING CREDIT LOANS MADE PURSUANT TO SECTION 2.9.4
-----------------------------------------------------------------------
In the event that the Banks have made Revolving Credit Loans to reimburse an
Issuing Letter of Credit Bank with respect to disbursements under Letters of
Credit that have not been reimbursed by the Borrower pursuant to Section 2.9.4
and the then Revolving Credit Loans exceed the lesser of (i) $450,000,000 or
(ii) the Revolving Credit Commitments, the Borrower shall immediately pay to the
Banks an amount which would reduce the Revolving Credit Loans to an amount which
does not exceed the lesser of (i) $450,000,000 or (ii) the Revolving Credit
Commitments. There shall be no reduction in the Revolving Credit Commitments in
connection with these prepayments;
4.5.3 PAYMENT TO REDUCE REVOLVING CREDIT LOANS IF REVOLVING CREDIT
------------------------------------------------------------
COMMITMENTS ARE REDUCED PURSUANT TO SECTION 2.4.2
-------------------------------------------------
In the event that the Revolving Credit Commitments are permanently reduced
pursuant to Section 2.4.2, the Borrower shall immediately make a mandatory
prepayment of principal on the Revolving Credit Loans to the extent that the
Revolving Facility Usage exceeds the sum of the Revolving Credit Commitments
plus any cash held by the Administrative Agent pursuant to Section 2.4.1; and
4.5.4 APPLICATION AMONG INTEREST RATE OPTIONS.
----------------------------------------
Unless the Borrower otherwise specifies in writing to the Administrative Agent
prior to or simultaneously with such prepayment (in which case the funds shall
be so applied) all prepayments required pursuant to this Section shall first be
applied among the Interest Rate Options to the principal amount of the
Revolving Credit Loans subject to the Revolving Credit Base Rate Option, and
then to Revolving Credit Loans subject to a Revolving Credit Euro-Rate Option.
In accordance with Section 4.6.2, the Borrower shall indemnify the Banks
for any loss or expense, including loss of margin, incurred with respect to any
such prepayments applied against Revolving Credit Loans subject to a Revolving
Credit Euro-Rate Option on any day other than the last day of the applicable
Interest Period.
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4.6 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
-------------------------------------------------
4.6.1 INCREASED COSTS OR REDUCED RETURN RESULTING FROM TAXES, RESERVES, CAPITAL
-------------------------------------------------------------------------
ADEQUACY REQUIREMENTS, EXPENSES, ETC.
-------------------------------------
If any Law, guideline or interpretation or any change in any Law, guideline or
interpretation or application thereof by any Official Body charged with the
interpretation or administration thereof or compliance with any request or
directive (whether or not having the force of Law) of any central bank or other
Official Body:
(i) subjects any Bank to any tax or changes the basis of taxation
with respect to this Agreement, the Revolving Credit Notes, the
Revolving Credit Loans or payments by the Borrower of principal,
interest, Commitment Fees, or other amounts due from the Borrower
hereunder or under the Revolving Credit Notes (except for taxes on
the overall net income of such Bank),
(ii) imposes, modifies or deems applicable any reserve, special deposit
or similar requirement against credits or commitments to extend
credit extended by, or assets (funded or contingent) of, deposits
with or for the account of, or other acquisitions of funds by, any
Bank, or
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (A) against assets (funded or contingent) of,
or letters of credit, other credits or commitments to extend
credit extended by, any Bank, or (B) otherwise applicable to the
obligations of any Bank under this Agreement, and the result of
any of the foregoing is to increase the cost to, reduce the income
receivable by, or impose any expense (including loss of margin)
upon any Bank with respect to this Agreement, the Revolving Credit
Notes or the making, maintenance or funding of any part of the
Revolving Credit Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of
return on any Bank's capital, taking into consideration such
Bank's customary policies with respect to capital adequacy) by an
amount which such Bank in its sole discretion deems to be
material, such Bank shall from time to time notify the Borrower
and the Administrative Agent of the amount determined in good
faith (using any averaging and attribution methods employed in
good faith and shall be binding upon the parties absent manifest
error) by such Bank to be necessary to compensate such Bank for
such increase in cost, reduction of income or additional expense
or reduced rates of return. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount
shall be due and payable by the Borrower to such Bank ten (10)
Business Days after such notice is given.
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4.6.2 INDEMNITY.
----------
In addition to the compensation required by Section 4.6.1, the Borrower shall
indemnify each Bank against all liabilities, losses or expenses (including loss
of margin, any loss or expense incurred in liquidating or employing deposits
from third parties and any loss or expense incurred in connection with funds
acquired by a Bank to fund or maintain Revolving Credit Loans subject to a
Revolving Credit Euro-Rate Option) which such Bank sustains or incurs as a
consequence of any
(i) payment, prepayment, conversion or renewal of any Revolving Credit
Loan to which a Revolving Credit Euro-Rate Option applies on a day
other than the last day of the corresponding Interest Period
(whether or not such payment or prepayment is mandatory, voluntary
or automatic and whether or not such payment or prepayment is then
due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any Loan
Requests under Section 2.5 or any notice relating to prepayments
under Section 4.4, or
(iii) default by the Borrower in the performance or observance of any
covenant or condition contained in this Agreement or any other
Loan Document, including any failure of the Borrower to pay when
due (by acceleration or otherwise) any principal, interest,
Commitment Fee or any other amount due hereunder. If any Bank
sustains or incurs any such loss or expense, it shall from time to
time notify the Borrower of the amount determined in good faith by
such Bank (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution
methods as such Bank shall deem reasonable and shall be binding on
the parties absent manifest error) to be necessary to indemnify
such Bank for such loss or expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount
shall be due and payable by the Borrower to such Bank ten (10)
Business Days after such notice is given.
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5. REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 REPRESENTATIONS AND WARRANTIES.
-------------------------------
The Borrower represents and warrants to the Documentation Agent, the
Administrative Agent, the Syndication Agent, the Managing Agents, the Issuing
Letter of Credit Banks and each of the Banks as follows:
5.1.1 ORGANIZATION AND QUALIFICATION.
-------------------------------
Each Loan Party and each Subsidiary of any Loan Party is a corporation or
partnership, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each Loan Party and each Subsidiary of
any Loan Party has the lawful power to own or lease its properties and to engage
in the business it presently conducts or proposes to conduct. Each Loan Party
and each Subsidiary of any Loan Party is listed on SCHEDULE 5.1.1 and duly
licensed or qualified and in good standing in each jurisdiction where the
property owned or leased by it or the nature of the business transacted by it or
both makes such licensing or qualification necessary (except where the failure
to be so licensed or qualified would not constitute a Material Adverse Change),
and upon request of the Administrative Agent, the Borrower will promptly furnish
a written list of every jurisdiction where each Subsidiary and Loan Party is so
qualified.
5.1.2 CAPITALIZATION AND OWNERSHIP.
-----------------------------
The authorized capital stock of the Company consists of 90 million authorized
shares of voting common stock, 48,044,742 of which were outstanding as of April
12, 1996 (referred to herein as the "Shares"); 8 million authorized shares of
non-voting common stock, none of which are outstanding; and 2 million authorized
shares of preferred stock, none of which are outstanding. All of the Shares have
been validly issued and are fully paid and nonassessable.
5.1.3 SUBSIDIARY MATTERS.
-------------------
Other than as set forth on SCHEDULE 5.1.3, each of the Company's Subsidiaries is
directly or indirectly wholly owned by the Company and all of the issued and
outstanding shares of capital stock of each such Subsidiary (referred to herein
as the "Subsidiary Shares") are owned free and clear in each case of any Lien.
All Subsidiary Shares have been validly issued, and all Subsidiary Shares are
fully paid and nonassessable. There are no options, warrants or other rights
outstanding to purchase any Subsidiary Shares except as indicated on SCHEDULE
5.1.3.
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5.1.4. POWER AND AUTHORITY.
--------------------
Each Loan Party has full power to enter into, execute, deliver and carry out
this Agreement and the other Loan Documents to which it is a party, to incur the
Indebtedness contemplated by the Loan Documents and to perform its Obligations
under the Loan Documents to which it is a party, and all such actions have been
duly authorized by all necessary proceedings on its part.
5.1.5 VALIDITY AND BINDING EFFECT.
----------------------------
This Agreement has been duly and validly executed and delivered
by each Loan Party, and each other Loan Document which any Loan Party is
required to execute and deliver on or after the date hereof will have been duly
executed and delivered by such Loan Party on the required date of delivery of
such Loan Document. This Agreement and each other Loan Document constitutes, or
will constitute, legal, valid and binding obligations of each Loan Party which
is or will be a party thereto on and after its date of delivery thereof,
enforceable against such Loan Party in accordance with its terms, except to the
extent that enforceability of any such Loan Document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance.
5.1.6 NO CONFLICT.
------------
Neither the execution and delivery of this Agreement or the other Loan Documents
by any Loan Party nor the consummation of the transactions herein or therein
contemplated or compliance with the terms and provisions hereof or thereof by
any of them will conflict with, constitute a default under or result in any
breach of (i) the terms and conditions of the certificate of incorporation,
bylaws or other organizational documents of any Loan Party or (ii) any Law or
any material agreement or instrument or order, writ, judgment, injunction or
decree to which any Loan Party or any of its Subsidiaries is a party or by which
it or any of its Subsidiaries is bound or to which it or any of its Subsidiaries
is subject, or result in the creation or enforcement of any Lien whatsoever upon
any property (now or hereafter acquired) of any Loan Party or any of its
Subsidiaries (other than Liens granted under the Loan Documents).
5.1.7 LITIGATION.
-----------
There are no actions, suits, proceedings or investigations pending or, to the
knowledge of any Loan Party, threatened against such Loan Party or any
Subsidiary of any Loan Party at law or equity before any Official Body which
individually or in the aggregate may result in any Material Adverse Change. None
of the Loan Parties or any Subsidiaries of any Loan Party is in violation of any
order, writ, injunction or any decree of any Official Body which may result in
any Material Adverse Change.
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<PAGE> 56
5.1.8 TITLE TO PROPERTIES.
--------------------
Each Loan Party and each Subsidiary of any Loan Party has good and marketable
title to or a valid leasehold interest in all material properties, assets and
other rights which it purports to own or lease or which are reflected as owned
or leased on its books and records, free and clear of all Liens except Permitted
Liens, and subject to the terms and conditions of the applicable leases. All
material leases of property are in full force and effect without the necessity
for any consent which has not previously been obtained upon consummation of the
transactions contemplated hereby.
5.1.9 FINANCIAL STATEMENTS.
---------------------
(i) HISTORICAL STATEMENTS. The Company has delivered to the
Administrative Agent copies of its audited consolidated year-end
financial statements for and as of the end of the three fiscal
years ended February 3, 1996 (the "Annual Statements" and the
Annual Statements are sometimes collectively referred to as the
"Historical Statements"). The Historical Statements were compiled
from the books and records maintained by the Company's management,
are correct and complete and fairly represent the consolidated
financial condition of the Company and its Subsidiaries as of
their dates and the results of operations for the fiscal periods
then ended and have been prepared in accordance with GAAP
consistently applied;
(ii) FINANCIAL PROJECTIONS. The Company has delivered to the
Administrative Agent financial projections of the Company and its
Subsidiaries for fiscal years 1997, 1998 and 1999 derived from
various assumptions of the Company's management (the "Financial
Projections"). The Financial Projections reflect the reasonable
expectations of the Company's management as of the Closing Date in
light of the history of the business, present and foreseeable
conditions and intentions of the Company's management, all based
on the assumptions thereto. The Financial Projections accurately
reflect the liabilities of the Company and its Subsidiaries
incurred pursuant to the Loan Documents upon consummation of the
transactions contemplated hereby as of the Closing Date; and
(iii) ACCURACY OF FINANCIAL STATEMENTS. Neither the Company nor any
Subsidiary of the Company has as of the date of the Historical
Statements any material liabilities, contingent or otherwise, or
forward or long-term commitments that are not disclosed in the
Historical Statements or in the notes thereto, and except as
disclosed therein there are no unrealized or anticipated losses
from any commitments of the Company or any Subsidiary of the
Company which may cause a Material Adverse Change. Since February
3, 1996, no Material Adverse Change has occurred.
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<PAGE> 57
5.1.10 MARGIN STOCK.
-------------
None of the Loan Parties or any Subsidiaries of any Loan Party engages or
intends to engage principally, or as one of its important activities, in the
business of extending credit for the purpose, immediately, incidentally or
ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Revolving Credit Loan or issued
Letter of Credit has been or will be used, immediately, incidentally or
ultimately, to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock or to refund
Indebtedness originally incurred for such purpose, or for any purpose which
entails a violation of or which is inconsistent with the provisions of the
regulations of the Board of Governors of the Federal Reserve System. None of the
Loan Parties or any Subsidiary of any Loan Party holds or intends to hold margin
stock in such amounts that more than 25% of the reasonable value of the assets
of any Loan Party or Subsidiary of any Loan Party are or will be represented by
margin stock.
5.1.11 FULL DISCLOSURE.
----------------
Neither this Agreement nor any other Loan Document, nor any certificate,
statement, agreement or other documents furnished to the Documentation Agent,
the Administrative Agent, the Syndication Agent, the Managing Agents, the
Issuing Letter of Credit Banks or any Bank in connection herewith or therewith,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein, in
light of the circumstances under which they were made, not misleading. There is
no fact known to any Loan Party which materially adversely affects the business,
property, assets, financial condition, results of operations or prospects of any
Loan Party or Subsidiary of any Loan Party which has not been set forth in this
Agreement or in the certificates, statements, agreements or other documents
furnished in writing to the Documentation Agent, the Administrative Agent, the
Syndication Agent, the Managing Agents, the Issuing Letter of Credit Banks and
the Banks prior to or at the date hereof in connection with the transactions
contemplated hereby.
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5.1.12 TAXES.
------
All federal, state, local and other tax returns required to have been filed with
respect to each Loan Party and each Subsidiary of any Loan Party have been
filed, and payment or adequate provision has been made for the payment of all
taxes, fees, assessments and other governmental charges shown to be owing
pursuant to said returns or to assessments received, except to the extent that
such taxes, fees, assessments and other charges are being contested in good
faith by appropriate proceedings diligently conducted and for which such
reserves or other appropriate provisions, if any, as shall be required by GAAP
shall have been made. There are no agreements or waivers extending the statutory
period of limitations applicable to any federal income tax return of any Loan
Party or Subsidiary of any Loan Party for any period.
5.1.13 CONSENTS AND APPROVALS.
-----------------------
No consent, approval, exemption, order or authorization of, or a registration or
filing with, any Official Body or any other Person is required by any Law or any
agreement in connection with the execution, delivery and carrying out of this
Agreement and the other Loan Documents by any Loan Party, except as listed on
SCHEDULE 5.1.13, all of which shall have been obtained or made on or prior to
the Closing Date except as otherwise indicated on SCHEDULE 5.1.13.
5.1.14 NO EVENT OF DEFAULT; COMPLIANCE WITH INSTRUMENTS.
-------------------------------------------------
No event has occurred and is continuing and no condition exists now or will
exist after giving effect to and as a result of the extensions of credit to be
made on the Closing Date under the Loan Documents which constitutes an Event of
Default or Potential Default. None of the Loan Parties or any Subsidiaries of
any Loan Party is in violation of (i) any term of its certificate of
incorporation, bylaws, or other organizational documents or (ii) any material
agreement or instrument to which it is a party or by which it or any of its
properties may be subject or bound where such violation would constitute a
Material Adverse Change.
5.1.15 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.
-----------------------------------------------
A Loan Party or a Subsidiary of a Loan Party owns or possesses all the material
patents, trademarks, service marks, trade names, copyrights, licenses,
registrations, franchises, permits and rights necessary to own and operate its
properties and to carry on its business as presently conducted and planned to be
conducted by the Borrower and its Subsidiaries taken as a whole, without known
conflict by, or with the rights of, others.
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<PAGE> 59
5.1.16 INSURANCE.
----------
The Borrower has delivered to the Administrative Agent a true and correct
listing of the property and general liability insurance of the Borrower. No
notice has been given or claim made and no grounds exist to cancel or avoid any
of such policies or bonds or to reduce the coverage provided thereby. Such
policies and bonds provide adequate coverage from reputable and financially
sound insurers in amounts sufficient to insure the assets and risks of each Loan
Party and each Subsidiary of any Loan Party in accordance with prudent business
practice in the industry of the Loan Parties and their Subsidiaries.
5.1.17 COMPLIANCE WITH LAWS.
---------------------
The Loan Parties and their Subsidiaries are in compliance in all material
respects with all applicable Laws (other than Environmental Laws which are
specifically addressed in Section 5.1.22) in all jurisdictions in which any Loan
Party or Subsidiary of any Loan Party is presently or currently anticipates it
will be doing business except where the failure to do so would not constitute a
Material Adverse Change.
5.1.18 MATERIAL CONTRACTS.
-------------------
SCHEDULE 5.1.18 lists all material contracts relating to the business operations
of each Loan Party and each Subsidiary of any Loan Party, including all employee
benefit plans and Labor Contracts. All such material contracts are valid,
binding and enforceable upon such Loan Party or Subsidiary and each of the other
parties thereto in accordance with their respective terms, and there is no
default thereunder, to the Loan Parties' knowledge, with respect to parties
other than such Loan Party or Subsidiary. For purposes of this Section 5.1.18
the term "material contracts" shall mean those contracts or other agreements
which the Company would be required to file with the Securities and Exchange
Commission pursuant to item 601(a)(10) of Regulation S-K promulgated under the
Securities Act of 1933 and the Securities Exchange Act of 1934.
5.1.19 INVESTMENT COMPANIES.
---------------------
None of the Loan Parties or any Subsidiaries of any Loan Party is an "investment
company" registered or required to be registered under the Investment Company
Act of 1940 or under the "control" of an "investment company" as such terms are
defined in the Investment Company Act of 1940 and shall not become such an
"investment company" or under such "control".
5.1.20 PLANS AND BENEFIT ARRANGEMENTS.
-------------------------------
Except as set forth on SCHEDULE 5.1.20:
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<PAGE> 60
(i) The Company and each other member of the ERISA Group are in
compliance in all material respects with any applicable provisions
of ERISA with respect to all Benefit Arrangements, Plans and
Multiemployer Plans. There has been no Prohibited Transaction with
respect to any Benefit Arrangement or any Plan or, to the best
knowledge of the Company, with respect to any Multiemployer Plan
or Multiple Employer Plan, which could result in any material
liability of the Company or any other member of the ERISA Group.
The Company and all other members of the ERISA Group have made
when due any and all payments required to be made under any
agreement relating to a Multiemployer Plan or a Multiple Employer
Plan or any Law pertaining thereto. With respect to each Plan and
Multiemployer Plan, the Company and each other member of the ERISA
Group (i) have fulfilled in all material respects their
obligations under the minimum funding standards of ERISA, (ii)
have not incurred any liability to the PBGC, and (iii) have not
had asserted against them any penalty for failure to fulfill the
minimum funding requirements of ERISA;
(ii) To the best of each Loan Parties' knowledge, each Multiemployer
Plan and Multiple Employer Plan is able to pay benefits
thereunder when due;
(iii) Neither the Company nor any other member of the ERISA Group has
instituted or intends to institute proceedings to terminate any
Plan;
(iv) No event requiring notice to the PBGC under Section 302(f)(4)(A)
of ERISA has occurred or is reasonably expected to occur with
respect to any Plan, and no amendment with respect to which
security is required under Section 307 of ERISA has been made or
is reasonably expected to be made to any Plan;
(v) The aggregate accumulated benefit obligations determined in
accordance with GAAP as of the end of the most recent calendar
year for all Plans does not exceed by more than $8 million the
fair market value of all assets of the Plans;
(vi) Neither the Company nor any other member of the ERISA Group has
incurred or reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan or Multiple
Employer Plan. Neither the Company nor any other member of the
ERISA Group has been notified by any Multiemployer Plan or
Multiple Employer Plan that such Multiemployer Plan or Multiple
Employer Plan has been terminated within the meaning of Title IV
of ERISA and, to the best knowledge of the Company, no
Multiemployer Plan or Multiple Employer Plan is reasonably
expected to be reorganized or terminated, within the meaning of
Title IV of ERISA;
(vii) To the extent that any Benefit Arrangement is insured, the Company
and all other members of the ERISA Group have paid when due all
premiums required to be paid for all periods through the Closing
Date. To the extent that any Benefit Arrangement is funded other
than with insurance, the Company and all other members of the
ERISA Group have made when due all contributions required to be
paid for all periods through the Closing Date; and
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(viii) All Plans, Benefit Arrangements and Multiemployer Plans have been
administered in accordance with their terms and applicable Law.
5.1.21 EMPLOYMENT MATTERS.
-------------------
Each of the Loan Parties and each of their Subsidiaries is in compliance with
the Labor Contracts and all applicable federal, state and local labor and
employment Laws including those related to equal employment opportunity and
affirmative action, labor relations, minimum wage, overtime, child labor,
medical insurance continuation, worker adjustment and relocation notices,
immigration controls and worker and unemployment compensation, where the failure
to comply would constitute a Material Adverse Change. There are no outstanding
grievances, arbitration awards or appeals therefrom arising out of the Labor
Contracts or current or threatened strikes, picketing, handbilling or other work
stoppages or slowdowns at facilities of any of the Loan Parties or any of their
Subsidiaries which in any case would constitute a Material Adverse Change.
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<PAGE> 62
5.1.22 ENVIRONMENTAL MATTERS.
----------------------
Except as disclosed on SCHEDULE 5.1.22:
(i) Except for notices which could reasonably relate to a Material
Adverse Change, none of the Loan Parties or any Subsidiaries of
any Loan Party has received any Environmental Complaint from any
Official Body or private Person alleging that such Loan Party or
Subsidiary or any prior or subsequent owner of any Property is a
potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act, 42
U.S.C.ss. 9601, ET SEQ., and none of the Loan Parties has any
reason to believe that such an Environmental Complaint might be
received. There are no pending or, to any Loan Party's knowledge,
threatened Environmental Complaints relating to any Loan Party or
any Subsidiary of any Loan Party or, to any Loan Party's
knowledge, any prior or subsequent owner of any Property
pertaining to, or arising out of, any Environmental Conditions
which could reasonably result in a Material Adverse Change,
(ii) Except for Environmental Conditions, violations or failures which
individually and in the aggregate are not reasonably likely to
result in a Material Adverse Change, there are no circumstances
at, on or under any Property that constitute a breach of or
non-compliance with any of the Environmental Laws, and there are
no past or present Environmental Conditions at, on or under any
Property or, to any Loan Party's knowledge, at, on or under
adjacent property, that prevent compliance with the Environmental
Laws at any Property,
(iii) Neither any Property nor any structures, improvements, equipment,
fixtures, activities or facilities thereon or thereunder contain
or use Regulated Substances, except in compliance with
Environmental Laws, which could reasonably result in a Material
Adverse Change. There are no processes, facilities, operations,
equipment or other activities at, on or under any Property, or, to
any Loan Party's knowledge, at, on or under adjacent property,
that currently result in the release or threatened release of
Regulated Substances onto any Property, except to the extent that
such releases or threatened releases are not a breach of or
otherwise not a violation of the Environmental Laws or are not
likely to result in a Material Adverse Change,
(iv) There are no aboveground storage tanks, underground storage tanks
or underground piping associated with such tanks, used for the
management of Regulated Substances at, on or under any Property
that (a) do not have, to the extent required by Environmental
Laws, a full operational secondary containment system in place,
and (b) are not otherwise in compliance with all Environmental
Laws, except in any case where such would not result in a Material
Adverse Change. There are no abandoned underground storage tanks
or underground piping associated with such tanks, previously used
for the management of Regulated Substances at, on or under any
Property that have not either been closed in place in accordance
with Environmental Laws or removed in compliance with all
applicable
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<PAGE> 63
Environmental Laws and no contamination associated with the use of
such tanks exists on any Property that is not in compliance with
Environmental Laws, except in any case where such would not result
in a Material Adverse Change,
(v) The applicable Loan Party or a Subsidiary of a Loan Party has all
permits, licenses, authorizations, plans and approvals necessary
under the Environmental Laws for the conduct of the business of
the Borrower and its Subsidiaries taken as a whole, except in any
case where the failure to so have would not result in a Material
Adverse Change. Each Loan Party and each Subsidiary of a Loan
Party has submitted all notices, reports and other filings
required by the Environmental Laws to be submitted to an Official
Body which pertain to past and current operations on any Property,
except in any case where the failure to so submit would not result
in a Material Adverse Change, and
(vi) Except for violations which individually and in the aggregate are
not likely to result in a Material Adverse Change, all past and
present on-site generation, storage, processing, treatment,
recycling, reclamation, disposal or other use or management of
Regulated Substances at, on, or under any Property and all
off-site transportation, storage, processing, treatment,
recycling, reclamation, disposal or other use or management of
Regulated Substances have been done in accordance with the
Environmental Law.
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<PAGE> 64
5.1.23 SENIOR DEBT STATUS.
-------------------
The Obligations of each Loan Party under this Agreement, the Revolving Credit
Notes, the Master Guaranty Agreement and each of the other Loan Documents to
which it is a party do rank and will rank at least PARI PASSU in priority of
payment with all other Indebtedness of such Loan Party except Indebtedness of
such Loan Party to the extent secured by Permitted Liens and will rank senior in
priority of payment to the Seller Note. There is no Lien upon or with respect to
any of the properties or income of any Loan Party or Subsidiary of any Loan
Party which secures indebtedness or other obligations of any Person except for
Permitted Liens.
5.1.24 ACQUISITION.
------------
The Acquisition closed on May 5, 1996 pursuant to and in accordance with the
terms and conditions of the Stock Purchase Agreement with no amendment or
modification having been made to or term or condition waived in the
Stock Purchase Agreement, except for minor matters reasonably needed to
consummate the Acquisition and the Seller Note was issued.
5.2 SUBSIDIARIES OTHER THAN MATERIAL SUBSIDIARIES.
----------------------------------------------
The breach of any of the representations and warranties contained in Section 5.1
with respect to a Subsidiary of the Borrower other than a Material Subsidiary
shall not be deemed to breach such representation or warranty unless such breach
constitutes a Material Adverse Change.
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<PAGE> 65
5.3 UPDATES TO SCHEDULES.
---------------------
Should any of the information or disclosures provided on any of the Schedules
attached hereto become outdated or incorrect in any material respect, the
applicable Loan Parties shall promptly provide to the Managing Agents in writing
with such revisions or updates to such Schedule as may be necessary or
appropriate to update or correct same; PROVIDED, however, that no Schedule shall
be deemed to have been amended, modified or superseded by any such correction or
update (other than the amendments and updates contained in the Schedules
delivered on the Closing Date), nor shall any breach of warranty or
representation resulting from the inaccuracy or incompleteness of any such
Schedule be deemed to have been cured thereby, unless and until the Required
Banks, in their sole and absolute discretion, shall have accepted in writing
such revisions or updates to such Schedule, which decision to accept or not must
be communicated to the Borrower promptly.
6. CONDITIONS OF LENDING
---------------------
The obligation of each Bank to make Revolving Credit Loans and of the Issuing
Letter of Credit Banks to issue Letters of Credit hereunder is subject to the
performance by each of the Loan Parties of its Obligations to be performed
hereunder at or prior to the making of any such Revolving Credit Loans or
issuance of such Letters of Credit and to the satisfaction of the following
further conditions:
6.1 FIRST REVOLVING CREDIT LOANS.
-----------------------------
On the Closing Date:
6.1.1 OFFICER'S CERTIFICATE.
----------------------
The representations and warranties of each of the Loan Parties contained in
Article and in each of the other Loan Documents shall be true and accurate on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of such date (except representations and
warranties which relate solely to an earlier date or time, which representations
and warranties shall be true and correct on and as of the specific dates or
times referred to therein), and each of the Loan Parties shall have performed
and complied with all covenants and conditions hereof and thereof, no Event of
Default or Potential Default shall have occurred and be continuing or shall
exist; and there shall be delivered to the Administrative Agent for the benefit
of each Bank a certificate of the Borrower, the Company and each of the Material
Subsidiaries, dated the Closing Date and signed by the Chief Executive Officer,
President or Chief Financial Officer of such Person, to each such effect.
-56-
<PAGE> 66
6.1.2 SECRETARY'S CERTIFICATE.
------------------------
There shall be delivered to the Administrative Agent for the benefit of each
Bank a certificate dated the Closing Date and signed by the Secretary or an
Assistant Secretary of each of the Company, the Borrower and each Material
Subsidiary, certifying as appropriate as to:
(i) all action taken by such Loan Party in connection with this
Agreement and the other Loan Documents;
(ii) the names of the officer or officers authorized to sign this
Agreement and the other Loan Documents and the true signatures of
such officer or officers and specifying the Authorized Officers
permitted to act on behalf of such Loan Party for purposes of this
Agreement and the true signatures of such officers, on which the
Administrative Agent and each Bank may conclusively rely; and
(iii) copies of its organizational documents, including its certificate
of incorporation and bylaws as in effect on the Closing Date
certified by the appropriate state official where such documents
are filed in a state office together with certificates from the
appropriate state officials as to the continued existence and good
standing of such Loan Party in each state where organized or
qualified to do business.
6.1.3 DELIVERY OF LOAN DOCUMENTS.
---------------------------
The Loan Documents shall been executed and delivered to the Administrative Agent
for the benefit of the Banks.
6.1.4 OPINION OF COUNSEL.
-------------------
There shall be delivered to the Administrative Agent for the benefit of each
Bank a written opinion of Benesch, Friedlander, Coplan & Aronoff P.L.L. and of
Albert J. Bell, Esq. counsel for the Loan Parties (who may rely on the opinions
of such other counsel as may be acceptable to the Administrative Agent), dated
the Closing Date and in form and substance satisfactory to the Managing Agents
and their counsel as to the matters set forth in Exhibit 6.1.4.
-57-
<PAGE> 67
6.1.5 LEGAL DETAILS.
--------------
All legal details and proceedings in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be in form and
substance satisfactory to the Managing Agents and their counsel, and the
Managing Agents shall have received all such other counterpart originals or
certified or other copies of such documents and proceedings in connection with
such transactions, in form and substance satisfactory to the Managing Agents and
said counsel, as the any of the Managing Agents or said counsel may reasonably
request.
6.1.6 PAYMENT OF FEES.
----------------
The Borrower shall have paid or caused to be paid to the Administrative Agent
for itself and for the account of the Banks to the extent not previously paid
all commitment and other fees accrued through the Closing Date and the costs and
expenses for which the Documentation Agent, the Administrative Agent and the
Banks are entitled to be reimbursed.
6.1.7 CONSENTS.
---------
All material consents required to effectuate the transactions contemplated
hereby as set forth on SCHEDULE 5.1.13 shall have been obtained.
6.1.8 OFFICER'S CERTIFICATE REGARDING MACS.
-------------------------------------
Since February 3, 1996 (i) no Material Adverse Change shall have occurred and
(ii) there shall have been no material change in the management of the Company
or the Borrower (except as disclosed to the Banks in a writing referencing this
provision); and there shall have been delivered to the Administrative Agent for
the benefit of each Bank a certificate dated the Closing Date and signed by the
Chief Executive Officer, President or Chief Financial Officer of the Borrower
and the Company to each such effect.
6.1.9 NO VIOLATION OF LAWS.
---------------------
The making of the Revolving Credit Loans and issuance of the Letters of Credit
shall not contravene any Law applicable to any Loan Party or any of the Banks.
6.1.10 NO ACTIONS OR PROCEEDINGS.
--------------------------
No action, proceeding, investigation, regulation or legislation shall have been
instituted, threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain or prohibit, or to obtain damages in
respect of, this Agreement, the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby or which, in the Managing Agents'
sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents.
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<PAGE> 68
6.1.11 INSURANCE POLICIES; CERTIFICATES OF INSURANCE.
----------------------------------------------
The Borrower shall have delivered to the Administrative Agent upon its request
evidence acceptable to the Administrative Agent that adequate insurance in
compliance with Section 7.1.3 is in full force and effect and that all premiums
then due thereon have been paid, together with if requested by the
Administrative Agent a certified copy of each Loan Party's casualty insurance
policy or policies.
6.1.12 TERMINATION OF EXISTING BANK FACILITY.
--------------------------------------
The Borrower shall have terminated the Existing Bank Facility and paid all
amounts owed thereunder.
6.2 EACH ADDITIONAL REVOLVING CREDIT LOAN.
At the time of making any Revolving Credit Loans or Swing Loans or issuance of
any Letters of Credit other than Revolving Credit Loans made or Letters of
Credit deemed issued on the Closing Date and after giving effect to the proposed
extensions of credit: the representations and warranties of the Loan Parties
contained in Article 5 and in the other Loan Documents shall be true on and as
of the date of such additional Revolving Credit Loan or Swing Loan or Letter of
Credit with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied with
all covenants and conditions hereof; no Event of Default or Potential Default
shall have occurred and be continuing or shall exist; the making of the
Revolving Credit Loans or Swing Loans or issuance of such Letter of Credit shall
not contravene any Law applicable to any Loan Party or Subsidiary of any Loan
Party or any of the Banks; and the Borrower shall have delivered to the
Administrative Agent or the Issuing Letter of Credit Bank, a duly executed and
completed Loan Request or application for a Letter of Credit as the case may be.
6.3 SYNDICATION.
------------
6.3.1 SYNDICATION REPRESENTATION AND WARRANTIES.
------------------------------------------
On the Syndication Date, the representations and warranties of the Loan Parties
contained in Article 5 and in the other Loan Documents shall be true on and as
of such date with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which expressly relate solely to an earlier date or time, which representations
and warranties shall be true and correct on and as of the specific dates
or times referred to therein) and the Loan Parties shall have performed and
complied with all covenants and conditions hereof; and no Event of Default or
Potential Default shall have occurred and be continuing or shall exist.
-59-
<PAGE> 69
6.3.2 SYNDICATION DOCUMENTS.
----------------------
On the Syndication Date, the Borrower shall deliver to the Administrative Agent
for the benefit of the Banks (a) an Officer's Certificate dated as of the
Syndication Date with respect to the matters set forth in Section 6.3.1 and
Section 6.1.8(i), (b) a Secretary's Certificate dated as of the Syndication Date
with respect to the matters set forth in Section 6.1.2(i) and 6.1.2(ii) and that
there have been no changes in the charter documents or bylaws of the Borrower or
any Material Subsidiary since the Closing Date, (c) Revolving Credit Notes dated
as of the Syndication Date which give effect to the syndication on the
Syndication Date of the Revolving Credit Commitments of the Banks which executed
the initial Credit Agreement dated as of May 3, 1996 in exchange for the
original Revolving Credit Notes issued to such Banks on May 3, 1996, (d) written
opinions of the counsel to the Borrower identified in Section 6.1.4 with respect
to such matters as the Documentation Agent may request and (e) acknowledgments
dated as of the Syndication Date to the Master Guaranty Agreement and the Master
Intercompany Subordination Agreement in form and substance satisfactory to the
Documentation Agent.
7. COVENANTS
---------
7.1 AFFIRMATIVE COVENANTS.
----------------------
The Borrower covenants and agrees that until payment in full of the Revolving
Credit Loans and Reimbursement Obligations and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations under the Loan Documents and termination of the Revolving
Credit Commitments, the Loan Parties shall comply at all times with the
following affirmative covenants:
7.1.1 PRESERVATION OF EXISTENCE, ETC.
The Company, the Borrower and, except as permitted by Section 7.2.6, each
Material Subsidiary shall maintain its corporate existence and its license or
qualification and good standing in each jurisdiction in which its ownership or
lease of property or the nature of its business makes such license or
qualification necessary, except where the failure to be so licensed or qualified
would not result in a Material Adverse Change.
-60-
<PAGE> 70
7.1.2 PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC.
---------------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to, duly pay and
discharge all liabilities to which it is subject or which are asserted against
it, promptly as and when the same shall become due and payable, including all
taxes, assessments and governmental charges upon it or any of its properties,
assets, income or profits, prior to the date on which penalties attach thereto,
except to the extent that such liabilities, including taxes, assessments or
charges, are being contested in good faith and by appropriate and lawful
proceedings diligently conducted and for which such reserve or other appropriate
provisions, if any, as shall be required by GAAP shall have been made, but only
to the extent that failure to discharge any such liabilities would not result in
any additional liability which would adversely affect to a material extent the
financial condition of the Loan Parties and their Subsidiaries taken as a whole,
PROVIDED that the Loan Parties and their Subsidiaries will pay all such
liabilities forthwith upon the commencement of proceedings to foreclose any Lien
which may have attached as security therefor unless and as long as such
proceedings are stayed.
7.1.3 MAINTENANCE OF INSURANCE.
-------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to, insure its
properties and assets against loss or damage by fire and such other insurable
hazards as such assets are commonly insured (including fire, extended coverage,
property damage, workers' compensation, public liability and business
interruption insurance) and against other risks (including errors and omissions)
in such amounts as similar properties and assets are insured by prudent
companies in similar circumstances carrying on similar businesses, and with
reputable and financially sound insurers, including self-insurance to the extent
customary, all as reasonably determined by the Documentation Agent. At the
request of the Administrative Agent, the Loan Parties shall deliver to the
Administrative Agent (x) on the Closing Date and annually thereafter an original
certificate of insurance signed by the Loan Parties' independent insurance
broker describing and certifying as to the existence of the insurance required
to be maintained by this Agreement and the other Loan Documents, and (y) from
time to time a summary schedule indicating all insurance then in force with
respect to each of the Loan Parties.
7.1.4 MAINTENANCE OF PROPERTIES AND LEASES.
-------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in
good repair, working order and condition (ordinary wear and tear excepted) in
accordance with the general practice of other businesses of similar character
and size, all of those material properties necessary to its business, and from
time to time, such Loan Party or such Subsidiary will make or cause to be made
all appropriate repairs, renewals or replacements thereof.
7.1.5 MAINTENANCE OF PATENTS, TRADEMARKS, ETC.
----------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in
full force and effect all patents, trademarks, service marks, trade names,
copyrights, licenses, franchises, permits and other authorizations necessary for
the ownership and operation of its properties and business if the failure so to
maintain the same would constitute a Material Adverse Change.
-61-
<PAGE> 71
7.1.6 VISITATION RIGHTS.
------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to, permit any
of the officers or authorized employees or representatives of the Documentation
Agent, the Administrative Agent or any of the Banks to visit and inspect any of
its properties and to examine and make excerpts from its books and records and
discuss its business affairs, finances and accounts with its officers, all in
such detail and at such times and as often as any of the Banks may reasonably
request, PROVIDED that each Bank shall provide the Borrower and the
Administrative Agent with reasonable notice prior to any visit or inspection.
7.1.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
----------------------------------------
The Company shall, and shall cause each Subsidiary of the Company including the
Borrower to, maintain and keep proper books and records which enable the Company
and its Subsidiaries to issue financial statements in accordance with GAAP and
as otherwise required by applicable Laws of any Official Body having
jurisdiction over the Company or any Subsidiary of the Company, and in which
full, true and correct entries shall be made in all material respects of all its
dealings and business and financial affairs.
7.1.8 PLANS AND BENEFIT ARRANGEMENTS.
-------------------------------
The Company shall, and shall cause each other member of the ERISA Group to,
comply with ERISA, the Internal Revenue Code and other applicable Laws
applicable to Plans and Benefit Arrangements except where such failure, alone or
in conjunction with any other failure, would not result in a Material Adverse
Change. Without limiting the generality of the foregoing, the Company shall
cause all of its Plans and all Plans maintained by any other member of the ERISA
Group to be funded in accordance with the minimum funding requirements of ERISA
and shall make, and cause each other member of the ERISA Group to make, in a
timely manner, all contributions due to Plans, Benefit Arrangements and
Multiemployer Plans.
7.1.9 COMPLIANCE WITH LAWS.
---------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to, comply with
all applicable Laws, including all Environmental Laws, in all respects, PROVIDED
that it shall not be deemed to be a violation of this Section 7.1.9 if any
failure to comply with any Law would not result in fines, penalties, remediation
costs, other similar liabilities or injunctive relief which in the aggregate
would constitute a Material Adverse Change.
-62-
<PAGE> 72
7.1.10 USE OF PROCEEDS.
----------------
The Borrower will use the Letters of Credit and the proceeds of the Revolving
Credit Loans only for lawful purposes in accordance with Section 2.8 and such
uses shall not contravene any applicable Law or any other provision hereof.
7.1.11 SUBORDINATION OF INTERCOMPANY LOANS.
------------------------------------
Each Loan Party shall cause any Intercompany Loans owed by any Loan Party to any
other Loan Party or Subsidiary of a Loan Party to be subordinated pursuant to
the terms of the Master Intercompany Subordination Agreement.
7.2 NEGATIVE COVENANTS.
-------------------
The Borrower covenants and agrees that until payment in full of the Revolving
Credit Loans and Reimbursement Obligations and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations hereunder and termination of the Revolving Credit Commitments,
the Loan Parties shall comply with the following negative covenants:
7.2.1 INDEBTEDNESS.
-------------
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except: Indebtedness under the Loan Documents;
(i) existing Indebtedness as set forth on SCHEDULE 7.2.1 (including
any extensions or renewals thereof, PROVIDED there is no increase
in the amount thereof or imposition of additional material
obligations therein unless otherwise specified on SCHEDULE 7.2.1;
(ii) capitalized and operating leases as and to the extent not
prohibited by Section 7.2.15;
(iii) Indebtedness which is subordinated in accordance with the
provisions of Section 7.1.11;
(iv) Indebtedness secured by Purchase Money Security Interests not
exceeding $10,000,000;
(v) Indebtedness of a Loan Party to another Loan Party; the Seller
Note;
(vi) Indebtedness permitted under Section 7.2.3; and
(vii) any other Indebtedness (excluding Indebtedness relating to
documentary letters of credit) not referenced above which does not
exceed in the aggregate at any one time outstanding in any
calendar year (a) $35,000,000 during the period commencing on
January 1 and ending on September 1 of such calendar year and
during the period commencing December 1 and ending on December 31
of such cal-
-63-
<PAGE> 73
endar year and (b) $50,000,000 during the period commencing on
September 1 and ending on December 1 of such calendar year.
7.2.2 LIENS.
------
Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries
to, (i) at any time create, incur, assume or suffer to exist any Lien on any of
its property or assets, tangible or intangible, now owned or hereafter acquired,
or agree or become liable to do so, except Permitted Liens or (ii) at any time
agree, directly or indirectly, with respect to any asset material to the
Borrower and its Subsidiaries taken as a whole to any restriction (including
without limitation on the foregoing any requirement to grant a third Person a
Lien in the event that the Banks are granted a Lien) on the granting or
conveying of Liens to the Banks.
7.2.3 GUARANTIES.
-----------
Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries
to, at any time, directly or indirectly, become or be liable in respect of any
Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree,
become or remain directly or contingently liable upon or with respect to any
obligation or liability of any other Person, except for Guaranties of
Indebtedness of the Loan Parties permitted hereunder; provided, however, that no
Subsidiary of the Borrower shall guaranty the Seller Note or any obligations to
Melville Corporation arising in connection with the Acquisition.
7.2.4 LOANS AND INVESTMENTS.
----------------------
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time make or suffer to remain outstanding any loan or
advance to, or purchase, acquire or own any stock, bonds, notes or securities
of, or any partnership interest (whether general or limited) in, or any other
investment or interest in, or make any capital contribution to, any other
Person, or agree, become or remain liable to do any of the foregoing, except as
set forth on SCHEDULE 7.2.4 and:
(i) trade credit extended on usual and customary terms in the
ordinary course of business;
(ii) advances to employees to meet expenses incurred by such employees
in the ordinary course of business;
(iii) Permitted Investments;
(iv) loans, advances and investments in other Loan Parties and
Subsidiaries of Loan Parties;
(v) Indebtedness permitted by Section 7.2.1, liquidations, mergers,
consolidations and acquisitions permitted by Section 7.2.6, and
capital expenditures permitted by Section 7.2.15; and
(vi) Investments other than those set forth hereinabove not to exceed
$10,000,000.
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<PAGE> 74
7.2.5 DIVIDENDS AND RELATED DISTRIBUTIONS.
------------------------------------
Except as provided herein, each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, make or pay, or agree to become or remain
liable to make or pay, any dividend or other distribution of any nature (whether
in cash, property, securities or otherwise) on account of or in respect of its
shares of capital stock or partnership interests on account of the purchase,
redemption, retirement or acquisition of its shares of capital stock (or
warrants, options or rights therefor) or partnership interests, except dividends
or other distributions payable to another Loan Party. The Company may declare
and pay dividends on its capital stock which are payable solely in shares of its
capital stock or other equity interests of the Company. The Company may make
purchases and redemptions of its capital stock pursuant to existing plans
provided that the aggregate of all such purchases does not exceed $10,000,000.
7.2.6 LIQUIDATIONS, MERGERS, CONSOLIDATIONS, ACQUISITIONS.
----------------------------------------------------
Except as permitted by Section 7.2.7 each of the Loan Parties shall not, and
shall not permit any of the Company, the Borrower and the Material Subsidiaries
to, dissolve, liquidate or wind-up its affairs, or become a party to any merger
or consolidation, or acquire by purchase, lease or otherwise all or
substantially all of the assets or capital stock of any other Person; PROVIDED
that any Loan Party other than the Borrower and the Company may consolidate,
liquidate, dissolve or merge into, or acquire, another Loan Party which is
wholly-owned, directly or indirectly, by the Company; and PROVIDED FURTHER that
any Loan Party may acquire by merger, purchase or otherwise all or substantially
all of the assets of any other Person or any division or subsidiary which
constitutes a "reportable industry segment" or "class of similar products" of an
industry segment (as such terms are defined in Item 101(c) of Regulation S-K
promulgated under the Securities Act of 1933 and the Securities Exchange Act of
1934) of such other Person if (a) after giving effect to such acquisition, the
aggregate of the purchase prices for all acquisitions permitted pursuant to this
clause shall not exceed $50,000,000 (with respect to any non-cash consideration
paid by a Loan Party, the value reasonably assigned to such consideration on the
books of such Loan Party shall be used for purposes of this calculation), (b)
the Borrower is in compliance with all of the provisions of this Agreement
immediately prior to such acquisition and after giving effect to such
acquisition the Borrower will be in compliance with all of the provisions of
this Agreement and (c) with respect to any acquisition of capital stock of
another Person, within 90 days of such acquisition of any capital stock of
another Person, all outstanding shares of capital stock of such Person are
acquired by one or more Loan Parties and no rights to acquire shares of such
capital stock shall be held by any person other than a Loan Party and, if such
other Person becomes a Subsidiary of the Borrower, it joins in the Master
Guaranty Agreement in accordance with Section 10.18.
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<PAGE> 75
7.2.7 DISPOSITIONS OF ASSETS OR SUBSIDIARIES.
---------------------------------------
Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries
to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of,
voluntarily or involuntarily, any of its properties or assets, tangible or
intangible (including sale, assignment, discount or other disposition of
accounts, contract rights, chattel paper, equipment or general intangibles with
or without recourse or of capital stock, shares of beneficial interest or
partnership interests of a Subsidiary of such Loan Party), except:
(i) transactions involving the sale of inventory in the ordinary
course of business;
(ii) any sale, transfer or lease of assets in the ordinary course of
business which are no longer necessary or required in the conduct
of such Loan Party's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by any wholly owned
Subsidiary of such Loan Party to another Loan Party;
(iv) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through above or
clauses (v) and (vi) below, provided that the aggregate
after-tax net cash proceeds (including without limitation cash,
as and when collected, pursuant to any notes or other securities
received as consideration for such sale, transfer or lease) of
all such sales, transfers or leases on and after the date hereof
(as reasonably estimated by the Borrower) in excess of
$25,000,000 shall be applied as a mandatory prepayment of the
Revolving Credit Loans in accordance with the provisions of
Section 4.5.1;
(v) any sale or transfer by the Company of the capital stock or other
equity interests of the Company; and
(vi) cash payments pursuant to transactions not prohibited hereunder.
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<PAGE> 76
7.2.8 AFFILIATE TRANSACTIONS.
-----------------------
Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries
to, enter into or carry out any transaction with any of its Affiliates
(including purchasing property or services from or selling property or services
to any Affiliate of any Loan Party or other Person other than a Loan Party)
unless such transaction is not otherwise prohibited by this Agreement, is
entered into in the ordinary course of business upon fair and reasonable
arm's-length terms and conditions (including without limitation employment
arrangements with any Executive Officer of the Borrower and its Subsidiaries)
which are fully disclosed to the Administrative Agent and is in accordance with
all applicable Law.
7.2.9 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES.
----------------------------------------------
Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries
to, own or create directly or indirectly any Subsidiaries other than (i) any
Subsidiary which has joined this Agreement as Guarantor on the Closing Date; and
(ii) any Subsidiary acquired or formed after the Closing Date which joins this
Agreement as a Guarantor pursuant to Section 10.18. Each of the Loan Parties
shall not become or agree to become a general or limited partner in any general
or limited partnership or a joint venturer in any joint venture other than (i)
solely with other Loan Parties; (ii) as permitted by Section 7.2.4; (iii) for
the acquisition of inventory; and (iv) for transactions which when aggregated do
not exceed $10,000,000, except that the Loan Parties may be general or limited
partners in other Loan Parties.
7.2.10 CONTINUATION OF OR CHANGE IN BUSINESS.
--------------------------------------
Each of the Company and the Borrower shall not, and shall not permit any of its
Subsidiaries to, engage in any business other than wholesale and retail sale of
general merchandise, substantially as conducted and operated by the Company, the
Borrower and their Subsidiaries and as conducted and operated by Kay-Bee Center,
Inc. and its Subsidiaries, during the present fiscal year.
-67-
<PAGE> 77
7.2.11 PLANS AND BENEFIT ARRANGEMENTS.
-------------------------------
Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries
to:
(i) fail to satisfy the minimum funding requirements of ERISA and the
Internal Revenue Code with respect to any Plan where such would
result in a Material Adverse Change;
(ii) request a minimum funding waiver from the Internal Revenue
Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan, Benefit
Arrangement or Multiemployer Plan which, alone or in conjunction
with any other circumstances or set of circumstances resulting in
liability under ERISA, would constitute a Material Adverse
Change;
(iv) permit, as of the end of any calendar year, the aggregate
accumulated benefit obligations determined in accordance with
GAAP for all Plans to exceed by more than $8 million the fair
market value of all assets of the Plans;
(v) fail to make when due any contribution to any Multiemployer Plan
that the Borrower or any member of the ERISA Group may be
required to make under any agreement relating to such
Multiemployer Plan, or any Law pertaining thereto where such
would result in a Material Adverse Change;
(vi) withdraw (completely or partially) from any Multiemployer Plan or
withdraw (or be deemed under Section 4062(e) of ERISA to
withdraw) from any Multiple Employer Plan, where any such
withdrawal is likely to result in a material liability of the
Borrower or any member of the ERISA Group; terminate, or
institute proceedings to terminate, any Plan, where such
termination is likely to result in a material liability to the
Borrower or any member of the ERISA Group;
(vii) make any amendment to any Plan with respect to which security is
required under Section 307 of ERISA; or
(viii) fail to give any and all notices and make all disclosures and
governmental filings required under ERISA or the Internal Revenue
Code, where such failure is likely to result in a Material
Adverse Change.
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<PAGE> 78
7.2.12 FISCAL YEAR.
------------
The Company shall not, and shall not permit any Subsidiary of the Company to,
change its fiscal year from the fifty-two/fifty-three week fiscal year beginning
on the Sunday closest to February 1, and ending on the Saturday closest to
February 1 of each year.
7.2.13 ISSUANCE OF STOCK.
------------------
Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries
to, issue any additional shares of its capital stock or any options, warrants or
other rights in respect thereof other than to another Loan Party or Subsidiary
of a Loan Party; provided, however, that nothing contained herein shall prohibit
the Company from issuing shares of its capital stock or other equity interests
of the Company.
7.2.14 CHANGES IN ORGANIZATIONAL DOCUMENTS.
------------------------------------
Except as permitted by Section 7.2.6, each of the Loan Parties shall not, and
shall not permit any of its Subsidiaries to, amend in any respect its
certificate of incorporation (including any provisions or resolutions relating
to capital stock), by-laws or other organizational documents without providing
at least five (5) calendar days' prior written notice to the Administrative
Agent and the Banks and, in the event such change would be adverse to the Banks
as determined by the Required Banks in their sole discretion, obtaining the
prior written consent of the Required Banks.
7.2.15 CAPITAL EXPENDITURES AND LEASES.
--------------------------------
Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries
to, make any payments or incur any obligation on account of the purchase or
lease of any assets which if purchased would constitute fixed assets or which if
leased would constitute a capitalized lease under GAAP if the aggregate of such
payments and incurred obligations together with all other similar payments and
incurred obligations made during such period would exceed the amount set forth
below for such period:
<TABLE>
<CAPTION>
Period Maximum Consolidated Capital
------ ----------------------------
Expenditures
------------
<S> <C>
May 3, 1996 to February $110,000,000
1, 1997
Fiscal Year ending $100,000,000
January 31, 1998 and each
fiscal year thereafter
</TABLE>
To the extent that the Consolidated Capital Expenditures for any given period
are less than the maximum amount permitted for such period, the next succeeding
period's maximum Consolidated Capital Expenditures shall be increased by such
difference.
-69-
<PAGE> 79
7.2.16 MINIMUM FIXED CHARGE COVERAGE RATIO.
------------------------------------
The Loan Parties shall not permit at any time the Fixed Charge Coverage Ratio,
calculated as of the end of each fiscal quarter ending nearest the date set
forth below to be less than the following minimum Fixed Charge Coverage Ratio:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Nearest: Minimum Fixed Charge Coverage
------------------------------ Ratio
-----
<S> <C>
July 31, 1996 1.25
October 31, 1996 1.25
January 31, 1997 1.50
April 30, 1997 1.50
July 31, 1997 1.50
October 31, 1997 1.50
January 31, 1998 1.60
April 30, 1998 1.60
July 31, 1998 1.60
October 31, 1998 1.60
All Quarters subsequent to October 31, 1.70
1998
</TABLE>
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<PAGE> 80
7.2.17 TOTAL INDEBTEDNESS TO TOTAL CAPITALIZATION RATIO.
-------------------------------------------------
The Loan Parties shall not permit at any time the ratio of (i) the sum of (A)
Indebtedness of the Company and its Subsidiaries determined and consolidated in
accordance with GAAP plus (B) the product of four times the Consolidated
Rentals, to (ii) the sum of (A) Indebtedness of the Company and its Subsidiaries
determined and consolidated in accordance with GAAP plus (B) the product of four
times the Consolidated Rentals plus (C) the stockholders equity of the Company
and its Subsidiaries determined and consolidated in accordance with GAAP, to be
greater than the following maximum permitted percentage:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Nearest: Maximum Permitted
------------------------------ Percentage
----------
<S> <C>
July 31, 1996 67.5%
October 31, 1996 72.5%
January 31, 1997 62.5%
April 30, 1997 67.5%
July 31, 1997 70.0%
October 31, 1997 72.5%
January 31, 1998 60.0%
April 30, 1998 65.0%
July 31, 1998 67.5%
October 31, 1998 70.0%
All Quarters subsequent to October 31, 1998 57.5%
</TABLE>
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<PAGE> 81
7.2.18 MINIMUM TANGIBLE NET WORTH.
---------------------------
The Loan Parties shall not permit at any time Consolidated Tangible Net Worth to
be less than the Base Tangible Net Worth.
7.2.19 MINIMUM WORKING CAPITAL RATIO.
------------------------------
The Loan Parties shall not permit at the end of any fiscal quarter of the
Company the ratio of (i) the sum of Company's and its Subsidiaries' (A) cash and
cash equivalents, (B) accounts receivable net of bad debt reserves plus (C)
inventory net of any reserves, in each case as determined and consolidated in
accordance with GAAP, to (ii) the sum of (A) the Revolving Credit Loans plus (B)
the Swing Loans plus (C) the Company's and its Subsidiaries' accounts payable as
determined and consolidated in accordance with GAAP plus (D) the Company's and
its Subsidiaries other current liabilities as determined and consolidated in
accordance with GAAP, to be less than 1.15 to 1.00.
7.2.20 AMENDMENTS TO CERTAIN DOCUMENTS.
--------------------------------
The Loan Parties shall not permit, without the prior written consent of the
Required Banks, any amendment, waiver or modification to the Stock Purchase
Agreement, the Seller Note and the indenture pursuant to which the Seller Note
is issued, or any other document or instrument delivered in connection with any
of the foregoing except for amendments, waivers or modifications to provisions
other than those which subordinate the Seller Note to the Obligations and which
amendments, waivers or modifications do not change or otherwise affect the terms
of such agreements or instruments in a material manner.
7.2.21 OUTSTANDING REVOLVING CREDIT LOANS.
-----------------------------------
The Loan Parties shall not permit the Revolving Credit Loans to exceed
$75,000,000 for not less than thirty (30) consecutive calendar days during the
period commencing with December 1 of each calendar year and ending on February 1
of the succeeding calendar year.
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<PAGE> 82
7.2.22 NO PREPAYMENT OF SUBORDINATED DEBT.
-----------------------------------
The Loan Parties shall not permit the payment, directly or indirectly (including
without limitation on the foregoing any purchase of one or more of the notes
issued thereunder or any interest or participation in any such notes), of any
principal of the Seller Note (provided that this provision shall not prohibit
transfers by any holder or holders of the Seller Note to Persons other than the
Company and direct or indirect Subsidiaries of the Company).
7.2.23 INVENTORY PURCHASES.
--------------------
The Loan Parties shall not permit (i) any material amount of inventory to be
purchased by any Person other than the Borrower and the Material Subsidiaries or
(ii) any Loan Party or any Subsidiary of a Loan Party, other than the Borrower
and the Material Subsidiaries, to be obligated directly or indirectly to any
Person other than a Loan Party with respect to any material amount of purchased
inventory.
7.3 REPORTING REQUIREMENTS.
-----------------------
The Borrower covenants and agrees that until payment in full of the Revolving
Credit Loans and Reimbursement Obligations and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations hereunder and under the other Loan Documents and termination
of the Revolving Credit Commitments, the Loan Parties will furnish or cause to
be furnished to the Administrative Agent and each of the Banks:
7.3.1 QUARTERLY FINANCIAL STATEMENTS.
-------------------------------
As soon as available and in any event within forty-five (45) calendar days after
the end of each of the first three fiscal quarters in each fiscal year,
financial statements of the Company, consisting of a consolidated and
consolidating balance sheet as of the end of such fiscal quarter and related
consolidated and consolidating statements of income, stockholders' equity and
cash flows for the fiscal quarter then ended and the fiscal year through that
date, all in reasonable detail and certified (subject to normal year-end audit
adjustments) by the Chief Executive Officer, President or Chief Financial
Officer of the Borrower as having been prepared in accordance with GAAP and as
to fairness of presentation, consistently applied, and setting forth in
comparative form the respective financial statements for the corresponding date
and period in the previous fiscal year. Wherever referenced in this Section 7,
the term "consolidating" is limited to consolidating information on a basis
consistent with current accounting practices of the Company.
7.3.2 ANNUAL FINANCIAL STATEMENTS.
----------------------------
As soon as available and in any event within ninety (90) days after the end of
each fiscal year of the Company, consolidated and consolidating financial
statements of the Company consisting of a consolidated and consolidating balance
sheet as of the end of such fiscal year, and related consolidated and
consolidating statements of income, stockholders' equity and cash flows for the
fiscal year then ended, all in reasonable detail and setting forth in
comparative form the financial statements as of the end of and for the preceding
fiscal year, and with respect to the consolidated statements, certified by
independent certified public accountants of nationally recognized standing
satisfactory to the Administrative Agent. The certificate or report of
accountants shall be free of qualifications (other than any consistency
qualification that may result from a change in the method used to prepare the
financial statements as to which such accountants concur) and shall not indicate
the occurrence or existence of any event, condition or contingency which would
materially impair the prospect of payment or performance of any covenant,
agreement or duty of
-73-
<PAGE> 83
any Loan Party under any of the Loan Documents, together with a letter of such
accountants substantially to the effect that, based upon their ordinary and
customary examination of the affairs of the Company, performed in connection
with the preparation of such consolidated financial statements, and in
accordance with generally accepted auditing standards, they are not aware of the
existence of any condition or event which constitutes an Event of Default or
Potential Default or, if they are aware of such condition or event, stating the
nature thereof and confirming the Borrower's calculations with respect to the
certificate to be delivered pursuant to Section 7.3.3 with respect to such
financial statements.
7.3.3 CERTIFICATE OF THE BORROWER.
----------------------------
Concurrently with the financial statements of the Company furnished to the
Administrative Agent and to the Banks pursuant to Sections 7.3.1 and 7.3.2, a
certificate of the Borrower and the Company signed by the Chief Executive
Officer, President or Chief Financial Officer of the Borrower and the Company,
in the form of EXHIBIT 7.3.3, to the effect that, except as described pursuant
to Section 7.3.4, (i) the representations and warranties contained in Article 5
and in the other Loan Documents are true on and as of the date of such
certificate with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which expressly relate solely to an earlier date or time) and the Loan Parties
have performed and complied with all covenants and conditions hereof, (ii) no
Event of Default or Potential Default exists and is continuing on the date of
such certificate and (iii) containing calculations in sufficient detail to
demonstrate compliance as of the date of such financial statements with all
financial covenants contained in Section 7.2 and to compute the Fixed Charge
Coverage Ratio.
7.3.4 NOTICE OF DEFAULT.
------------------
Promptly after any officer of any Loan Party has learned of the occurrence of an
Event of Default or Potential Default, a certificate signed by the Chief
Executive Officer, President or Chief Financial Officer of such Loan Party
setting forth the details of such Event of Default or Potential Default and the
action which the such Loan Party proposes to take with respect thereto.
-74-
<PAGE> 84
7.3.5 NOTICE OF LITIGATION.
---------------------
Promptly after the commencement thereof, notice of all actions, suits,
proceedings or investigations before or by any Official Body or any other Person
against any Loan Party or Subsidiary of any Loan Party which involve a claim or
series of uninsured claims (provided that a claim shall be deemed to be
uninsured unless the insurance company is a reputable insurance company and has
acknowledged that the claim is covered by the applicable insurance policy
without any reservation to challenge the applicability thereof) in excess of
$10,000,000 or which if adversely determined would constitute a Material Adverse
Change.
7.3.6 CERTAIN EVENTS.
---------------
Written notice:
(i) at least five (5) Business Days prior thereto, with respect to
any proposed sale or transfer of assets pursuant to Section
7.2.7(iv) which exceed $25 million, and
(ii) within the time limits set forth in Section 7.2.14, any amendment
to the organizational documents of any Loan Party.
7.3.7 BUDGETS, FORECASTS, OTHER REPORTS AND INFORMATION.
--------------------------------------------------
Promptly upon their becoming available to any Loan Party:
(i) the consolidated annual budget of the Company, to be supplied not
later than the earlier of (i) ninety (90) days following the end
of each fiscal year or (ii) two (2) Business Days following the
date on which the Board of Directors of the Company approves such
annual budget;
(ii) any reports including management letters submitted to the Company
or the Borrower by independent accountants in connection with any
annual, interim or special audit;
(iii) any reports, notices or proxy statements generally distributed by
the Company to its stockholders on a date no later than the date
supplied to such stockholders; regular or periodic reports,
including Forms 10-K, 10-Q and 8-K, registration statements and
prospectuses, as may be filed by the Company with the Securities
and Exchange Commission;
(iv) a copy of any order in any proceeding to which the Company, the
Borrower or any of its Subsidiaries is a party issued by any
Official Body; and
(v) such other reports and information as any of the Banks may from
time to time reasonably request. The Loan Parties shall also
notify the Banks promptly of the enactment or adoption of any Law
which may result in a Material Adverse Change.
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<PAGE> 85
7.3.8 NOTICES REGARDING PLANS AND BENEFIT ARRANGEMENTS.
-------------------------------------------------
7.3.8.1 CERTAIN EVENTS.
---------------
Promptly upon becoming aware of the occurrence thereof, notice (including the
nature of the event and, when known, any action taken or threatened by the
Internal Revenue Service or the PBGC with respect thereto) of:
(i) any Reportable Event with respect to the Company or any other
member of the ERISA Group (regardless of whether the obligation
to report said Reportable Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could subject the Company or any
other member of the ERISA Group to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Internal Revenue Code in connection with any Plan,
any Benefit Arrangement or any trust created thereunder,
(iii) any assertion of material withdrawal liability with respect to
any Multiemployer Plan,
(iv) any partial or complete withdrawal from a Multiemployer Plan by
the Company or any other member of the ERISA Group under Title IV
of ERISA (or assertion thereof), where such withdrawal is likely
to result in material withdrawal liability, any cessation of
operations (by the Company or any other member of the ERISA
Group) at a facility in the circumstances described in Section
4063(e) of ERISA,
(v) withdrawal by the Company or any other member of the ERISA Group
from a Multiple Employer Plan,
(vi) a failure by the Company or any other member of the ERISA Group
to make a payment to a Plan required to avoid imposition of a
Lien under Section 302(f) of ERISA,
(vii) the adoption of an amendment to a Plan requiring the provision of
security to such Plan pursuant to Section 307 of ERISA, or
(viii) any change in the actuarial assumptions or funding methods used
for any Plan, where the effect of such change is to materially
increase or materially reduce the unfunded benefit liability or
obligation to make periodic contributions.
-76-
<PAGE> 86
7.3.8.2 NOTICES OF INVOLUNTARY TERMINATION AND ANNUAL REPORTS.
------------------------------------------------------
Promptly after receipt thereof, copies of (a) all notices received by the
Company or any other member of the ERISA Group of the PBGC's intent to
terminate any Plan administered or maintained by the Company or any member of
the ERISA Group, or to have a trustee appointed to administer any such Plan;
and (b) at the request of the Administrative Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Company or any
other member of the ERISA Group, and schedules showing the amounts contributed
to each such Plan by or on behalf of the Company or any other member of the
ERISA Group in which any of their personnel participate or from which such
personnel may derive a benefit, and each Schedule B (Actuarial Information) to
the annual report filed by the Company or any other member of the ERISA Group
with the Internal Revenue Service with respect to each such Plan.
7.3.8.3 NOTICE OF VOLUNTARY TERMINATION.
--------------------------------
Promptly upon the filing thereof, copies of any Form 5310, or any successor or
equivalent form to Form 5310, filed with the PBGC in connection with the
termination of any Plan.
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<PAGE> 87
8. DEFAULT
-------
8.1 EVENTS OF DEFAULT.
------------------
An Event of Default shall mean the occurrence or existence of any one or more of
the following events or conditions (whatever the reason therefor and whether
voluntary, involuntary or effected by operation of Law):
8.1.1 PAYMENTS UNDER LOAN DOCUMENTS.
------------------------------
The Borrower shall fail to pay when due any principal of any Revolving Credit
Loan (including scheduled installments, mandatory prepayments or the payment due
at maturity) or any Reimbursement Obligations or shall fail to pay within three
(3) Business Days when due any interest on any Revolving Credit Loan or on any
Reimbursement Obligations or any other amount owing hereunder or under the other
Loan Documents after such principal, interest or other amount becomes due in
accordance with the terms hereof or thereof;
8.1.2 BREACH OF WARRANTY.
-------------------
Any representation or warranty made or deemed made at any time by any of the
Loan Parties herein or by any of the Loan Parties in any other Loan Document, or
in any certificate, other instrument or statement furnished pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading in
any material respect as of the time it was made or deemed made or furnished;
8.1.3 BREACH OF NEGATIVE COVENANTS.
-----------------------------
Any of the Loan Parties shall default in the observance or performance of any
covenant contained in Section 7.2;
8.1.4 BREACH OF OTHER COVENANTS.
--------------------------
Any of the Loan Parties shall default in the observance or performance of any
other covenant, condition or provision hereof or of any other Loan Document and
such default shall continue unremedied for a period of ten (10) Business Days
after any Executive Officer of the Borrower or the Company becomes aware of the
occurrence thereof (such grace period to be applicable only in the event such
default can be remedied by corrective action of the Loan Parties as determined
by the Managing Agents in their sole discretion);
-78-
<PAGE> 88
8.1.5 DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS.
---------------------------------------------
If a breach, default or event of default shall occur at any time under the terms
of any other agreement involving borrowed money or the extension of credit or
any other Indebtedness under which any Loan Party or Subsidiary of any Loan
Party may be obligated as a borrower or guarantor in excess of $10,000,000 in
the aggregate and such breach, default or event of default consists of the
failure to pay (beyond any period of grace permitted with respect thereto,
whether waived or not) any indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or such breach or default permits or causes the
acceleration of any indebtedness (whether or not such right shall have been
waived) or the termination of any commitment to lend;
8.1.6 FINAL JUDGMENTS OR ORDERS.
--------------------------
Any final judgments or orders for the payment of money in excess of $10,000,000
in the aggregate shall be entered against any Loan Party by a court having
jurisdiction in the premises, which judgment either (i) is not discharged,
vacated, bonded or stayed pending appeal within a period of sixty (60) days from
the date of entry, or (ii) is not fully insured (provided that a judgment shall
be deemed to be uninsured unless the insurance company is a reputable insurance
company and has acknowledged that the judgment is covered by the applicable
insurance policy without any reservation to challenge the applicability thereof)
or any Loan Parties' or any of their Subsidiaries' assets having a value on the
Company's books in excess of $10,000,000 are attached, seized, levied upon or
subjected to a writ or distress warrant; or such come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors and
the same is not cured within sixty (60) days thereafter;
8.1.7 LOAN DOCUMENT UNENFORCEABLE.
----------------------------
Any of the Loan Documents shall cease to be legal, valid and binding agreements
enforceable against the party executing the same or such party's successors and
assigns (as permitted under the Loan Documents) in accordance with the
respective terms thereof or shall in any way be terminated (except in accordance
with its terms) or become or be declared ineffective or inoperative or shall in
any way be challenged or contested;
8.1.8 NOTICE OF LIEN OR ASSESSMENT.
-----------------------------
A notice of Lien or assessment in excess of $10,000,000 which is not a Permitted
Lien is filed of record with respect to all or any part of any of the Loan
Parties' or any of their Subsidiaries' assets by the United States, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including the PBGC, or if any taxes or
debts owing at any time or times hereafter to any one of these becomes payable
and the same is not paid within sixty (60) days after the same becomes payable
(unless the validity or amount thereof is being contested in good faith by
appropriate and lawful proceedings diligently conducted so long as levy and
execution thereon have been stayed and continue to be stayed);
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<PAGE> 89
8.1.9 INSOLVENCY.
-----------
The Company, the Borrower, any Material Subsidiary, or one or more other
Subsidiaries of the Borrower which individually or in the aggregate represent
more than five percent (5%) of the book value of the consolidated assets of the
Borrower and its Subsidiaries, ceases to be able to pay its debts as they become
due or admits in writing its inability to pay its debts as they mature;
8.1.9 EVENTS RELATING TO PLANS AND BENEFIT ARRANGEMENTS.
--------------------------------------------------
Any of the following occurs: (i) any Reportable Event, which the Documentation
Agent and the Administrative Agent determine in good faith constitutes grounds
for the termination of any Plan by the PBGC or the appointment of a trustee to
administer or liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to terminate any
Plan, or a termination notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the
PBGC shall give notice of its intent to institute proceedings to terminate any
Plan or Plans or to appoint a trustee to administer or liquidate any Plan; and,
in the case of the occurrence of (i), (ii), (iii) or (iv) above, the
Administrative Agent determines in good faith that the amount of the Company's
liability is likely to exceed 10% of its Consolidated Tangible Net Worth; (v)
the Company or any member of the ERISA Group shall fail to make any
contributions when due to a Plan or a Multiemployer Plan; (vi) the Company or
any other member of the ERISA Group shall make any amendment to a Plan with
respect to which security is required under Section 307 of ERISA; (vii) the
Company or any other member of the ERISA Group shall withdraw completely or
partially from a Multiemployer Plan; (viii) the Company or any other member of
the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of
ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is
adopted, changed or interpreted by any Official Body with respect to or
otherwise affecting one or more Plans, Multiemployer Plans or Benefit
Arrangements and, with respect to any of the events specified in (v), (vi),
(vii), (viii) or (ix), the Documentation Agent and the Administrative Agent
determine in good faith that any such occurrence would be reasonably likely to
materially and adversely affect the total enterprise represented by the Company
and the other members of the ERISA Group;
8.1.11 CESSATION OF BUSINESS.
----------------------
Any of the Company, the Borrower, (except as permitted by Section 7.2.6 or
Section 7.2.7) any Material Subsidiary, or (except as permitted by Section 7.2.6
or Section 7.2.7) one or more other Subsidiaries of the Borrower which
individually or in the aggregate represent more than five percent (5%) of the
book value of the consolidated assets of the Borrower and its Subsidiaries,
ceases to conduct its business as contemplated or such Loan Party is enjoined,
restrained or in any way prevented by court order from conducting all or any
material part of its business and such injunction, restraint or other preventive
order is not dismissed within thirty (30) days after the entry thereof;
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<PAGE> 90
8.1.12 CHANGE OF CONTROL.
------------------
(i) Any person or group of persons (within the meaning of Section 13(a) or 14(a)
of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership of (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) 33.33% or more of the voting
capital stock of the Company; or (ii) within a period of twelve (12) consecutive
calendar months, individuals who were directors on the board of directors of the
Company on the first day of such period together with any directors whose
election by such board of directors or whose nomination for election by the
shareholders was approved by a vote of the majority of the directors then in
office shall cease to constitute a majority of the board of directors of the
Company;
8.1.13 INVOLUNTARY PROCEEDINGS.
------------------------
A proceeding shall have been instituted in a court having jurisdiction in the
premises seeking a decree or order for relief in respect of any the Company, the
Borrower, any Material Subsidiary, or any other Subsidiary the result of which
proceeding against such other Subsidiary would be a Material Adverse Change, in
an involuntary case under any applicable bankruptcy, insolvency, reorganization
or other similar law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or similar official) of any Loan Party or any Subsidiary of any Loan Party for
any substantial part of its property, or for the winding-up or liquidation of
its affairs, and such proceeding shall remain undismissed or unstayed and in
effect for a period of sixty (60) consecutive days or such court shall enter a
decree or order granting any of the relief sought in such proceeding; or
8.1.14 VOLUNTARY PROCEEDINGS.
----------------------
Any of the Company, the Borrower, any Material Subsidiary or any other
Subsidiary the result of which voluntary case by such other Subsidiary would be
a Material Adverse Change, shall commence a voluntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or other similar official) of itself or for any substantial part of its
property or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take any
action in furtherance of any of the foregoing.
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<PAGE> 91
8.2 CONSEQUENCES OF EVENT OF DEFAULT.
---------------------------------
8.2.1 EVENTS OF DEFAULT OTHER THAN BANKRUPTCY, INSOLVENCY OR REORGANIZATION
---------------------------------------------------------------------
PROCEEDINGS.
------------
If an Event of Default specified under Sections 8.1.1 through 8.1.12 shall occur
and be continuing, the Banks and the Administrative Agent shall be under no
further obligation to make Revolving Credit Loans or issue Letters of Credit, as
the case may be, no Swing Loans shall be made, and the Administrative Agent may,
and upon the request of the Required Banks, shall (i) by written notice to the
Borrower, declare the unpaid principal amount of the Revolving Credit Notes, the
Swing Note and all Reimbursement Obligations then outstanding and all interest
accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to
the Banks hereunder and thereunder to be forthwith due and payable, and the same
shall thereupon become and be immediately due and payable to the Administrative
Agent for the benefit of each Bank without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, and (ii)
require the Borrower to, and the Borrower shall thereupon, deposit in a
non-interest bearing account with the Administrative Agent, as cash collateral
for its Obligations under the Loan Documents, an amount equal to the maximum
amount currently or at any time thereafter available to be drawn on all
outstanding Letters of Credit, and the Borrower hereby pledges to the
Administrative Agent and the Banks, and grants to the Administrative Agent and
the Banks a security interest in, all such cash as security for such
Obligations. Upon the curing of all existing Events of Default to the
satisfaction of the Required Banks, the Administrative Agent shall return such
cash collateral to the Borrower;
8.2.2 BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS.
-----------------------------------------------------
If an Event of Default specified under Section 8.1.13 or 8.1.14 shall occur, the
Banks shall make no Revolving Credit Loans hereunder and the Swing Lender shall
make no Swing Loans hereunder and the unpaid principal amount of the Revolving
Credit Notes, the Swing Note and all Reimbursement Obligations then outstanding
and all interest accrued thereon, any unpaid fees and all other Indebtedness of
the Borrower to the Banks hereunder and thereunder shall be immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived;
8.2.3 SET-OFF.
--------
If an Event of Default shall occur and be continuing, any Bank to whom any
Obligation is owed by any Loan Party hereunder or under any other Loan Document
or any participant of such Bank which has agreed in writing to be bound by the
provisions of Section 9.13 and any branch, Subsidiary or Affiliate of such Bank
or participant anywhere in the world shall have the right, subject to the
approval of the Required Banks, in addition to all other rights and remedies
available to it, without notice to such Loan Party, to set off against and apply
to the then unpaid balance of all the Revolving Credit Loans and all other
Obligations of the Borrower and the other Loan Parties hereunder or under any
other Loan Document any debt owing to, and any other funds held in any manner
for the account of, the Borrower or such other Loan Party by such Bank or
participant or by such branch, Subsidiary or Affiliate, including all funds in
all deposit accounts (whether time or demand, general or special, provisionally
credited or finally credited, or otherwise) now or hereafter maintained by the
Borrower or such other Loan Party for its own account (but not including funds
held in custodian or trust accounts) with such Bank or participant or such
branch, Subsidiary or Affiliate. Such right shall exist whether or not any Bank
or the Administrative Agent shall have made any demand under this Agreement or
any other Loan Document, whether or not such debt owing to or funds held for the
account of the Borrower or such other Loan Party is or are matured or unmatured
and regardless of the existence or adequacy of any collateral, any Guaranty or
any other security, right or remedy available to any Bank or the Administrative
Agent;
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<PAGE> 92
8.2.4 SUITS, ACTIONS, PROCEEDINGS.
----------------------------
If an Event of Default shall occur and be continuing, and whether or not the
Administrative Agent shall have accelerated the maturity of Revolving Credit
Loans pursuant to any of the foregoing provisions of this Section 8.2, the
Administrative Agent or any Bank, with the approval of the Required Banks, if
owed any amount with respect to the Revolving Credit Notes, may proceed to
protect and enforce its rights by suit in equity, action at law and/or other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Agreement or the Revolving Credit Notes, including
as permitted by applicable Law the obtaining of the EX PARTE appointment of a
receiver, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the Administrative Agent or such Bank;
8.2.5 APPLICATION OF PROCEEDS.
------------------------
From and after the date on which the Administrative Agent has taken
any action pursuant to this Section 8.2 and until all Obligations of the Loan
Parties have been paid in full, any and all proceeds received by the
Administrative Agent from any sale or other disposition of any collateral, or
any part thereof, the exercise of any other remedy by the Administrative Agent,
shall be applied as follows:
(i) first, to reimburse the Administrative Agent and the Banks for
out-of-pocket costs, expenses and disbursements, including
reasonable attorneys' and paralegals' fees and legal expenses,
incurred by the Administrative Agent or the Banks in connection
with realizing on any collateral or collection of any Obligations
of any of the Loan Parties under any of the Loan Documents,
including advances made by the Banks or any one of them or the
Administrative Agent for the reasonable maintenance,
preservation, protection or enforcement of, or realization upon,
any collateral, including advances for taxes, insurance, repairs
and the like and reasonable expenses incurred to sell or
otherwise realize on, or prepare for sale or other realization
on, any of any collateral;
(ii) second, to the repayment of all Indebtedness then due and unpaid
of the Loan Parties to the Banks incurred under this Agreement or
any of the other Loan Documents, whether of principal, interest,
fees, expenses or otherwise, in such manner as the Managing
Agents may determine in their discretion; and
(iii) the balance, if any, to the Borrower or as required by Law.
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8.2.6 OTHER RIGHTS AND REMEDIES.
--------------------------
The Administrative Agent may, and upon the request of the Required Banks shall,
exercise all post-default rights granted to the Administrative Agent and the
Banks under the Loan Documents or applicable Law.
8.3 NOTICE OF SALE.
---------------
Any notice required to be given by the Administrative Agent of a sale, lease, or
other disposition of the any collateral or any intended action by the
Administrative Agent, if given ten (10) days prior to such proposed action,
shall constitute commercially reasonable and fair notice thereof to the
Borrower.
9. THE MANAGING AGENTS
-------------------
9.1 APPOINTMENT.
------------
Each Bank hereby irrevocably designates, appoints and authorizes PNC Bank to act
as Documentation Agent and National City Bank of Columbus to act as
Administrative Agent for such Bank under this Agreement and to execute and
deliver or accept on behalf of each of the Banks the other Loan Documents. Each
Bank hereby irrevocably authorizes, and each holder of any Revolving Credit Note
by the acceptance of a Revolving Credit Note shall be deemed irrevocably to
authorize, the Documentation Agent and the Administrative Agent to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and any other instruments and agreements referred to herein, and to
exercise such powers and to perform such duties hereunder as are specifically
delegated to or required of the Documentation Agent or the Administrative Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. PNC Bank, agrees to act as the Documentation Agent and National City
Bank of Columbus agrees to act as the Administrative Agent on behalf of the
Banks to the extent provided in this Agreement.
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9.2 DELEGATION OF DUTIES.
---------------------
The Documentation Agent and the Administrative Agent may perform any of their
respective duties hereunder by or through agents or employees (PROVIDED such
delegation does not constitute a relinquishment of its duties as Documentation
Agent or Administrative Agent, respectively) and, subject to Sections 9.5 and
9.6, shall be entitled to engage and pay for the advice or services of any
attorneys, accountants or other experts concerning all matters pertaining to its
duties hereunder and to rely upon any advice so obtained.
9.3 NATURE OF DUTIES; INDEPENDENT CREDIT INVESTIGATION.
---------------------------------------------------
The Documentation Agent, the Administrative Agent, the Managing Agents and the
Syndication Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or otherwise exist. The duties of the Administrative Agent shall be
mechanical and administrative in nature. The Documentation Agent, the
Administrative Agent, the Managing Agents and the Syndication Agent shall not
have by reason of this Agreement a fiduciary or trust relationship in respect of
any Bank; and nothing in this Agreement, expressed or implied, is intended to or
shall be so construed as to impose upon the Documentation Agent, the
Administrative Agent, the Managing Agents or the Syndication Agent any
obligations in respect of this Agreement except as expressly set forth herein.
Each Bank expressly acknowledges (i) that the Documentation Agent, the
Administrative Agent, the Managing Agents and the Syndication Agent have not
made any representations or warranties to it and that no act by the
Documentation Agent, any Managing Agent, the Syndication Agent or the
Administrative Agent hereafter taken, including any review of the affairs of any
of the Loan Parties, shall be deemed to constitute any representation or
warranty by the Documentation Agent, any Managing Agent, the Syndication Agent
or the Administrative Agent to any Bank; (ii) that it has made and will continue
to make, without reliance upon the Documentation Agent, the Administrative
Agent, the Managing Agents and the Syndication Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of each of the Loan Parties in connection with this
Agreement and the making and continuance of the Revolving Credit Loans
hereunder; and (iii) except as expressly provided herein, that the Documentation
Agent, the Managing Agents, the Syndication Agent and the Administrative Agent
shall have no duty or responsibility, either initially or on a continuing basis,
to provide any Bank with any credit or other information with respect thereto,
whether coming into its possession before the making of any Revolving Credit
Loan or at any time or times thereafter.
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9.4 ACTIONS IN DISCRETION OF DOCUMENTATION AGENT AND ADMINISTRATIVE AGENT;
----------------------------------------------------------------------
INSTRUCTIONS FROM THE BANKS.
----------------------------
The Documentation Agent and the Administrative Agent each agrees, upon the
written request of the Required Banks, to take or refrain from taking any action
of the type specified as being within the Documentation Agent's or the
Administrative Agent's rights, powers or discretion herein, PROVIDED that the
Documentation Agent or Administrative Agent shall not be required to take any
action which exposes the Documentation Agent or the Administrative Agent to
personal liability or which is contrary to this Agreement or any other Loan
Document or applicable Law. In the absence of a request by the Required Banks,
the Documentation Agent or the Administrative Agent shall have authority, in its
sole discretion, to take or not to take any such action, unless this Agreement
specifically requires the consent of the Required Banks or all of the Banks. Any
action taken or failure to act pursuant to such instructions or discretion shall
be binding on the Banks, subject to Section 9.6. Subject to the provisions of
Section 9.6, no Bank shall have any right of action whatsoever against the
Administrative Agent as a result of the Documentation Agent or the
Administrative Agent acting or refraining from acting hereunder in accordance
with the instructions of the Required Banks, or in the absence of such
instructions, in the absolute discretion of the Documentation Agent or the
Administrative Agent.
9.5 REIMBURSEMENT AND INDEMNIFICATION OF ADMINISTRATIVE AGENT AND DOCUMENTATION
---------------------------------------------------------------------------
AGENT BY THE BORROWER.
----------------------
The Borrower unconditionally agrees to pay or reimburse the Administrative Agent
and Documentation Agent and save the Administrative Agent and Documentation
Agent harmless against (a) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements, including fees and expenses of
counsel, appraisers and environmental consultants, incurred by the
Administrative Agent and Documentation Agent (i) in connection with the
development, negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other Loan
Documents, (ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the enforcement of
this Agreement or any other Loan Document or collection of amounts due hereunder
or thereunder or the proof and allowability of any claim arising under this
Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, and
(b) 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 the
Administrative Agent, in its capacity as such, the Documentation Agent, in its
capacity as such, in any way relating to or arising out of this Agreement or any
other Loan Documents or any action taken or omitted by the Documentation Agent
or the Administrative Agent hereunder or thereunder, PROVIDED that the Borrower
shall not be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
if the same results from the Documentation Agent's or Administrative Agent's
gross negligence or willful misconduct, or if the Borrower was not given notice
of the subject claim and the opportunity to participate in the defense thereof,
at its expense (except that the Borrower shall remain liable to the extent such
failure to give notice does not result in a loss to the Borrower), or if the
same results from a compromise or settlement agreement entered into without the
consent of the Borrower, which shall not be unreasonably withheld. In addition,
the Borrower agrees to reimburse and pay all reasonable out-of-pocket expenses
of the Administrative Agent's regular employees and agents engaged to perform
audits of the Loan Parties' books, records and business properties.
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9.6 EXCULPATORY PROVISIONS.
-----------------------
None of the Documentation Agent, the Administrative Agent, any Managing Agent,
the Syndication Agent or any Issuing Letter of Credit Bank or any of their
respective directors, officers, employees, agents, attorneys or Affiliates shall
(a) be liable to any Bank for any action taken or omitted to be taken by it or
them hereunder, or in connection herewith including pursuant to any Loan
Document, unless caused by its or its respective directors, officers, employees,
agents, attorneys or Affiliates own gross negligence or willful misconduct, (b)
be responsible in any manner to any of the Banks for the effectiveness,
enforceability, genuineness, validity or due execution of this Agreement or any
other Loan Documents or for any recital, representation, warranty, document,
certificate, report or statement herein or made or furnished under or in
connection with this Agreement or any other Loan Documents, or (c) be under any
obligation to any of the Banks to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions hereof or thereof on
the part of the Loan Parties, or the financial condition of the Loan Parties, or
the existence or possible existence of any Event of Default or Potential
Default. None of the Documentation Agent, the Administrative Agent, any Managing
Agent, the Syndication Agent or Issuing Letter of Credit Bank or any Bank or any
of their respective directors, officers, employees, agents, attorneys or
Affiliates shall be liable to any of the Loan Parties for consequential damages
resulting from any breach of contract, tort or other wrong in connection with
the negotiation, documentation, administration or collection of the Revolving
Credit Loans or any of the Loan Documents.
9.7 REIMBURSEMENT AND INDEMNIFICATION BY BANKS OF THE DOCUMENTATION AGENT, THE
--------------------------------------------------------------------------
MANAGING AGENTS, THE SYNDICATION AGENT AND THE ADMINISTRATIVE AGENT.
--------------------------------------------------------------------
Each Bank agrees to reimburse and indemnify the Documentation Agent, the
Administrative Agent, any Managing Agent, the Syndication Agent and any Issuing
Letter of Credit Bank (to the extent not reimbursed by the Borrower and without
limiting the Obligation of the Borrower to do so) in proportion to its Ratable
Share from and against 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 the
Documentation Agent, the Administrative Agent, any Managing Agent, the
Syndication Agent or any Issuing Letter of Credit Bank in its capacity as such,
in any way relating to or arising out of this Agreement or any other Loan
Documents or any action taken or omitted by the Documentation Agent, the
Administrative Agent, a Managing Agent, the Syndication Agent or any Issuing
Letter of Credit Bank hereunder or thereunder, PROVIDED that no Bank shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (a) if
the same results from the Documentation Agent's, Administrative Agent's, any
Managing Agent's, the Syndication Agent's or any Issuing Letter of Credit Bank's
gross negligence or willful misconduct, or (b) if such Bank was not given notice
of the subject claim and the opportunity to participate in the defense thereof,
at its expense (except that such Bank shall remain liable to the extent such
failure to give notice does not result in a loss to the Bank), or (c) if the
same results from a compromise and settlement agreement entered into without the
consent of such Bank, which shall not be unreasonably withheld. In addition,
each Bank agrees promptly upon demand to reimburse the Administrative Agent (to
the extent not reimbursed by the Borrower and without limiting the Obligation of
the Borrower to do so) in proportion to its Ratable Share for all amounts due
and payable by the Borrower to the Administrative Agent in connection with the
Administrative Agent's periodic audit of the Loan Parties' books, records and
business properties.
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9.8 RELIANCE BY DOCUMENTATION AGENT, ADMINISTRATIVE AGENT, MANAGING AGENTS AND
--------------------------------------------------------------------------
SYNDICATION AGENT.
------------------
The Documentation Agent, the Administrative Agent, the Managing Agents, the
Syndication Agent and the Issuing Letter of Credit Banks shall be entitled to
rely upon any writing, telegram, telex or teletype message, resolution, notice,
consent, certificate, letter, cablegram, statement, order or other document or
conversation by telephone or otherwise believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons, and upon
the advice and opinions of counsel and other professional advisers selected by
the Administrative Agent. The Documentation Agent, the Administrative Agent, the
Managing Agents, the Syndication Agent and the Issuing Letter of Credit Banks
shall be fully justified in failing or refusing to take any action hereunder
unless it shall first be indemnified to its satisfaction by the Banks against
any and all liability and expense (other than a liability or expense relating to
gross negligence or willful misconduct) which may be incurred by it by reason of
taking or continuing to take any such action.
9.9 NOTICE OF DEFAULT.
------------------
The Administrative Agent shall not be deemed to have knowledge or notice of the
occurrence of any Potential Default or Event of Default unless the
Administrative Agent has received written notice from a Bank or the Borrower
referring to this Agreement, describing such Potential Default or Event of
Default and stating that such notice is a "notice of default."
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9.10 NOTICES.
--------
The Administrative Agent and the Documentation Agent shall promptly send to each
Bank a copy of all notices and other documents received from the Borrower
pursuant to the provisions of this Agreement or the other Loan Documents
promptly upon receipt thereof. The Administrative Agent shall promptly notify
the Borrower and the other Banks of each change in the Base Rate and the
effective date thereof.
9.11 BANKS IN THEIR INDIVIDUAL CAPACITIES.
-------------------------------------
With respect to their Revolving Credit Commitments and the Revolving Credit
Loans made by them, the Documentation Agent and the Administrative Agent shall
have the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not the Documentation Agent or the Administrative Agent,
and the term "Banks" shall, unless the context otherwise indicates, include the
Documentation Agent and the Administrative Agent in their individual capacity.
The Documentation Agent and its Affiliates, the Administrative Agent and its
Affiliates and each of the Banks and their respective Affiliates may, without
liability to account, except as prohibited herein, make loans to, accept
deposits from, discount drafts for, act as trustee under indentures of, and
generally engage in any kind of banking or trust business with, the Loan Parties
and their Affiliates, in the case of the Documentation Agent, as though it were
not acting as Documentation Agent hereunder and in the case of each Bank, as
though such Bank were not a Bank hereunder.
9.12 HOLDERS OF REVOLVING CREDIT NOTES.
----------------------------------
The Administrative Agent may deem and treat any payee of any Revolving Credit
Note as the owner thereof for all purposes hereof unless and until written
notice of the assignment or transfer thereof shall have been filed with the
Administrative Agent. Any request, authority or consent of any Person who at the
time of making such request or giving such authority or consent is the holder of
any Revolving Credit Note shall be conclusive and binding on any subsequent
holder, transferee or assignee of such Revolving Credit Note or of any Revolving
Credit Note or Revolving Credit Notes issued in exchange therefor.
9.13 EQUALIZATION OF BANKS.
----------------------
The Banks and the holders of any participations in any Revolving Credit Notes
agree among themselves that, with respect to all amounts received by any Bank or
any such holder for application on any Obligation hereunder or under any
Revolving Credit Note or under any such participation, whether received by
voluntary payment, by realization upon security, by the exercise of the right of
set-off or banker's lien, by counterclaim or by any other non-pro rata source,
equitable adjustment will be made in the manner stated in the following sentence
so that, in effect, all such excess amounts will be shared ratably among the
Banks and such holders in proportion to their interests in payments under the
Revolving Credit Notes, except as otherwise provided in Sections 3.4.2 or 4.6.1.
The Banks or any such holder receiving any such amount shall purchase for cash
from each of the other Banks an interest in such Bank's Revolving Credit Loans
in such amount as shall result in a ratable participation by the Banks and each
such holder in the aggregate unpaid amount under the Revolving Credit Notes,
PROVIDED that if all or any portion of such excess amount is thereafter
recovered from the Bank or the holder making such purchase, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery,
together with interest or other amounts, if any, required by law (including
court order) to be paid by the Bank or the holder making such purchase.
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9.14 SUCCESSOR ADMINISTRATIVE AND DOCUMENTATION AGENTS.
--------------------------------------------------
The Administrative Agent (i) may resign as Administrative Agent or (ii) shall
resign if such resignation is requested by the Required Banks (if the
Administrative Agent is a Bank, the Administrative Agent's Revolving Credit
Loans and its Revolving Credit Commitment shall be considered in determining
whether the Required Banks have requested such resignation), in either case of
(i) or (ii) by giving not less than thirty (30) days' prior written notice to
the Borrower. The Documentation Agent may resign as Documentation Agent. If the
Administrative Agent or Documentation Agent shall resign under this Agreement,
then subject to the consent of the Borrower (which consent shall not be
unreasonably withheld and which consent shall not be required during any period
in which an Event of Default exists) either (a) the Required Banks shall appoint
from among the Banks a successor administrative agent or documentation agent for
the Banks, or (b) if a successor agent shall not be so appointed and approved
within the thirty (30) day period following the Administrative Agent's notice or
the Documentation Agent's notice to the Banks of its resignation, then the
Administrative Agent or the Documentation Agent, as the case may be, shall
appoint a successor administrative agent or documentation agent, as the case may
be, who shall serve as Administrative Agent or Documentation Agent until such
time as the Required Banks appoint a successor administrative agent or
documentation agent. Upon its appointment, such successor administrative agent
or documentation agent shall succeed to the rights, powers and duties of the
Administrative Agent or the Documentation Agent, as the case may be, and the
term "Administrative Agent" or "Documentation Agent" shall mean such successor
effective upon its appointment, and the former Administrative Agent's or
Documentation Agent's rights, powers and duties as Administrative Agent or
Documentation Agent, as the case may be, shall be terminated without any other
or further act or deed on the part of such former Administrative Agent or
Documentation Agent or any of the parties to this Agreement. After the
resignation of any Administrative Agent or Documentation Agent hereunder, the
provisions of this Article shall inure to the benefit of such former
Administrative Agent or Documentation Agent and such former Administrative Agent
or Documentation Agent shall not by reason of such resignation be deemed to be
released from liability for any actions taken or not taken by it while it was an
Administrative Agent or Documentation Agent under this Agreement.
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9.15 OTHER FEES.
-----------
The Borrower shall pay to the Administrative Agent the administrative fees due
pursuant to that certain commitment letter dated March 25, 1996 among the
Borrower and the various Agents at the times set forth in such letter.
9.16 AVAILABILITY OF FUNDS.
----------------------
Unless the Administrative Agent shall have been notified by a Bank prior to the
date upon which a Revolving Credit Loan is to be made that such Bank does not
intend to make available to the Administrative Agent such Bank's portion of such
Revolving Credit Loan, the Administrative Agent may assume that such Bank has
made or will make such proceeds available to the Administrative Agent on such
date and the Administrative Agent may, in reliance upon such assumption (but
shall not be required to), make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the
Administrative Agent by such Bank, the Administrative Agent shall be entitled to
recover such amount on demand from such Bank (or, if such Bank fails to pay such
amount forthwith upon such demand from the Borrower) together with interest
thereon, in respect of each day during the period commencing on the date such
amount was made available to the Borrower and ending on the date the
Administrative Agent recovers such amount, at a rate per annum equal to the
Federal Funds Effective Rate.
9.17 CALCULATIONS.
-------------
In the absence of gross negligence or willful misconduct, the Administrative
Agent shall not be liable for any error in computing the amount payable to any
Bank whether in respect of the Revolving Credit Loans, fees or any other amounts
due to the Banks under this Agreement. In the event an error in computing any
amount payable to any Bank is made, the Administrative Agent, the Borrower and
each affected Bank shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error, and any compensation
therefor will be calculated at the Federal Funds Effective Rate.
9.18 BENEFICIARIES.
--------------
Except as expressly provided herein, the provisions of this Article are solely
for the benefit of the Documentation Agent, the Administrative Agent, the
Managing Agents, the Syndication Agent and the Banks, and the Loan Parties shall
not have any rights to rely on or enforce any of the provisions hereof. In
performing its functions and duties under this Agreement, the Administrative
Agent shall act solely as agent of the Banks and does not assume and shall not
be deemed to have assumed any obligation toward or relationship of agency or
trust with or for any of the Loan Parties.
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9.19 ABSENCE OF DUTIES OF MANAGING AGENTS AND SYNDICATION AGENT.
-----------------------------------------------------------
The Managing Agents and the Syndication Agent shall have no obligations or
duties under this Agreement.
10. MISCELLANEOUS
-------------
10.1 MODIFICATIONS, AMENDMENTS OR WAIVERS.
-------------------------------------
With the written consent of the Required Banks, the Administrative Agent, acting
on behalf of all the Banks, and the Borrower, on behalf of the Loan Parties, may
from time to time enter into written agreements amending or changing any
provision of this Agreement or any other Loan Document or the rights of the
Banks or the Loan Parties hereunder or thereunder, or may grant written waivers
or consents to a departure from the due performance of the Obligations of the
Loan Parties hereunder or thereunder; provided, however, that the written
consent of the Required Banks shall not be required with respect to the joinder
of additional Loan Parties pursuant to Section 10.18. Any such agreement, waiver
or consent made with such written consent shall be effective to bind all the
Banks and the Loan Parties; PROVIDED, that, without the written consent of all
the Banks, no such agreement, waiver or consent may be made which will:
10.1.1 INCREASE OF REVOLVING CREDIT COMMITMENT; EXTENSION OR EXPIRATION DATE.
----------------------------------------------------------------------
Increase the amount of the Revolving Credit Commitment of any Bank hereunder or
extend the Expiration Date;
10.1.2 EXTENSION OF PAYMENT; REDUCTION OF PRINCIPAL INTEREST OR FEES;
--------------------------------------------------------------
MODIFICATION OF TERMS OF PAYMENT.
---------------------------------
Whether or not any Revolving Credit Loans are outstanding, extend the time for
payment of principal or interest of any Revolving Credit Loan, the Commitment
Fee or any other fee payable to any Bank, or reduce the principal amount of or
the rate of interest borne by any Revolving Credit Loan or reduce the Commitment
Fee or any other fee payable to any Bank, or otherwise affect the terms of
payment of the principal of or interest of any Revolving Credit Loan, the
Commitment Fee or any other fee payable to any Bank;
10.1.3 RELEASE OF GUARANTOR.
---------------------
Release the Company or any Material Subsidiary from its Obligations under the
Master Guaranty Agreement or any other security for any of the Loan Parties'
Obligations; or
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10.1.4 MISCELLANEOUS
-------------
Amend Sections 4.2 [Pro Rata Treatment of Banks], 9.6 [Exculpatory Provisions]
or 9.13 [Equalization of Banks] or this Section 10.1, alter any provision
regarding the pro rata treatment of the Banks, change the definition of Required
Banks, or change any requirement providing for the Banks or the Required Banks
to authorize the taking of any action hereunder.
No agreement, waiver or consent which would modify the interests, rights or
obligations of the Documentation Agent in its capacity as Documentation Agent,
of the Administrative Agent in its capacity as Administrative Agent or of an
Issuing Letter of Credit Bank in its capacity as the issuer of Letters of Credit
shall be effective without the written consent of the Documentation Agent, the
Administrative Agent or such Issuing Letter of Credit Bank, respectively.
10.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED.
----------------------------------------------------------
No course of dealing and no delay or failure of the Documentation Agent, the
Administrative Agent or any Bank in exercising any right, power, remedy or
privilege under this Agreement or any other Loan Document shall affect any other
or future exercise thereof or operate as a waiver thereof, nor shall any single
or partial exercise thereof or any abandonment or discontinuance of steps to
enforce such a right, power, remedy or privilege preclude any further exercise
thereof or of any other right, power, remedy or privilege. The rights and
remedies of the Documentation Agent, the Administrative Agent, the Syndication
Agent, the Managing Agents, the Issuing Letter of Credit Banks and the Banks
under this Agreement and any other Loan Documents are cumulative and not
exclusive of any rights or remedies which they would otherwise have. Any waiver,
permit, consent or approval of any kind or character on the part of any Bank of
any breach or default under this Agreement or any such waiver of any provision
or condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.
10.3 REIMBURSEMENT AND INDEMNIFICATION OF BANKS BY THE BORROWER; TAXES.
------------------------------------------------------------------
The Borrower agrees unconditionally upon demand to pay or reimburse to each Bank
(other than the Administrative Agent and the Documentation Agent, as to which
the Borrower's Obligations are set forth in Section 9.5) and to save such Bank
harmless against (i) liability for the payment of all reasonable out-of-pocket
costs, expenses and disbursements (including fees and expenses of counsel for
each Bank except with respect to (a) and (b) below), incurred by such Bank (a)
in connection with the administration and interpretation of this Agreement, and
other instruments and documents to be delivered hereunder, (b) relating to any
amendments, waivers or consents pursuant to the provisions hereof, (c) in
connection with the enforcement of this Agreement or any other Loan Document, or
collection of amounts due hereunder or thereunder or the proof and allowability
of any claim arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, or (ii) 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 such Bank, in its capacity as such, in any way relating to or arising
out of this Agreement (including without limitation Section 4.6.2) or any other
Loan Documents or any action taken or omitted by such Bank hereunder or
thereunder, PROVIDED that the Borrower shall not be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements (A) if the same results from such Bank's
gross negligence or willful misconduct, or (B) if the Borrower was not given
notice of the subject claim and the opportunity to participate in the defense
thereof, at its expense (except that the Borrower shall remain liable to the
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extent such failure to give notice does not result in a loss to the Borrower),
or (C) if the same results from a compromise or settlement agreement entered
into without the consent of the Borrower, which shall not be unreasonably
withheld. The Banks will attempt to minimize the fees and expenses of legal
counsel for the Banks which are subject to reimbursement by the Borrower
hereunder by considering the usage of one law firm to represent the Banks and
the Administrative Agent if appropriate under the circumstances. The Borrower
agrees unconditionally to pay all stamp, documentary, transfer, recording or
filing taxes or fees and similar impositions now or hereafter determined by the
Administrative Agent or any Bank to be payable in connection with this Agreement
or any other Loan Document, and the Borrower agrees unconditionally to save the
Administrative Agent and the Banks harmless from and against any and all present
or future claims, liabilities or losses with respect to or resulting from any
omission to pay or delay in paying any such taxes, fees or impositions.
10.4 HOLIDAYS.
---------
Whenever any payment or action to be made or taken hereunder shall be stated to
be due on a day which is not a Business Day, such payment or action shall be
made or taken on the next following Business Day (except as provided in Section
3.2.1 with respect to Interest Periods under the Revolving Credit Euro-Rate
Option), and such extension of time shall be included in computing interest or
fees, if any, in connection with such payment or action.
10.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.
-------------------------------------------
10.5.1 NOTIONAL FUNDING.
-----------------
Each Bank shall have the right from time to time, without notice to the
Borrower, to deem any branch, Subsidiary or Affiliate (which for the purposes of
this Section 10.5 shall mean any corporation or association which is directly or
indirectly controlled by or is under direct or indirect common control with any
corporation or association which directly or indirectly controls such Bank) of
such Bank to have made, maintained or funded any Revolving Credit Loan to which
the Revolving Credit Euro-Rate Option applies at any time, PROVIDED that
immediately following (on the assumption that a payment were then due from the
Borrower to such other office), and as a result of such change, the Borrower
would not be under any greater financial obligation pursuant to Section than it
would have been in the absence of such change. Notional funding offices may be
selected by each Bank without regard to such Bank's actual methods of making,
maintaining or funding the Revolving Credit Loans or any sources of funding
actually used by or available to such Bank; and
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<PAGE> 104
10.5.2 ACTUAL FUNDING.
---------------
Each Bank shall have the right from time to time to make or maintain any
Revolving Credit Loan by arranging for a branch, Subsidiary or Affiliate of such
Bank to make or maintain such Revolving Credit Loan subject to the last sentence
of this Section 10.5.2. If any Bank causes a branch, Subsidiary or Affiliate to
make or maintain any part of the Revolving Credit Loans hereunder, all terms and
conditions of this Agreement shall, except where the context clearly requires
otherwise, be applicable to such part of the Revolving Credit Loans to the same
extent as if such Revolving Credit Loans were made or maintained by such Bank,
but in no event shall any Bank's use of such a branch, Subsidiary or Affiliate
to make or maintain any part of the Revolving Credit Loans hereunder cause such
Bank or such branch, Subsidiary or Affiliate to incur any cost or expenses
payable by the Borrower hereunder or require the Borrower to pay any other
compensation to any Bank (including any expenses incurred or payable pursuant to
Section 4.6) which would otherwise not be incurred.
10.6 NOTICES.
--------
All notices, requests, demands, directions and other communications (as used in
this Section 10.6, collectively referred to as "notices") given to or made upon
any party hereto under the provisions of this Agreement shall be by telephone
or in writing (including telex or facsimile communication) unless otherwise
expressly permitted hereunder and shall be delivered or sent by telex or
facsimile to the respective parties at the addresses and numbers set forth
under their respective names on the signature pages hereof or in accordance
with any subsequent unrevoked written direction from any party to the others.
All notices shall, except as otherwise expressly herein provided, be
effective (a) in the case of telex or facsimile, when received, (b) in the case
of hand-delivered notice, when hand-delivered, (c) in the case of telephone,
when telephoned, PROVIDED, however, that in order to be effective, telephonic
notices must be confirmed in writing no later than the next day by letter,
facsimile or telex, (d) if given by mail, four (4) days after such
communication is deposited in the mail with first-class postage prepaid, return
receipt requested, and (e) if given by any other means (including by air
courier), when delivered; PROVIDED, that notices to the Administrative Agent
shall not be effective until received. Any Bank giving any notice to any Loan
Party shall simultaneously send a copy thereof to the Administrative Agent, and
the Administrative Agent shall promptly notify the other Banks of the receipt
by it of any such notice.
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<PAGE> 105
10.7 SEVERABILITY.
- ------------------
The provisions of this Agreement are intended to be severable. If any provision
of this Agreement shall be held invalid or unenforceable in whole or in part in
any jurisdiction, such provision shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability thereof in any other jurisdiction or
the remaining provisions hereof in any jurisdiction.
10.8 GOVERNING LAW.
--------------
Each Letter of Credit and Section 2.9 shall be subject to the Uniform Customs
and Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, as the same may be revised or amended from time to
time, and to the extent not inconsistent therewith, the internal laws of the New
York without regard to its conflict of laws principles and the balance of this
Agreement shall be deemed to be a contract under the Laws of the Ohio and for
all purposes shall be governed by and construed and enforced in accordance with
the internal laws of the State of Ohio without regard to its conflict of laws
principles.
10.9 PRIOR UNDERSTANDING.
--------------------
This Agreement and the other documents and instruments executed in connection
herewith supersede all prior understandings and agreements, whether written or
oral, between the parties hereto and thereto relating to the transactions
provided for herein and therein, including any prior confidentiality agreements
and commitments.
10.10 DURATION; SURVIVAL.
-------------------
All representations and warranties of the Loan Parties contained herein or made
in connection herewith shall survive the making of Revolving Credit Loans and
issuance of Letters of Credit and shall not be waived by the execution and
delivery of this Agreement, any investigation by the Administrative Agent, the
Documentation Agent, the Syndication Agent, the Managing Agents, the Issuing
Letter of Credit Banks or the Banks, the making of Revolving Credit Loans,
issuance of Letters of Credit, or payment in full of the Revolving Credit Loans.
All covenants and agreements of the Loan Parties contained in Sections 7.1, 7.2
and 7.3 shall continue in full force and effect from and after the date hereof
so long as the Borrower may borrow or request Letters of Credit hereunder and
until termination of the Revolving Credit Commitments, repayment of all
Revolving Credit Loans and expiration or termination of all Letters of Credit.
All covenants and agreements of the Borrower contained herein relating to the
payment of principal, interest, premiums, additional compensation or expenses
and indemnification, including those set forth in the Revolving Credit Notes,
Article 4 and Sections 9.5, 9.7 and 10.3, shall survive payment in full of the
Revolving Credit Loans, expiration or termination of the Letters of Credit and
termination of the Revolving Credit Commitments.
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<PAGE> 106
10.11 SUCCESSORS AND ASSIGNS.
-----------------------
This Agreement shall be binding upon and shall inure to the benefit of the
Banks, the Documentation Agent, the Administrative Agent, the Syndication
Agent, the Managing Agents, the Issuing Letter of Credit Banks, the Loan
Parties and their respective successors and assigns, except that none of the
Loan Parties may assign or transfer any of its rights and Obligations hereunder
or any interest herein without consent of all Banks. Each Bank may, at its own
cost, make assignments of all or any part of its Revolving Credit Commitment
and Revolving Credit Loans and its Ratable Share of Letter of Credit
Outstandings to one or more banks or other entities, subject to the consent of
the Borrower (which consent shall not be required during any period in which an
Event of Default exists), the Issuing Letter of Credit Banks and the
Administrative Agent with respect to any assignee, such consents not to be
unreasonably withheld, and PROVIDED that assignments may not be made in amounts
less than $10,000,000. Each Bank may, at its own cost, grant participations in
all or any part of its Revolving Credit Commitment and the Revolving Credit
Loans made by it and of its Ratable Share of Letter of Credit Outstandings to
one or more banks or other entities, without the consent of any party hereto.
In the case of an assignment, upon receipt by the Administrative Agent of the
Assignment and Assumption Agreement, the assignee shall have, to the extent of
such assignment (unless otherwise provided therein), the same rights, benefits
and obligations as it would have if it had been a signatory Bank hereunder, the
Revolving Credit Commitments in Section 2.1 shall be adjusted accordingly, and
upon surrender of any Revolving Credit Note subject to such assignment, the
Borrower shall execute and deliver a new Revolving Credit Note to the assignee
in an amount equal to the amount of the Revolving Credit Commitment assumed by
it and a new Revolving Credit Note to the assigning Bank in an amount equal to
the Revolving Credit Commitment retained by it hereunder. Any assigning Bank
shall pay to the Administrative Agent a service fee in the amount of $3,500 for
each assignment, which amount shall not be subject to reimbursement or
indemnification by the Borrower. In the case of a participation, the
participant shall only have the rights specified in Section 8.2.3 (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto and not to include any voting rights except with
respect to changes of the type referenced in Sections 10.1.1, 10.1.2, and
10.1.3), all of such Bank's obligations under this Agreement or any other Loan
Document shall remain unchanged, and all amounts payable by any Loan Party
hereunder or thereunder shall be determined as if such Bank had not sold such
participation. Any assignee or participant which is not incorporated under the
Laws of the United States of America or a state thereof shall deliver to the
Borrower and the Administrative Agent the form of certificate described in
Section 10.17 relating to federal income tax withholding. Each Bank may furnish
any publicly available information concerning any Loan Party or its
Subsidiaries and any other information concerning any Loan Party or its
Subsidiaries in the possession of such Bank from time to time to assignees and
participants (including prospective assignees or participants), PROVIDED that
such assignees and participants agree to be bound by the provisions of Section
10.12.
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<PAGE> 107
10.12 CONFIDENTIALITY.
----------------
The Documentation Agent, the Administrative Agent and the Banks each agree to
keep confidential all information obtained from any Loan Party or its
Subsidiaries which is nonpublic and confidential or proprietary in nature
(including any information the Borrower specifically designates as
confidential), except as provided below, and to use such information only in
connection with their respective capacities under this Agreement and for the
purposes contemplated hereby. The Documentation Agent, the Administrative Agent
and the Banks shall be permitted to disclose such information (i) to outside
legal counsel, accountants and other professional advisors who need to know such
information in connection with the administration and enforcement of this
Agreement and who are notified that the information is to be treated as
confidential, (ii) to assignees and participants as contemplated by Section
10.11, (iii) to the extent requested by any bank regulatory authority or, with
notice to the Borrower if not prohibited, as otherwise required by applicable
Law or by any subpoena or similar legal process, or in connection with any
investigation or proceeding arising out of the transactions contemplated by this
Agreement, (iv) if it becomes publicly available other than as a result of a
breach of this Agreement or becomes available from a source not known to be
subject to confidentiality restrictions, (v) if the Borrower shall have
consented to such disclosure, or (vi) after notice to the Borrower unless the
Borrower is an adverse party in such litigation, in connection with any
litigation to which any Bank is a party the subject matter of which involves
this Agreement or is deemed necessary upon the advice of legal counsel of such
Bank by such Bank in any defense of such litigation.
10.13 COUNTERPARTS.
-------------
This Agreement may be executed by different parties hereto on any number of
separate counterparts, including facsimiles, each of which, when so executed and
delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.
10.14 DOCUMENTATION AGENT'S OR BANK'S CONSENT.
----------------------------------------
Whenever the Documentation Agent's, the Administrative Agent's any Managing
Agent's, the Syndication Agent's, any Issuing Letter of Credit Bank's or any
Bank's consent is required to be obtained under this Agreement or any of the
other Loan Documents as a condition to any action, inaction, condition or event,
the Documentation Agent, the Administrative Agent each Managing Agent, the
Syndication Agent, each Issuing Letter of Credit Bank and each Bank shall be
authorized to give or withhold such consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.
10.15 EXCEPTIONS.
-----------
The representations, warranties and covenants contained herein shall be
independent of each other, and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
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<PAGE> 108
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
---------------------------------------
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF
THE COURT OF COMMON PLEAS OF FRANKLIN COUNTY AND THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF OHIO, AND WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN PARTY AT THE ADDRESSES
PROVIDED FOR IN SECTION 10.6 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN
AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR
INCONVENIENT FORUM. EACH LOAN PARTY, THE ADMINISTRATIVE AGENT AND THE BANKS
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT
OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
10.17 TAX WITHHOLDING CLAUSE.
-----------------------
Each Bank or assignee or participant of a Bank that is not incorporated under
the Laws of the United States of America or a state thereof agrees that it will
deliver to each of the Borrower and the Administrative Agent two (2) duly
completed copies of the following: (i) Internal Revenue Service Form W-9, 4224
or 1001, or other applicable form prescribed by the Internal Revenue Service,
certifying that such Bank, assignee or participant is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes, or is subject to such tax
at a reduced rate under an applicable tax treaty, or (ii) Internal Revenue
Service Form W-8 or other applicable form or a certificate of such Bank,
assignee or participant indicating that no such exemption or reduced rate is
allowable with respect to such payments. Each Bank, assignee or participant
required to deliver to the Borrower and the Documentation Agent a form or
certificate pursuant to the preceding sentence shall deliver such form or
certificate as follows: (A) each Bank which is a party hereto on the Closing
Date shall deliver such form or certificate at least five (5) Business Days
prior to the first date on which any interest or fees are payable by the
Borrower hereunder for the account of such Bank; (B) each assignee or
participant shall deliver such form or certificate at least five (5) Business
Days before the effective date of such assignment or participation (unless the
Documentation Agent in its sole discretion shall permit such assignee or
participant to deliver such form or certificate less than five (5) Business Days
before such date in which case it shall be due on the date specified by the
Documentation Agent). Each Bank, assignee or participant which so delivers a
Form W-8, W-9, 4224 or 1001 further undertakes to deliver to each of the
Borrower and the Documentation Agent two (2) additional copies of such form (or
a successor form) on or before the date that such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the
Documentation Agent, either certifying that such Bank, assignee or participant
is entitled to receive payments under this Agreement and the other Loan
Documents without deduction or withholding of any United States federal income
taxes or is subject to such tax at a reduced rate under an applicable tax treaty
or stating that no such exemption or reduced rate is allowable. The
Documentation Agent shall be entitled to withhold United States federal income
taxes at the full withholding rate unless the Bank, assignee or participant
establishes an exemption or that it is subject to a reduced rate as established
pursuant to the above provisions.
-99-
<PAGE> 109
10.18 JOINDER OF GUARANTORS.
----------------------
Any Subsidiary of the Borrower which is required to join the Master Guaranty
Agreement pursuant to Section 7.2.9 shall execute and deliver to the
Documentation Agent a signature page to the Master Guaranty Agreement and to the
Master Intercompany Subordination Agreement. The Loan Parties shall deliver such
Guarantor Joinder to the Documentation Agent within five (5) Business Days after
the date of the filing of such Subsidiary's articles of incorporation if the
Subsidiary is a corporation, the date of the filing of its certificate of
limited partnership if it is a limited partnership or the date of its
organization if it is an entity other than a limited partnership or corporation
or, if acquired, the date of acquisition.
-100-
<PAGE> 110
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
ATTEST: CONSOLIDATED STORES CORPORATION,
Borrower
By: /s/ Michael J. Potter
Title: Senior Vice President and
Chief Financial Officer
[Seal] Address for Notices:
300 Phillipi Road
P.O. Box 28512
Columbus, Ohio 43228-0512
Telecopier No. (614) 278-6666
Attention: James E. Eggenschwiler
Telephone No. (614) 278-6800
NATIONAL CITY BANK OF COLUMBUS,
as Administrative Agent, as
Managing Agent and as a Bank
By: /s/ Ralph A. Kaparos
Title: Senior Vice President
Address for Notices:
155 East Broad Street
Capital Banking Division, 3rd Floor
Columbus, Ohio 43251-0034
Telecopier No. (614) 463-8572
Attention: Ralph A. Kaparos
Telephone No. (614) 463-7296
-101-
<PAGE> 111
NATIONAL CITY BANK, as Managing Agent and as a
Bank
By: /s/ Ted M. Parker
Title: Vice President
Address for Notices:
National City Bank
1900 E. Ninth Street, LOC #2102
Cleveland, Ohio 44114
Telecopier No. (216) 575-9396
Attention: Ted M. Parker
Telephone No. (216) 575-3097
BANK ONE, COLUMBUS, N.A., as Managing Agent and
as a Bank
By: /s/ Thomas E. Redmond
Title: Vice President
Address for Notices:
Bank One, Columbus, NA
100 E. Broad Street
Columbus, Ohio 43271-0170
Telecopier No. (614) 248-5518
Attention: Thomas E. Redmond
Telephone No. (614) 248-5540
-102-
<PAGE> 112
PNC BANK, OHIO, NATIONAL ASSOCIATION, as
Documentation Agent,
Managing Agent and as a Bank
By: /s/ John T. Taylor
Title: Senior Vice President
Address for Notices:
National Corp. Banking
201 E. Fifth Street
Cincinnati, OH 45201-1198
Telecopier No. (513) 651-8952
Attention: John T. Taylor
Telephone No. (513) 651-8688
THE BANK OF NEW YORK, as Syndication Agent,
as Managing Agent and as a Bank
By: /s/ Paula M. DiPonzio
Title: Vice President
Address for Notices:
One Wall Street - 8th Floor
New York, NY 10286
Telecopier No. (212) 635-1483
Attention: Paula DiPonzio
Telephone No. (212) 635-7861
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<PAGE> 1
EXHIBIT 10(e)(ii)
CONSOLIDATED STORES CORPORATION
The Company,
and
THE BANK OF NEW YORK
The Trustee,
----------
FIRST SUPPLEMENTAL INDENTURE
Dated as of January 22, 1997
----------
$100,000,000
7% Senior Subordinated Notes
due May 4, 2000
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE, dated as of January 22, 1997 (the
"Amendment"), among Consolidated Stores Corporation, an Ohio corporation (the
"Company"), and The Bank of New York, a New York banking corporation (the
"Trustee").
RECITALS
WHEREAS, the Company and the Trustee have entered into an Indenture
dated as of May 5, 1996 (the "Indenture") relating to the Company's 7% Senior
Subordinated Notes due May 4, 2000 (the "Securities");
WHEREAS, Section 9.02 of the Indenture specifically authorizes the
Company and the Trustee to amend the Indenture in the circumstances and the
manner provided therein with the consent of the holders of at least a majority
in aggregate principal amount of the Securities at the time outstanding or of
each holder of Securities affected, as the case may be;
WHEREAS, Nashua Hollis CVS, Inc., a New Hampshire corporation ("Nashua
CVS"), the holder of all outstanding Securities, has consented to the Amendment
and evidence of the written consent to this Amendment by Nashua CVS has been
delivered to the Trustee by the Company; and
WHEREAS, all corporate action required to authorize this Amendment has
been duly taken by the Company and the Trustee.
NOW, THEREFORE, the Company and the Trustee hereby agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Capitalized terms used but not
defined herein shall have the meaning given to such terms in the Indenture.
SECTION 2. AMENDMENTS TO DEFINITIONS. Section 1.01 of the Indenture is
amended by inserting, in their appropriate alphabetical positions, the following
definitions:
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to
time.
"Environmental Laws" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the
environment, including but not limited to those related to hazardous
substances or wastes, air emissions and discharges to waste or public
systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the
Company under section 414 of the Code.
<PAGE> 3
"Institutional Investor" means (a) any purchaser of a Security pursuant
to the Note Purchase Agreement, (b) any Holder of a Security holding
more than 5% of the aggregate principal amount of the Securities then
outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any
other similar financial institution or entity, regardless or legal
form.
"Make-Whole Amount" shall have the meaning set forth in Section 3.08.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or
properties of the Company and its Subsidiaries taken as a whole, or (b)
the ability of the Company to perform its obligations under this
Indenture and the Securities, or (c) the validity or enforceability of
this Indenture or the Securities.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"Note Purchase Agreement" means a Purchase Agreement to be entered into
among the Company, Nashua CVS and purchasers of the Securities from
Nashua CVS, whose names will be listed on the signature pages thereof,
as amended or supplemented from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means an "employee benefit plan" (as defined in Section 3(3) of
ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the
Company or any ERISA Affiliate or with respect to which the Company or
any ERISA Affiliate may have any liability.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
SECTION 3. AMENDMENT OF ARTICLE 2 OF THE INDENTURE. Section 2.04 is
amended by adding, immediately following each reference to "premium", the
reference "or Make-Whole Amount".
SECTION 4. AMENDMENT OF ARTICLE 3 OF THE INDENTURE. Article 3 of the
Indenture is amended as follows:
(a) Section 3.01 is amended and restated in its entirety to
read as follows:
Section 3.01. RIGHT TO REDEEM; NOTICES TO TRUSTEE. The Company may, at
its option, upon notice as provided in Section 3.03, redeem at any time, on and
after May 5, 1998, all, or from time to time thereafter any part of, the
Securities, in an amount not less than 5% of the aggregate principal amount of
the Securities then outstanding in the case of a partial redemption, at a
Redemption Price equal to 100% of the principal amount so redeemed, plus the
Make-Whole Amount determined for the Redemption Date with respect to such
principal amount. If the Company elects to redeem Securities, it shall notify
the Trustee in
<PAGE> 4
writing of the Redemption Date, the principal amount of Securities to be
redeemed and the Redemption Price. The Company shall give the notice to the
Trustee provided for in this Section 3.01 at least 45 days before the Redemption
Date (unless a shorter notice shall be satisfactory to the Trustee).
(b) Section 3.03 of the Indenture is amended by adding the
following paragraph immediately following the end of
subsection (g) of the second paragraph:
The notice shall be accompanied by a certificate of a Senior
Financial Officer as to the estimated Make-Whole Amount due in
connection with such redemption (calculated as if the date of such
notice were the Redemption Date), setting forth the details of such
computation. Two Business Days prior to such redemption, the Company
shall deliver to each Holder of Securities to be redeemed a certificate
of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount as of the specified Redemption Date.
(c) by adding the following Sections 3.07 and 3.08 in their
entirety immediately following Section - 3.06:
Section 3.07. PURCHASE OF SECURITIES. The Company will not and
will not permit any Affiliate to purchase, redeem or otherwise acquire,
directly or indirectly, any of the outstanding Securities except (a)
upon the payment or redemption of the Securities in accordance with the
terms of this Indenture and the Securities or (b) pursuant to an offer
to purchase made by the Company or an Affiliate pro rata to the Holders
of all Securities at the time outstanding upon the same terms and
conditions. Any such offer shall provide each Holder with sufficient
information to enable it to make an informed decision with respect to
such offer, and shall remain open for at least 15 Business Days. If the
Holders of more than 50% of the principal amount of the Securities then
outstanding accept such offer, the Company shall promptly notify the
remaining Holders of such fact (the "Second Notice") and the expiration
date for the acceptance by Holders of Securities of such offer shall be
extended by the number of days necessary to give each such remaining
Holder at least 15 Business Days from its receipt of such Second Notice
to accept such offer. The Company will promptly cancel all Securities
acquired by it or any Affiliate pursuant to any payment, redemption or
purchase of Securities pursuant to any provision of this Agreement and
no Securities may be issued in substitution or exchange for any such
Securities.
Section 3.08. MAKE-WHOLE AMOUNT. The term "Make-Whole Amount"
means, with respect to any Security, an amount equal to the excess, if
any, of the Discounted Value of the Remaining Scheduled Payments with
respect to the Called Principal of such Security over the amount of
such Called Principal, PROVIDED that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole
Amount, the following terms have the following meanings:
"Called Principal" means, with respect to any
Security, the principal of such Security that is to be
redeemed pursuant to Section 3.01 or has become or is declared
to be immediately due and payable pursuant to Section 6.02, as
the context requires.
"Discounted Value" means, with respect to the Called
Principal of any Security, the amount obtained by discounting
all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount
factor (ap-
<PAGE> 5
plied on the same periodic basis as that on which interest on
the Securities is payable) equal to the Reinvestment Yield
with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Security, the yield to maturity implied by
(i) the yields reported, as of 10:00 A.M. (New York City time)
on the second Business Day preceding the Settlement Date with
respect to such Called Principal, on the display designated as
"Page 500" on the Telerate Access Service (or such other
display as may replace Page 500 on Telerate Access Service)
for actively traded U.S. Treasury securities having a maturity
equal to the Remaining Average Life of such Called Principal
as of such Settlement Date, or (ii) if such yields are not
reported as of such time or the yields reported as of such
time are not ascertainable, the Treasury Constant Maturity
Series Yields reported, for the latest day for which such
yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519)
(or any comparable successor publication) for actively traded
U.S. Treasury securities having a constant maturity equal to
the Remaining Average Life of such Called Principal as of such
Settlement Date plus 0.50%. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with
accepted financial practice and (b) interpolating linearly
between (1) the actively traded U.S. Treasury security with
the duration closest to and greater than the Remaining Average
Life and (2) the actively traded U.S. Treasury security with
the duration closest to and less than the Remaining Average
Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called
Principal into (ii) the sum of the products obtained by
multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b)
the number of years (calculated to the nearest one-twelfth
year) that will elapse between the Settlement Date with
respect to such Called Principal and the scheduled due date of
such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Security, all payments of such Called
Principal and interest thereon that would be due after the
Settlement Date with respect to such Called Principal if no
payment of such Called Principal were made prior to its
scheduled due date, PROVIDED that if such Settlement Date is
not a date on which interest payments are due to be made under
the terms of the Securities, then the amount of the next
succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to
Section 3.01 or 6.02.
"Settlement Date" means, with respect to the Called Principal
of any Security, the date on which such Called Principal is to
be redeemed pursuant to Section 3.01 or has become or is
declared to be immediately due and payable pursuant to Section
6.02, as the context requires.
<PAGE> 6
SECTION 5. AMENDMENT OF ARTICLE 4 OF THE INDENTURE. Article 4 of the
Indenture is amended as follows:
(a) by replacing the reference in Section 4.03(a) to "The Company
shall deliver to the Trustee within 120 days after the end of
each of the Company's fiscal years" with the reference "Each
set of financial statements filed with the Trustee and
supplied to each Holder of the Securities pursuant to Section
4.02 shall be accompanied by".
(b) by replacing the reference in Section 4.03(c) to "15 days"
with the reference "5 days".
(c) by adding the following Sections 4.03(e) and 4.03(f) in their
entirety, immediately following Section 4.03(d):
(e) The Company shall deliver to the Trustee promptly, and in any
event within five days after an Officer becomes aware of any
of the following, a written notice setting forth the nature
thereof and the action, if any, that the Company or an ERISA
Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been
waived pursuant to such regulations as in effect on
the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of,
proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or
any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with
respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result
in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA
or the penalty or excise tax pro visions of the Code
relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties
or assets of the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or such penalty or
excise tax provisions, if such liability or Lien, taken
together with any other such liabilities or Liens then
existing, would reasonably be expected to have a
Material Adverse Effect.
(f) The Company shall deliver to each Holder of Securities that is
an Institutional Investor, with reasonable promptness, such
other data and information relating to the business,
operations, affairs, financial condition, assets or properties
of the Company or any of its Subsidiaries or relating to the
ability of the Company to perform its obligations hereunder
and under the Securities as from time to time may be
reasonably requested by any such Holder of Securities.
<PAGE> 7
(d) by adding the following Sections 4.17 and 4.18, immediately
following the end of Section 4.16:
Section 4.17. COMPLIANCE WITH LAW. The Company shall and shall
cause each of its Subsidiaries to comply with all laws,
ordinances or governmental rules or regulations to which each
of them is subject, including, without limitation,
Environmental Laws, and shall obtain and maintain in effect
all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their
respective businesses, in each case to the extent necessary to
ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits,
franchises and other governmental authorizations would not
reasonably be expected, individually or in the aggregate, to
have a materially adverse effect on the business, operations,
affairs, financial condition, properties or assets of the
Company and its Subsidiaries taken as a whole.
Section 4.18. INSPECTION. The Company shall permit the
representatives of each Holder of Securities that is an
Institutional Investor: (a) if no Default or Event of Default
then exists, at the expense of such Holder and upon reasonable
prior notice to the Company, to visit the principal executive
office of the Company, to discuss the affairs, finances and
accounts of the Company and its Subsidiaries with the
Company's officers, and, with the consent of the Company
(which consent shall not be unreasonably withheld), to visit
the other offices and properties of the Company and each
Subsidiary, all at such reasonable times and as often as may
be reasonably requested in writing; and (b) if a Default or
Event of Default then exists, at the expense of the Company,
to visit and inspect any of the offices or properties of the
Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers
and independent public accountants (and by this provision the
Company authorizes said accountants to discuss the affairs,
finances and accounts of the Company and its Subsidiaries),
all at such times and as often as may be requested.
SECTION 6. AMENDMENT OF ARTICLE 6 OF THE INDENTURE. Article 6 of the
Indenture is amended as follows:
(a) by replacing, in Section 6.01(a)(i), the reference "30
days" with the reference "more than five Business Days".
(b) by adding, in Section 6.01(a)(ii), immediately following
the reference "or premium", the reference "or Make-Whole
Amount".
(c) by replacing, in Section 6.01(c), the reference "60 days"
with the reference "30 days".
(d) by deleting, in Section 6.01(f), the last reference "or".
(e) by adding the following Sections 6.01(h) and 6.01(i)
immediately after the end of Section 6.01(g) and immediately
before the paragraph beginning with "Bankruptcy Law":
<PAGE> 8
(h) any representation or warranty made in writing by or on behalf
of the Company or by any Officer of the Company in the Note
Purchase Agreement or in any writing furnished in connection
with the transactions contemplated thereby proves to have been
false or incorrect in any material respect on the date as of
which made; or
(i) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part
thereof or a waiver of such standards or extension of any
amortization period is sought or granted under section 412 of
the Code, (ii) a notice of intent to terminate any Plan shall
have been or is reasonably expected to be filed with the PBGC
or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer
any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of
ERISA) under all Plans, determined in accordance with Title IV
of ERISA, shall exceed $10,000,000, (iv) the Company or any
ERISA Affiliate shall have incurred or is reasonably expected
to incur any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to
employee benefit plans, (v) the Company or any ERISA Affiliate
withdraws from any Multiemployer Plan, or (vi) the Company or
any Subsidiary establishes or amends any employee welfare
benefit plan that provides post-employment welfare benefits in
a manner that would increase the liability of the Company or
any Subsidiary thereunder; and any such event or events
described in clauses (i) through (vi) above, either
individually or together with any other such event or events,
would reasonably be expected to have a Materially Adverse
Effect.
As used in Section 6.01(i), the terms "employee benefit plan"
and "employee welfare benefit plan" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
(f) by replacing, in Section 6.02, the reference "If any Event of
Default under clauses (a), (b), (c), (d) or (g)" with the
reference "If any Event of Default under clauses (a), (b),
(c), (d), (g), (h) or (i)".
(g) by adding, in Sections 6.02, 6.03 and 6.07, immediately
following each reference to "premium", the reference "or
Make-Whole Amount".
SECTION 7. AMENDMENT OF ARTICLE 8 OF THE INDENTURE. Article 8 of the
Indenture is amended by adding, in Sections 8.01, 8.02 and 8.03, immediately
following each reference to "premium", the reference "or Make-Whole Amount".
SECTION 8. AMENDMENT OF ARTICLE 9 OF THE INDENTURE. Article 9 of the
Indenture is amended as follows:
(a) by adding, in Section 9.02(b), immediately following the
reference to "make any change to", the reference "the
calculation of the Make-Whole Amount under Section 3.08 or
to".
(b) by adding, in Section 9.02(c), immediately following the
reference "premium", the reference "or Make-Whole Amount".
(c) by adding the following Section 9.08 in its entirety,
immediately following Section 9.07:
<PAGE> 9
Section 9.08. SOLICITATION OF HOLDERS OF SECURITIES.
(a) The Company will provide each Holder of the Securities
(irrespective of the amount of Securities then owned by it)
with sufficient information, sufficiently far in advance of
the date a decision is required, to enable such Holder to
make an informed and considered decision with respect to any
proposed amendment, waiver or consent in respect of any of
the provisions hereof or of the Securities. The Company will
deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the
provisions of this Article 9 to each Holder of outstanding
Securities promptly following the date on which it is
executed and delivered by, or receives the consent or
approval of, the requisite Holders of Securities.
(b) The Company will not directly or indirectly pay or cause to
be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security,
to any Holder of Securities as consideration for or as an
inducement to the entering into by any Holder of Securities
or any waiver or amendment of any of the terms and provisions
hereof unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably
to each Holder of Securities then outstanding even if such
Holder did not consent to such waiver or amendment.
SECTION 9. AMENDMENT OF EXHIBIT A. The form of reverse side of
Security, Exhibit A to the Indenture, is amended as follows:
(a) The first sentence of paragraph 4 is amended and restated to
read as follows:
The Company issued the Securities under an Indenture,
dated as of May 5, 1996, as amended by the First Supplemental
Indenture, dated as of January 22, 1997 (the "Indenture"),
between the Company and The Bank of New York (the "Trustee").
(b) Paragraph 5 is amended and restated in its entirety to read
as follows:
The Securities are redeemable at any time, at the option of
the Company, in whole or in part, or from time to time in
part, in an amount not less than 5% of the aggregate
principal amount of the Securities then outstanding in the
case of a partial redemption, at a Redemption Price equal to
100% of the principal amount so redeemed, plus the
Make-Whole Amount determined pursuant to Section 3.08 of
the Indenture for the Redemption Date with respect to such
principal amount.
The Securities are not entitled to the benefit of any
sinking fund.
(c) Paragraph 11(a) is amended by adding, following each
reference to "premium", the reference "or Make-Whole Amount".
SECTION 10. EFFECT OF AMENDMENT. The Securities shall be entitled to
the benefits of and be subject to the terms of this Amendment. The Indenture, as
modified and supplemented by this Amendment, shall remain in full force and
effect.
SECTION 11. COUNTERPARTS. This Amendment may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which so executed shall be deemed to be an original, but all of such
counterparts together shall constitute one and the same instrument.
<PAGE> 10
SECTION 12. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the conflicts of laws principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the date first above
written.
CONSOLIDATED STORES CORPORATION
By: /s/ Michael J. Potter
----------------------------------------
Name: Michael J. Potter
Title: Chief Financial Officer
THE BANK OF NEW YORK
By: /s/ Lucille Firrincieli
----------------------------------------
Name: Lucille Firrincieli
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 10(n)
THE CONSOLIDATED STORES CORPORATION KEY ASSOCIATE
ANNUAL INCENTIVE COMPENSATION PLAN
1. NAME
Consolidated Stores Corporation Key Associate Annual Incentive Compensation
Plan.
2. PURPOSE
The Plan is designed to (i) assist Consolidated Stores Corporation in
attracting, retaining and motivating employees, (ii) align Participants'
interests with those of the Corporation's stockholders and (iii) qualify
compensation paid to Participants who are "Covered Employees" as "other
performance-based compensation" within the meaning of section 162(m) of the IRC
or a successor provision.
3. DEFINITIONS
"Award" means a payment subject to the provisions of this plan.
"Base Salary" means as to a Performance Period, a Participant's actual
gross salary rate in effect on the Determination Date. Such salary shall be
before (1) deductions for taxes and benefits, and (2) deferrals of salary
pursuant to Company-sponsored plans.
"Beneficiary" means the person or persons entitled to receive the interest
of a Participant in the event of the Participant's death.
"Board" means the Board of Directors of Consolidated Stores Corporation, a
Delaware Corporation.
"Change of Control" means a change of control as defined in the
Consolidated Stores Corporation Stockholder Rights Plan as from
time-to-time amended or any successor thereto.
"Committee" means the Compensation Committee of the Board, which shall
consist of not less than two (2) members of the Board each of whom is a
"disinterested person" as defined in Securities and Exchange Commission
Rule 16b-3(c)(2)(i), or as such term may be defined in any successor
regulation under Section 16 of the Securities Exchange Act of 1934, as
amended.
In addition, each member of the Committee shall be an outside director
within the meaning of Section 162(m) of the IRC.
"Common Stock" means the common stock of Consolidated Stores Corporation, a
Delaware Corporation, its successors and assigns.
"Company" means Consolidated Stores Corporation, a Delaware Corporation,
its successors and assigns and any corporation which shall acquire
substantially all its assets. In addition, Company shall include any
corporation or other entity, whether domestic or foreign, in which the
Corporation has or obtains, directly or indirectly, a proprietary interest
of more than 50% by reason of stock ownership or otherwise.
"Conditional Payment" means prepaying an Award before the date of current
payment in section 6.2 and subjects the prepayment (or a portion thereof)
to possible return to the Company.
<PAGE> 2
EXHIBIT 10(n)
"Covered Associate(s)" means the chief executive officer (or an individual
acting in such capacity) as of the end of the Fiscal Year and employees
whose total compensation for the Fiscal Year is required to be reported to
stockholders under the Securities Exchange Act of 1934 by reason of such
associate being among the four highest compensated officers for the Fiscal
Year.
"Determination Date" means as to a Performance Period:(1) the first day of
the Performance Period, or (2) such other date set by the Committee
provided such date will not jeopardize the Plan's Award as
performance-based compensation under IRC 162(m).
"Eligible Position" means an employment position with the Company which
provides the employee in the position the opportunity to participate in the
Plan. The Committee or its designee determines Eligible Positions.
"Fiscal Year" means a fiscal year of the Company (currently comprised of a
52/53 week fiscal year which ends on the Saturday nearest to January 31).
"IRC" means the Internal Revenue Code of 1986, as amended.
"Participant" means a key associate of the Company who has been approved
for participation in the Plan by the Committee (or its designee) or a key
associate of a partnership designated by the Committee which the Company
maintains 50% or more profit sharing, loss sharing and ownership of capital
interests or a key associate of a limited liability company (LLC) in which
the Company maintains a 50% or more ownership interest.
"Performance Period" means the Fiscal Year except in the following cases:
(1) The associate's service period within a Fiscal Year in the case of a
new hire or promoted associate; or
(2) A period of service determined at the discretion of the Committee (or
its designee in the case of associates who are not Covered
Associates).
"Plan" means the arrangement described herein.
4. ELIGIBILITY AND PARTICIPATION
4.1 Approval
Each key associate of the Company who is approved for participation in the Plan
by the Committee (or under the authority conveyed by the Committee) shall be a
Participant as of the date designated. Written notice of such approval shall be
given to each key associate so approved as soon as practicable following date of
approval.
4.2 Termination of Approval
The Committee may withdraw its approval for participation for a Participant at
any time. In the event of such withdrawal, the key associate concerned shall
cease to be an active Participant as of the date selected by the Committee and
the key associate shall be notified of such withdrawal as soon as practicable
following such action.
<PAGE> 3
EXHIBIT 10(n)
4.3 Notification
In general, it is expected that key associates who are to be Participants for a
Performance Period shall be notified of that fact before the beginning of the
Performance Period. However, the Plan reserves the right to include associates
without prior notification.
4.4 Transfers In, Out of and Between Eligible Positions
(1) A key associate may be approved for participation during a portion of
a Fiscal Year.
(a) With respect to associates that are not Covered Associates, an
associate newly hired or transferred into an Eligible Position
shall have his/her participation prorated during the first Fiscal
Year provided employment or transfer occurs at least two months
prior to the end of the Fiscal Year.
(b) An associate (other than a Covered Associate) transferred out of
an Eligible Position may receive a prorated Award at the
discretion of the Committee provided he/she served in the
Eligible Position for at least two full months during the Fiscal
Year.
(c) With respect to Covered Associates approved for participation
during a portion of a Fiscal Year, see Section 5.3 as it would
relate to Performance Periods that are not equivalent to a Fiscal
Year.
(2) Participants (which are not Covered Associates) transferring between
Eligible Positions having different Award formulas will receive Awards
prorated to months served in each Eligible Position. For Covered
Associates transferring between Eligible Positions, Section 5.3 shall
apply to each respective Performance Period applicable to the
particular position.
4.5 Termination of Employment
Unless otherwise determined by the Committee (or its designee in the case of
Participants who are not Covered Associates), or in the case of amounts
accumulated in the various accounts under Section 6.4 of this Plan or as
required by applicable law, no payment pursuant to this Plan shall be made to a
Participant unless the Participant is employed by the Company on the day on
which payments determined under section 6.2 are in fact made (or would have been
made if a deferred payment election under section 6.4--(1) had not been
executed).
The Committee shall have the discretion not to make or to reduce an Award for a
Plan Year for a Participant whose employment with the Company terminated during
the Plan Year due to retirement, disability, or death.
5. DETERMINATION OF AWARDS
5.1 In addition to Section 4.5, Awards will vest solely on account of: (1) the
attainment of one or more preestablished performance goals/targets and (2) the
certification described in Section 5.6.
5.2 With respect to Awards for Covered Associates, the material terms of the
performance goal(s) must be disclosed to, and subsequently approved in a
separate vote by, the stockholders before the payout is executed, unless they
conform to one or any combination of the following goals/targets:
(a) Earnings per common and common equivalent share of stock from
continuing operations as disclosed in the Company's annual report to
stockholders for a particular Fiscal Year; or
<PAGE> 4
EXHIBIT 10(n)
(b) Earnings per common and common equivalent share of stock from net
income as disclosed in the Company's annual report to stockholders for
a particular Fiscal Year; or
(c) Common Stock price; or
(d) Total stockholder return expressed on a dollar or percentage basis as
is customarily disclosed in the proxy statement accompanying the
notice of annual meetings of stockholders; or
(e) Income from continuing operations (before extraordinary items);
(f) Net income; or
(g) Percentage increase in comparable store sales (stores open two or more
years at the beginning of the Fiscal Year) as disclosed in the
Company's annual report; or
(h) Any of items (a), (b), (c), (d), (e) or (f) with respect to any
subsidiary, affiliate or business unit of the Company whether or not
such information is included in the Company's annual report to
stockholders, proxy statement or notice of annual meeting of
stockholders; or
(i) Any of items (a), (b), (c), (d), (e) or (g) with respect to a
Performance Period whether or not such information is included in the
Company's annual report to stockholders, proxy statement or notice of
annual meetings of stockholders; or
(j) Total Stockholder Return Ranking Position meaning the relative
placement of the Company's Total Stockholder Return compared to those
publicly held companies in the Company's peer group as established by
the Committee prior to the beginning of a vesting period or such later
date as permitted under the IRC. The peer group shall be comprised of
not less than six (6) companies, including the Company.
A combination of targets may be used with a particular Award.
5.3 Prior to the completion of 25% of the Performance Period or such earlier
date as required under IRC Section 162(m), the Committee shall in its sole
discretion, for each such Performance Period determine and establish in writing
a performance goal or performance goals applicable to the Performance Period to
any Covered Associates. Within the same period of time, the Committee (or its
designee) for each such Performance Period shall determine and establish in
writing the performance goal(s) applicable to the Performance Period for
Participants who are not Covered Associates. The Committee may establish any
number of Performance Periods, goals and Awards for any associate running
concurrently, in whole or in part, provided, that in so doing the Committee does
not jeopardize the Company's deduction for such Awards under IRC 162(m).
5.4 On or prior to the date specified in Section 5.3, the Committee, in its sole
discretion, shall assign each Participant who is a Covered Associate, a target
Award expressed as a percentage of Base Salary or a whole dollar amount. For
Covered Associates, Base Salary must be fixed prior to the establishment of
performance goals applicable to a particular Performance Period.
For Participants who are not Covered Associates, the Committee or its designee
shall assign a target Award expressed as a percentage of Base Salary.
<PAGE> 5
EXHIBIT 10(n)
On or prior to the date specified in Section 5.3, the Committee, in its sole
discretion, shall establish a payout table or formula for purposes of
determining the Award (if any) payable to each Participant. The Committee may
authorize a designee to establish a payout table or formula for those
Participants who are not Covered Associates.
Each payout table or formula:
(a) shall be in writing;
(b) shall be based on a comparison of actual performance to the
performance goals;
(c) may include a "floor" which is the level of achievement of the
performance goal in which payout begins; and
(d) shall provide for an actual Award equal to or less than the
Participant's target Award, depending on the extent to which actual
performance approached or reached the performance goal(s).
5.5 In lieu of Awards based on a percentage of Base Salary (Section 5.4), Awards
may be based on a percentage or share of an Award pool. The Committee (or its
designee) shall determine (by the date specified in Section 5.3) the total
dollar amount available for Awards (or a formula to calculate the total dollar
amount available) known as an Award pool. The Committee, in it sole discretion,
may establish two or more separate Award pools and assign the Participants to a
particular Award pool. The Committee (or its designee in the case of
Participants who are not Covered Associates) shall establish in writing a
performance payout table or formula detailing the Award pool and the payout (or
payout formula) based upon the relative level of attainment of performance
goals. Each payout table or formula shall (a) be based on a comparison of actual
performance to the performance goals, (b) provide the amount of a Participant's
Award or total pool dollars available (or a formula to calculate pool dollars
available), if the performance goals for the Performance Period are achieved,
and (c) provide for an actual Award (which may be based on a formula to
calculate the percentage of the pool to be awarded to a particular Participant)
based on the extent to which the performance goals were achieved. The payout
table or formula may include a "floor" which is the level of achievement of the
performance goals in which payout begins. In the case of Awards which are stated
in terms of a percentage of an Award pool, the sum of the individual percentages
for all Participants in the pool cannot exceed 100 percent. In no case shall a
reduction in an Award of one Participant result in an increase in another
Participant's Award.
5.6 After the end of each Performance Period or such earlier date if the
performance goal(s)/target(s) are achieved, the Committee shall certify in
writing, prior to the unconditional payment of any Award, that the performance
goal(s)/target(s) for the Performance Period were satisfied and to what extent
they were satisfied. The Committee (or its designee) shall determine the actual
Award for each Participant based on the payout table/formula established in
section 5.4 or 5.5, as the case may be.
5.7 The Committee, in its discretion, may cancel or decrease an Award, but with
respect to Covered Associates, may not under any circumstances increase such
Award.
5.8 Any other provision of the Plan notwithstanding, the maximum aggregate Award
a Participant may earn for a particular Fiscal Year is $3,000,000.
<PAGE> 6
EXHIBIT 10(n)
6. PAYMENT OF INCENTIVE AWARDS
6.1 In General
Once an Award has vested and the amount thereof determined, payment of the Award
(or the portion thereof not deferred under section 6.4) shall be made pursuant
to section 6.2 or, if properly and timely elected, shall be deferred in
accordance with section 6.4.
6.2 Current Payment
A Participant's Award for a Performance Period, which is not deferred in
accordance with the provisions of Section 6.4 hereof, and a Participant's Award,
whether or not he/she elected deferred-payment thereof, for the Fiscal Year in
which his/her employment terminates, shall be paid in cash to the Participant,
or his/her Beneficiary in the event of his/her death, between the date on which
certification by the Committee was made in accordance with section 5.6 and the
75th day (inclusive) following the end of the Performance Period. Should the
Committee elect to postpone the payments for any reason, the Committee may, in
its discretion, also elect to pay interest at a reasonable rate (consistent with
IRC Section 162(m)) for period between the 75th day following the end of the
Performance Period and the day on which the payments are in fact made.
6.3 Conditional Payment
The Committee may authorize a Conditional Payment of a Participant's Award based
upon the Committee's good faith determination. The Conditional Payment, at the
discretion of the Committee (or, except for Covered Associates, under authority
granted to its designee) may be discounted to reasonably reflect the time value
of money for the prepayment. Conditional Payments to Covered Associates shall
only be made in circumstances where the Covered Associate's compensation
deduction will not be jeopardized under IRC 162(m). The amount of the
Conditional Payment that will be returned to the Company is equal to the
Conditional Payment less the Award payment that has vested, if any. For example,
if the floor (see Section 5.4) was not attained for the performance goal or
target for the Performance Period, all of the Conditional Payment made for that
Performance Period to the Participant must be returned to the Company. Return of
all or a portion of the Conditional Payment shall be made reasonably soon after
it is determined the extent to which the performance goal or target was not
achieved.
6.4 Deferred Payment
6.4--(1) Election
Before the first day of each Performance Period (or such other date as
permissible to properly defer the Award for income tax purposes), a Participant
may irrevocably elect in writing to have a part or all of an Award for the year
under the Plan (but not less than $1,000) deferred. Such deferred payment shall
be credited to a bookkeeping reserve account which shall be established for the
Participant and set up on the books of the Company and known as his/her
"Interest Account".
6.4--(2) Credits To Interest Account
When a Participant has elected to have a part or all of his/her Award credited
to an "Interest Account", the unpaid balance in such account shall be credited
with a simple annual interest equivalent, as follows: As of the May 1 next
following the Fiscal Year for which the deferred Award was made, such Award
shall become part of the unpaid balance of such Interest Account. Such Interest
Account shall be credited on April 30 of each year with an amount equal to
interest on the unpaid balance of such account from time to time outstanding
during the year ending on
<PAGE> 7
EXHIBIT 10(n)
such April 30 at the rate determined by adding together the Three-month Treasury
Bill rate on the last banking day prior to the beginning of such year and the
Three-month Treasury Bill rate in effect on the last banking days of each of the
calendar months of May through March of such year and dividing such total by 12.
In the event that the interest Account shall be terminated for any reason prior
to April 30 of any year, such account shall upon such termination date be
credited with an amount equal to interest at the average Three-month Treasury
Bill rate determined as aforesaid on the unpaid balance from time to time
outstanding during that portion of such year prior to the date of termination.
6.4--(3) Alternate Deferral Plans
The Committee, at its discretion, may provide alternate deferral plans of which
Awards under this Plan may be included.
6.4--(4) Trust Deposits
The Committee, at its discretion, may establish an irrevocable trust in which
the assets of the trust are subject to the general creditors of the Company.
Such trust may upon the occurrence of certain events, as determined by the
Committee, receive assets equal to the value of all participants Interest
Accounts on the date of the event.
6.4--(5) Distribution Upon Termination of Employment
Upon termination of a Participant's employment with the Company for any reason,
the Participant, or his/her Beneficiary in the event of his/her death, shall be
entitled to payment of the entire Interest Account in ten annual installment
payments. The amount accumulated in such Participant's Interest Account shall be
distributed as hereinafter provided.
a. The Interest Account shall be paid in cash as follows:
i. The first annual payment shall be made no earlier than the
thirtieth day following the date of termination of employment,
and shall be in an amount equal to the value of one-tenth
(1/10th) of the total amount credited to the Participant's
Interest Account as of the end of the month immediately preceding
the date of termination.
ii. A second annual payment shall be made no earlier than the first
day of the Fiscal Year following the year during which the first
anniversary of the date of termination of employment occurs, and
shall be in an amount equal to the value of 1/9th of the amount
credited (which includes accumulated interest) to the
Participant's Interest Account as of January 1 next following the
first anniversary of the termination of employment.
iii. Each succeeding installment payment shall be determined in a
similar manner, i.e., the fraction of Participant's Interest
Account balance to be paid out shall increase each year to 1/8,
1/7, etc., until the tenth installment which shall equal the then
remaining balance of the account.
The annual installment payments are intended to qualify the deferred
compensation portion of this Plan under Chapter 4 of Title 4, United States
Code, Section 114(b)(i).
<PAGE> 8
EXHIBIT 10(n)
6.4--(6) Distribution In Event Of Financial Emergency
If requested by a Participant while in the employ of the Company and if the
Committee (or in the case of Participants who are not Covered Associates, its
designee) determines that a financial emergency has occurred in the financial
affairs of the Participant, the Interest Account of the Participant on the date
the Participant makes the request may be paid out at the sole discretion of the
Committee (or its designee) in the same manner it would have been paid out had
the Participant terminated his employment with the Company on the date of such
request. In the event of a payout due to a financial emergency, a second
Interest Account shall be established for the Participant and any Awards made to
the Participant thereafter shall be credited to this second Interest Account.
The Participant's rights to the second Interest Account shall be the same as
his/her rights to the initial Interest Account.
6.4--(7) Acceleration Of Payment
Notwithstanding the provisions in Item 6.4 -- (5) and 6.4 -- (6), if the amount
remaining in a Participant's Interest Account at any time is less than $50,000,
or in the event of a financial emergency (including death or disability)
occurring in the personal affairs of the Participant, or his/her Beneficiary in
case of his/her death, during the payout period, the Committee may elect to
accelerate the payout thereafter of the Participant's Interest Account.
6.4--(8) Beneficiary Designation
A Participant may designate a Beneficiary who is to receive, upon his/her death
or disability, the distributions that otherwise would have been paid to him/her.
All designations shall be in writing and shall be effective only if and when
delivered to the Secretary of the Company during the lifetime of the
Participant. If a Participant designates a Beneficiary without providing in the
designation that the Beneficiary must be living at the time of each
distribution, the designation shall vest in the Beneficiary all of the
distribution whether payable before or after the Beneficiary's death, and any
distributions remaining upon the Beneficiary's death shall be made to the
Beneficiary's estate. A Participant may from time to time during his lifetime
change his Beneficiary by a written instrument delivered to the Secretary of the
Company. In the event a Participant shall not designate a Beneficiary as
aforesaid, or if for any reasons such designation shall be ineffective, in whole
or in part, the distribution that otherwise would have been paid to such
Participant shall be paid to his estate and in such event the term "Beneficiary"
shall include his estate.
6.4--(9) Corporate Changes
i. Dissolution or Liquidation of Company
The Company shall cause the dollar balance of an Interest Account
(adjusted to the end of the month immediately preceding the date of
dissolution or liquidation) to be paid out in cash in a lump sum to
the Participants, or their Beneficiaries as the case may be, within 60
days following the date of dissolution or liquidation of the Company.
ii. Merger, Consolidation or Sale of Assets
Notwithstanding anything herein to the contrary, in the event that the
Company desires to consolidate with, merge into, sell or otherwise
transfer all or substantially all of its assets to another corporation
(hereinafter referred to as "Successor Corporation"), such Successor
Corporation may assume the obligation under this Plan, provided those
appropriate amendments are made to the Plan. In the
<PAGE> 9
EXHIBIT 10(n)
event the Plan is not continued within a reasonable period of time by
the Successor Corporation, then as of the date preceding the date of
such consolidation, merger, or transfer, the account of each
Participant shall be converted into dollars and distributed as
provided in section 6.
7. RIGHTS OF PARTICIPANTS
No Participant or Beneficiary shall have any interest in any fund or in any
specific asset or assets of the Company by reason of any account under the Plan.
It is intended that the Company has merely a contractual obligation to make
payments when due hereunder and it is not intended that the Company hold any
funds in reserve or trust to secure payments hereunder. No Participant may
assign, pledge, or encumber his/her interest under the Plan, or any part
thereof, except that a Participant may designate a Beneficiary as provided
herein.
Nothing contained in this Plan shall be construed to:
A. Give any associate or Participant any right to receive any Award other
than in the sole discretion of the Committee;
B. Give a Participant any rights whatsoever with respect to share(s) of
Common Stock of the Company;
8. NO EMPLOYEE RIGHTS
Nothing in the Plan or participation in the Plan shall confer upon any
Participant the right to be employed by the Company or to continue in the employ
of the Company, nor shall anything in the Plan, or participation in the Plan
amend, alter or otherwise affect any rights or terms of employment or other
benefits arising from that employment.
9. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee may, from time to
time, establish rules for the administration of the Plan that are not
inconsistent with the provisions of the Plan.
10. AMENDMENT OR TERMINATION
The Committee may modify or amend, in whole or in part, any or all of the
provisions of the Plan,except as to those terms or provisions that are required
by section 162(m) of the IRC to be approved by the stockholders, or suspend or
terminate it entirely; provided, however, that no such modifications, amendment,
or suspension or termination may, without the consent of the Participant, or his
Beneficiary in the case of his/her death, reduce the right of a Participant, or
his/her Beneficiary, as the case may be, to any Payment due under the Plan.
11. TAX WITHHOLDING
The Company shall have the right to deduct from all cash payments any federal,
state, or local taxes or other withholding amounts required by law or valid
court order to be withheld with respect to such cash payments.
12. EFFECTIVE DATE
The Plan shall be effective as of February 4, 1996, subject to approval and
modification by the Company's stockholders no later than September 1, 1996.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
Jurisdiction of
Company Name Incorporation
- ------------------------------------------------- ---------------
T. R. O., Inc. IL
KB Consolidated, Inc. OH
CSC Distribution, Inc. AL
CS Ross Company OH
Industrial Products of New England, Inc. ME
Midwestern Home Products, Inc. DE
Midwestern Home Products, LTD OH
Tool and Supply Company of New England, Inc. DE
SS Investments Corporation DE
Consolidated International Export Corporation BARBADOS
Kay-Bee Center, Inc. CA
Southdale Kay-Bee Toy, Inc. MN
Mall of America Kay-Bee Toy, Inc. MN
Kay-Bee Toy & Hobby Shops, Inc. MA
K B Toy of Alaska, Inc. AK
K B Toy of Arkansas, Inc. AR
K B Toy of Arizona, Inc. AZ
K B Toy of California, Inc. DE
K B Toy of Colorado, Inc. CO
K B Toy of Connecticut, Inc. CT
K B Toy of Florida, Inc. FL
K B Toy of Hawaii, Inc. NY
Ala Moana Kay-Bee Toy, Inc. NY
K B Toy of Idaho, Inc. ID
K B Toy of Massachusetts, Inc. MA
K B Toy of Maryland, Inc. MD
K B Toy of North Carolina, Inc. VA
K B Toy of Nebraska, Inc. NE
Pheasant Kay-Bee Toy, Inc. NH
K B Toy of New Jersey, Inc. NJ
K B Toy of Nevada, Inc. NV
K B Toy of Ohio, Inc. OH
K B Toy of Pennsylvania, Inc. PA
K B Toy of South Dakota, Inc. SD
K B Toy of Tennessee, Inc. TN
K B Toy of Texas, Inc. TX
K B Toy of Utah, Inc. UT
K B Toy of Virginia, Inc. VA
K B Toy of Washington, Inc. WA
K B Toy of Wisconsin, Inc. NY
<PAGE> 2
EXHIBIT 21
SUBSIDIARIES
Jurisdiction of
Company Name Incorporation
- ------------------------------------------------- ---------------
K B Toy of Wyoming, Inc. WY
Carolina Kay-Bee Toy, Inc. NY
Las Americas Kay-Bee Toy, Inc. NY
Rio Hondo Kay-Bee Toy, Inc. NY
Centro Del Sur Kay-Bee Toy, Inc. NY
Calle Betances Kay-Bee Toy, Inc. NY
Bayamon Kay-Bee Toy, Inc. NY
Cordero Ave. (Caguas) Kay-Bee Toy, Inc. NY
Atocha Street Kay-Bee Toy, Inc. NY
Fajardo State Rd. Kay-Bee Toy, Inc. NY
Main Street (Yauco) Kay-Bee Toy, Inc. NY
Mayaguez Kay-Bee Toy, Inc. NY
Aguadilla Kay-Bee Toy, Inc. NY
Plaza Del Caribe Kay-Bee Toy, Inc. NY
Montehiedra Kay-Bee Toy, Inc. NY
Kay-Bee Isabela, Inc. OH
Kay-Bee Palma Real, Inc. OH
Kay-Bee Del Norte, Inc. OH
Kay-Bee Guayama, Inc. OH
Kay-Bee Carolina, Inc. OH
Kay-Bee Plaza Del Atlantico, Inc. OH
Kay-Bee Caguas Centrum, Inc. OH
Mall of America Toy Works, Inc. MN
Otter Creek Kay-Bee Toys, Inc. IL
Hooksett Toy Works, Inc. NH
Marlborough Kay-Bee Toy, Inc. MA
Cottenwood Kay-Bee Toy, Inc. NM
Acadiana Kay-Bee Toy, Inc. LA
Santa Ana Kay-Bee Toy, Inc. CA
Consolidated Property Holdings, Inc. NV
CSC Protection, Co. NV
K B Holdings, Inc. NV
Barn Acquisition Corporation DE
Fashion Barn, Inc. NY
Fashion Barn of New Jersey, Inc. NJ
Fashion Barn of Florida, Inc. FL
Fashion Barn of Indiana, Inc. IN
Fashion Barn of Pennsylvania, Inc. PA
Fashion Barn of Oklahoma, Inc. OK
<PAGE> 3
EXHIBIT 21
SUBSIDIARIES
Jurisdiction of
Company Name Incorporation
- ------------------------------------------------- ---------------
Fashion Barn of Texas, Inc. TX
Fashion Barn of Ohio, Inc. OH
Fashion Outlets Corp. NY
Fashion Barn of Vermont, Inc. VT
Fashion Barn of Virginia, Inc. VA
Fashion Barn of South Carolina, Inc. SC
Fashion Barn of North Carolina, Inc. NC
Fashion Barn of West Virginia, Inc. WV
Fashion Bonanza, Inc. NY
Rogers Fashion Industries, Inc. NY
Saddle Brook Distributors, Inc. NY
DTS, Inc. NY
Fashion Barn of Missouri, Inc. MO
Fashion Barn, Inc. MA
Fasion Barn of Georgia GA
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in (i) Registration
Statement No. 33-42502 on Form S-8 pertaining to Consolidated Stores Corporation
Director Stock Option Plan (ii) Registration Statement No. 33-42692 on Form S-8
pertaining to Consolidated Stores Corporation Supplemental Savings Plan (iii)
Post Effective Amendment No. 2 to Registration Statement No. 33-6068 on Form S-8
pertaining to Consolidated Stores Corporation Executive Stock Option and Stock
Appreciation Rights Plan and (iv) Post Effective Amendment No. 1 to Registration
Statement No. 33-19378 on Form S-8 pertaining to Consolidated Stores Corporation
Savings Plan and (v) Post Effective Amendment No. 2 to Registration Statement
No. 333-2545 on Form S-3 pertaining to the issuance of Consolidated Stores
Corporation Common Shares of our report, dated February 24, 1997, appearing in
this Annual Report on Form 10-K of Consolidated Stores Corporation for the year
ended February 1, 1997.
Deloitte & Touche LLP
Dayton, Ohio
April 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM CONSOLIDATED STORES
CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FILED IN FORM
10-K AS OF FEBRUARY 1, 1997, AND THE FISCAL YEAR THEN ENDED, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 30,044
<SECURITIES> 0
<RECEIVABLES> 9,342
<ALLOWANCES> 0
<INVENTORY> 792,665
<CURRENT-ASSETS> 926,518
<PP&E> 566,522
<DEPRECIATION> 186,427
<TOTAL-ASSETS> 1,330,503
<CURRENT-LIABILITIES> 457,228
<BONDS> 151,292
<COMMON> 670
0
0
<OTHER-SE> 681,415
<TOTAL-LIABILITY-AND-EQUITY> 1,330,503
<SALES> 2,647,516
<TOTAL-REVENUES> 2,647,516
<CGS> 1,542,501
<TOTAL-COSTS> 2,450,969
<OTHER-EXPENSES> (70)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,759
<INCOME-PRETAX> 179,858
<INCOME-TAX> 66,547
<INCOME-CONTINUING> 113,311
<DISCONTINUED> (27,538)
<EXTRAORDINARY> (1,856)
<CHANGES> 0
<NET-INCOME> 83,917
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
