<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-6672
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR 95-2745285
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2430 EAST DEL AMO BOULEVARD
DOMINGUEZ, CALIFORNIA 90220-6306
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 537-9220
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -----------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK ($.02778 PAR VALUE) NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NOT APPLICABLE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of shares of the voting stock held by
non-affiliates of the Company, based on the closing sale price of such stock on
the New York Stock Exchange on April 17, 1997 was approximately $710,797,693.
The number of shares of Common Stock outstanding as of April 17, 1997
was 24,997,038.
Documents Incorporated By Reference
Portions of the Company's definitive proxy statement relating to the
1997 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission are incorporated by reference into Part III hereof.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. IN
FORM 10-K PAGE
----------- -----
<C> <S> <C>
PART I
1. BUSINESS........................................................................... 1
General............................................................................ 1
Merchandise and Suppliers.......................................................... 1
Warehousing and Distribution....................................................... 2
Retail Stores...................................................................... 2
Marketing.......................................................................... 2
Employees.......................................................................... 2
Competition........................................................................ 2
Trademarks......................................................................... 3
Restrictions on Imports............................................................ 3
2. PROPERTIES......................................................................... 3
Retail Stores...................................................................... 3
Corporate Offices and Warehouse Facilities......................................... 4
3. LEGAL PROCEEDINGS.................................................................. 5
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................ 5
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................................................ 6
6. SELECTED FINANCIAL DATA............................................................ 7
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................................... 8
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................ 12
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE......................................................................... 12
PART III
10.-13. THE INFORMATION REQUIRED BY ITEMS 10-13 OF FORM 10-K IS INCORPORATED BY REFERENCE
FROM THE COMPANY'S DEFINITIVE PROXY MATERIALS FOR ITS ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD IN 1997.................................................... 12
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.................... 12
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Mac Frugal's Bargains - Close-outs Inc. (collectively with its
subsidiaries, the "Company") was incorporated under the laws of the State of
Delaware in 1971 as successor to a number of entities, the first of which was
founded in 1950. The Company's principal executive offices are located at 2430
E. Del Amo Boulevard in Dominguez, California, a suburb of Los Angeles. The
Company maintains centralized buying, personnel, systems, pricing, advertising,
merchandising, real estate and accounting functions at its principal executive
offices. See ITEM 2. "Properties -- Corporate Offices and Warehouse Facilities."
At February 2, 1997, the Company operated a chain of 319 retail stores
that specialize in the sale of new "close-out" merchandise which is purchased
from manufacturers and wholesalers at prices less than initial wholesale prices
and is sold at prices below normal retail prices. The Company's stores are
operated under the names "Pic 'N' Save" and "Mac Frugal's Bargains - Close-outs"
and collectively offer, on a self-service basis, a wide selection of close-out
merchandise, including apparel and accessories, notions, novelties, toys, games,
stationery, greeting cards, books, candles, luggage, artificial flowers, beauty
aids, candy, snacks, beverages, housewares, household supplies, domestics,
seasonal theme items and giftwares. The Company targets value-oriented
consumers, and merchandise is currently sold on a cash-and-carry basis, with
certain credit cards accepted.
During 1993, the Company developed a seasonal store concept that
operated under the names "Christmas Close-outs" and "Christmas Enchantments."
The Company operated 168 of these seasonal stores in 1993. These seasonal stores
offered new Christmas theme merchandise purchased from manufacturers at prices
less than initial wholesale prices and sold at prices below normal retail
prices. Categories of merchandise available in these stores were similar to the
Christmas seasonal merchandise offered in the year-round stores. The Christmas
Close-outs and Christmas Enchantments stores were generally operated for the
three months from October through Christmas. The Company has discontinued this
concept.
At February 2, 1997, 198 of the Company's retail stores operated under
the name "Mac Frugal's Bargains - Close-outs." The remaining 121 stores, located
in Southern California, operated under the name "Pic 'N' Save."
For the year ended February 2, 1997 (fiscal 1996), approximately 52% of
the Company's stores were located in California and generated approximately 59%
of the sales. In 1996, growth in the California economy resulted in a more
favorable retail sales environment than in the two previous fiscal years. During
fiscal 1995 and 1994, cutbacks in federal defense spending and aerospace, as
well as a number of companies relocating, caused a regional recession and
adversely affected California's unemployment rates relative to national
unemployment rates. The economic hardship resulting from the high unemployment
led to a general reduction of retail sales in California, which impacted the
Company's California sales during fiscal 1995 and fiscal 1994.
Seasonal fluctuations in the Company's sales have followed the
traditional trend in the retail industry, with a substantial portion of its
annual sales volume and annual earnings occurring during the fourth quarter of
its fiscal year. The Company expects this pattern to continue in the future.
MERCHANDISE AND SUPPLIERS
Close-out merchandise is new merchandise that is available to the
Company at prices less than initial wholesale prices for a variety of reasons,
including the inability of a manufacturer or wholesaler to dispose of a larger
supply of merchandise through normal channels, the discontinuance of merchandise
due to a change in style, color, shape or packaging, the insufficiency of sales
to justify continued production of an item, or the termination of business by a
manufacturer or wholesaler.
The Company purchases merchandise at prices less than initial wholesale
prices, allowing the Company to sell its merchandise to customers at what the
Company believes are below normal retail prices. Therefore, although general
categories of merchandise are usually available, specific lines, items and
manufacturers frequently change. In order to ensure supply and attractive
pricing, the Company will often purchase close-out merchandise in large
quantities and some seasonal merchandise out of season.
The Company buys merchandise, including numerous national brands, from
more than 2,500 suppliers. Due to its long-term association in the close-out
industry, the Company has developed good relationships with numerous
manufacturers and wholesalers that offer some or all of their close-out
merchandise to the Company prior to attempting to dispose of it through other
channels. By selling close-out merchandise only through its own retail stores,
the Company is able to assure suppliers that close-out merchandise will not be
sold through the same channels of distribution as the supplier's current
merchandise.
The Company also special-orders and reorders merchandise from offshore
manufacturers primarily in Asia at purchase prices consistent with its general
merchandising philosophy of offering merchandise to customers at prices below
normal retail prices. Purchases are made either through a trading company or
direct from the manufacturer, often early in the purchasing season. The
continuation of the Company's purchasing of such merchandise is dependent upon
the continuation of the Company's ability to obtain such advantageous pricing.
Offshore purchases did not account for more than 24% of the Company's total
purchases in any year during the three years ended February 2, 1997.
1
<PAGE> 4
WAREHOUSING AND DISTRIBUTION
Merchandise purchased for sale through the Company's retail stores is
centrally received at the Company's warehouse and distribution center located in
Rancho Cucamonga, California. The Rancho Cucamonga facility opened in August
1984 and consists of 1,431,000 square feet. The Company leased a warehouse and
distribution center located in New Orleans, Louisiana. The New Orleans facility,
which contained 1,100,000 square feet and was opened in September 1991, was
destroyed by fire on March 21, 1996. In fiscal 1996, the Company decided not to
rebuild this facility and has been servicing all stores from the warehouse
located in Rancho Cucamonga. To support the receipt and distribution from one
facility, the Company leased 225,000 square feet of additional warehouse space
near the Rancho Cucamonga distribution center in May 1996. This lease expires on
May 29, 1999 with options to renew until August 28, 2002. See ITEM 2.
"Properties -- Corporate Offices and Warehouse Facilities." Merchandise is
distributed to retail outlets either by Company-operated tractors and trailers,
or to locations more distant from the warehouse, by contract carriers. Inventory
control functions are conducted at the Rancho Cucamonga facility.
RETAIL STORES
The Company's retail stores are principally located in the Western,
Southwestern, Southern and Southeastern United States, with 121 stores located
in Southern California at February 2, 1997. Stores in Southern California are
currently operated under the name "Pic 'N' Save" and all other stores are
operated under the name "Mac Frugal's Bargains - Close-outs." The following
table provides a state by state breakdown of the Company's retail store
locations at the end of the five most recent fiscal years.
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
TOTAL NUMBER OF STORES AT FISCAL YEAR END
1992-1996
<TABLE>
<CAPTION>
FISCAL
YEAR CA TX AZ FL CO IL LA NV UT NM GA IN TN ID AL KY MO OK
- ---- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 167 43 21 16 12 9 9 9 9 6 5 4 3 2 1 1 1 1
1995 165 39 21 16 12 9 9 9 9 6 5 4 2 2 1 1 0 1
1994 157 37 20 16 11 0 9 8 7 6 5 0 0 1 1 0 0 0
1993 133 36 16 11 7 0 9 7 6 5 5 0 0 1 1 0 0 0
1992 109 36 11 10 7 0 9 5 6 5 5 0 0 1 1 0 0 0
<CAPTION>
FISC
YEAR TOTAL
- ---- -----
<S> <<C>
1996 319
1995 311
1994 278
1993 237
1992 205
</TABLE>
During fiscal 1996, the Company opened eight stores and relocated two
stores. Of the eight net new stores, four are located in Texas, two in Northern
California, and one each in Tennessee and Missouri.
In fiscal 1996, the Company continued to expand in its existing markets.
The Company believes that concentrating on existing markets when quality real
estate is available at reasonable prices and filling demand between existing
stores without cannibalizing will provide growth opportunities and leverage the
Company's selling and administrative expenses.
During the five year period February 3, 1992 through February 2, 1997,
the Company opened 139 new stores, permanently closed 13 stores and temporarily
closed and reopened three stores, increasing its chain of retail stores from 193
to 319. Of the 13 closed stores, nine were replaced by upgraded facilities
located in the same geographical area; three were closed due to earthquake
damage; and one owned store was closed, put up for sale and subsequently
reopened.
No store accounts for more than 2% of the Company's revenues.
MARKETING
The Company's primary marketing strategy is to distribute color
circulars within a targeted radius surrounding substantially all of its stores.
These circulars communicate selected product offerings to customers within each
store's primary trade area. To a lesser extent, the Company employs electronic
media or newspaper advertising, which supplements circular advertising. The
Company also utilizes various special promotions throughout the year. The
Company also conducts ongoing customer research and surveys which are designed
to ensure that customers' expectations are being met.
EMPLOYEES
At February 2, 1997, the Company had 9,586 employees. Temporary
personnel are employed in the stores during the Christmas holiday season.
Management believes its employee relations are generally good.
COMPETITION
The Company faces competition for patronage of customers in varying
degrees from national, regional and local retailers. Many of these retail
establishments offer merchandise similar to that available from the Company,
including close-out merchandise at discount prices. However, unlike the
Company's stores, most retail outlets, including discount stores, primarily
offer continuing lines of merchandise. The Company competes with other retail
establishments, including discount stores, by offering new close-out merchandise
at significant reductions from original retail prices. Some of the Company's
competitors have greater financial resources than those available to the
Company.
2
<PAGE> 5
During the past several years, there have been a number of off-price
retailers entering the retail consumer market. These retailers generally carry
fashion-oriented soft goods sold at higher price points than the soft goods sold
by the Company's stores and do not generally carry lines of close-out hard
goods. Recently, stores that sell all or substantially all of their merchandise
at a single price point have entered the market selling close-out goods.
Competition for close-out merchandise has increased over the years. The
Company, however, has not experienced, and does not anticipate experiencing, any
difficulty in obtaining close-out merchandise in adequate volume and at suitable
prices. The Company competes for quality close-out merchandise primarily with
wholesalers and other close-out retailers, some of which are larger than the
Company. Unlike most of these wholesalers, however, the Company disposes of the
merchandise through its own retail stores, which specialize in close-out
merchandise. The Company is thus able to assure a supplier that its close-out
merchandise will not compete in the supplier's normal channels of distribution.
In addition to competing for customers and merchandise, the Company also
competes with a wide range of other entities to obtain suitable locations for
new stores.
TRADEMARKS
The Company employs the service marks "Pic 'N' Save" and "Mac Frugal's
Bargains - Close-outs" in connection with its stores. The Company has registered
its service mark "Mac Frugal's Bargains - Close-outs" with the U.S. Patent and
Trademark Office and the Company has common law rights in the Southern
California area to the service mark "Pic 'N' Save." The Company does not believe
that loss of any of the Company's service marks would have a material adverse
impact upon the Company.
RESTRICTIONS ON IMPORTS
The Company's operations are subject to the customary risks of doing
business abroad, including fluctuation in the value of currencies, customs
duties and related fees, import controls and trade barriers (including quotas),
restrictions on the transfer of funds, work stoppages and, in certain parts of
the world, political instability. The Company believes that it has reduced these
risks by diversifying its offshore purchases among various countries and
factories. These factors have not had a material adverse impact upon the
Company's operations to date. Imports into the United States are also affected
by the cost of transportation, the imposition of import duties and increased
competition from greater production demands abroad. The countries from which the
Company's products are imported may, from time to time, impose new quotas,
duties, tariffs or other restrictions, or adjust presently prevailing quotas,
duty or tariff levels, which could affect the Company's operations and its
ability to import products at current or increased levels. The Company cannot
predict the likelihood or frequency of any such events occurring.
The Company's imported products are subject to United States customs
duties and, in the ordinary course of its business, the Company may, from time
to time, be subject to claims for duties and other charges. United States
customs duties currently are between 3.4% and 30.0% of the customs value on the
vast majority of products imported by the Company, as classified pursuant to the
Harmonized Tariff Schedule of the United States. All goods imported by the
Company are finished products.
A substantial portion of the Company's imported products come from
China. China currently enjoys "Most Favored Nation ("MFN") status under U.S.
tariff laws. As a result, products imported from China are subject to normal
import duties. China's MFN status is reviewed annually by Congress, and the
renewal of such status may be subject to significant political uncertainties,
with the possibility of non-renewal. Furthermore, the United States has in the
past threatened the imposition of punitive 100% tariffs on selected goods and
withdrawn the threat of sanctions only days before sanctions were to take
affect.
The Company is unable to predict whether the United States will revoke
the People's Republic of China MFN status, but any such revocation of MFN status
would result in significantly higher tariffs on Chinese imports. In addition,
the Company is unable to predict whether the United States will retaliate
against the People's Republic of China or any other country from which the
Company imports goods for trade practices which the United States may consider
unfair, or whether any such retaliation would include products imported by the
Company or otherwise result in increases in the cost or restrictions in the
supply of products imported by the Company.
ITEM 2. PROPERTIES
RETAIL STORES
The Company leases most of the buildings and land for its retail stores.
At the end of fiscal 1996, the Company owned the buildings (but not the
underlying land) occupied by two stores, and owned the buildings and land
occupied by 54 other stores, one of which is a commercial condominium, one of
which is located at the Company's corporate office facility in Dominguez,
California, and one of which is located at the Company's warehousing facility in
Rancho Cucamonga, California. The balance of the buildings and land which
comprised the Company's 319 operating store locations at fiscal year end were
leased.
The leases for the store premises vary as to their terms, rental
provisions, expiration dates, and the existence of renewal options. The number
of years remaining on leases for the Company's stores (excluding unexercised
options) ranges from less than one year to 24 years. Lease expirations within
the next two years (without renewal options) are not expected to
3
<PAGE> 6
have a material adverse effect on the operations of the Company. Most of the
leases are fixed minimum rentals, and some provide for additional rental based
upon a percentage of total store sales in excess of certain amounts. Most leases
also require the Company to pay all or a portion of the real estate taxes,
insurance charges and maintenance expenses relating to the leased premises. The
Company generally does not maintain earthquake insurance for its retail stores.
The Company acquires sites for new stores by a variety of methods,
including lease, purchase, assignment or sublease of existing facilities,
build-to-suit leases, or purchase and development of sites which may be owned by
the Company or sold by the Company under leaseback arrangements. In many cases,
the Company is able to lease or sublease existing buildings that have been
previously used for other purposes, such as for supermarkets, drug stores or
home improvement centers, which are suitable for the Company's needs at a lease
rate which is within the Company's guidelines and without the need for
substantial expenditures to convert the facilities to the Company's store
format. In connection with the opening of new stores, the Company generally
makes capital investments and incurs expenses (excluding expenditures to
purchase land, buildings or leasehold interest) of less than $700,000 per store.
These costs consist of inventory, fixtures and equipment, signs and pre-opening
costs.
The Company's retail stores are located in concrete or masonry buildings
and are mostly furnished with inexpensive store fixtures. During fiscal 1992,
the Company installed point-of-sale and scanning equipment in all of its stores
pursuant to an equipment lease entered into in 1991. The equipment lease expires
with respect to various equipment on October 31, 1999, and contains options to
extend the terms and options to buy the equipment. Point-of-sale and scanning
equipment needed for new stores opened after fiscal 1992 was purchased. Except
for this leased equipment, the Company owns all of its store fixtures and
equipment.
The majority of the Company's stores are located in or adjacent to
shopping centers of various sizes and have adjacent parking facilities. The
stores generally offer air-conditioned shopping from 9:00 a.m. to 9:00 p.m.,
Monday through Saturday, and 10:00 a.m. to 7:00 p.m. on Sunday. Particular
location schedules may vary slightly.
Selling space in the Company's stores generally is between 17,000 and
23,000 square feet, depending on the particular location. Currently, the
smallest selling area in any one store location is approximately 4,427 square
feet and the largest selling area in any one store location is approximately
28,060 square feet. For the period from February 2, 1992 through February 2,
1997, gross selling space increased from 3,607,300 square feet to 5,631,771
square feet. As of the end of fiscal 1996, aggregate retail selling space at the
Company's 319 operating store locations was categorized according to the
following real property arrangements:
<TABLE>
<CAPTION>
RETAIL
SELLING
SPACE
NUMBER OF (IN SQ.
OPERATING STORES LOCATIONS FT.)
---------------- --------- ---------
<S> <C> <C>
Owned 54 984,539
Leased 263 4,606,782
Owned, Subject to Ground Lease 2 40,450
--- ---------
Total Operating Stores 319 5,631,771
=== =========
</TABLE>
CORPORATE OFFICES AND WAREHOUSE FACILITIES
The Company owns its corporate offices, located at 2430 East Del Amo
Boulevard, Dominguez, California 90220-6306. Construction of the facility was
completed in November 1973, and comprises approximately 250,000 square feet of
ground floor space and 18,000 square feet of second floor office space.
Approximately 202,000 square feet of warehouse/distribution space (formerly used
by the Company) at this facility has been leased to an unaffiliated third party
pursuant to a lease expiring December 31, 1998, and the remainder houses the
Company's corporate offices of 38,000 square feet, a Pic 'N' Save retail store
and corporate warehousing space. The Company also leases a 1,350 square foot
office in New York City.
The Company owns a 90 acre parcel of land in Rancho Cucamonga,
California, and owns and operates a 1,431,000 square foot central warehousing
and distribution center on this location as well as a store containing 19,000
square feet of retail selling space.
Following the destruction of the Company's warehouse and distribution
facility in New Orleans and the Company's decision not to rebuild, but instead
to service all stores from its Rancho Cucamonga facility as described below, in
May 1996 the Company leased 225,000 square feet of additional warehouse space
near the Rancho Cucamonga facility. The lease for this additional warehouse
space expires on May 29, 1999 with options to renew until August 28, 2002.
In 1988, the Company entered into a long-term Lease Agreement with the
Industrial Development Board of the City of New Orleans, Louisiana, for a parcel
of land containing approximately 80 acres in New Orleans. The Lease Agreement
obligated the Company to construct a warehouse and distribution center, and
entitled the Company to purchase the land and improvements at any time for a
fixed price plus reimbursement to the City of New Orleans of monies expended by
the City for certain site improvements. The Company completed construction of
the 1,100,000 square foot facility in fiscal 1991 at a net cost of $58,617,000,
of which $32,233,000 was classified as building and improvements and $26,384,000
was classified as fixtures and equipment. In addition, $7,406,000 of interest
expense was capitalized over the three-year construction period. The New Orleans
facility had the capacity to service approximately 200 stores. However, the
ongoing under-utilization of the facility because of the Company's decision to
concentrate store expansion mainly in western markets, as well as management's
4
<PAGE> 7
intention to investigate a sale/leaseback of the facility, necessitated a
write-down of the facility to the Company's recoverable cost. The recoverable
cost was determined by fair market value appraisals conducted by independent
nationally recognized appraisers. As a result, in the third quarter of fiscal
1992, the Company wrote down the net book value of the facility (warehouse and
equipment) by $36,646,000 to reflect a permanent impairment in its value to the
Company.
In October 1993, the Company sold all its interest in the New Orleans
facility (including both its leasehold estate and its personal property) to
TriNet Corporate Realty Trust, Inc. (TriNet) for $23,463,000, the then net book
value of the interest sold. Concurrently with the sale to TriNet, the Company
subleased the fully equipped facility from TriNet. The Company's sublease with
TriNet required the Company to maintain certain property insurance coverage and
obligated the Company to rebuild the facility in the event of destruction.
On March 21, 1996, the New Orleans facility and its contents were
destroyed by fire. Since then, all of the Company's stores have been serviced by
the Company's warehouse and distribution facility in Rancho Cucamonga,
California. Following the fire, the Company decided not to rebuild the New
Orleans facility. To achieve that objective, the Company reached an agreement
with TriNet during fiscal 1996 pursuant to which the Company's sublease with
TriNet was terminated and the Company was relieved of all obligations thereunder
in exchange for $30,000,000. Also in fiscal 1996, the Company exercised its
right under the Lease Agreement with the Industrial Development Board of the
City of New Orleans, Louisiana, to purchase the land and related land
improvements. The purchase price for the land and related land improvements is
approximately $1,900,000 and $1,000,000, respectively. At February 2, 1997, the
Company has recorded within accrued expenses the purchase price for the land
improvements, and has recorded them as a component of the gain on the
distribution center settlement. The land purchase remains as a commitment at
February 2, 1997. In connection with the purchase, the Company has recorded
$3,400,000 within accrued expenses to cover the cost to demolish the structure
and restore the land to its original condition. Following the closing of the
purchase, the Company currently intends to hold the land for resale. However, no
assurances can be made as to when, or on what terms, the Company will be able to
sell the property. Additionally, certain long-term debt financed through the
City of New Orleans contains acceleration clauses that require the repayment of
such amounts upon demand by the City of New Orleans.
By December 12, 1996, the Company reached comprehensive settlements with
all of its commercial property insurance carriers. Pursuant to these settlements
and the Company's salvage efforts, the Company received a total of $90,500,000
for all physical property losses and certain incremental costs associated with
the replenishment of the destroyed merchandise inventories and operating from
one distribution center. The following summarizes the significant components of
the net gain recognized:
<TABLE>
<S> <C>
Insurance Proceeds............................................................ $90,500,000
-----------
Less expenses/losses:
Landlord lease settlement................................................... 30,000,000
Inventories and supplies destroyed.......................................... 29,463,000
Fire related inventory markdowns............................................ 5,873,000
Demolition and purchase of land improvements................................ 4,400,000
Incremental freight costs................................................... 4,264,000
Property, equipment and improvements destroyed.............................. 4,057,000
Landlord lease payments up to settlement date............................... 1,821,000
Incremental labor costs up to settlement date............................... 1,620,000
Taxes and interest.......................................................... 1,091,000
Miscellaneous other expenses................................................ 1,760,000
-----------
Total expenses/losses....................................................... $84,349,000
-----------
Net gain on distribution center settlement.................................. $ 6,151,000
===========
</TABLE>
At February 2, 1997, a total of $7,850,000 of the expenses recognized
above remain unpaid and has been recorded within accrued expenses in the
Company's financial statements.
The Company maintains casualty and property insurance, including fire
and earthquake coverage for its corporate office and warehouse facilities, that
it believes is adequate.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings
incidental to its business operations. None of the proceedings to which it is
currently a party are expected to have a material impact on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote of security holders during
the fourth quarter of the fiscal year ended February 2, 1997.
5
<PAGE> 8
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<S> <C> <C>
Philip L. Carter 48 President and Chief Executive Officer since March 1995; Executive Vice
President, Chief Financial Officer since August 1993, Senior Vice President,
Chief Financial Officer since October 1991.
Mark J. Miller 45 Executive Vice President, Merchandising and Stores since March 1995; Executive
Vice President, General Merchandise Manager since September 1992; Vice President
of Merchandising/General Merchandise Manager 1991-1992, The Disney Store, Inc.
Frank C. Bianchi 52 Senior Vice President, Human Resources since December 1996; Vice President,
Human Resources since June 1989.
Earl C. Bonnecaze 47 Senior Vice President, Stores since July 1995; Regional Manager 1994-1995,
Dollar General Corporation; Vice President Regional Manager 1989-1993, Mac
Frugal's Bargains - Close-outs Inc.
Michael R. Dobbs 47 Senior Vice President, Distribution since December 1996; Vice President,
Distribution since February 1992; General Manager, Distribution since August
1991.
Neil T. Watanabe 43 Senior Vice President, Chief Financial Officer since July 1996; Vice President,
Finance & Controller 1995-1996 Kay Bee Toys; Chief Financial and Operating
Officer 1994-1995 Motherhood Maternity; Vice President, Controller 1987-1994
Filene's Basement.
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the New York Stock Exchange under
the symbol MFI. The following table shows the high and low sales prices as
reported on the New York Stock Exchange for the Company's Common Stock for
fiscal 1996 and fiscal 1995:
<TABLE>
<CAPTION>
FISCAL YEAR QUARTER HIGH LOW
- ----------- --------------- ------ ------
<C> <S> <C> <C>
1996 First Quarter $16.88 $12.38
Second Quarter 19.50 13.38
Third Quarter 25.13 18.38
Fourth Quarter 27.00 21.50
1995 First Quarter $17.38 $12.94
Second Quarter 18.38 14.38
Third Quarter 18.50 11.63
Fourth Quarter 15.00 11.50
</TABLE>
At April 17, 1997, there were 740 stockholders of record.
The closing sale price of the Company's Common Stock on April 17, 1997
was $28.75 per share.
DIVIDENDS
The Company has never declared or paid cash dividends on its capital
stock. The Company currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. Payment of dividends is within the discretion of the Company's Board of
Directors and will depend upon, among other factors, the Company's earnings,
financial condition and capital requirements.
6
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT FOR CURRENT RATIO, STORES AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29, JANUARY 30, JANUARY 31,
1997(7) 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales.............................. $ 772,648 $ 704,934 $ 682,083 $ 627,063 $ 540,295
Operating Income....................... $ 75,826(8) $ 35,867(9) $ 70,645 $ 57,667(10) $ 24,268(11)
Earnings Before Income Taxes........... $ 69,594(8) $ 23,482(9) $ 64,272 $ 52,875(10) $ 17,408(11)
Net Earnings........................... $ 43,149(8) $ 14,559(9) $ 38,884 $ 31,937(10) $ 11,348(11)
Net Earnings Per Common Share.......... $ 1.67(8) $ 0.56(9) $ 1.37 $ 1.07(10) $ 0.37(11)
Net Earnings as a Percent of Sales..... 5.6%(8) 2.1%(9) 5.7% 5.1%(10) 2.1%(11)
Average Shares Outstanding............. 25,915 25,782 28,353 29,931 30,295(1)
Cash Dividends Per Common Stock........ None None None None None
At Year End:
Total Assets......................... $ 384,996 $ 419,072 $ 386,376 $ 369,563(2) $ 382,621(2)
Long-Term Debt....................... $ 3,757 $ 96,435 $ 4,491 $ 3,869 $ 54,475
Stockholders' Equity................. $ 252,029(8) $ 230,399(9) $ 216,881 $ 257,350(10) $ 224,447(11)
Working Capital...................... $ 93,021 $ 144,519 $ 44,012 $ 108,323 $ 105,834
Current Ratio........................ 1.8 2.7 1.3 2.1 2.3
Number of Stores (End of Year)....... 319 311 278 237 205
Number of Stores Opened(6)........... 10 35(5) 43(5) 39(5) 12
Number of Stores Closed(6)........... 2 2 2 7(5) 0
Selling Square Footage............... 5,632 5,511 5,008 4,409(3) 3,869(3)
Net Sales Per Avg. Sq. Footage....... $ 139 $ 134 $ 145 $ 144(4) $ 143(4)
Net Return on Avg. Assets............ 10.7% 3.6% 10.3% 8.5% 3.0%
Net Return on Avg. Stockholders'
Equity............................ 17.9% 6.5% 16.4% 13.3% 5.0%
</TABLE>
- ---------------
(1) Adjusted for the effect of shares issued pursuant to two stock purchase
agreements in 1988 assumed outstanding under the Treasury stock method.
(2) Total assets reflect certain balance sheet reclassifications to conform to
the January 29, 1995 balance sheet presentation.
(3) Excludes selling square footage of four stores closed on January 17, 1994
due to the Southern California earthquake (see footnote 10) for the year
ended January 30, 1994 (3 of the 4 stores were subsequently reopened in the
year ended January 29, 1995).
(4) Excludes space and results related to seasonal Christmas stores (see Item
1. Business), but includes sales and selling square footage of the four
stores closed on January 17, 1994 for the year ended January 30, 1994 (3 of
the 4 stores were subsequently reopened in the year ended January 29,
1995).
(5) Includes one permanently and three temporarily closed stores on January 17,
1994. The permanently closed store was reopened at a new location in the
year ended January 28, 1996 and the three temporarily closed stores were
reopened at the same sites in the year ended January 29, 1995.
(6) Includes relocation stores.
(7) Includes 53 weeks of sales in the fiscal year.
(8) Includes the gain on the distribution center settlement of $6,151,000 (see
Item 2. Properties-Corporate Offices and Warehouse Facilities).
(9) Includes a $35,000,000 markdown reserve (see Item 7. Results of
Operations -- Fiscal 1995 compared to Fiscal 1994).
(10) Includes costs associated with the Northridge, California, earthquake of
approximately $3,046,000. On January 17, 1994, a 6.7 magnitude earthquake
occurred in Northridge, California. Twenty-five stores experienced
relatively minor merchandise and physical damage requiring closures that
varied from a few hours to one week. Four stores experienced substantial
merchandise and physical damage. Three stores reopened during fiscal 1994.
The fourth store has been permanently closed and was relocated during
fiscal 1995 (see footnote 3).
(11) Includes a warehouse write-down expense of $36,646,000 associated with the
New Orleans distribution center (see Item 2. Properties -- Corporate
Offices and Warehouse Facilities).
7
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO ECONOMIC,
COMPETITIVE, GOVERNMENTAL AND TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S
OPERATIONS, MARKETS, PRODUCTS, SERVICES AND PRICES, AND OTHER FACTORS DISCUSSED
IN THE COMPANY'S FILINGS WITH SECURITIES AND EXCHANGE COMMISSION.
RESULTS OF OPERATIONS
The following table presents for the periods indicated certain items in
the consolidated statements of earnings as a percentage of net sales (except as
otherwise provided).
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales............................................... 100.0% 100.0% 100.0%
Costs of Sales.......................................... 56.7 58.8 52.5
----- ----- -----
Gross Profit............................................ 43.3 41.2 47.5
----- ----- -----
Store Expenses.......................................... 27.1 28.0 28.1
Warehouse and Administrative Expenses................... 7.2 8.1 9.0
Gain on distribution center settlement.................. (0.8) -- --
----- ----- -----
Total Expenses.......................................... 33.5 36.1 37.1
Operating Income........................................ 9.8 5.1 10.4
Interest Expense, Net................................... 0.8 1.8 0.9
----- ----- -----
Earnings Before Income Taxes............................ 9.0 3.3 9.4
Income Taxes............................................ 3.4 1.2 3.7
----- ----- -----
Net Earnings............................................ 5.6% 2.1% 5.7%
===== ===== =====
</TABLE>
FISCAL YEAR ENDED FEBRUARY 2, 1997 ("FISCAL 1996") COMPARED TO FISCAL YEAR ENDED
JANUARY 28, 1996 ("FISCAL 1995")
Net sales for fiscal 1996 increased $67,714,000 or 9.6% from fiscal
1995. This increase was the combined result of 8 net new store openings during
the year, the full year operations of the 33 net new stores opened in the prior
year and the positive impact of a 4.2% increase in comparable store sales.
Additionally, fiscal 1996 contained 53 weeks versus 52 weeks in fiscal 1995.
Fiscal 1995 sales have been adjusted to include 53 weeks for the purpose of
computing comparable store sales. Sales from the California stores accounted for
59% of net sales in fiscal 1996 compared to 61% in fiscal 1995.
In the first quarter of fiscal 1996, the Company continued to execute
the new strategic plan initiated in the third quarter of fiscal 1995. As a
result of these initiatives which are described below, the Company began seeing
positive comparable store sales increases in the second quarter of fiscal 1996.
This favorable trend continued into the third and fourth quarter of 1996 as
reflected by increases in comparable store sales of 11.1% and 5.4%,
respectively. The increases in comparable store sales were driven by more
competitive pricing, increased assortment in some categories and increased
customer traffic. Increased competitive pricing caused a decrease in the gross
margin in fiscal 1996 as explained in detail below. The customer count for the
third and fourth quarter of fiscal 1996 increased 6.5% and 1.9%, respectively
over the prior year.
Because of the Company's positive sales results explained above, the
Company experienced increases in inventory turnover and thereby reduced
inventory levels in fiscal 1996. Inventory turnover was 2.29 and 2.17 at the end
of fiscal 1996 and fiscal 1995, respectively. Merchandise inventories decreased
9.14% between the two years. However, the continued success of the Company's
strategic initiative will be somewhat dependent upon a number of external
factors including competition, economic conditions, any changes in customer
shopping behavior and the availability of appropriate merchandise at reasonable
prices.
Gross profit as a percentage of sales was 43.3% in fiscal 1996 compared
to 41.2% in fiscal 1995. The gross profit in fiscal 1995 reflects the recording
of a $35,000,000 non-cash charge in connection with the Company's new strategic
direction to reduce retail prices in order to hasten the liquidation of aged
inventory. The $35,000,000 charge decreased the gross profit margin for fiscal
1995 by 5.0%. The majority of these markdowns were taken in the fourth quarter
of 1995 and the first quarter of 1996.
The decrease in gross profit margin in 1996 (compared to the gross
profit margin in 1995 without the $35,000,000 non-cash charge) reflects the
Company's strategic direction to drive sales and improve inventory turnover
through an ever changing merchandise mix of branded merchandise at more
competitive pricing. The gross profit margin for 1996 also reflects a $3,800,000
markdown reserve at February 2, 1997. The Company established this reserve for
old aged inventory and fire related
8
<PAGE> 11
purchases that are expected to be sold subsequent to the fiscal year end at
prices below its current recorded carrying value. This reserve is consistent
with the Company's strategic plan to increase inventory turnover and thereby
reduce inventory levels.
Operating expenses consist of store, warehouse and administration
expenses and the gain on the distribution center settlement. Operating expenses
were 34.3% (excluding the gain on the distribution center settlement) of sales
in fiscal 1996 compared to 36.1% in fiscal 1995. The decrease in operating
expenses was due to decreases in components of operating expenses as described
below.
General cost containment resulted in store expenses of 27.1% of sales
for fiscal 1996 compared to 28.0% of sales for fiscal 1995. Reductions in
payroll, utilities, group and workers' compensation insurances were partially
offset by higher advertising expenses as a percent of sales. Increased
advertising expenses were due to advertising in additional markets and a fall
promotion inviting customers to see the changes made in the stores.
Warehouse and administration expenses totaled 7.2% and 8.1% of sales for
fiscal 1996 and 1995, respectively. The primary reduction in expenses as a
percentage of sales was due to the consolidation of receipts and shipments into
one centralized warehouse and controlled buying patterns since March 21, 1996
(the date of the fire at the New Orleans distribution center). The Company
believes it can operate its warehouse operations more efficiently in the future
through one consolidated warehouse and by the continued control of buying
patterns.
On March 21, 1996, the New Orleans facility and its contents were
destroyed by fire. Since then, all of the Company's stores have been serviced by
the Company's warehouse and distribution facility in Rancho Cucamonga,
California. Following the fire, the Company decided not to rebuild the New
Orleans facility. To achieve that objective, the Company reached an agreement
with TriNet during fiscal 1996 pursuant to which the Company's sublease with
TriNet was terminated and the Company was relieved of all obligations thereunder
in exchange for $30,000,000. Also in fiscal 1996, the Company exercised its
right under the Lease Agreement with the Industrial Development Board of the
City of New Orleans, Louisiana, to purchase the land and related land
improvements. The purchase price for the land and related land improvements is
approximately $1,900,000 and $1,000,000, respectively. At February 2, 1997, the
Company has recorded within accrued expenses the purchase price for the land
improvements, and has recorded them as a component of the gain on the
distribution center settlement. The land purchase remains as a commitment of
February 2, 1997. In connection with the purchase, the Company has recorded
$3,400,000 within accrued expenses to cover the cost to demolish the structure
and restore the land to its original condition. Following the closing of the
purchase, the Company currently intends to hold the land for resale. However, no
assurances can be made as to when, or on what terms, the Company will be able to
sell the property. Additionally, certain long-term debt financed through the
City of New Orleans contains accelerated clauses that require the repayment of
such amounts upon demand by the City of New Orleans.
By December 12, 1996, the Company reached comprehensive settlements with
all of its commercial property insurance carriers. Pursuant to these settlements
and the Company's salvage efforts, the Company received a total of $90,500,000
for all physical property losses and certain incremental costs associated with
the replenishment of the destroyed merchandise inventories and operating from
one distribution center. A net gain of $6,151,000 was recognized on the
settlements. Significant components of the settlements include:
- Payment of $30,000,000 to landlord for the lease settlement.
- Recognition of all incremental expenses due to the loss of the
warehouse. Incremental expenses include primarily fire related
inventory markdowns, excess freight, excess rent and increased labor.
- Write-off of all merchandise and non-merchandise assets destroyed in
the fire.
- Payment of all rent, taxes and interest expense required as part of
the lease termination.
- Cost required to demolish the site and reimburse the City of New
Orleans for improvements made.
At February 2, 1997, a total of $7,850,000 of the expenses recognized
above remain unpaid and have been recorded within accrued expenses in the
Company's financial statements.
Interest expense was 0.8% of sales in fiscal 1996 compared to 1.8% of
sales in fiscal 1995. The decrease in interest expense resulted from a decrease
in the average balance of debt outstanding because of lower average inventory
levels during fiscal 1996 as compared to fiscal 1995 and proceeds from the
distribution center settlement received in fiscal 1996, offset by the repurchase
of approximately $30,600,000 in stock in fiscal 1996.
The Company's effective tax rate was 38.0% in fiscal 1996 and fiscal
1995. The Company has been able to decrease the effective tax rate in fiscal
1996 and 1995 from prior fiscal years due to the benefits from certain federal
or state tax credits.
FISCAL YEAR ENDED JANUARY 28, 1996 ("FISCAL 1995") COMPARED TO FISCAL YEAR ENDED
JANUARY 29, 1995 ("FISCAL 1994")
Net sales for fiscal 1995 increased $22,851,000 or 3.4% from fiscal
1994. This increase was the combined result of 33 net new stores opened during
the year plus the full year operation of the 41 net new stores opened in the
prior year partially offset by a 6.8% decline in same store sales. Sales from
California stores accounted for 61.1% of net sales in fiscal 1995 compared to
62.8% of net sales in fiscal 1994.
9
<PAGE> 12
In the third quarter of fiscal 1995 the Company adopted a new strategic
plan in response to a difficult retail climate in order to strengthen the
business. This new strategic direction involves offering more competitive
pricing; increasing assortment in some areas; reducing inventory levels;
increasing inventory turnover; enhancing store layouts for shopping convenience;
implementing an extensive customer service program; utilizing more television
advertising while maintaining advertising expenses at approximately 2% of sales;
and limiting store expansion to not more than ten stores in fiscal 1996 in order
for the Company's management to focus on its new strategic initiatives.
Gross profit as a percentage of sales was 41.2% in fiscal 1995 compared
to 47.5% for the Company in fiscal 1994. The decrease was primarily due to the
Company's recording a $35 million non-cash charge in connection with the
Company's new strategic direction to reduce retail prices in order to hasten the
liquidation of aged inventory. The charge related primarily to old aged
inventory in the Company's stores with a small portion of the charge related to
competitive price reductions. The breakdown of the charge by merchandise
category is as follows: (1) Christmas -- 31%; (2) Clearance merchandise, various
departments -- 19%; (3) Apparel -- 15%; (4) Hosiery and lingerie -- 7%; (5)
Toys -- 6%; (6) Gifts -- 5%; (7) Domestics -- 4%; (8) Easter -- 2%; and (9)
Other -- 11%. The charge was necessary to clear various categories of
merchandise and provide space for fresh and more competitive merchandise. This
charge decreased the gross profit margin for fiscal 1995 by 5.0%. The remaining
decrease in the gross profit margin for the year is due to a change in the
merchandise mix and is part of the Company's new strategic plan.
Operating expenses consist of store, warehouse and administrative
expenses. Operating expenses were 36.1% of sales in fiscal 1995 compared to
37.1% of sales in fiscal 1994. The decrease in operating expenses was due to
decreases in the components as described below.
Store expenses were 28.0% of sales for fiscal 1995 compared to 28.1% of
sales for fiscal 1994. The decrease in store expenses as a percent of sales for
fiscal 1995 versus 1994 was largely due to lower payroll expense, lower
equipment rentals and lower worker's compensation expense partially offset by
higher occupancy, advertising and depreciation expenses.
Warehouse and administrative expenses totaled 8.1% and 9.0% of sales for
fiscal 1995 and 1994, respectively. Expense controls in the warehouse and
administrative areas resulted in a decrease in these expenses as a percent of
sales.
Interest expense was 1.8% of sales in fiscal 1995 compared to 0.9% of
sales in fiscal 1994. The increase in interest expense resulted from both an
increase in the average balance of debt outstanding during the year and higher
interest rates. The increase in the average amount of debt outstanding is the
combined result of higher average inventory levels during fiscal 1995 compared
to fiscal 1994 and the repurchase of stock in the fourth quarter of 1994.
The Company's effective tax rate was 38.0% in fiscal 1995 compared to
39.5% in fiscal 1994. The decrease in the effective tax rate in fiscal 1995 is
due to increased benefits from the federal Targeted Job Tax Credit and certain
state incentive programs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements arise principally from the need to
purchase inventory in advance of the selling season, particularly for the fourth
quarter, and to acquire, construct, equip and purchase inventory for new stores.
Repurchase of the Company's stock represents a secondary use for cash.
Accordingly, the Company's demand for borrowed funds is determined largely from
the timing of its inventory investment relative to the seasonality of its sales,
the magnitude and timing of its capital expenditure programs and size of stock
repurchase programs.
The Company opened, including relocations, 10 stores in fiscal 1996, 35
stores in fiscal 1995, and 43 stores (including three temporarily closed stores)
in fiscal 1994. In fiscal 1996, with decreased levels of capital expenditures,
proceeds from the distribution center settlement, partially offset by a stock
repurchase program, the Company decreased its debt by $89,575,000. In fiscal
1995, with increased inventory levels and a minor repurchase program, offset in
part by decreased levels of capital expenditures, the Company increased its debt
by $11,450,000. In fiscal 1994, with increased levels of capital expenditures
due to the accelerating store expansion program, combined with two stock
repurchase programs, the Company increased its debt by $46,188,000.
As part of its change in strategic direction, the Company reduced its
total inventories during fiscal 1996 compared to fiscal 1995. Controlled buying
patterns during fiscal 1996 resulted in a more predictable warehouse inventory
level. During fiscal 1995 the Company reduced the average level of store
inventories compared to fiscal 1994. During fiscal 1994, store inventories
remained relatively stable compared to the previous year. Warehouse inventories
for fiscal 1995, fiscal 1994 and previous years have increased or decreased
depending upon the availability for close-out merchandise during the last
several months of the fiscal year as well as changing internal buying patterns.
Since March 21, 1996 (the date of the New Orleans distribution center
fire), all of the Company's stores have been serviced by the Company's
distribution center in Rancho Cucamonga, California. The Company believes that
it will experience operational efficiencies through the consolidation of
receipts and shipments from one centralized warehouse and through continued
controlled buying patterns. Also, the Company believes it currently has adequate
capacity to service its existing stores
10
<PAGE> 13
as well as its immediate expansion plans. Short-term leasing could also provide
the Company with additional warehouse space, if needed.
The Company presently plans to open 8 to 10 stores in fiscal 1997, all
in existing markets. Management estimates that the cost to open these stores
plus capital expenditures in its existing stores, warehouse and corporate office
during fiscal 1997 will be approximately $16,000,000. Additionally, the Company
has authorization to repurchase an additional $37,700,000 of its stock if and
when the Board of Directors believes market prices warrant such repurchase.
Funds required to finance new stores and stock repurchases are expected to come
from operating activities with the remainder, if necessary, provided by unused
bank lines of credit.
With approval from the Board of Directors, the Company has repurchased
its stock from time to time in the open market to enhance shareholder value. In
fiscal 1996, 1995 and 1994, the Company repurchased 1,470,100, 118,800 and
4,258,100 shares of its Common Stock, respectively, in open market transactions
at an average cost of $20.84, $13.24 and $19.08 per share, respectively. Of the
shares repurchased in fiscal 1994, 1,280,400 were part of a 1,500,000 share
repurchase program authorized by the Board of Directors in the last quarter of
fiscal 1993. The remaining 2,977,700 shares repurchased in fiscal 1994 were made
under a 3,000,000 share repurchase program authorized by the Board of Directors
in fiscal 1994. The shares repurchased in fiscal 1995 and the first three
quarters of fiscal 1996 were made under a $10,000,000 repurchase program
authorized by the Board of Directors in fiscal 1994. In fiscal 1996, the Board
of Directors authorized an additional $60,000,000 share repurchase program, of
which $22,349,000 was used in fiscal 1996.
The Company currently has in place a $175,000,000 unsecured revolving
credit facility (the "Revolver") with a maturity date of April 30, 2000. This
credit facility will be reduced to a limit of $150,000,000 on January 31, 1999.
The Revolver includes a $50,000,000 sublimit for commercial and standby letters
of credit. At February 2, 1997, the Company had no outstanding balance under the
Revolver and $156,497,000 was available to be borrowed, of which $31,497,000 was
available for letters of credit. Amounts outstanding under the Revolver bear
interest at the agent bank's prime rate, which at February 2, 1997 was 8.25%, or
LIBOR plus 5/8%, which at February 2, 1997 was 6.19%, or other negotiated rates,
all at the Company's option. In addition, the Company has in place $40,000,000
of other unsecured revolving credit facilities with three individual banks
(collectively the "Other Credit Facilities"). The banks providing the Other
Credit Facilities are not obligated to advance funds when requested by the
Company. At February 2, 1997, the Company had no outstanding balances under the
Other Credit Facilities. The weighted average interest rate for borrowings
during fiscal 1996 under the Revolver and Other Credit Facilities was 6.09%. The
Company believes the Revolver is adequate to meet any seasonal or temporary
liquidity needs that cannot be met with cash flow from operating activities.
Working capital was $93,021,000 and $144,519,000 at February 2, 1997 and
January 28, 1996, respectively. The Company's current ratio was 1.8 and 2.7 at
February 2, 1997 and January 28, 1996, respectively. The total debt to equity
ratio decreased from 41.9% at January 28, 1996 to 2.7% at February 2, 1997. The
decrease in working capital and the current ratio in fiscal 1996 is primarily
the result of a reduction in inventory levels consistent with the Company's
strategic direction and an increase in current liabilities associated with the
increase in the Company's operations and earnings in the current fiscal year.
The decrease in the total debt to equity ratio reflects the Company's strategic
direction to reduce inventory levels and the borrowings necessary to finance
them. The decrease also reflects the planned reduction in capital expenditures,
the insurance proceeds from the distribution center settlement, and the
Company's current year earnings, offset in part by the repurchase of $30,631,000
in stock in fiscal 1996.
11
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Except for the following Selected Quarterly Data, the financial
statements and related financial information required to be filed hereunder are
indexed on Page F-1 of this report.
SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET NET EARNINGS PER
SALES GROSS PROFIT NET EARNINGS COMMON SHARE
-------- ------------ ------------ ----------------
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Quarter Ended
April 28................................. $159,132 $ 70,406 $ 3,512 $ 0.14
July 28.................................. 157,952 65,427 3,013 0.12
October 27............................... 174,488 74,960 5,109 0.20
February 2, 1997(2)...................... 281,076 123,553 31,515(3) 1.21(3)
-------- -------- ------- -----
$772,648 $334,346 $ 43,149 $ 1.67
======== ======== ======= =====
1995
Quarter Ended
April 30................................. $154,250 $ 70,715 $ 3,315 0.13
July 30.................................. 146,754 68,473 3,290 0.13
October 29............................... 152,353 37,612(4) (16,003)(4) (0.62)(4)
January 28, 1996......................... 251,577 113,494 23,957 0.93(1)
-------- -------- ------- -----
$704,934 $290,294 $ 14,559 $ 0.56
======== ======== ======= =====
</TABLE>
- ---------------
(1) The Company repurchased 118,800 shares of its common stock in the fourth
quarter of fiscal 1995. These repurchases resulted in a dilution of the
quarterly weighted average shares outstanding and, as such, the sum of the
quarterly earnings per share exceeds annual earnings per share by $0.01.
(2) Contains five weeks in fiscal 1996 versus four weeks in fiscal 1995.
(3) Includes gain on the distribution center settlement of $6,151,000 (see Item
2. Properties-Corporate Offices and Warehouse Facilities).
(4) Includes a $35,000,000 markdown reserve (see Item 7. Results of
Operations -- Fiscal 1995 Compared to Fiscal 1994).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information
required by Items 10-13 of Part III of Form 10-K is incorporated herein by
reference from the Company's definitive proxy materials to be filed with the
Securities and Exchange Commission within 120 days after the close of the
Company's most recent fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. Reference is made to the Index to Financial
Statements and Schedules of the Company on Page F-1 of this Annual Report
on Form 10-K.
(a)(2) FINANCIAL STATEMENT SCHEDULES. Reference is made to the Index to
Financial Statements and Schedules of the Company on page F-1 of this
Annual Report on Form 10-K.
12
<PAGE> 15
(a)(3) EXHIBITS. The following documents are exhibits to this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of the Company, as amended, filed as Exhibit 6.1 to the
Company's Registration Statement on Form 8-A dated May 22, 1992 and incorporated herein
by this reference.
3.2 By-Laws of the Company, as amended, filed as Exhibit 6.2 to the Company's Registration
Statement on Form 8-A dated May 22, 1992 and incorporated herein by this reference.
10.1 Incentive Stock Option Plan filed as Exhibit A to the Company's definitive Proxy
Statement for 1982 and incorporated herein by this reference.
10.2 Amendment to Incentive Stock Option Plan filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 2, 1992 and incorporated herein
by this reference.
10.3 Common Stock Incentive Plan filed as Appendix C to the Company's definitive Proxy
Statement for 1979 and incorporated herein by this reference.
10.4 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.3(3) to the Company's
Annual Report on Form 10-K for fiscal year ended December 31, 1982 and incorporated
herein by this reference.
10.5 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 2, 1992 and incorporated
herein by this reference.
10.6 Form of Non-Qualified Stock Option Agreement dated December 26, 1985 filed as Exhibit
10.3(3) to the Company's Annual Report on Form 10-K for fiscal year ended December 31,
1985 and incorporated herein by this reference.
10.7 Form of Amended Stock Option Agreement used in connection with the Incentive Stock
Option Plan filed as Exhibit 10.6(1) to the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1989 and transition period ended January 28, 1990 and
incorporated herein by this reference.
10.8 Form of Restricted Stock Agreement used in connection with the Incentive Stock Option
Plan filed as Exhibit 10.6(2) to the Company's Annual Report on Form 10-K for fiscal
year ended December 31, 1989 and transition period ended January 28, 1990 and
incorporated herein by this reference.
10.9 1990 Employee Stock Incentive Plan filed as Annex B to the Company's definitive Proxy
Statement for the 1990 Annual Meeting of Stockholders and incorporated herein by this
reference.
10.10 Amendments No. 1 and No. 2 to 1990 Employee Stock Incentive Plan filed as Exhibit 10.10
to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1992
and incorporated herein by this reference.
10.11 Form of Stock Option Agreement used in connection with the 1990 Employee Stock
Incentive Plan for options subject to staggered vesting filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for fiscal year ended February 3, 1991 and
incorporated herein by this reference.
10.12 Form of Stock Option Agreement used in connection with the 1990 Employee Stock
Incentive Plan for immediately exercisable options filed as Exhibit 10.9 to the
Company's Annual Report on Form 10-K for fiscal year ended February 3, 1991 and
incorporated herein by this reference.
10.13 Form of Restricted Stock Agreement used in connection with the 1990 Employee Stock
Incentive Plan filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for
fiscal year ended February 3, 1991 and incorporated herein by this reference.
10.14 Amendment No. 2 to Stock Option Plan for Non-Employee Directors.
10.15 Stock Option Plan for Non-Employee Directors filed as Annex B to the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders held in 1992 and
incorporated herein by this reference.
10.16 Employment Agreement dated as of July 18, 1996 between the Company and Neil T.
Watanabe.
10.17 Employment Agreement dated as of December 11, 1996 between the Company and Frank C.
Bianchi.
10.18 Employment Agreement dated as of December 11, 1996 between the Company and Michael
Dobbs.
10.19 Employment Agreement dated as of March 15, 1995 between the Company and Mark J. Miller
filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996 and incorporated herein by this reference.
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------------------
<C> <S>
10.20 Employment Agreement dated as of July 17, 1995 between the Company and Earl C.
Bonnecaze filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996 and incorporated herein by this reference.
10.21 Amended and Restated Employment Agreement dated as of March 12, 1997 by and between the
Company and Philip L. Carter.
10.22 Lease dated August 1, 1988 between the Company, the City of New Orleans, State of
Louisiana Inc., and the City of New Orleans, Louisiana Industrial Development Board re
New Orleans Distribution Center filed as Exhibit 10.5(1) to the Company's Annual Report
on Form 10-K for fiscal year ended January 1, 1989 and incorporated herein by this
reference.
10.23 Long Term Cash Incentive Plan dated as of January 13, 1997.
10.24 First Amendment to Second Amended and Restated Credit Agreement dated as of April 22,
1997 among the Company, its subsidiaries, the lenders listed therein, and Bank of
America National Trust and Savings Association, as Administrative Agent.
10.25 Amendment No. 3 to 1990 Employee Stock Incentive Plan filed as Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996 and
incorporated herein by this reference.
10.26 Lease dated as of September 25, 1993 between TriNet Essential Facilities X, Inc. and
West Coast Liquidators, Inc. filed as Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 1994 and incorporated herein by this
reference.
10.27 Settlement Agreement dated August 9, 1990 among the Company, Batchelder Co., DHB
Partners, L.P., David H. Batchelder, Batchelder & Partners, Inc. and Girard Partners,
L.P. filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 3, 1991 and incorporated herein by this reference.
10.28 Master Lease dated December 27, 1991 between the Company and Comdisco, Inc. filed as
Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 1992 and incorporated herein by this reference.
10.29 Mac Frugal's Bargains - Close-outs Inc. Savings and Retirement Plan dated as of January
1, 1995 filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 1995 and incorporated herein by this reference.
10.30 Form of Stock Option Agreement used in connection with grants on December 11, 1996 and
January 1, 1997 to non-employee members of the Board of Directors.
10.31 Second Amended and Restated Reducing Revolving Credit Agreement dated as of December
16, 1996 among the Company, its subsidiaries, the lenders listed therein, and Bank of
America National Trust and Savings Association, as Administrative Agent.
10.32 Amendment No. 1 to Stock Option Plan for Non-Employee Directors filed as Exhibit 10.32
to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996
and incorporated herein by this reference.
22.1 Subsidiaries of Company.
24.1 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
(b) The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended February 2, 1997.
(c) Copies of Exhibits 10.14, 10.16, 10.17, 10.18, 10.21, 10.23, 10.24, 10.30,
10.31, 22.1, 24.1 and 27 are attached hereto. Reference is made to the
Exhibit Index for an indication of the availability of other exhibits
identified at Item 14(a)(3) above.
(d) Not applicable.
14
<PAGE> 17
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
its behalf by the undersigned, thereunto duly authorized.
Date: May 1, 1997
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
<TABLE>
<S> <C> <C> <C>
By: /s/ Neil T. Watanabe By: /s/ Philip L. Carter
------------------------------------------------ ------------------------------------------------
Neil T. Watanabe Philip L. Carter
Senior Vice President and Chief Financial President and Chief Executive Officer
Officer (Principal Executive Officer)
(Principal Financial and Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of this
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------------------- ---------------
<S> <C> <C>
/s/ PHILIP L. CARTER President and Chief Executive Officer May 1, 1997
- ----------------------------------------------- (Principal Executive Officer)
Philip L. Carter
/s/ DAVID H. BATCHELDER Chairman of the Board May 1, 1997
- -----------------------------------------------
David H. Batchelder
/s/ PETER C. COOPER Director May 1, 1997
- -----------------------------------------------
Peter C. Cooper
/s/ I. T. CORLEY Director May 1, 1997
- -----------------------------------------------
I. T. Corley
/s/ ANTHONY LUISO Director May 1, 1997
- -----------------------------------------------
Anthony Luiso
/s/ MARK J. MILLER Director May 1, 1997
- -----------------------------------------------
Mark J. Miller
/s/ JAMES J. ZEHENTBAUER Director May 1, 1997
- -----------------------------------------------
James J. Zehentbauer
</TABLE>
15
<PAGE> 18
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES*
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report........................................................................ F-2
Consolidated balance sheets -- February 2, 1997, and January 28, 1996............................... F-3
Consolidated statements of earnings -- years ended February 2, 1997, January 28, 1996 and January
29, 1995.......................................................................................... F-4
Consolidated statements of stockholders' equity -- years ended February 2, 1997, January 28, 1996
and January 29, 1995.............................................................................. F-5
Consolidated statements of cash flows -- years ended February 2, 1997, January 28, 1996 and January
29, 1995.......................................................................................... F-6
Notes to consolidated financial statements.......................................................... F-7
Schedule II -- Valuation and Qualifying Accounts.................................................... F-15
</TABLE>
- ---------------
* Schedules other than those listed above have been omitted because they are not
applicable or because the required information is shown in the consolidated
financial statements or notes to consolidated financial statements.
F-1
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Mac Frugal's Bargains - Close-outs Inc.
Dominguez, California
We have audited the accompanying consolidated balance sheets of Mac
Frugal's Bargains - Close-outs Inc. and subsidiaries as of February 2, 1997 and
January 28, 1996 and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the years ended February 2, 1997,
January 28, 1996 and January 29, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mac Frugal's
Bargains - Close-outs Inc. and subsidiaries at February 2, 1997 and January 28,
1996 and the results of their operations and their cash flows for the years
ended February 2, 1997, January 28, 1996 and January 29, 1995, 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.
Los Angeles, California
March 12, 1997
F-2
<PAGE> 20
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PAR VALUE)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 2, JANUARY 28,
1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................. $ 9,639 $ 7,285
Merchandise inventories (Notes 3 and 9).................................... 182,275 200,616
Deferred income taxes (Note 5)............................................. 8,800 13,003
Other current assets....................................................... 9,284 9,965
--------- ---------
Total current assets............................................... 209,998 230,869
Property, Equipment and Improvements (Notes 9):
Land....................................................................... 35,224 35,195
Building and improvements.................................................. 85,397 84,054
Automobiles and trucks..................................................... 3,003 3,040
Furniture, fixtures and equipment.......................................... 96,119 99,966
Leasehold improvements..................................................... 85,533 84,127
Construction in progress................................................... 912 635
--------- ---------
306,188 307,017
Less: Accumulated depreciation and amortization............................ (132,693) (121,106)
--------- ---------
173,495 185,911
Deferred Income Taxes (Note 5)............................................... -- 604
Other Assets................................................................. 1,503 1,688
--------- ---------
Total Assets....................................................... $ 384,996 $ 419,072
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks outstanding......................................................... $ 21,369 $ 16,704
Current portion of long-term debt (Note 2)................................. 3,172 69
Accounts payable........................................................... 18,929 16,602
Accrued expenses (Note 4).................................................. 56,306 38,784
Income taxes payable (Note 5).............................................. 13,408 4,664
Sales tax payable.......................................................... 3,793 9,527
--------- ---------
Total current liabilities.......................................... 116,977 86,350
Long-Term Debt (Note 2)...................................................... 3,757 96,435
Deferred Income Taxes (Note 5)............................................... 12,233 5,888
Commitments (Notes 2, 7 and 8)
Stockholders' Equity (Notes 2 and 6):
Preferred stock, $1 par value; authorized, 500 shares;
issued, none
Common stock, $.02778 par value; authorized, 100,000 shares; issued 26,262
shares (1997) and 25,582 shares (1996).................................. 729 711
Additional paid-in capital................................................. 9,606 512
Retained earnings.......................................................... 273,898 230,749
--------- ---------
284,233 231,972
Less: Treasury stock, at cost, 1,589 shares (1997) and 119 shares (1996)... (32,204) (1,573)
--------- ---------
Total Stockholders' Equity......................................... 252,029 230,399
--------- ---------
Total Liabilities and Stockholders' Equity.................... $ 384,996 $ 419,072
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 21
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales....................................................... $ 772,648 $ 704,934 $ 682,083
Cost of Sales (Note 3).......................................... 438,302 414,640 358,338
-------- -------- --------
Gross Profit.................................................... 334,346 290,294 323,745
-------- -------- --------
Expenses:
Store expenses................................................ 208,920 197,270 191,496
Warehouse and administrative expenses......................... 55,751 57,157 61,604
Gain on distribution center settlement (Note 9)............... (6,151) -- --
-------- -------- --------
Total Expenses........................................ 258,520 254,427 253,100
-------- -------- --------
Operating Income................................................ 75,826 35,867 70,645
Interest Expense, net (Note 2).................................. 6,232 12,385 6,373
-------- -------- --------
Earnings Before Income Taxes.................................... 69,594 23,482 64,272
Income Taxes (Note 5)........................................... 26,445 8,923 25,388
-------- -------- --------
Net Earnings.................................................... $ 43,149 $ 14,559 $ 38,884
======== ======== ========
Average Shares Outstanding...................................... 25,915 25,782 28,353
======== ======== ========
Net Earnings Per Common Share................................... $ 1.67 $ 0.56 $ 1.37
======== ======== ========
Dividends Per Common Share...................................... None None None
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 22
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------- PAID-IN RETAINED -------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ----- ---------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 30, 1994.................... 29,727 $ 825 $ 1,319 $256,033 55 $ (827) $257,350
Exercise of stock options.................... 127 4 1,510 -- -- -- 1,514
Non-cash compensation expense................ -- -- 75 -- -- -- 75
Purchase of Treasury stock, at cost.......... -- -- -- -- 4,258 (81,254) (81,254)
Tax benefit from disqualifying dispositions
of stock options (Note 6).................. -- -- 312 -- -- -- 312
Net earnings for the year.................... -- -- -- 38,884 -- -- 38,884
------ ----- ------- -------- ------ -------- --------
BALANCE, January 29, 1995.................... 29,854 829 3,216 294,917 4,313 (82,081) 216,881
Exercise of stock options.................... 41 1 431 -- -- -- 432
Non-cash compensation expense................ -- -- 86 -- -- -- 86
Treasury stock retired....................... (4,313) (119) (3,235) (78,727) (4,313) 82,081 --
Purchase of Treasury stock, at cost.......... -- -- -- -- 119 (1,573) (1,573)
Tax benefit from disqualifying dispositions
of stock options (Note 6).................. -- -- 14 -- -- -- 14
Net earnings for the year.................... -- -- -- 14,559 -- -- 14,559
------ ----- ------- -------- ------ -------- --------
BALANCE, January 28, 1996.................... 25,582 711 512 230,749 119 (1,573) 230,399
Exercise of stock options.................... 680 18 8,222 -- -- -- 8,240
Non-cash compensation expense................ -- -- 81 -- -- -- 81
Purchase of Treasury stock, at cost.......... -- -- -- -- 1,470 (30,631) (30,631)
Tax benefit from disqualifying dispositions
of stock options (Note 6).................. -- -- 791 -- -- -- 791
Net earnings for the year.................... -- -- -- 43,149 -- -- 43,149
------ ----- ------- -------- ------ -------- --------
BALANCE, February 2, 1997.................... 26,262 $ 729 $ 9,606 $273,898 1,589 $(32,204) $252,029
====== ===== ======= ======== ====== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 23
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers................................. $ 772,648 $ 704,934 $ 682,083
Cash paid to suppliers and employees......................... (640,675) (653,184) (594,293)
Income taxes paid............................................ (5,758) (23,318) (13,709)
Interest paid (net of amount capitalized).................... (7,319) (12,369) (6,579)
Interest received............................................ 662 149 621
---------- ---------- ----------
Net cash provided by operating activities................. 119,558 16,212 68,123
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures......................................... (11,170) (26,117) (40,814)
Fire-related disposals (net) (Note 9)........................ 4,028 -- --
Proceeds from sale of fixed assets........................... 1,904 207 473
---------- ---------- ----------
Net cash used in investing activities..................... (5,238) (25,910) (40,341)
---------- ---------- ----------
Cash flow from financing activities:
Borrowings under line of credit agreements and long-term 785,900 928,200 545,800
debt......................................................
Repayments under line of credit agreements and long-term (876,813) (917,963) (500,296)
debt......................................................
Repurchase of Treasury stock................................. (30,631) (1,573) (81,254)
Proceeds from exercise of stock options...................... 8,240 432 1,514
Other, net................................................... 1,338 1,213 683
---------- ---------- ----------
Net cash (used in) provided by financing activities....... (111,966) 10,309 (33,553)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents.......... 2,354 611 (5,771)
Cash and cash equivalents, beginning of period................. 7,285 6,674 12,445
---------- ---------- ----------
Cash and cash equivalents, end of period....................... $ 9,639 $ 7,285 $ 6,674
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income..................................................... $ 43,149 $ 14,559 $ 38,884
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 18,256 18,215 16,000
(Increase) decrease in net deferred income taxes............. 11,152 (6,919) (1,715)
Tax benefit from disqualifying dispositions of stock options 791 14 312
(Note 6)..................................................
(Gain) loss on sale of fixed assets.......................... (602) 4 (58)
Non-cash compensation expense................................ 81 86 75
Changes in assets and liabilities:
Decrease (increase) in merchandise inventories............ 18,341 (18,514) (347)
Decrease in other assets.................................. 866 1,570 1,882
Increase in checks outstanding, accounts payable, accrued 18,780 14,687 936
expenses and sales tax payable..........................
Increase (decrease) in income taxes payable............... 8,744 (7,490) 12,154
---------- ---------- ----------
76,409 1,653 29,239
---------- ---------- ----------
$ 119,558 $ 16,212 $ 68,123
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 24
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
Mac Frugal's Bargains - Close-outs Inc. (formerly Pic 'N' Save
Corporation) and its wholly owned subsidiaries (the "Company") operate a chain
of 319 retail stores which offer a broad range of new close-out merchandise on a
self-service, cash-and-carry basis.
The consolidated financial statements include the accounts of Mac
Frugal's Bargains - Close-outs Inc. and its wholly owned subsidiaries. All
material intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.
Fiscal Year
The Company's fiscal year is the fifty-two or fifty-three week period
ending on the Sunday nearest January 31. Fiscal year 1996 represents the fifty
three weeks ended February 2, 1997, while fiscal years 1995 and 1994 both
contain fifty two weeks.
Cash and Cash Equivalents
All highly liquid investments purchased with a maturity of three months
or less are considered to be cash equivalents.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market. Cost
is determined on the first-in, first-out method for individual items of
warehouse stock and by the retail inventory method for retail stores.
Deferred Expenses
The Company capitalizes direct incremental costs associated with opening
new stores and amortizes these costs, from the date the store opens, over six
months.
Property, Equipment and Improvements
Property, equipment and improvements are recorded at cost. Depreciation
and amortization are provided for by the straight-line method over the estimated
useful lives of the property.
Capitalization of Interest
The Company capitalizes interest in connection with the construction of
certain facilities and other assets. Interest was capitalized using the
Company's weighted average interest rate (Note 2).
Deferred Financing Costs
Deferred financing costs are amortized using the straight-line method
over the terms of the related debt agreements.
Interest Rate Swap
Amounts receivable or payable under the interest rate swap used to
manage interest rate risks arising from the Company's debt are recognized as
interest income or expense over the life of the agreement.
Fair Market Value of Financial Instruments
The carrying value of financial assets and liabilities approximates fair
value due to the short maturity for financial assets and the short-term
repricing of the underlying tranches for financial liabilities.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
F-7
<PAGE> 25
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
Discounts and Allowances
The Company has entered into certain purchase contracts in the ordinary
course of business. Associated with these contracts, the Company receives
certain allowances and discounts (primarily related to retail shelf space and
purchase discounts). These allowances are recognized when earned and, in some
cases, the retail shelf space allowances are recognized upon receipt if the
contracts do not include any future purchase commitments for the Company.
Impairment of Long-Lived Assets
During fiscal 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Company
evaluates long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. If the estimated future cash flows (undiscounted and without
interest charges) from the use of an asset are less than the carrying value, a
write-down would be recorded to reduce the related asset to its estimated fair
value. The adoption had no effect on the Company's financial position or
operating results.
Stock Incentive Plans
During fiscal 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages but does not require companies to record
compensation cost for stock-based compensation at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
SFAS No. 123 requires that companies electing to continue using the intrinsic
value method must make pro forma disclosures of net income and earnings per
share as if the fair-value-based method of accounting had been applied (see Note
6). Since the Company continues to account for stock-based compensation using
the intrinsic value method, SFAS No. 123 will not have an impact on the
Company's results of operations or financial position.
Earnings per Common Share
Earnings per Common Share are based on the weighted average number of
Common shares and Common Stock equivalents (stock options) outstanding.
Reclassifications
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
NOTE 2 -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 2, 1997 JANUARY 28, 1996
---------------- ----------------
<S> <C> <C>
Revolving note payable, under a line of credit
agreement bearing interest at the bank's prime rate
or LIBOR plus 5/8%, or other negotiated rates, all
at the Company's option. Final maturity is April 30,
2000................................................. $ -- $ 75,000
Other revolving notes payable, under various lines of
credit agreements at negotiated rates................ -- 15,800
Industrial Development Revenue Bonds with interest
payable quarterly based on the current prime rate,
next redeemable August 1998, due August 2028......... 2,000 2,000
Non interest-bearing construction loan, due in
quarterly installments beginning May 1, 1991 through
May 1, 2006, net of discount based on imputed
interest rate of 10% ($628 in fiscal 1996, $715 in
fiscal 1995)......................................... 1,172 1,285
Other, primarily deferred rent......................... 3,757 2,419
------- -------
6,929 96,504
Less current portion of long-term debt................. (3,172) (69)
------- -------
Long-term debt......................................... $ 3,757 $ 96,435
======= =======
</TABLE>
F-8
<PAGE> 26
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
The aggregate maturities of long-term debt for the years subsequent to February
2, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................... $3,172
1998............................................................... --
1999............................................................... --
2000............................................................... --
2001............................................................... --
Thereafter......................................................... 3,757
------
$6,929
======
</TABLE>
During fiscal 1996, the Company had available from a syndicate of banks
an annually renewable unsecured revolving line of credit (the "Revolver") in the
amount of $200,000,000 for seasonal working capital needs with a $50,000,000
sublimit for commercial and standby letters of credit with a maturity date of
August 10, 1998. In December 1996, the Company amended the Revolver to reduce
the available commitment to $175,000,000 (with a further reduction to
$150,000,000 on January 31, 1999), extend the maturity date to April 30, 2000
and modify interest rates and other certain terms.
As of February 2, 1997, $156,497,000 was available for working capital
requirements, including $31,497,000 for letters of credit. The Revolver bears
interest at the agent bank's prime rate, which at February 2, 1997 was 8.25% or
LIBOR plus 5/8%, which at February 2, 1997 was 6.19%, or other negotiated rates,
all at the Company's option. The Revolver contains certain restrictive covenants
requiring the Company to maintain certain financial ratios and limiting the
payment of dividends to an amount based on a formula. The Company had
outstanding borrowings of $0 and $75,000,000 at February 2, 1997 and January 28,
1996, respectively, under the Revolver. At February 2, 1997, $37,651,000 of
retained earnings was unrestricted as to the declaration of cash dividends and
the acquisition of Common Stock by the Company. Commitments under outstanding
letters of credit amounted to $18,503,000 and $18,306,000 at February 2, 1997
and January 28, 1996, respectively.
At the end of fiscal 1996, the Company had in place $40,000,000 of
unsecured revolving credit facilities with three individual banks (the "Other
Credit Facilities"). The banks providing the Other Credit Facilities are not
obligated to advance funds when requested by the Company. At February 2, 1997
and January 28, 1996, $0 and $15,800,000, respectively, were outstanding under
these credit facilities. Interest rates under these credit facilities fluctuate
based on general market conditions and ranged between 5.20% and 6.48% for
borrowings throughout the year. The weighted average interest rate for both the
Revolver and the Other Credit Facilities during fiscal 1996 was 6.09%.
In connection with the Company's exercise of its right to purchase the
land and land improvements from the City of New Orleans (see Note 9), the
related loan balances under the Industrial Development Revenue Bonds and the non
interest-bearing construction loan became due upon exercise of such right by the
Company. As such, the Company has classified the related debt outstanding of
$3,172,000 at February 2, 1997 as currently payable.
To hedge against fluctuations in interest rates on the Revolver, the
Company entered into an interest rate swap agreement with a major United States
bank for $40,000,000. According to the swap agreement, which expires in July
1998, the Company pays interest based upon fixed interest payments of 5.915% and
receives interest based upon a variable three-month LIBOR rate. The Company
monitors its position with the financial institution which is the counterparty
to this financial instrument and does not anticipate non-performance by this
counterparty. The impact of interest rate risk management activities on income
in fiscal 1996 and 1995 and the amount of deferred gains and losses from
interest rate risk management transactions at February 2, 1997 were not
material. Additionally, during fiscal 1996, the Company repaid the underlying
debt of the interest rate swap agreement resulting in an unmatched swap
agreement. As the swap is not matched to specific liabilities or anticipated
transactions, the swap is marked-to-market as of February 2, 1997. The resulting
unrealized gain was not material.
Net interest expense on bank borrowings and long-term debt is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ------------- -------------
<S> <C> <C> <C>
Expense.............................................. $ 6,894 $ 12,568 $ 6,997
Income............................................... (640) (149) (389)
Capitalized Interest................................. (22) (34) (235)
------ ------- ------
Net Interest Expense................................. $ 6,232 $ 12,385 $ 6,373
====== ======= ======
</TABLE>
F-9
<PAGE> 27
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
NOTE 3 -- MARKDOWN RESERVE
In November 1995, the Company announced a change in its strategic
direction. As part of the new strategy, the Company recognized a $35,000,000
pre-tax markdown reserve to reduce retail prices on merchandise in order to
liquidate aged inventory. The Company utilized $15,400,000 of this markdown
reserve in fiscal 1995 and the remaining $19,600,000 was utilized in fiscal
1996. At February 2, 1997, the Company established a $3,800,000 markdown reserve
for old aged inventory and fire related purchases that are expected to be sold
subsequent to the fiscal year end at prices below its current recorded carrying
value.
NOTE 4 -- ACCRUED EXPENSES
Accrued expenses are comprised of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 2, JANUARY 28,
1997 1996
----------- -----------
<S> <C> <C>
Insurance........................................................... $17,459 $18,893
Distribution center fire related expenses (Note 9).................. 7,850 --
Salaries............................................................ 5,845 3,184
Profit sharing and 401(k)........................................... 911 622
Percentage rent..................................................... 840 651
Other expenses...................................................... 23,401 15,434
------- -------
$56,306 $38,784
======= =======
</TABLE>
NOTE 5 -- INCOME TAXES
The provision for income taxes includes the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................................... $12,879 $13,215 $22,673
State................................................. 2,414 2,627 4,430
------- ------- -------
15,293 15,842 27,103
Deferred:
Federal............................................... 9,114 (5,812) (1,996)
State................................................. 2,038 (1,107) 281
------- ------- -------
11,152 (6,919) (1,715)
------- ------- -------
$26,445 $ 8,923 $25,388
======= ======= =======
</TABLE>
The Company's effective tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal tax rate.............................. 35.0% 35.0% 35.0%
State income tax, net of federal benefit................ 4.9 3.4 4.7
Rate benefit from federal targeted jobs tax credit...... -- (1.6) (0.8)
Other, net.............................................. (1.9) 1.2 0.6
---- ---- ----
38.0% 38.0% 39.5%
==== ==== ====
</TABLE>
F-10
<PAGE> 28
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
Significant components of the Company's net deferred income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 2, JANUARY 28,
1997 1996
----------- -----------
<S> <C> <C>
Deferred Income Tax Assets:
Inventories.................................................... $ 4,040 $ 12,151
Accrued Expenses............................................... 3,819 --
State Franchise Taxes.......................................... 465 (134)
Insurance Reserves............................................. -- 1,094
Deferred Expenses.............................................. 727 870
Other............................................................ (251) (374)
-------- --------
8,800 13,607
-------- --------
Deferred Income Tax Liabilities:
Excess of Tax Over Book Depreciation........................... (13,108) (14,069)
Insurance Reserves............................................. 7,419 7,018
Deferred Gain.................................................. (7,202) --
Other.......................................................... 658 1,163
-------- --------
(12,233) (5,888)
-------- --------
Net Deferred Income Tax (Liability) Asset........................ $ (3,433) $ 7,719
======== ========
</TABLE>
The Company provided no valuation allowance against the deferred income
tax assets recorded as of February 2, 1997 and January 28, 1996 because it is
more likely than not that the deferred income tax assets will be realized.
NOTE 6 -- STOCK INCENTIVE PLANS
In 1990, the Company adopted a new stock incentive plan ("the Plan") to
enable key employees to acquire shares of the Company's common stock. The Plan,
as amended in fiscal 1993, replaced two previous plans ("the Old Plans") and
provides for the grant of incentive stock options, non-qualified stock options,
stock appreciation rights and restricted stock. Up to 3,200,000 shares may be
issued under the Plan. Although stock options and restricted stock granted under
the Old Plans remain outstanding, no new options or restricted shares will be
granted under the Old Plans. Under the terms of the Plan, incentive stock
options may be granted at not less than 100% of fair market value at the date of
grant (110% in the case of 10% stockholders) and non-qualified stock options may
be granted at not less than par value (or, in the case of officers of the
Company, not less than the greater of par value or 50% of fair market value on
the date of grant).
The Company also has a stock option plan for non-employee directors
("the Non-Employee Plan") to enable non-employee directors to acquire shares of
the Company's Common Stock. As amended, the Non-Employee Plan provides for each
non-employee director to receive a stock option for 2,250 shares upon his
election and re-election at the Company's annual meeting of stockholders. The
exercise price of each such option is the fair market value of the common stock
on the date of grant. In addition, each non-employee director may elect, on the
date of each annual meeting at which he is elected or re-elected subsequent to
1999, to receive his annual retainer in the form of a stock option to purchase a
number of shares of the Common Stock determined by a formula. The expense to the
Company associated with these grants is recognized ratably over the director's
term. The Company has granted options to its non-employee directors to purchase
250,000 shares outside the Non-Employee Plan.
F-11
<PAGE> 29
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
The status of the Company's options outstanding for the last three
fiscal years is summarized below:
<TABLE>
<CAPTION>
STOCK OPTIONS
-----------------------------
PER SHARE
SHARES PRICE RANGE
--------- ---------------
<S> <C> <C>
Outstanding, January 30, 1994................................. 1,405,525 $ 6.63 - $23.00
Granted....................................................... 39,856 $16.10 - $16.88
Exercised..................................................... (126,318) $ 9.00 - $16.00
Cancelled..................................................... (103,142) $10.50 - $22.13
--------- --------------
Outstanding, January 29, 1995................................. 1,215,921 $ 6.63 - $23.00
Granted....................................................... 1,054,130 $11.10 - $17.50
Exercised..................................................... (41,404) $ 6.63 - $16.00
Cancelled..................................................... (139,511) $10.50 - $22.13
--------- --------------
Outstanding, January 28, 1996................................. 2,089,136 $ 6.63 - $23.00
Granted....................................................... 1,332,730 $19.00 - $25.50
Exercised..................................................... (679,980) $ 6.63 - $22.63
Cancelled..................................................... (186,039) $11.63 - $16.63
--------- --------------
Outstanding, February 2, 1997................................. 2,555,847 $ 8.38 - $25.50
=========
Options exercisable for shares at February 2, 1997............ 690,566
=========
</TABLE>
At February 2, 1997, there were 295,731 and 150,004 shares of the
Company's Common Stock available for grant under the Plan and the Non-Employee
Plan, respectively.
Although most of the stock options granted under the Plans are intended
to be incentive stock options, the Company will be entitled to a tax deduction
for the excess (if any) of the aggregate market price over the aggregate
exercise price at such time as non-qualified options are exercised. The
recognition of such tax benefits, if any, is recorded directly to additional
paid-in capital.
A summary of the outstanding and exercisable options by price range as
of February 2, 1997 is listed below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL LIFE EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- ---------------- ----------- ----------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 8.38 - $10.50 33,667 3.9 $ 8.92 33,667 $ 8.92
$10.60 - $14.25 526,171 8.0 $11.70 204,153 $11.72
$14.75 - $19.00 707,529 7.6 $15.90 423,746 $15.58
$19.13 - $23.00 78,480 7.8 $21.75 29,000 $22.16
$23.63 - $25.50 1,210,000 9.9 $25.34 -- $ --
--------- --- ------ ------- ------
2,555,847 8.7 $19.59 690,566 $14.39
========= === ====== ======= ======
</TABLE>
The estimated weighted average fair value of options granted during
fiscal 1996 was $24.96. The Company applies Accounting Principles Board Opinion
No. 25 and related Interpretations in accounting for its stock option plans.
Accordingly, no compensation expense has been recorded for its stock option
plans. Had compensation expense been determined based on the fair market value
at the grant dates for awards under the Plans consistent with SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
FEBRUARY 2, JANUARY 28,
1997 1996
----------- -----------
<S> <C> <C>
Net Income
As reported....................................................... $43,149 $14,559
Pro Forma......................................................... $42,807 $13,945
Earnings Per Share
As reported....................................................... $ 1.67 $ 0.56
Pro Forma......................................................... $ 1.63 $ 0.54
</TABLE>
F-12
<PAGE> 30
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
The fair value of each option granted during fiscal 1996 was estimated
on the date of the grant using the Black-Scholes options pricing model with the
following assumptions: risk-free interest rate of 6.5%; expected dividend yield
of 0%; expected life of 5 years for options; and expected stock price volatility
of 35.65%.
NOTE 7 -- DEFINED CONTRIBUTION PLANS
The Company has a profit sharing plan covering substantially all
employees with more than one year of service. Under this plan, the Company
contributed a portion of earnings based on a formula. Effective January 1, 1995,
the Company amended and restated this plan to include a 401(k) employee deferral
and Company matching feature. The Company's match is determined each year by the
Board of Directors. Profit Sharing and 401(k) expenses for the plan for the
years ended February 2, 1997, January 28, 1996 and January 29, 1995 were
$911,000, $515,000 and $1,050,000, respectively.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company has leases outstanding for retail store and warehouse
locations with varying initial expiration dates through 2020; most leases
include options to renew and many have rent escalations. The Company may also be
required to pay insurance, taxes and/or additional rents based on a percentage
of sales. Total rental expense was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
FEBRUARY 2, JANUARY 28, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Base rental expense............................. $41,207 $39,735 $34,858
Contingent rental expense....................... 637 627 416
------- ------- -------
$41,844 $40,362 $35,274
======= ======= =======
</TABLE>
Aggregate minimum rental commitments under all leases and aggregate
minimum rental income from sublease tenants of leased buildings under all
non-cancelable leases in effect as of February 2, 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR EXPENSE INCOME NET
--------------------------------------------------- -------- ------- --------
<S> <C> <C> <C>
1997............................................... $ 37,568 $ 2,408 $ 35,160
1998............................................... 37,093 1,644 35,449
1999............................................... 35,625 1,485 34,140
2000............................................... 33,556 1,251 32,305
2001............................................... 32,395 1,065 31,330
Thereafter......................................... 188,647 4,507 184,140
-------- ------- --------
$364,884 $12,360 $352,524
======== ======= ========
</TABLE>
At February 2, 1997, the Company had a commitment to purchase the land
to its former leased New Orleans distribution center for approximately
$1,900,000 from the City of New Orleans. Management anticipates that such
purchase will be consummated during fiscal 1997.
The Company is a defendant in certain legal actions. While management
and legal counsel are presently unable to predict the outcome or to estimate the
amount of any liability the Company may have with respect to these lawsuits, it
is not expected that these matters will have a material adverse effect on the
Company.
F-13
<PAGE> 31
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 2, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
NOTE 9 -- DISTRIBUTION CENTER SETTLEMENT
On March 21, 1996, the New Orleans distribution center and its contents
were destroyed by fire. The Company's lease of this facility, with an unrelated
third party, required the Company to maintain certain property insurance
coverage and obligated the Company to rebuild the facility in the event of
destruction. During fiscal 1996, the Company reached an agreement with its
landlord whereby the Company was relieved of its obligation to rebuild and any
other obligations in exchange for $30,000,000.
Pursuant to the ground lease agreement between the Company and the City
of New Orleans, the Company has the right to purchase the land and related land
improvements for approximately $1,900,000 and $1,000,000, respectively, as of
February 2, 1997. During fiscal 1996, the Company exercised this right. The land
improvements were originally paid for by the City of New Orleans and consist of
site access and other civic improvements. At February 2, 1997, the Company has
recorded within accrued expenses the obligation to reimburse the City of New
Orleans for such improvements. The land purchase remains as a commitment at
February 2, 1997 (see Note 8). The Company intends to hold this land for resale,
but future circumstances may alter the Company's intentions. In connection with
the land purchase, the Company has recorded $3,400,000 within accrued expenses
to cover demolition costs to restore the land to its original state.
Additionally, certain long-term debt financed through the City of New Orleans
contains acceleration clauses that require the repayment of such amounts upon
demand by the City of New Orleans (see Note 2).
By December 12, 1996, the Company reached comprehensive settlements with
all of its commercial property insurance carriers. Pursuant to these settlements
and the Company's salvage efforts, the Company received a total of $90,500,000
for all physical property losses and certain incremental costs associated with
the replenishment of the destroyed merchandise inventories and operating from
one distribution center. The following summarizes the significant components of
the net gain recognized:
<TABLE>
<S> <C>
Insurance Proceeds.......................................................... $90,500,000
-----------
Less expenses/losses:
Landlord lease settlement................................................. 30,000,000
Inventories and supplies destroyed........................................ 29,463,000
Fire related inventory markdowns.......................................... 5,873,000
Demolition and purchase of land improvements.............................. 4,400,000
Incremental freight costs................................................. 4,264,000
Property, equipment and improvements destroyed............................ 4,057,000
Landlord lease payments up to settlement date............................. 1,821,000
Incremental labor costs up to settlement date............................. 1,620,000
Taxes and interest........................................................ 1,091,000
Miscellaneous other expenses.............................................. 1,760,000
-----------
Total expenses/losses..................................................... $84,349,000
-----------
Net gain on distribution center settlement................................ $ 6,151,000
===========
</TABLE>
At February 2, 1997, a total of $7,850,000 of the expenses recognized
above remains unpaid and has been recorded within accrued expenses in the
accompanying consolidated balance sheet (see Note 4).
F-14
<PAGE> 32
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended February 2, 1997:
Inventory valuation allowance(2)................. $ 19,600 $ 3,800 $ -- $ 19,600 $ 3,800
Fiscal year ended January 28, 1996:
Inventory valuation allowance(1)................. $ -- $ 35,000 $ -- $ 15,400 $ 19,600
Fiscal year ended January 29, 1995:
Inventory valuation allowance.................... $ -- $ -- $ -- $ -- $ --
</TABLE>
- ---------------
(1) Consists of reserve for markdowns of aged goods.
(2) Consists of reserve for markdowns of aged goods and fire related purchases.
F-15
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
FILED WITH THE ANNUAL REPORT ON FORM 10-K FOR PAGE
NUMBER THE FISCAL YEAR ENDED FEBRUARY 2, 1997 NUMBER
------ --------------------------------------------------------------------------------------- ------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as amended, filed as Exhibit 6.1 to the
Company's Registration Statement on Form 8-A dated May 22, 1992........................ *
3.2 By-Laws of the Company, as amended, filed as Exhibit 6.2 to the Company's Registration
Statement on Form 8-A dated May 22, 1992............................................... *
10.1 Incentive Stock Option Plan filed as Exhibit A to the Company's definitive Proxy
Statement for 1982..................................................................... *
10.2 Amendment to Incentive Stock Option Plan filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended February 2, 1992................................ *
10.3 Common Stock Incentive Plan filed as Appendix C to the Company's definitive Proxy
Statement for 1979..................................................................... *
10.4 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.3(3) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1982................. *
10.5 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 2, 1992.................. *
10.6 Non-Qualified Stock Option Agreement dated December 26, 1985 filed as Exhibit 10.3(3)
to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1985................................................................................... *
10.7 Form of Amended Stock Option Agreement used in connection with the Incentive Stock
Option Plan filed as Exhibit 10.6(1) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 and transition period ended January 28, 1990... *
10.8 Form of Restricted Stock Agreement used in connection with the Incentive Stock Option
Plan filed as Exhibit 10.6(2) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 and transition period ended January 28, 1990....... *
10.9 1990 Employee Stock Incentive Plan filed as Annex B to the Company's definitive Proxy
Statement for the 1990 Annual Meeting of Stockholders.................................. *
10.10 Amendments No. 1 and No. 2 to 1990 Employee Stock Incentive Plan filed as Exhibit 10.10
to the Company's Annual Report on Form 10-K for the fiscal year ended February 2,
1992................................................................................... *
10.11 Form of Stock Option Agreement used in connection with the 1990 Employee Stock
Incentive Plan for options subject to staggered vesting filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1991........ *
10.12 Form of Stock Option Agreement used in connection with the 1990 Employee Stock
Incentive Plan for immediately exercisable options filed as Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1991........ *
10.13 Form of Restricted Stock Agreement used in connection with the 1990 Employee Stock
Incentive Plan filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 3, 1991................................................. *
10.14 Amendment No. 2 to Stock Option Plan for Non-Employee Directors........................
10.15 Stock Option Plan for Non-Employee Directors filed as Annex B to the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders held in 1992......... *
10.16 Employment Agreement dated as of July 18, 1996 between the Company and Neil T.
Watanabe...............................................................................
10.17 Employment Agreement dated as of December 11, 1996 between the Company and Frank C.
Bianchi................................................................................
10.18 Employment Agreement dated as of December 11, 1996 between the Company and Michael
Dobbs..................................................................................
10.19 Employment Agreement dated as of March 15, 1995 between the Company and Mark J. Miller
filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996................................................................. *
10.20 Employment Agreement dated as of July 17, 1995 between the Company and Earl C.
Bonnecaze filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996..................................................... *
10.21 Amended and Restated Employment Agreement dated as of March 12, 1997 between the
Company and Philip L. Carter...........................................................
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
FILED WITH THE ANNUAL REPORT ON FORM 10-K FOR PAGE
NUMBER THE FISCAL YEAR ENDED FEBRUARY 2, 1997 NUMBER
------ --------------------------------------------------------------------------------------- ------
<S> <C> <C>
10.22 Lease dated August 1, 1988 between the Company, the City of New Orleans, State of
Louisiana Inc., and the City of New Orleans, Louisiana Industrial Development Board re
New Orleans Distribution Center filed as Exhibit 10.5(1) to the Company's Annual Report
on Form 10-K for the fiscal year ended January 1, 1989................................. *
10.23 Long Term Cash Incentive Plan dated as of January 13, 1997.............................
10.24 First Amendment to Second Amended and Restated Credit Agreement dated as of April 22,
1997 among the Company, its subsidiaries, the lenders listed therein, and Bank of
America National Trust and Savings Association, as Administrative Agent................
10.25 Amendment No. 3 to 1990 Employee Stock Incentive Plan filed as Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1996........ *
10.26 Lease dated as of September 25, 1993 between TriNet Essential Facilities X, Inc. and
West Coast Liquidators, Inc. filed as Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 1994................................... *
10.27 Settlement Agreement dated August 9, 1990 among the Company, Batchelder Co., DHB
Partners, L.P., David H. Batchelder, Batchelder & Partners, Inc. and Girard Partners,
L.P. filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 3, 1991............................................................ *
10.28 Master Lease dated December 27, 1991 between the Company and Comdisco, Inc. filed as
Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 1992....................................................................... *
10.29 MacFrugal's Bargains - Close-outs Inc. Savings and Retirement Plan dated as of January
1, 1995, filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 1995..................................................... *
10.30 Form of Stock Option Agreement used in connection with grants on December 11, 1996 and
January 1, 1997 to non-employee members of the Board of Directors......................
10.31 Second Amended and Restated Reducing Revolving Credit Agreement dated as of December
16, 1996 among the Company, its subsidiaries, the lenders listed therein, and Bank of
America National Trust and Savings Association, as Administrative Agent................
10.32 Amendment No. 1 to Stock Option Plan for Non-Employee Directors filed as Exhibit 10.32
to the Company's Annual Report on Form 10-K for the fiscal year ended January 28,
1996................................................................................... *
22.1 Subsidiaries of the Company............................................................
24.1 Consent of Independent Auditors........................................................
27 Financial Data Schedule................................................................
</TABLE>
- ---------------
* By this reference incorporated herein and made a part hereof.
<PAGE> 1
EXHIBIT 10.14
MAC FRUGAL'S BARGAINS O CLOSE-OUTS INC.
AMENDMENT NO. 2 TO
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
This Amendment No. 2 to the Stock Option Plan for Non-Employee
Directors (the "Plan") of MacFrugal's Bargains o Close-outs Inc., a Delaware
corporation (the "Company"), is made as of this 11th day of December, 1996.
Capitalized terms used herein shall have the same meaning as ascribed to such
terms in the Plan, unless otherwise defined herein.
1. The first sentence of Section 4(b) of the Plan is
hereby amended to read in its entirety as follows:
"(b) Amount, Exercise Price and Exercisability of Grants in
Lieu of Annual Retainer Fees. In addition to the grants made
pursuant to Section 4(a), each Director shall have the right,
exercisable on the date of the Annual Meeting at which such
Director is elected, including each Annual Meeting at which
such Director is re-elected (the "Annual Meeting Date"), to
make an irrevocable election to receive an Option in lieu of
100%, but not less than 100%, of the Director's Retainer (as
defined hereafter) for the succeeding year; provided, however,
that no Director shall have the right to make such election
with respect to the Annual Meetings to be held in 1997, 1998
or 1999."
2. Except as set forth herein, the Plan is hereby
ratified and confirmed in all respects.
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into as of the 18th day of July, 1996, by and between Mac Frugal's
Bargains o Close-outs Inc., a Delaware corporation (the "Company"), and Neil T.
Watanabe ("Executive").
WHEREAS, the Company desires to employ Executive as its Senior
Vice President, Chief Financial Officer on the terms and conditions set forth
herein and Executive desires to accept such employment with the Company;
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Employment and Duties. The Company hereby engages
Executive in the capacity of Senior Vice President, Chief Financial Officer.
Executive shall perform such duties and functions as shall be specified from
time to time by the Company's President and Chief Executive Officer. Executive
hereby accepts such employment and agrees to perform such duties. During the
term of this Agreement, Executive shall not be required without his consent to
undertake responsibilities not commensurate with his position as the Company's
Senior Vice President, Chief Financial Officer.
2. Compensation.
(a) Base Salary. For all services to be rendered
by Executive hereunder, Executive shall be paid a base salary at the rate of
two hundred twenty five thousand dollars ($225,000) per year. Executive's base
compensation shall be reviewed at least annually and may be increased at the
discretion of the Board of Directors of the Company (the "Board"), but during
the term of this Agreement may not be decreased below the then-effective base
salary. Executive's salary shall be paid on such basis as is the normal
payment pattern for executive officers of the Company. The base salary payable
under this Section 2(a) shall be in addition to and exclusive of any payments
to Executive from time to time under formal or informal bonus, incentive
compensation or similar plans now in effect or
1
<PAGE> 2
which hereafter may be adopted.
(b) Performance Bonus. With respect to each full
fiscal year of the Company during which Executive is employed by the Company
pursuant to this Agreement throughout (each, a "Bonus Year"), Executive shall
be entitled to participate in a performance bonus plan approved annually for
executive officers of the Company by the Compensation Committee of the Board.
The calculation and payment to Executive of a performance bonus contemplated by
this Section 2(b), if any, shall be made as soon as practicable in the fiscal
year of the Company immediately succeeding such Bonus Year, following
preparation of the Company's annual audited financial statements for such Bonus
Year. For the fiscal year of 1996, the Executive will be given a full year's
bonus, if a bonus is paid, which will not be pro-rated based on Executive not
being employed for a full year in 1996.
3. Payment in Event of Termination. In the event of the
termination of Executive's employment hereunder pursuant to Section 8(d) during
the first six months of this Agreement, the Company shall continue to make the
payments provided for in Section 2(a) at the rate then being paid to Executive
and shall provide Executive with COBRA medical and dental insurance benefits for
one hundred eighty (180) days. After the first six months, the Company shall
make payments for three hundred sixty-five (365) days from the date of such
termination. Executive shall not be required or obligated to obtain other
employment to mitigate the payments due hereunder. Executive may, at his sole
option, terminate this Agreement and receive the payments provided for in this
Section 3 following the occurrence of either of the following events (a "Company
Breach"): (a) Executive's authority to function as a Senior Vice President shall
be removed or limited in any material
2
<PAGE> 3
respect, unless such removal or limitation was a result of one or more events
that would permit the termination of Executive's employment For Cause (as
defined in Section 8(c)), or (b) the Company shall have breached in any material
respect any of its covenants and agreements in this Agreement, or (c) the
Executive is forced to relocate due to a move or consolidation of the corporate
headquarters. Notwithstanding the foregoing, Executive shall not be entitled to
terminate this Agreement unless Executive provides written notice to the Company
specifying in reasonable detail the nature of the Company Breach, and the
Company shall have failed to cure such Company Breach within 45 days thereafter.
4. Options. Executive shall be entitled to participate
in any performance stock option plan approved annually for other executive
officers of the Company by the Compensation Committee of the Board. To the
maximum extent permitted by the Internal Revenue Code of 1986, as amended (the
"IRC"), including the rules and regulations thereunder, all such options shall
be incentive stock options, and the remainder of such options shall be
non-qualified stock options.
5. Benefits.
(a) Executive shall be entitled to such fringe
benefits and perquisites as are generally made available to executive officers
of the Company, and such other fringe benefits as may be approved by the Board
for executive officers of the Company during the term hereof including, without
limitation, medical, dental and disability insurance, group term life insurance
in face amount of the base salary payable pursuant to Section 2(a) and annual
vacation time of three weeks.
(b) During the term of Executive's employment,
the Company shall furnish Executive with a motor vehicle of his choice to use
for business purposes in accordance with the Company's policies in effect from
time to time.
(c) Nothing contained herein is intended or shall
be deemed to be granted to Executive in lieu of any rights or privileges to
which Executive may be entitled as an employee of the Company under any
medical, dental, disability, life insurance, retirement, stock option, stock
bonus or purchase, incentive compensation or other plan of the Company which
may now be in effect or which may hereafter be adopted, it being understood
that Executive shall have the same rights and
3
<PAGE> 4
privileges to participate in such plans as any other executive officers of the
Company.
6. Reimbursement of Expenses. The Company shall
reimburse Executive for all reasonable business expenses incurred by Executive
in connection with the performance of his duties hereunder, provided that
Executive furnishes to the Company receipts and other documentation reasonably
acceptable to the Company evidencing such expenditures.
7. Performance of Duties.
(a) In consideration of the payments to be made
hereunder, Executive agrees to devote his entire business time and attention to
the performance of his duties hereunder, to serve the Company diligently and to
the best of his abilities and not to compete with the Company or any of its
Affiliates (as defined below) in any manner whatsoever. Without limiting the
generality of the foregoing, Executive shall not, during the term of his
employment by the Company, directly or indirectly (whether for compensation or
otherwise), alone or as an agent, principal, partner, officer, employee,
trustee, director, shareholder or in any other capacity, own, manage, operate,
join, control or participate in the ownership, management, operation or control
of or furnish any capital to or be connected in any manner with or provide any
services as a consultant for any business which competes directly or indirectly
with any of the businesses of the Company or any of its Affiliates (as defined
below) as they may be conducted from time to time; provided, however, that
notwithstanding the foregoing, nothing contained in this Agreement shall be
deemed to preclude Executive from owning not more than one percent of the
publicly-traded capital stock of an entity which is in competition with any of
such businesses. Affiliate of the Company means any person, association or
entity: (a) that, in whole or in part, owns or is owned by, or otherwise has a
material interest (whether debt, equity or otherwise) in, the Company; (b) that
controls or is controlled by the Company; (c) that is a subsidiary (whether
owned in whole or in part) of the Company; or (d) to which the Company is a
"related tax payer" as defined in Section 1313(c) of the IRC.
(b) Executive may continue his civic, educational and
charitable activities and serve on boards of directors of other companies, if
consistent with this Section 7 and if otherwise approved by the Board.
4
<PAGE> 5
8. Term and Termination.
(a) The term of Executive's employment with the
Company hereunder shall commence on the date hereof and shall continue until
Executive resigns or is terminated under this Section 8 or under Section 9 of
this Agreement.
(b) In the event of Executive's death or in the
event of Executive's total disability for any consecutive six-month period
during the term of this Agreement, the Company may at its sole option
thereafter (unless Executive, in the case of disability, shall have resumed his
duties in full prior to such termination) terminate this Agreement, and in such
event the sole right hereunder of Executive, Executive's widower or Executive's
legal representative, as the case may be, shall be to: (i) receive the base
salary due Executive through the last day of the twelfth full calendar month
following the month in which his death or disability shall have occurred; (ii)
have any and all previously accruing bonuses or options or other rights vest in
Executive or in his estate immediately (unless Executive or his estate shall
elect to the contrary); and (iii) in the event of termination by reason of
disability, have the Company continue to maintain in effect at its sole
expense, COBRA medical and dental for three hundred sixty-five (365) days
following the date of any such termination.
(c) The Company, upon 30 days prior written
notice to Executive, may terminate this Agreement For Cause (as defined
herein). For the purposes of this Agreement, the term "For Cause" shall mean:
(i) Executive's breach of the covenants contained in Sections 7, 11 or 13(a)
hereof; (ii) Executive's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent jurisdiction for any crime involving moral
turpitude or any felony punishable by imprisonment in the jurisdiction
involved; or (iii) Executive's commission of any act of fraud or dishonesty in
connection with, or related to, his duties hereunder. Upon termination of
Executive For Cause, this Agreement shall immediately terminate, and Executive
shall not be entitled to any further rights or payments hereunder (other than
payment under Section 2(a) for services rendered prior to the date of such
termination). Without limiting the generality of the foregoing, Executive
shall have no right on or after the date of such termination to any of the
benefits set forth in Section 5 hereof (other than payment for accrued
vacation), any payment of base salary pursuant to Section 2(a), any payment of
performance
5
<PAGE> 6
bonus pursuant to Section 2(b) for the Bonus Year in which such termination
occurs or any other benefit or payment of any kind whatsoever.
(d) Subject to the payment of amounts, if any,
required by Sections 2(b) and 3, the Company shall be entitled to terminate
Executive's employment without cause at any time upon thirty days written
notice.
9. Change in Control. If a Change in Control (as
defined below) of the Company occurs during the term of this Agreement, the
provisions of this Section 9 shall become operative. For the purposes of this
Agreement, a Change in Control of the Company shall be deemed to have occurred
if any "person" (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) directly or indirectly of
securities of the Company representing more than 35% of the combined voting
power of the Company's then outstanding securities, as a result of purchases
which are not expressly approved by the Board. For purposes of this Section 9,
the Board expressly approving the 35% or more voting power ownership must
consist of individuals who for the previous consecutive twenty-four (24) month
period, constituted at least a majority of the Board.
For a period of two months after a Change in Control of the
Company, Executive shall have the right to terminate his employment with the
Company pursuant to this Section 9, and the Company shall pay Executive the
following amounts no later than the 15th business day after the date of
termination of Executive's employment:
(i) A lump sum severance payment equal to 2
multiplied by the sum of (A) Executive's base annual salary at the highest rate
in effect during the fiscal year of the Company immediately preceding the date
Executive's employment terminates, and (B) the greater of the amount of any
incentive, bonus or other cash compensation that was paid to Executive during
either (x) the 12 months immediately preceding the date Executive's employment
terminates and (y) the 12 months immediately preceding the Change in Control;
and
(ii) A cash payment equal to the amount by which the
greater of (A) the closing price of the Company's Common
6
<PAGE> 7
Stock on the day before the date Executive's employment terminates or (B) the
highest price per share actually paid in connection with the Change in Control
of the Company, exceeds the per share exercise price of each then vested and
exercisable stock option held by Executive on the day before the date
Executive's employment terminates, multiplied by the number of shares covered
by each such option. In exchange for such payment, Executive will surrender
all such options to the Company without exercising them.
10. Deductibility of Payments to Executive. Notwithstanding
anything else to the contrary in this Agreement, in the event that the payments
to Executive under this Agreement, either alone or together with other payments
Executive has a right to receive from the Company, would be non-deductible (in
whole or in part) by the Company for Federal income tax purposes because of
Section 280G of the IRC, then the aggregate present value of amounts payable to
Executive pursuant to this agreement shall be reduced (but not below zero) to
the "Reduced Amount." The Reduced Amount shall be an amount expressed in
present value which maximizes the aggregate present value of all payments to be
made to Executive under this Agreement without causing any payment to be
non-deductible by the Company because of Section 280G of the Code. For purposes
of this Section 10, present value shall be determined in accordance with Section
280G(d)(4) of the IRC. The determination of the Reduced Amount shall be made
exclusively by the Company's outside auditors and in consultation with outside
counsel to the Company (each of whose fees and expenses shall be borne by the
Company), and such determination shall be conclusive and binding on the Company
and Executive.
11. Confidentiality.
(a) The Company (which for purposes of this Section 11
shall mean the Company and its Affiliates (as defined in Section 7(a)) and
Executive recognize that during the course of Executive's employment with the
Company he will accumulate certain crucial proprietary and confidential
information and trade secrets for use in the Company's business and will have
divulged to him certain crucial confidential and proprietary information and
trade secrets about the business, operations and prospects of the Company,
including, without limitation, confidential and proprietary information
regarding suppliers and employees of the Company, which constitute valuable
business assets providing the Company the opportunity to obtain an
7
<PAGE> 8
advantage over competitors who do not know or use such information or have
access to it without the investment of considerable resources. Executive
hereby acknowledges and agrees that such information (the "Proprietary
Information") is confidential and proprietary and a trade secret and that such
information shall include, without limitation:
(i) the identity and location of customers and
domestic and foreign suppliers of quality low-cost close-out merchandise that
can profitably be resold, and their buying and selling histories and
creditworthiness; information regarding the quantity, quality, frequency,
pricing and marketability of their supply offerings; and lists setting forth
the same;
(ii) processes, methods and techniques, including
but not limited to primary contact points in the Company's network; methods of
merchandising in the Company's stores; processes and methods of giving
directions and instructions to the Company's stores and its employees in
connection with merchandising moves; information, techniques, formulas and
judgments relating to the appropriate bidding, pricing and marketing of
close-out merchandise; and the price ranges and techniques by which such
merchandise can be profitably resold at substantial reductions from normal
retail rates; and designs, styles and methods of packaging and distributing
close-out merchandise distinctive to the Company;
(iii) records of research, including but not
limited to demographic studies conducted by the Company and its agents which
contribute to the Company's ability to locate retail store sites;
(iv) proposals and projections, including but not
limited to long-range plans for the Company's growth, expansion, development
and continued fostering of its relationships with its employees, suppliers and
customers; and
(v) files, reports, memoranda, computer software
or programming and budgets or other financial plans or information regarding
the Company and its business, properties or affairs.
(b) Executive agrees that he shall not, at any
time subsequent to the execution of this Agreement, whether during or after the
term hereof, disclose, divulge or make known,
8
<PAGE> 9
directly or indirectly, to any person, or otherwise use or exploit, any
Proprietary Information obtained by Executive at any time prior to or
subsequent to the execution of this Agreement, except to the extent required by
his performance of his duties hereunder for the Company. Executive agrees to
disclose to the Company the identity and nature of any contacts with any person
or entity soliciting from Executive disclosure of any Propriety Information or
soliciting Executive's involvement in any business venture competitive with the
Company. Executive shall not conceal from or fail to disclose to the Company,
or divert or exploit for his own personal profit or that of others, any
business opportunity or other opportunity to acquire an interest in or a
contractual relationship with any person or entity where such person or entity
is in the Company's line of business or where such contractual relationship
involves the acquisition of real estate and which would be considered a
feasible and advantageous opportunity or acquisition for the Company. Upon
termination of this Agreement, Executive will deliver to the Company all
tangible displays and repositories of customer and supplier lists, files,
records of research, proposals, reports, memoranda, business methods and
techniques, computer software and programming, budgets and other financial
plans and information and other materials or records or writings of any other
type (including all copies thereof) made, used or obtained by, or provided to,
Executive, containing any Proprietary Information, whether obtained prior to or
subsequent to the execution of this Agreement.
12. Non-Solicitation of Employees.
(a) Executive hereby agrees that for the two-year period
following the date of termination of this Agreement he will not (i) authorize
his name to be used by any person, partnership, corporation or other business
entity, or (ii) engage in or carry on, directly or indirectly, whether as
advisor, principal, agent, partner, officer, director, employee, stockholder,
associate or consultant of any person, partnership, corporation or other
business entity which is in competition with the bargain close-out business
(i.e. "Consolidated Stores", "99c Stores", "All for $1.00", "Building 19", and
"Dollar General") carried on by the Company or any of its Affiliates in Los
Angeles, Orange, Riverside, San Bernardino, Ventura, Santa Barbara or San Diego
Counties in the State of California, or any other county in California where
business is then carried on or conducted by the Company or any of its
Affiliates, or in the States of Alabama, Arizona, Colorado, Florida, Georgia,
Idaho, Illinois, Indiana, Louisiana, Missouri,
9
<PAGE> 10
Nevada, New Mexico, Tennessee, Texas, Utah or any other State in which business
is then carried on or conducted by the Company or its Affiliates. Stores not
considered a competitor are discount chains (Wal-Mart, KMart, Target) and
off-price retailers (i.e. "Mervyn's", "TJ Maxx", "Staples", "Comp USA",
"Circuit City").
(b) Executive further agrees that during the
period from the date of this Agreement until two years after the termination of
this Agreement he shall not contact or recruit any employee of the Company or
any of its Affiliates without advising the Company of such contact and he shall
not participate in any endeavor or activity which would disrupt the Company's
or any of its Affiliate's good business relationships with its employees.
13. Miscellaneous.
(a) Executive represents and warrants to the Company that
he is not now under any obligation of a contractual or other nature to any
person, firm or corporation which is inconsistent or in conflict with this
Agreement, or which would prevent, limit or impair in any way the performance by
him of his obligations hereunder.
(b) The waiver by either party of a breach of any provision
of this Agreement must be in writing and shall not operate or be construed as a
waiver of any subsequent breach thereof.
(c) This Agreement constitutes the entire Agreement of
Executive and the Company and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations between the
parties with respect to the subject matter hereof.
(d) Any and all notices referred to herein shall be
sufficiently furnished if in writing, and sent by registered or certified mail,
postage prepaid, or by facsimile transmission (but only if confirmation of
receipt is subsequently received by the sender either orally or in writing), or
by overnight courier (if such overnight courier guarantees next day delivery and
such notice is sent for delivery on a day on which such courier guarantees such
overnight delivery), to the respective parties at
10
<PAGE> 11
the following addresses or such other address as either party may from time to
time designate in writing in the manner set forth in this Section 13(d):
The Company:
Mac Frugal's Bargains o Close-outs Inc.
2430 E. Del Amo Boulevard
Dominguez, California 90220
Attention: Board of Directors
and Chief Executive Officer
Telephone Number: (310) 761-4200
Executive:
Neil T. Watanabe
30231 Cheret Place
Rancho Palos Verdes, California 90275
(e) If any portion or provision of this Agreement shall be
invalid or unenforceable for any reason, there shall be deemed to be made such
minor changes (and only such minor changes) in such provision or portion as are
necessary to make it valid and enforceable. The invalidity or unenforceability
of any provision or portion of this Agreement shall not affect the validity or
enforceability of any other provisions or portions of this Agreement. If any
such unenforceable or invalid provision or provisions shall be rendered
enforceable and valid by changes in applicable law, then such provision or
provisions shall be deemed to read as they presently do in this Agreement
without change.
(f) The rights and obligations of the parties hereto shall
inure to and be binding upon the parties hereto and their respective heirs,
successors and assigns.
(g) The waiver by either party of a breach of a provision
of this Agreement shall not operate or be construed as a waiver of a subsequent
breach hereof.
(h) This Agreement is intended to and shall be governed by,
and interpreted under and construed in accordance with, the laws of the State of
California, without reference to any conflict of laws or principles.
11
<PAGE> 12
(i) If any litigation, arbitration or any other proceedings
is instituted in connection with or related to this Agreement, the
non-prevailing party in such litigation, arbitration or other proceeding shall
pay the expenses, including, without limitation, the attorneys' fees and
expenses of investigation, of the prevailing party.
(j) Arbitration.
(i) Any controversy, claim or dispute between the
parties directly or indirectly concerning this Agreement or the breach hereof,
or the subject matter hereof (except in instances where only injunctive relief
is sought by the Company), shall be finally settled by arbitration held in Los
Angeles, California. The Company and Executive shall each select an arbitrator
from a panel of seven (7) arbitrators (the "Arbitration Pool") obtained by the
Company from the Federal Mediation and Conciliation Service within thirty (30)
days of receiving written notice from either party demanding any such
proceeding. Such two chosen arbitrators shall agree on a third arbitrator from
the Arbitration Pool within fifteen days thereafter. In the event an agreement
has not been reached on the third arbitrator by the end of such fifteen-day
period, the third arbitrator shall be chosen by the American Arbitration
Association. The arbitration shall be held and a final decision reached within
30 days thereafter. The decision of a majority of the three chosen arbitrators
shall be final and conclusive on the parties, and there shall be no appeal
therefrom. A decision of the arbitrators may be enforced by the prevailing
party in a court of competent jurisdiction. All other issues in connection with
such arbitration shall be in accordance with the Rules of the American
Arbitration Association.
(ii) The parties hereto agree that an action to compel
arbitration pursuant to this Agreement may be brought in any appropriate court
and in connection therewith the laws of the State of California shall control.
Application may also be made to such court for confirmation of any decision or
award of the arbitrators but only if necessary to effectuate such decision or
award. The parties hereto hereby consent to the jurisdiction of the arbitrators
and of such court and waive any objection to the jurisdiction of such
arbitrators or court.
12
<PAGE> 13
(k) The Company and Executive expressly agree
that the provisions of Sections 11, 12 and 13 shall survive the termination of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE COMPANY: MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
By:_______________________________________
Philip C. Carter
President and Chief Executive Officer
EXECUTIVE:
_______________________________________
Neil T. Watanabe
13
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into as of the 11th day of December, 1996, by and between Mac Frugal's
Bargains o Close-outs Inc., a Delaware corporation (the "Company"), and Frank
C. Bianchi ("Executive").
WHEREAS, the Company desires to employ Executive as its Senior
Vice President, Human Resources on the terms and conditions set forth herein
and Executive desires to accept such employment with the Company;
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Employment and Duties. The Company hereby engages
Executive in the capacity of Senior Vice President, Human Resources. Executive
shall perform such duties and functions as shall be specified from time to time
by the Company's Chief Executive Officer. Executive hereby accepts such
employment and agrees to perform such duties. During the term of this
Agreement, Executive shall not be required without his consent to undertake
responsibilities not commensurate with his position as the Company's Senior
Vice President, Human Resources.
2. Compensation.
(a) Base Salary. For all services to be rendered
by Executive hereunder, Executive shall be paid a base salary at the rate of
one hundred seventy five thousand dollars ($175,000) per year. Executive's
base compensation shall be reviewed at least annually and may be increased at
the discretion of the Board of Directors of the Company (the "Board"), but
during the term of this Agreement may not be decreased below the then-effective
base salary. Executive's salary shall be paid on such basis as is the normal
payment pattern for executive officers of the Company. The base salary payable
under this Section 2(a) shall be in addition to and exclusive of any payments
to Executive from time to time under formal or informal bonus, incentive
compensation or similar plans now in effect or which hereafter may be adopted.
1
<PAGE> 2
(b) Performance Bonus. With respect to each full
fiscal year of the Company during which Executive is employed by the Company
pursuant to this Agreement throughout (each, a "Bonus Year"), Executive shall
be entitled to participate in a performance bonus plan approved annually for
executive officers of the Company by the Compensation Committee of the Board.
The calculation and payment to Executive of a performance bonus contemplated by
this Section 2(b), if any, shall be made as soon as practicable in the fiscal
year of the Company immediately succeeding such Bonus Year, following
preparation of the Company's annual audited financial statements for such Bonus
Year.
3. Payment in Event of Termination. In the event of the
termination of Executive's employment hereunder pursuant to Section 8(d), the
Company shall continue to make the payments provided for in Section 2(a) at the
rate then being paid to Executive and shall provide Executive with COBRA
medical and dental insurance benefits for three hundred sixty-five (365) days
from the date of such termination. Executive shall not be required or
obligated to obtain other employment to mitigate the payments due hereunder.
Executive may, at his sole option, terminate this Agreement and receive the
payments provided for in this Section 3 following the occurrence of either of
the following events (a "Company Breach"): (a) Executive's authority to
function as a Senior Vice President shall be removed or limited in any material
respect, unless such removal or limitation was a result of one or more events
that would permit the termination of Executive's employment For Cause (as
defined in Section 8(c)), or (b) the Company shall have breached in any
material respect any of its covenants and agreements in this Agreement.
Notwithstanding the foregoing, Executive shall not be entitled to terminate
this Agreement unless Executive provides written notice to the Company
specifying in reasonable detail the nature of the Company Breach, and the
Company shall have failed to cure such Company Breach within 45 days
thereafter.
4. Options. Executive shall be entitled to participate
in any performance stock option plan approved annually for other executive
officers of the Company by the Compensation Committee of the Board. To the
maximum extent permitted by the Internal Revenue Code of 1986, as amended (the
"IRC"), including the rules and regulations thereunder, all such options shall
be incentive stock options, and the remainder of
2
<PAGE> 3
such options shall be non-qualified stock options.
5. Benefits.
(a) Executive shall be entitled to such fringe
benefits and perquisites as are generally made available to executive officers
of the Company, and such other fringe benefits as may be approved by the Board
for executive officers of the Company during the term hereof including, without
limitation, medical, dental and disability insurance, group term life insurance
in face amount of the base salary payable pursuant to Section 2(a) and annual
vacation time of three weeks.
(b) During the term of Executive's employment,
the Company shall furnish Executive with a motor vehicle of his choice to use
for business purposes in accordance with the Company's policies in effect from
time to time.
(c) Nothing contained herein is intended or shall
be deemed to be granted to Executive in lieu of any rights or privileges to
which Executive may be entitled as an employee of the Company under any
medical, dental, disability, life insurance, retirement, stock option, stock
bonus or purchase, incentive compensation or other plan of the Company which
may now be in effect or which may hereafter be adopted, it being understood
that Executive shall have the same rights and privileges to participate in such
plans as any other executive officers of the Company.
6. Reimbursement of Expenses. The Company shall
reimburse Executive for all reasonable business expenses incurred by Executive
in connection with the performance of his duties hereunder, provided that
Executive furnishes to the Company receipts and other documentation reasonably
acceptable to the Company evidencing such expenditures.
7. Performance of Duties.
(a) In consideration of the payments to be made
hereunder, Executive agrees to devote his entire business time and attention to
the performance of his duties hereunder, to serve the Company diligently and to
the best of his abilities and not to compete with the Company or any of its
Affiliates (as defined below) in any manner whatsoever. Without limiting the
generality of the foregoing, Executive shall not, during the term
3
<PAGE> 4
of his employment by the Company, directly or indirectly (whether for
compensation or otherwise), alone or as an agent, principal, partner, officer,
employee, trustee, director, shareholder or in any other capacity, own, manage,
operate, join, control or participate in the ownership, management, operation
or control of or furnish any capital to or be connected in any manner with or
provide any services as a consultant for any business which competes directly
or indirectly with any of the businesses of the Company or any of its
Affiliates (as defined below) as they may be conducted from time to time;
provided, however, that notwithstanding the foregoing, nothing contained in
this Agreement shall be deemed to preclude Executive from owning not more than
one percent of the publicly-traded capital stock of an entity which is in
competition with any of such businesses. Affiliate of the Company means any
person, association or entity: (a) that, in whole or in part, owns or is owned
by, or otherwise has a material interest (whether debt, equity or otherwise)
in, the Company; (b) that controls or is controlled by the Company; (c) that is
a subsidiary (whether owned in whole or in part) of the Company; or (d) to
which the Company is a "related tax payer" as defined in Section 1313(c) of the
IRC.
(b) Executive may continue his civic, educational and
charitable activities and serve on boards of directors of other companies, if
consistent with this Section 7 and if otherwise approved by the Board.
8. Term and Termination.
(a) The term of Executive's employment with the
Company hereunder shall commence on the date hereof and shall continue until
Executive resigns or is terminated under this Section 8 or under Section 9 of
this Agreement.
(b) In the event of Executive's death or in the
event of Executive's total disability for any consecutive six-month period
during the term of this Agreement, the Company may at its sole option
thereafter (unless Executive, in the case of disability, shall have resumed his
duties in full prior to such termination) terminate this Agreement, and in such
event the sole right hereunder of Executive, Executive's widower or Executive's
legal representative, as the case may be, shall be to: (i) receive the base
salary due Executive through the last day of the twelfth full calendar month
following the month in
4
<PAGE> 5
which his death or disability shall have occurred; (ii) have any and all
previously accruing bonuses or options or other rights vest in Executive or in
his estate immediately (unless Executive or his estate shall elect to the
contrary); and (iii) in the event of termination by reason of disability, have
the Company continue to maintain in effect at its sole expense, COBRA medical
and dental for three hundred sixty- five (365) days following the date of any
such termination.
(c) The Company, upon 30 days prior written
notice to Executive, may terminate this Agreement For Cause (as defined
herein). For the purposes of this Agreement, the term "For Cause" shall mean:
(i) Executive's breach of the covenants contained in Sections 7, 11 or 13(a)
hereof; (ii) Executive's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent jurisdiction for any crime involving moral
turpitude or any felony punishable by imprisonment in the jurisdiction
involved; or (iii) Executive's commission of any act of fraud or dishonesty in
connection with, or related to, his duties hereunder. Upon termination of
Executive For Cause, this Agreement shall immediately terminate, and Executive
shall not be entitled to any further rights or payments hereunder (other than
payment under Section 2(a) for services rendered prior to the date of such
termination). Without limiting the generality of the foregoing, Executive
shall have no right on or after the date of such termination to any of the
benefits set forth in Section 5 hereof (other than payment for accrued
vacation), any payment of base salary pursuant to Section 2(a), any payment of
performance bonus pursuant to Section 2(b) for the Bonus Year in which such
termination occurs or any other benefit or payment of any kind whatsoever.
(d) Subject to the payment of amounts, if any,
required by Sections 2(b) and 3, the Company shall be entitled to terminate
Executive's employment without cause at any time upon thirty days written
notice.
9. Change in Control. If a Change in Control (as
defined below) of the Company occurs during the term of this Agreement, the
provisions of this Section 9 shall become operative. For the purposes of this
Agreement, a Change in Control of the Company shall be deemed to have occurred
if any "person" (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) becomes the
5
<PAGE> 6
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly
or indirectly of securities of the Company representing more than 35% of the
combined voting power of the Company's then outstanding securities, as a result
of purchases which are not expressly approved by the Board. For purposes of
this Section 9, the Board expressly approving the 35% or more voting power
ownership must consist of individuals who for the previous consecutive
twenty-four (24) month period, constituted at least a majority of the Board.
For a period of two months after a Change in Control of the
Company, Executive shall have the right to terminate his employment with the
Company pursuant to this Section 9, and the Company shall pay Executive the
following amounts no later than the 15th business day after the date of
termination of Executive's employment:
(i) A lump sum severance payment equal to 2
multiplied by the sum of (A) Executive's base annual salary at the highest rate
in effect during the fiscal year of the Company immediately preceding the date
Executive's employment terminates, and (B) the greater of the amount of any
incentive, bonus or other cash compensation that was paid to Executive during
either (x) the 12 months immediately preceding the date Executive's employment
terminates and (y) the 12 months immediately preceding the Change in Control;
and
(ii) A cash payment equal to the amount by which the
greater of (A) the closing price of the Company's Common Stock on the day
before the date Executive's employment terminates or (B) the highest price per
share actually paid in connection with the Change in Control of the Company,
exceeds the per share exercise price of each then vested and exercisable stock
option held by Executive on the day before the date Executive's employment
terminates, multiplied by the number of shares covered by each such option. In
exchange for such payment, Executive will surrender all such options to the
Company without exercising them.
10. Deductibility of Payments to Executive. Notwithstanding
anything else to the contrary in this Agreement, in the event that the payments
to Executive under this Agreement, either alone or together with other payments
Executive has a right to receive from the Company, would be non-deductible (in
whole or in part) by the Company for Federal income tax purposes because of
6
<PAGE> 7
Section 280G of the IRC, then the aggregate present value of amounts payable to
Executive pursuant to this agreement shall be reduced (but not below zero) to
the "Reduced Amount." The Reduced Amount shall be an amount expressed in
present value which maximizes the aggregate present value of all payments to be
made to Executive under this Agreement without causing any payment to be
non-deductible by the Company because of Section 280G of the Code. For
purposes of this Section 10, present value shall be determined in accordance
with Section 280G(d)(4) of the IRC. The determination of the Reduced Amount
shall be made exclusively by the Company's outside auditors and in consultation
with outside counsel to the Company (each of whose fees and expenses shall be
borne by the Company), and such determination shall be conclusive and binding
on the Company and Executive.
11. Confidentiality.
(a) The Company (which for purposes of this
Section 11 shall mean the Company and its Affiliates (as defined in Section
7(a)) and Executive recognize that during the course of Executive's employment
with the Company he will accumulate certain crucial proprietary and
confidential information and trade secrets for use in the Company's business
and will have divulged to him certain crucial confidential and proprietary
information and trade secrets about the business, operations and prospects of
the Company, including, without limitation, confidential and proprietary
information regarding suppliers and employees of the Company, which constitute
valuable business assets providing the Company the opportunity to obtain an
advantage over competitors who do not know or use such information or have
access to it without the investment of considerable resources. Executive
hereby acknowledges and agrees that such information (the "Proprietary
Information") is confidential and proprietary and a trade secret and that such
information shall include, without limitation:
(i) the identity and location of customers and
domestic and foreign suppliers of quality low-cost close-out merchandise that
can profitably be resold, and their buying and selling histories and
creditworthiness; information regarding the quantity, quality, frequency,
pricing and marketability of their supply offerings; and lists setting forth
the same;
(ii) processes, methods and techniques, including
but not limited to primary contact points in the Company's
7
<PAGE> 8
network; methods of merchandising in the Company's stores; processes and
methods of giving directions and instructions to the Company's stores and its
employees in connection with merchandising moves; information, techniques,
formulas and judgments relating to the appropriate bidding, pricing and
marketing of close-out merchandise; and the price ranges and techniques by
which such merchandise can be profitably resold at substantial reductions from
normal retail rates; and designs, styles and methods of packaging and
distributing close-out merchandise distinctive to the Company;
(iii) records of research, including but not
limited to demographic studies conducted by the Company and its agents which
contribute to the Company's ability to locate retail store sites;
(iv) proposals and projections, including but not
limited to long-range plans for the Company's growth, expansion, development
and continued fostering of its relationships with its employees, suppliers and
customers; and
(v) files, reports, memoranda, computer software
or programming and budgets or other financial plans or information regarding
the Company and its business, properties or affairs.
(b) Executive agrees that he shall not, at any
time subsequent to the execution of this Agreement, whether during or after the
term hereof, disclose, divulge or make known, directly or indirectly, to any
person, or otherwise use or exploit, any Proprietary Information obtained by
Executive at any time prior to or subsequent to the execution of this
Agreement, except to the extent required by his performance of his duties
hereunder for the Company. Executive agrees to disclose to the Company the
identity and nature of any contacts with any person or entity soliciting from
Executive disclosure of any Propriety Information or soliciting Executive's
involvement in any business venture competitive with the Company. Executive
shall not conceal from or fail to disclose to the Company, or divert or exploit
for his own personal profit or that of others, any business opportunity or
other opportunity to acquire an interest in or a contractual relationship with
any person or entity where such person or entity is in the Company's line of
business or where such contractual relationship involves the acquisition of
real estate and which would be considered a feasible and
8
<PAGE> 9
advantageous opportunity or acquisition for the Company. Upon termination of
this Agreement, Executive will deliver to the Company all tangible displays and
repositories of customer and supplier lists, files, records of research,
proposals, reports, memoranda, business methods and techniques, computer
software and programming, budgets and other financial plans and information and
other materials or records or writings of any other type (including all copies
thereof) made, used or obtained by, or provided to, Executive, containing any
Proprietary Information, whether obtained prior to or subsequent to the
execution of this Agreement.
12. Non-Solicitation of Employees.
(a) Executive hereby agrees that for the two-year
period following the date of termination of this Agreement he will not (i)
authorize his name to be used by any person, partnership, corporation or other
business entity, or (ii) engage in or carry on, directly or indirectly, whether
as advisor, principal, agent, partner, officer, director, employee,
stockholder, associate or consultant of any person, partnership, corporation or
other business entity which is in competition with the bargain close-out
business carried on by the Company or any of its Affiliates in Los Angeles,
Orange, Riverside, San Bernardino, Ventura, Santa Barbara or San Diego Counties
in the State of California, or any other county in California where business is
then carried on or conducted by the Company or any of its Affiliates, or in the
States of Alabama, Arizona, Colorado, Florida, Georgia, Idaho, Illinois,
Indiana, Louisiana, Missouri, Nevada, New Mexico, Tennessee, Texas, Utah or any
other State in which business is then carried on or conducted by the Company or
its Affiliates.
(b) Executive further agrees that during the
period from the date of this Agreement until two years after the termination of
this Agreement he shall not contact any employee or supplier of the Company or
any of its Affiliates without advising the Company of such contact and he shall
not participate in any endeavor or activity which would disrupt the Company's
or any of its Affiliate's good business relationships with the employees,
suppliers and/or persons engaged in purchasing activities on behalf of the
Company or such Affiliate, and he shall not make any false, deceptive or
misleading statement or statements to any one or more of such suppliers or such
persons which would be likely to cause such disruption.
9
<PAGE> 10
13. Miscellaneous.
(a) Executive represents and warrants to the
Company that he is not now under any obligation of a contractual or other
nature to any person, firm or corporation which is inconsistent or in conflict
with this Agreement, or which would prevent, limit or impair in any way the
performance by him of his obligations hereunder.
(b) The waiver by either party of a breach of any
provision of this Agreement must be in writing and shall not operate or be
construed as a waiver of any subsequent breach thereof.
(c) This Agreement constitutes the entire
Agreement of Executive and the Company and supersedes all prior written or oral
and all contemporaneous oral agreements, understandings and negotiations
between the parties with respect to the subject matter hereof.
(d) Any and all notices referred to herein shall
be sufficiently furnished if in writing, and sent by registered or certified
mail, postage prepaid, or by facsimile transmission (but only if confirmation
of receipt is subsequently received by the sender either orally or in writing),
or by overnight courier (if such overnight courier guarantees next day delivery
and such notice is sent for delivery on a day on which such courier guarantees
such overnight delivery), to the respective parties at the following addresses
or such other address as either party may from time to time designate in
writing in the manner set forth in this Section 13(d):
The Company:
Mac Frugal's Bargains o Close-outs Inc.
2430 E. Del Amo Boulevard
Dominguez, California 90220
Attention: Board of Directors
and Chief Executive Officer
Telephone Number: (310) 761-4200
Executive:
Frank C. Bianchi
10
<PAGE> 11
11 Starlight
Irvine, California 92612
(e) If any portion or provision of this Agreement
shall be invalid or unenforceable for any reason, there shall be deemed to be
made such minor changes (and only such minor changes) in such provision or
portion as are necessary to make it valid and enforceable. The invalidity or
unenforceability of any provision or portion of this Agreement shall not affect
the validity or enforceability of any other provisions or portions of this
Agreement. If any such unenforceable or invalid provision or provisions shall
be rendered enforceable and valid by changes in applicable law, then such
provision or provisions shall be deemed to read as they presently do in this
Agreement without change.
(f) The rights and obligations of the parties
hereto shall inure to and be binding upon the parties hereto and their
respective heirs, successors and assigns.
(g) The waiver by either party of a breach of a
provision of this Agreement shall not operate or be construed as a waiver of a
subsequent breach hereof.
(h) This Agreement is intended to and shall be
governed by, and interpreted under and construed in accordance with, the laws
of the State of California, without reference to any conflict of laws or
principles.
(i) If any litigation, arbitration or any other
proceedings is instituted in connection with or related to this Agreement, the
non-prevailing party in such litigation, arbitration or other proceeding shall
pay the expenses, including, without limitation, the attorneys' fees and
expenses of investigation, of the prevailing party.
(j) Arbitration.
(i) Any controversy, claim or dispute between
the parties directly or indirectly concerning this Agreement or the breach
hereof, or the subject matter hereof (except in instances where only injunctive
relief is sought by the Company), shall be finally settled by arbitration held
in Los Angeles, California. The Company and Executive shall
11
<PAGE> 12
each select an arbitrator from a panel of seven (7) arbitrators (the
"Arbitration Pool") obtained by the Company from the Federal Mediation and
Conciliation Service within thirty (30) days of receiving written notice from
either party demanding any such proceeding. Such two chosen arbitrators shall
agree on a third arbitrator from the Arbitration Pool within fifteen days
thereafter. In the event an agreement has not been reached on the third
arbitrator by the end of such fifteen-day period, the third arbitrator shall be
chosen by the American Arbitration Association. The arbitration shall be held
and a final decision reached within 30 days thereafter. The decision of a
majority of the three chosen arbitrators shall be final and conclusive on the
parties, and there shall be no appeal therefrom. A decision of the arbitrators
may be enforced by the prevailing party in a court of competent jurisdiction.
All other issues in connection with such arbitration shall be in accordance
with the Rules of the American Arbitration Association.
(ii) The parties hereto agree that an action
to compel arbitration pursuant to this Agreement may be brought in any
appropriate court and in connection therewith the laws of the State of
California shall control. Application may also be made to such court for
confirmation of any decision or award of the arbitrators but only if necessary
to effectuate such decision or award. The parties hereto hereby consent to the
jurisdiction of the arbitrators and of such court and waive any objection to
the jurisdiction of such arbitrators or court.
(k) The Company and Executive expressly agree
that the provisions of Sections 11, 12 and 13 shall survive the termination of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE COMPANY: MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
By:_______________________________________
Philip C. Carter
12
<PAGE> 13
President and Chief Executive Officer
EXECUTIVE:
__________________________________________
Frank C. Bianchi
13
<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into as of the 11th day of December, 1996, by and between Mac Frugal's
Bargains o Close-outs Inc., a Delaware corporation (the "Company"), and Michael
Dobbs ("Executive").
WHEREAS, the Company desires to employ Executive as its Senior
Vice President, Distribution on the terms and conditions set forth herein and
Executive desires to accept such employment with the Company;
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Employment and Duties. The Company hereby engages
Executive in the capacity of Senior Vice President, Distribution. Executive
shall perform such duties and functions as shall be specified from time to time
by the Company's Senior Vice President, Distribution. Executive hereby accepts
such employment and agrees to perform such duties. During the term of this
Agreement, Executive shall not be required without his consent to undertake
responsibilities not commensurate with his position as the Company's Senior
Vice President, Distribution.
2. Compensation.
(a) Base Salary. For all services to be rendered
by Executive hereunder, Executive shall be paid a base salary at the rate of
one hundred sixty five thousand dollars ($165,000) per year. Executive's base
compensation shall be reviewed at least annually and may be increased at the
discretion of the Board of Directors of the Company (the "Board"), but during
the term of this Agreement may not be decreased below the then-effective base
salary. Executive's salary shall be paid on such basis as is the normal
payment pattern for executive officers of the Company. The base salary payable
under this Section 2(a) shall be in addition to and exclusive of any payments
to Executive from time to time under formal or informal bonus, incentive
compensation or similar plans now in effect or which hereafter may be adopted.
1
<PAGE> 2
(b) Performance Bonus. With respect to each full
fiscal year of the Company during which Executive is employed by the Company
pursuant to this Agreement throughout (each, a "Bonus Year"), Executive shall
be entitled to participate in a performance bonus plan approved annually for
executive officers of the Company by the Compensation Committee of the Board.
The calculation and payment to Executive of a performance bonus contemplated by
this Section 2(b), if any, shall be made as soon as practicable in the fiscal
year of the Company immediately succeeding such Bonus Year, following
preparation of the Company's annual audited financial statements for such Bonus
Year.
3. Payment in Event of Termination. In the event of the
termination of Executive's employment hereunder pursuant to Section 8(d), the
Company shall continue to make the payments provided for in Section 2(a) at the
rate then being paid to Executive and shall provide Executive with COBRA
medical and dental insurance benefits for three hundred sixty-five (365) days
from the date of such termination. Executive shall not be required or
obligated to obtain other employment to mitigate the payments due hereunder.
Executive may, at his sole option, terminate this Agreement and receive the
payments provided for in this Section 3 following the occurrence of either of
the following events (a "Company Breach"): (a) Executive's authority to
function as a Senior Vice President shall be removed or limited in any material
respect, unless such removal or limitation was a result of one or more events
that would permit the termination of Executive's employment For Cause (as
defined in Section 8(c)), or (b) the Company shall have breached in any
material respect any of its covenants and agreements in this Agreement.
Notwithstanding the foregoing, Executive shall not be entitled to terminate
this Agreement unless Executive provides written notice to the Company
specifying in reasonable detail the nature of the Company Breach, and the
Company shall have failed to cure such Company Breach within 45 days
thereafter.
4. Options. Executive shall be entitled to participate
in any performance stock option plan approved annually for other executive
officers of the Company by the Compensation Committee of the Board. To the
maximum extent permitted by the Internal Revenue Code of 1986, as amended (the
"IRC"), including the rules and regulations thereunder, all such options shall
be incentive stock options, and the remainder of
2
<PAGE> 3
such options shall be non-qualified stock options.
5. Benefits.
(a) Executive shall be entitled to such fringe
benefits and perquisites as are generally made available to executive officers
of the Company, and such other fringe benefits as may be approved by the Board
for executive officers of the Company during the term hereof including, without
limitation, medical, dental and disability insurance, group term life insurance
in face amount of the base salary payable pursuant to Section 2(a) and annual
vacation time of three weeks.
(b) During the term of Executive's employment,
the Company shall furnish Executive with a motor vehicle of his choice to use
for business purposes in accordance with the Company's policies in effect from
time to time.
(c) Nothing contained herein is intended or shall
be deemed to be granted to Executive in lieu of any rights or privileges to
which Executive may be entitled as an employee of the Company under any
medical, dental, disability, life insurance, retirement, stock option, stock
bonus or purchase, incentive compensation or other plan of the Company which
may now be in effect or which may hereafter be adopted, it being understood
that Executive shall have the same rights and privileges to participate in such
plans as any other executive officers of the Company.
6. Reimbursement of Expenses. The Company shall
reimburse Executive for all reasonable business expenses incurred by Executive
in connection with the performance of his duties hereunder, provided that
Executive furnishes to the Company receipts and other documentation reasonably
acceptable to the Company evidencing such expenditures.
7. Performance of Duties.
(a) In consideration of the payments to be made
hereunder, Executive agrees to devote his entire business time and attention to
the performance of his duties hereunder, to serve the Company diligently and to
the best of his abilities and not to compete with the Company or any of its
Affiliates (as defined below) in any manner whatsoever. Without limiting the
generality of the foregoing, Executive shall not, during the term
3
<PAGE> 4
of his employment by the Company, directly or indirectly (whether for
compensation or otherwise), alone or as an agent, principal, partner, officer,
employee, trustee, director, shareholder or in any other capacity, own, manage,
operate, join, control or participate in the ownership, management, operation
or control of or furnish any capital to or be connected in any manner with or
provide any services as a consultant for any business which competes directly
or indirectly with any of the businesses of the Company or any of its
Affiliates (as defined below) as they may be conducted from time to time;
provided, however, that notwithstanding the foregoing, nothing contained in
this Agreement shall be deemed to preclude Executive from owning not more than
one percent of the publicly-traded capital stock of an entity which is in
competition with any of such businesses. Affiliate of the Company means any
person, association or entity: (a) that, in whole or in part, owns or is owned
by, or otherwise has a material interest (whether debt, equity or otherwise)
in, the Company; (b) that controls or is controlled by the Company; (c) that is
a subsidiary (whether owned in whole or in part) of the Company; or (d) to
which the Company is a "related tax payer" as defined in Section 1313(c) of the
IRC.
(b) Executive may continue his civic, educational and
charitable activities and serve on boards of directors of other companies, if
consistent with this Section 7 and if otherwise approved by the Board.
8. Term and Termination.
(a) The term of Executive's employment with the
Company hereunder shall commence on the date hereof and shall continue until
Executive resigns or is terminated under this Section 8 or under Section 9 of
this Agreement.
(b) In the event of Executive's death or in the
event of Executive's total disability for any consecutive six-month period
during the term of this Agreement, the Company may at its sole option
thereafter (unless Executive, in the case of disability, shall have resumed his
duties in full prior to such termination) terminate this Agreement, and in such
event the sole right hereunder of Executive, Executive's widower or Executive's
legal representative, as the case may be, shall be to: (i) receive the base
salary due Executive through the last day of the twelfth full calendar month
following the month in
4
<PAGE> 5
which his death or disability shall have occurred; (ii) have any and all
previously accruing bonuses or options or other rights vest in Executive or in
his estate immediately (unless Executive or his estate shall elect to the
contrary); and (iii) in the event of termination by reason of disability, have
the Company continue to maintain in effect at its sole expense, COBRA medical
and dental for three hundred sixty- five (365) days following the date of any
such termination.
(c) The Company, upon 30 days prior written
notice to Executive, may terminate this Agreement For Cause (as defined
herein). For the purposes of this Agreement, the term "For Cause" shall mean:
(i) Executive's breach of the covenants contained in Sections 7, 11 or 13(a)
hereof; (ii) Executive's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent jurisdiction for any crime involving moral
turpitude or any felony punishable by imprisonment in the jurisdiction
involved; or (iii) Executive's commission of any act of fraud or dishonesty in
connection with, or related to, his duties hereunder. Upon termination of
Executive For Cause, this Agreement shall immediately terminate, and Executive
shall not be entitled to any further rights or payments hereunder (other than
payment under Section 2(a) for services rendered prior to the date of such
termination). Without limiting the generality of the foregoing, Executive
shall have no right on or after the date of such termination to any of the
benefits set forth in Section 5 hereof (other than payment for accrued
vacation), any payment of base salary pursuant to Section 2(a), any payment of
performance bonus pursuant to Section 2(b) for the Bonus Year in which such
termination occurs or any other benefit or payment of any kind whatsoever.
(d) Subject to the payment of amounts, if any,
required by Sections 2(b) and 3, the Company shall be entitled to terminate
Executive's employment without cause at any time upon thirty days written
notice.
9. Change in Control. If a Change in Control (as
defined below) of the Company occurs during the term of this Agreement, the
provisions of this Section 9 shall become operative. For the purposes of this
Agreement, a Change in Control of the Company shall be deemed to have occurred
if any "person" (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) becomes the
5
<PAGE> 6
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly
or indirectly of securities of the Company representing more than 35% of the
combined voting power of the Company's then outstanding securities, as a result
of purchases which are not expressly approved by the Board. For purposes of
this Section 9, the Board expressly approving the 35% or more voting power
ownership must consist of individuals who for the previous consecutive
twenty-four (24) month period, constituted at least a majority of the Board.
For a period of two months after a Change in Control of the
Company, Executive shall have the right to terminate his employment with the
Company pursuant to this Section 9, and the Company shall pay Executive the
following amounts no later than the 15th business day after the date of
termination of Executive's employment:
(i) A lump sum severance payment equal to 2
multiplied by the sum of (A) Executive's base annual salary at the highest rate
in effect during the fiscal year of the Company immediately preceding the date
Executive's employment terminates, and (B) the greater of the amount of any
incentive, bonus or other cash compensation that was paid to Executive during
either (x) the 12 months immediately preceding the date Executive's employment
terminates and (y) the 12 months immediately preceding the Change in Control;
and
(ii) A cash payment equal to the amount by which the
greater of (A) the closing price of the Company's Common Stock on the day
before the date Executive's employment terminates or (B) the highest price per
share actually paid in connection with the Change in Control of the Company,
exceeds the per share exercise price of each then vested and exercisable stock
option held by Executive on the day before the date Executive's employment
terminates, multiplied by the number of shares covered by each such option. In
exchange for such payment, Executive will surrender all such options to the
Company without exercising them.
10. Deductibility of Payments to Executive.
Notwithstanding anything else to the contrary in this Agreement, in the event
that the payments to Executive under this Agreement, either alone or together
with other payments Executive has a right to receive from the Company, would be
non-deductible (in whole or in part) by the Company for Federal income tax
purposes because of
6
<PAGE> 7
Section 280G of the IRC, then the aggregate present value of amounts payable to
Executive pursuant to this agreement shall be reduced (but not below zero) to
the "Reduced Amount." The Reduced Amount shall be an amount expressed in
present value which maximizes the aggregate present value of all payments to be
made to Executive under this Agreement without causing any payment to be
non-deductible by the Company because of Section 280G of the Code. For
purposes of this Section 10, present value shall be determined in accordance
with Section 280G(d)(4) of the IRC. The determination of the Reduced Amount
shall be made exclusively by the Company's outside auditors and in consultation
with outside counsel to the Company (each of whose fees and expenses shall be
borne by the Company), and such determination shall be conclusive and binding
on the Company and Executive.
11. Confidentiality.
(a) The Company (which for purposes of this
Section 11 shall mean the Company and its Affiliates (as defined in Section
7(a)) and Executive recognize that during the course of Executive's employment
with the Company he will accumulate certain crucial proprietary and
confidential information and trade secrets for use in the Company's business
and will have divulged to him certain crucial confidential and proprietary
information and trade secrets about the business, operations and prospects of
the Company, including, without limitation, confidential and proprietary
information regarding suppliers and employees of the Company, which constitute
valuable business assets providing the Company the opportunity to obtain an
advantage over competitors who do not know or use such information or have
access to it without the investment of considerable resources. Executive
hereby acknowledges and agrees that such information (the "Proprietary
Information") is confidential and proprietary and a trade secret and that such
information shall include, without limitation:
(i) the identity and location of customers and
domestic and foreign suppliers of quality low-cost close-out merchandise that
can profitably be resold, and their buying and selling histories and
creditworthiness; information regarding the quantity, quality, frequency,
pricing and marketability of their supply offerings; and lists setting forth
the same;
(ii) processes, methods and techniques, including
but not limited to primary contact points in the Company's
7
<PAGE> 8
network; methods of merchandising in the Company's stores; processes and
methods of giving directions and instructions to the Company's stores and its
employees in connection with merchandising moves; information, techniques,
formulas and judgments relating to the appropriate bidding, pricing and
marketing of close-out merchandise; and the price ranges and techniques by
which such merchandise can be profitably resold at substantial reductions from
normal retail rates; and designs, styles and methods of packaging and
distributing close-out merchandise distinctive to the Company;
(iii) records of research, including but not
limited to demographic studies conducted by the Company and its agents which
contribute to the Company's ability to locate retail store sites;
(iv) proposals and projections, including but not
limited to long-range plans for the Company's growth, expansion, development
and continued fostering of its relationships with its employees, suppliers and
customers; and
(v) files, reports, memoranda, computer software
or programming and budgets or other financial plans or information regarding
the Company and its business, properties or affairs.
(b) Executive agrees that he shall not, at any
time subsequent to the execution of this Agreement, whether during or after the
term hereof, disclose, divulge or make known, directly or indirectly, to any
person, or otherwise use or exploit, any Proprietary Information obtained by
Executive at any time prior to or subsequent to the execution of this
Agreement, except to the extent required by his performance of his duties
hereunder for the Company. Executive agrees to disclose to the Company the
identity and nature of any contacts with any person or entity soliciting from
Executive disclosure of any Propriety Information or soliciting Executive's
involvement in any business venture competitive with the Company. Executive
shall not conceal from or fail to disclose to the Company, or divert or exploit
for his own personal profit or that of others, any business opportunity or
other opportunity to acquire an interest in or a contractual relationship with
any person or entity where such person or entity is in the Company's line of
business or where such contractual relationship involves the acquisition of
real estate and which would be considered a feasible and
8
<PAGE> 9
advantageous opportunity or acquisition for the Company. Upon termination of
this Agreement, Executive will deliver to the Company all tangible displays and
repositories of customer and supplier lists, files, records of research,
proposals, reports, memoranda, business methods and techniques, computer
software and programming, budgets and other financial plans and information and
other materials or records or writings of any other type (including all copies
thereof) made, used or obtained by, or provided to, Executive, containing any
Proprietary Information, whether obtained prior to or subsequent to the
execution of this Agreement.
12. Non-Solicitation of Employees.
(a) Executive hereby agrees that for the two-year
period following the date of termination of this Agreement he will not (i)
authorize his name to be used by any person, partnership, corporation or other
business entity, or (ii) engage in or carry on, directly or indirectly, whether
as advisor, principal, agent, partner, officer, director, employee,
stockholder, associate or consultant of any person, partnership, corporation or
other business entity which is in competition with the bargain close-out
business carried on by the Company or any of its Affiliates in Los Angeles,
Orange, Riverside, San Bernardino, Ventura, Santa Barbara or San Diego Counties
in the State of California, or any other county in California where business is
then carried on or conducted by the Company or any of its Affiliates, or in the
States of Alabama, Arizona, Colorado, Florida, Georgia, Idaho, Illinois,
Indiana, Louisiana, Missouri, Nevada, New Mexico, Tennessee, Texas, Utah or any
other State in which business is then carried on or conducted by the Company or
its Affiliates.
(b) Executive further agrees that during the
period from the date of this Agreement until two years after the termination of
this Agreement he shall not contact any employee or supplier of the Company or
any of its Affiliates without advising the Company of such contact and he shall
not participate in any endeavor or activity which would disrupt the Company's
or any of its Affiliate's good business relationships with the employees,
suppliers and/or persons engaged in purchasing activities on behalf of the
Company or such Affiliate, and he shall not make any false, deceptive or
misleading statement or statements to any one or more of such suppliers or such
persons which would be likely to cause such disruption.
9
<PAGE> 10
13. Miscellaneous.
(a) Executive represents and warrants to the
Company that he is not now under any obligation of a contractual or other
nature to any person, firm or corporation which is inconsistent or in conflict
with this Agreement, or which would prevent, limit or impair in any way the
performance by him of his obligations hereunder.
(b) The waiver by either party of a breach of any
provision of this Agreement must be in writing and shall not operate or be
construed as a waiver of any subsequent breach thereof.
(c) This Agreement constitutes the entire
Agreement of Executive and the Company and supersedes all prior written or oral
and all contemporaneous oral agreements, understandings and negotiations
between the parties with respect to the subject matter hereof.
(d) Any and all notices referred to herein shall
be sufficiently furnished if in writing, and sent by registered or certified
mail, postage prepaid, or by facsimile transmission (but only if confirmation
of receipt is subsequently received by the sender either orally or in writing),
or by overnight courier (if such overnight courier guarantees next day delivery
and such notice is sent for delivery on a day on which such courier guarantees
such overnight delivery), to the respective parties at the following addresses
or such other address as either party may from time to time designate in
writing in the manner set forth in this Section 13(d):
The Company:
Mac Frugal's Bargains o Close-outs Inc.
2430 E. Del Amo Boulevard
Dominguez, California 90220
Attention: Board of Directors
and Chief Executive Officer
Telephone Number: (310) 761-4200
Executive:
Michael Dobbs
10
<PAGE> 11
20000 Waco Road
Apple Valley, CA 92308
(e) If any portion or provision of this Agreement
shall be invalid or unenforceable for any reason, there shall be deemed to be
made such minor changes (and only such minor changes) in such provision or
portion as are necessary to make it valid and enforceable. The invalidity or
unenforceability of any provision or portion of this Agreement shall not affect
the validity or enforceability of any other provisions or portions of this
Agreement. If any such unenforceable or invalid provision or provisions shall
be rendered enforceable and valid by changes in applicable law, then such
provision or provisions shall be deemed to read as they presently do in this
Agreement without change.
(f) The rights and obligations of the parties
hereto shall inure to and be binding upon the parties hereto and their
respective heirs, successors and assigns.
(g) The waiver by either party of a breach of a
provision of this Agreement shall not operate or be construed as a waiver of a
subsequent breach hereof.
(h) This Agreement is intended to and shall be
governed by, and interpreted under and construed in accordance with, the laws
of the State of California, without reference to any conflict of laws or
principles.
(i) If any litigation, arbitration or any other
proceedings is instituted in connection with or related to this Agreement, the
non-prevailing party in such litigation, arbitration or other proceeding shall
pay the expenses, including, without limitation, the attorneys' fees and
expenses of investigation, of the prevailing party.
(j) Arbitration.
(i) Any controversy, claim or dispute between
the parties directly or indirectly concerning this Agreement or the breach
hereof, or the subject matter hereof (except in instances where only injunctive
relief is sought by the Company), shall be finally settled by arbitration held
in Los Angeles, California. The Company and Executive shall
11
<PAGE> 12
each select an arbitrator from a panel of seven (7) arbitrators (the
"Arbitration Pool") obtained by the Company from the Federal Mediation and
Conciliation Service within thirty (30) days of receiving written notice from
either party demanding any such proceeding. Such two chosen arbitrators shall
agree on a third arbitrator from the Arbitration Pool within fifteen days
thereafter. In the event an agreement has not been reached on the third
arbitrator by the end of such fifteen-day period, the third arbitrator shall be
chosen by the American Arbitration Association. The arbitration shall be held
and a final decision reached within 30 days thereafter. The decision of a
majority of the three chosen arbitrators shall be final and conclusive on the
parties, and there shall be no appeal therefrom. A decision of the arbitrators
may be enforced by the prevailing party in a court of competent jurisdiction.
All other issues in connection with such arbitration shall be in accordance
with the Rules of the American Arbitration Association.
(ii) The parties hereto agree that an action
to compel arbitration pursuant to this Agreement may be brought in any
appropriate court and in connection therewith the laws of the State of
California shall control. Application may also be made to such court for
confirmation of any decision or award of the arbitrators but only if necessary
to effectuate such decision or award. The parties hereto hereby consent to the
jurisdiction of the arbitrators and of such court and waive any objection to
the jurisdiction of such arbitrators or court.
(k) The Company and Executive expressly agree
that the provisions of Sections 11, 12 and 13 shall survive the termination of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE COMPANY: MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
By:_____________________________________
Philip C. Carter
12
<PAGE> 13
President and Chief Executive Officer
EXECUTIVE:
_______________________________________
Michael Dobbs
13
<PAGE> 1
EXHIBIT 10.21
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this
"Agreement") is made and entered into as of the 12th day of March, 1997, by and
between Mac Frugal's Bargains o Close-outs Inc., a Delaware corporation (the
"Company"), and Philip L. Carter ("Executive").
RECITALS
WHEREAS, the Company and Executive are parties to that certain
Employment Agreement dated March 15, 1995 (the "1995 Agreement") pursuant to
which Executive is employed as the President and Chief Executive Officer of the
Company; and
WHEREAS, the Company and Executive desire to amend and restate
the 1995 Agreement in its entirety as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Employment and Duties. The Company hereby engages
Executive in the capacity of President and Chief Executive Officer of the
Company. Executive shall perform such duties and functions as shall be
specified from time to time by the Board of Directors of the Company (the
"Board"). Executive hereby accepts such employment and agrees to perform such
duties. During the term of this Agreement, Executive shall not be required
without his consent to undertake responsibilities not commensurate with his
position as a President and Chief Executive Officer.
2. Compensation.
(a) Base Salary. For all services to be rendered
by Executive hereunder, Executive shall be paid a base salary at the rate of
five hundred ninety thousand dollars ($590,000) per year. Executive's base
compensation shall be reviewed at least annually and may be increased at the
discretion of the Board, but
1
<PAGE> 2
during the term of this Agreement may not be decreased below the then-effective
base salary. Executive's salary shall be paid on such basis as is the normal
payment pattern for executive officers of the Company. The base salary payable
under this Section 2(a) shall be in addition to and exclusive of any payments
to Executive from time to time under formal or informal bonus, incentive
compensation or similar plans now in effect or which hereafter may be adopted.
(b) Performance Bonus. With respect to each full
fiscal year of the Company that this Agreement is in effect throughout and any
fiscal year of the Company in which Executive is terminated pursuant to Section
8(d) hereof (each, a "Bonus Year"), Executive shall be entitled to participate
in a performance bonus plan approved annually for executive officers of the
Company by the Compensation Committee of the Board. The calculation and
payment to Executive of a performance bonus contemplated by this Section 2(b),
if any, shall be made as soon as practicable in the fiscal year of the Company
immediately succeeding such Bonus Year, following preparation of the Company's
annual audited financial statements for such Bonus Year.
3. Payment in Event of Termination. In the event of the
termination of Executive's employment hereunder pursuant to Section 8(d), the
Company shall continue to make the payments provided for in Section 2(a) at the
rate then being paid to Executive and shall continue to provide Executive with
the medical, disability and life insurance benefits provided in Section 5(a)
hereof for thirty-four (34) months and twenty four (24) days from the date of
such termination. Executive shall not be required or obligated to obtain other
employment to mitigate the payments due hereunder. Executive may, at his sole
option, terminate this Agreement and receive the payments provided for in this
Section 3 following the occurrence of either of the following events (a
"Company Breach"): (a) Executive's authority to function as President and Chief
Executive Officer shall be removed or limited in any material respect, unless
such removal or limitation was a result of one or more events that would permit
the Board to terminate Executive's employment For Cause (as defined in Section
8(c)), or (b) the Company shall have breached in any material respect any of
its covenants and agreements in this Agreement. Notwithstanding the foregoing,
Executive shall not be entitled to terminate this Agreement
2
<PAGE> 3
unless Executive provides written notice to the Company specifying in
reasonable detail the nature of the Company Breach, and the Company shall have
failed to cure such Company Breach within 45 days thereafter.
4. Options. Executive shall be entitled to participate
in any performance stock option plan approved annually for other executive
officers of the Company by the Compensation Committee of the Board. To the
maximum extent permitted by the Internal Revenue Code of 1986, as amended (the
"IRC"), including the rules and regulations thereunder, all such options shall
be incentive stock options, and the remainder of such options shall be
non-qualified stock options.
5. Benefits.
(a) Executive shall be entitled to such fringe
benefits and perquisites as are generally made available to executive officers
of the Company, and such other fringe benefits as may be approved by the Board
for executive officers of the Company during the term hereof including, without
limitation, major medical, extended medical and extended disability insurance,
group term life insurance in face amount of the base salary payable pursuant to
Section 2(a) and annual vacation time of not less than four weeks.
(b) Every two years during the term of
Executive's employment, the Company shall furnish Executive with a motor
vehicle of his choice to use for business purposes, provided, however, that
such motor vehicle shall not have an original cost to the Company of more than
$65,000.
(c) Nothing contained herein is intended or shall
be deemed to be granted to Executive in lieu of any rights or privileges to
which Executive may be entitled as an employee of the Company under any
retirement, pension, insurance, hospitalization, stock option, stock bonus or
purchase, incentive compensation or other plan of the Company which may now be
in effect or which may hereafter be adopted, it being understood that Executive
shall have the same rights and privileges to participate in such plans as any
other executive officers of the Company.
6. Reimbursement of Expenses. The Company shall
reimburse Executive for all reasonable business expenses incurred
3
<PAGE> 4
by Executive in connection with the performance of his duties hereunder,
provided that Executive furnishes to the Company receipts and other
documentation reasonably acceptable to the Company evidencing such
expenditures.
7. Performance of Duties.
(a) In consideration of the payments to be made
hereunder, Executive agrees to devote his entire business time and attention to
the performance of his duties hereunder, to serve the Company diligently and to
the best of his abilities and not to compete with the Company or any of its
Affiliates (as defined below) in any manner whatsoever. Without limiting the
generality of the foregoing, Executive shall not, during the term of his
employment by the Company, directly or indirectly (whether for compensation or
otherwise), alone or as an agent, principal, partner, officer, employee,
trustee, director, shareholder or in any other capacity, own, manage, operate,
join, control or participate in the ownership, management, operation or control
of or furnish any capital to or be connected in any manner with or provide any
services as a consultant for any business which competes directly or indirectly
with any of the businesses of the Company or any of its Affiliates (as defined
below) as they may be conducted from time to time; provided, however, that
notwithstanding the foregoing, nothing contained in this Agreement shall be
deemed to preclude Executive from owning not more than one percent of the
publicly-traded capital stock of an entity which is in competition with any of
such businesses. Affiliate of the Company means any person, association or
entity: (a) that, in whole or in part, owns or is owned by, or otherwise has a
material interest (whether debt, equity or otherwise) in, the Company; (b) that
controls or is controlled by the Company; (c) that is a subsidiary (whether
owned in whole or in part) of the Company; or (d) to which the Company is a
"related tax payer" as defined in Section 1313(c) of the IRC.
(b) Executive may continue his civic, educational and
charitable activities and serve on boards of directors of other companies, if
consistent with this Section 7 and if otherwise approved by the Board.
8. Term and Termination.
(a) The term of Executive's employment with the
Company hereunder shall commence on the date hereof and shall
4
<PAGE> 5
continue until Executive resigns or is terminated under this Section 8 or under
Section 9 of this Agreement.
(b) In the event of Executive's death or in the
event of Executive's total disability for any consecutive six-month period
during the term of this Agreement, the Company may at its sole option
thereafter (unless Executive, in the case of disability, shall have resumed his
duties in full prior to such termination) terminate this Agreement, and in such
event the sole right hereunder of Executive, Executive's widower or Executive's
legal representative, as the case may be, shall be to: (i) receive the base
salary due Executive through the last day of the twelfth full calendar month
following the month in which his death or disability shall have occurred; (ii)
have any and all previously accruing bonuses or options or other rights vest in
Executive or in his estate immediately (unless Executive or his estate shall
elect to the contrary); and (iii) in the event of termination by reason of
disability, have the Company continue to maintain in effect at its sole
expense, the major medical, extended medical, extended disability and term life
insurance referred to in Section 5(a) for the one year period following the
date of any such termination.
(c) The Company, upon 30 days prior written
notice to Executive, may terminate this Agreement For Cause (as defined
herein). For the purposes of this Agreement, the term "For Cause" shall mean:
(i) Executive's breach of the covenants contained in Sections 7, 11 or 13(a)
hereof; (ii) Executive's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent jurisdiction for any crime involving moral
turpitude or any felony punishable by imprisonment in the jurisdiction
involved; or (iii) Executive's commission of any act of fraud or dishonesty in
connection with, or related to, his duties hereunder. Upon termination of
Executive For Cause, this Agreement shall immediately terminate, and Executive
shall not be entitled to any further rights or payments hereunder (other than
payment under Section 2(a) for services rendered prior to the date of such
termination). Without limiting the generality of the foregoing, Executive
shall have no right on or after the date of such termination to any of the
benefits set forth in Section 5 hereof (other than payment for accrued
vacation), any payment of base salary pursuant to Section 2(a), any payment of
performance bonus pursuant to Section 2(b) for the Bonus Year in which such
termination occurs or any other benefit or payment of any kind whatsoever.
5
<PAGE> 6
(d) Subject to the payment of amounts required by
Sections 2(b) and 3, the Company shall be entitled to terminate Executive's
employment without cause at any time upon thirty days written notice.
9. Change in Control. (a) The provisions of this
Section 9 shall become operative if an Approved Change in Control (as defined
below) or if an Unapproved Change in Control (as defined below) occurs during
the term of this Agreement. For the purposes of this Agreement, an "Unapproved
Change in Control" shall be deemed to have occurred if any "person" (as defined
in Section 13(d) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act")) becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) directly or indirectly of securities of the Company
representing more than 35% of the combined voting power of the Company's then
outstanding securities, as a result of purchases of the Company's securities
which are not expressly approved by the Board. For the purposes of this
Agreement, an "Approved Change in Control" shall be deemed to have occurred if
any "person" (as defined in Section 13(d) of the Exchange Act becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly
or indirectly of securities of the Company representing more than eighty
percent (80%) of the combined voting power of the Company's then outstanding
securities, as a result of a transaction which is expressly approved by the
Board. For purposes of determining whether or not the Board has expressly
approved purchases of the Company's then outstanding securities resulting in an
Unapproved Change in Control, express approval of the Board shall be defined to
mean that individuals constituting at least a majority of the Board for a
consecutive twenty-four (24) month period prior to such purchases did not vote
in favor thereof.
(b) For a period of two months after an Unapproved Change in
Control of the Company, Executive shall have the right to terminate his
employment with the Company pursuant to this Section 9, and the Company shall
pay Executive the following amounts no later than the 15th business day after
the date of termination of Executive's employment:
(i) A lump sum severance payment equal to 2.9
multiplied by the sum of (A) Executive's base annual salary at the highest rate
in effect during the fiscal year of the Company immediately preceding the date
Executive's employment terminates,
6
<PAGE> 7
and (B) the greater of the amount of any incentive, bonus or other cash
compensation that was paid to Executive during either (x) the 12 months
immediately preceding the date Executive's employment terminates and (y) the 12
months immediately preceding the Change in Control; and
(ii) A cash payment equal to the amount by which the
greater of (A) the closing price of the Company's Common Stock on the day
before the date Executive's employment terminates or (B) the highest price per
share actually paid in connection with the Change in Control of the Company,
exceeds the per share exercise price of each then vested and exercisable stock
option held by Executive on the day before the date Executive's employment
terminates, multiplied by the number of shares covered by each such option. In
exchange for such payment, Executive will surrender all such options to the
Company without exercising them.
(c) In the event the Company terminates Executive's
employment without cause within eighteen (18) months after the effective date
of an Approved Change in Control of the Company, then, in lieu of the amounts
required to be paid to Executive pursuant to Section 8(d) above, the Company
shall pay Executive, within fifteen (15) days after written demand therefor by
Executive, a lump sum severance payment equal to 2.9 multiplied by the sum of
(A) Executive's base annual salary at the highest rate in effect during the
fiscal year of the Company immediately preceding the date Executive's
employment terminates, and (B) the greater of the amount of any incentive,
bonus or other cash compensation that was paid to Executive during either (x)
the 12 months immediately preceding the date Executive's employment terminates
and (y) the 12 months immediately preceding the Approved Change in Control.
(d) Notwithinstanding anything contained in this Agreement to
the contrary, in the event of an Approved Change in Control or an Unapproved
Change in Control, any unvested portion of that certain stock option to
purchase 250,000 shares of the Company's Common Stock granted to Executive on
May 2, 1995 shall automatically and immediately vest and become exercisable.
10. Deductibility of Payments to Executive. Notwithstanding
anything else to the contrary in this Agreement, in the event that the payments
to Executive under this Agreement, either alone or together with other payments
Executive has a right to
7
<PAGE> 8
receive from the Company, would be non-deductible (in whole or in part) by the
Company for Federal income tax purposes because of Section 280G of the IRC,
then the aggregate present value of amounts payable to Executive pursuant to
this agreement shall be reduced (but not below zero) to the "Reduced Amount."
The Reduced Amount shall be an amount expressed in present value which
maximizes the aggregate present value of all payments to be made to Executive
under this Agreement without causing any payment to be non-deductible by the
Company because of Section 280G of the Code. For purposes of this Section 10,
present value shall be determined in accordance with Section 280G(d)(4) of the
IRC. The determination of the Reduced Amount shall be made exclusively by the
Company's outside auditors and in consultation with outside counsel to the
Company (each of whose fees and expenses shall be borne by the Company), and
such determination shall be conclusive and binding on the Company and
Executive.
11. Confidentiality.
(a) The Company (which for purposes of this
Section 11 shall mean the Company and its Affiliates (as defined in Section
7(a)) and Executive recognize that during the course of Executive's employment
with the Company he will accumulate certain crucial proprietary and
confidential information and trade secrets for use in the Company's business
and will have divulged to him certain crucial confidential and proprietary
information and trade secrets about the business, operations and prospects of
the Company, including, without limitation, confidential and proprietary
information regarding suppliers and employees of the Company, which constitute
valuable business assets providing the Company the opportunity to obtain an
advantage over competitors who do not know or use such information or have
access to it without the investment of considerable resources. Executive
hereby acknowledges and agrees that such information (the "Proprietary
Information") is confidential and proprietary and a trade secret and that such
information shall include, without limitation:
(i) the identity and location of customers and
domestic and foreign suppliers of quality low-cost close-out merchandise that
can profitably be resold, and their buying and selling histories and
creditworthiness; information regarding the quantity, quality, frequency,
pricing and marketability of their supply offerings; and lists setting forth
the same;
8
<PAGE> 9
(ii) processes, methods and techniques, including
but not limited to primary contact points in the Company's network; methods of
merchandising in the Company's stores; processes and methods of giving
directions and instructions to the Company's stores and its employees in
connection with merchandising moves; information, techniques, formulas and
judgments relating to the appropriate bidding, pricing and marketing of
close-out merchandise; and the price ranges and techniques by which such
merchandise can be profitably resold at substantial reductions from normal
retail rates; and designs, styles and methods of packaging and distributing
close-out merchandise distinctive to the Company;
(iii) records of research, including but not
limited to demographic studies conducted by the Company and its agents which
contribute to the Company's ability to locate retail store sites;
(iv) proposals and projections, including but not
limited to long-range plans for the Company's growth, expansion, development
and continued fostering of its relationships with its employees, suppliers and
customers; and
(v) files, reports, memoranda, computer software
or programming and budgets or other financial plans or information regarding
the Company and its business, properties or affairs.
(b) Executive agrees that he shall not, at any
time subsequent to the execution of this Agreement, whether during or after the
term hereof, disclose, divulge or make known, directly or indirectly, to any
person, or otherwise use or exploit, any Proprietary Information obtained by
Executive at any time prior to or subsequent to the execution of this
Agreement, except to the extent required by his performance of his duties
hereunder for the Company. Executive agrees to disclose to the Company the
identity and nature of any contacts with any person or entity soliciting from
Executive disclosure of any Propriety Information or soliciting Executive's
involvement in any business venture competitive with the Company. Executive
shall not conceal from or fail to disclose to the Company, or divert or exploit
for his own personal profit or that of others, any business opportunity or
other opportunity to acquire an interest in or a contractual relationship with
any person or entity where such person or entity is in the Company's line of
business or
9
<PAGE> 10
where such contractual relationship involves the acquisition of real estate and
which would be considered a feasible and advantageous opportunity or
acquisition for the Company. Upon termination of this Agreement, Executive
will deliver to the Company all tangible displays and repositories of customer
and supplier lists, files, records of research, proposals, reports, memoranda,
business methods and techniques, computer software and programming, budgets and
other financial plans and information and other materials or records or
writings of any other type (including all copies thereof) made, used or
obtained by, or provided to, Executive, containing any Proprietary Information,
whether obtained prior to or subsequent to the execution of this Agreement.
12. Non-Solicitation of Employees.
(a) Executive hereby agrees that for the two-year
period following the date of termination of this Agreement he will not (i)
authorize his name to be used by any person, partnership, corporation or other
business entity, or (ii) engage in or carry on, directly or indirectly, whether
as advisor, principal, agent, partner, officer, director, employee,
stockholder, associate or consultant of any person, partnership, corporation or
other business entity which is in competition with the bargain close-out
business carried on by the Company or any of its Affiliates in Los Angeles,
Orange, Riverside, San Bernardino, Ventura, Santa Barbara or San Diego Counties
in the State of California, or any other county in California where business is
then carried on or conducted by the Company or any of its Affiliates, or in the
States of Alabama, Arizona, Colorado, Florida, Georgia, Idaho, Illinois,
Indiana, Louisiana, Missouri, Nevada, New Mexico, Tennessee, Texas or Utah.
(b) Executive further agrees that during the
period from the date of this Agreement until two years after the termination of
this Agreement he shall not contact any employee or supplier of the Company or
any of its Affiliates without advising the Company of such contact and he shall
not participate in any endeavor or activity which would disrupt the Company's
or any of its Affiliate's good business relationships with the employees,
suppliers and/or persons engaged in purchasing activities on behalf of the
Company or such Affiliate, and he shall not make any false, deceptive or
misleading statement or statements to any one or more of such suppliers or such
persons which would be likely to cause such disruption.
10
<PAGE> 11
13. Miscellaneous.
(a) Executive represents and warrants to the
Company that he is not now under any obligation of a contractual or other
nature to any person, firm or corporation which is inconsistent or in conflict
with this Agreement, or which would prevent, limit or impair in any way the
performance by him of his obligations hereunder.
(b) The waiver by either party of a breach of any
provision of this Agreement must be in writing and shall not operate or be
construed as a waiver of any subsequent breach thereof.
(c) This Agreement constitutes the entire
Agreement of Executive and the Company and supersedes all prior written or oral
and all contemporaneous oral agreements, understandings and negotiations
between the parties with respect to the subject matter hereof.
(d) Any and all notices referred to herein shall
be sufficiently furnished if in writing, and sent by registered or certified
mail, postage prepaid, or by facsimile transmission (but only if confirmation
of receipt is subsequently received by the sender either orally or in writing),
or by overnight courier (if such overnight courier guarantees next day delivery
and such notice is sent for delivery on a day on which such courier guarantees
such overnight delivery), to the respective parties at the following addresses
or such other address as either party may from time to time designate in
writing in the manner set forth in this Section 13(d):
The Company:
Mac Frugal's Bargains o Close-outs Inc.
2430 E. Del Amo Boulevard
Dominguez, California 90220
Attention: Board of Directors
Telephone Number: (310) 761-4200
Executive:
11
<PAGE> 12
Philip L. Carter
10520 Wilshire Blvd., #702
Los Angeles, California 90024
(e) If any portion or provision of this Agreement
shall be invalid or unenforceable for any reason, there shall be deemed to be
made such minor changes (and only such minor changes) in such provision or
portion as are necessary to make it valid and enforceable. The invalidity or
unenforceability of any provision or portion of this Agreement shall not affect
the validity or enforceability of any other provisions or portions of this
Agreement. If any such unenforceable or invalid provision or provisions shall
be rendered enforceable and valid by changes in applicable law, then such
provision or provisions shall be deemed to read as they presently do in this
Agreement without change.
(f) The rights and obligations of the parties
hereto shall inure to and be binding upon the parties hereto and their
respective heirs, successors and assigns.
(g) The waiver by either party of a breach of a
provision of this Agreement shall not operate or be construed as a waiver of a
subsequent breach hereof.
(h) This Agreement is intended to and shall be
governed by, and interpreted under and construed in accordance with, the laws
of the State of California, without reference to any conflict of laws or
principles.
(i) If any litigation, arbitration or any other
proceedings is instituted in connection with or related to this Agreement, the
non-prevailing party in such litigation, arbitration or other proceeding shall
pay the expenses, including, without limitation, the attorneys' fees and
expenses of investigation, of the prevailing party.
(j) Arbitration.
(i) Any controversy, claim or dispute between
the parties directly or indirectly concerning this Agreement or the breach
hereof, or the subject matter hereof (except in instances where only injunctive
relief is sought by the Company), shall be finally settled by arbitration held
in Los Angeles, California. The Company and Executive shall
12
<PAGE> 13
each select an arbitrator from a panel of seven (7) arbitrators (the
"Arbitration Pool") obtained by the Company from the Federal Mediation and
Conciliation Service within thirty (30) days of receiving written notice from
either party demanding any such proceeding. Such two chosen arbitrators shall
agree on a third arbitrator from the Arbitration Pool within fifteen days
thereafter. In the event an agreement has not been reached on the third
arbitrator by the end of such fifteen-day period, the third arbitrator shall be
chosen by the American Arbitration Association. The arbitration shall be held
and a final decision reached within 30 days thereafter. The decision of a
majority of the three chosen arbitrators shall be final and conclusive on the
parties, and there shall be no appeal therefrom. A decision of the arbitrators
may be enforced by the prevailing party in a court of competent jurisdiction.
All other issues in connection with such arbitration shall be in accordance
with the Rules of the American Arbitration Association.
(ii) The parties hereto agree that an action
to compel arbitration pursuant to this Agreement may be brought in any
appropriate court and in connection therewith the laws of the State of
California shall control. Application may also be made to such court for
confirmation of any decision or award of the arbitrators but only if necessary
to effectuate such decision or award. The parties hereto hereby consent to the
jurisdiction of the arbitrators and of such court and waive any objection to
the jurisdiction of such arbitrators or court.
(k) The Company and Executive expressly agree
that the provisions of Sections 11, 12 and 13 shall survive the termination of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
THE COMPANY: MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
By: ___________________________________
13
<PAGE> 14
David H. Batchelder
Chairman of the Board
EXECUTIVE:
________________________________________
Philip L. Carter
14
<PAGE> 1
EXHIBIT 10.23
January 13, 1997
__________________________
__________________________
Mac Frugal's Bargains o Close-outs Inc.
2430 East Del Amo Boulevard
Dominguez, CA 90220
Dear ___:
At our last board meeting, we approved an additional long-term cash incentive
over and above the annual cash incentive program.
Conditions of this additional incentive are as follows:
1. If for the three fiscal years ending January, 2000, the combined
reported earnings per share total $___, you will receive an additional
one year of your then base salary, payable in April, 2000.
2. To receive this bonus, you must hold an officer position for the three
applicable years.
3. If you leave the company or are terminated, there will be no pro-rata
payment.
4. If there is a change of control whereby one stockholder acquires
greater than 50% of the outstanding stock, you will receive a pro-rata
payment. This pro-rata payment will be your then base salary
multiplied by months into the three year program at time of change of
control divided by 36. Payment will be made within one month of
change of control taking place.
5. Please countersign this letter and return it to Ariane
<PAGE> 2
Gipson.
Good luck!
_____________________________ ________________________
Peter S. Willmott Officer
Chairman of the Board
<PAGE> 1
EXHIBIT 10.24
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT is
made and dated as of April 22, 1997 (the "FIRST AMENDMENT") among MAC FRUGAL'S
BARGAINS o CLOSE-OUTS, INC., a Delaware corporation, WEST COAST LIQUIDATORS,
INC., a California corporation, PNS STORES, Inc., a California corporation
(individually a "BORROWER" and collectively the "BORROWERS"), the lenders named
on the signature pages hereof (the "LENDERS") and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as administrative agent for the Lenders and the Issuing
Banks (in such capacity, the "ADMINISTRATIVE AGENT"), and amends that certain
Second Amended and Restated Credit Agreement dated as of December 16, 1996,
among the Borrowers, the Lenders and the Administrative Agent (the "AGREEMENT").
RECITAL
The Borrowers have requested that the Lenders and the Administrative
Agent amend certain provisions of the Agreement, and the Lenders and the
Administrative Agent are willing to do so on the terms and conditions set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in
the Agreement unless otherwise defined herein. All references to the Agreement
shall mean the Agreement as hereby amended.
2. Amendments to Agreement. The parties hereto agree that the
Agreement is hereby amended as follows:
2.1 The second paragraph and the following chart in Section 2.1A of
the Agreement are amended and restated in their entirety as follows:
"Notwithstanding the foregoing provisions of this Section 2.1A,
(i) at no time shall the Total Utilization of Revolving Commitments
exceed the aggregate Revolving Commitments then in effect, and (ii) for
one 30 consecutive day period (a "Clean-Down Period") during each
three-month period beginning on December 1 of each year and ending on
the last day of
- 1 -
<PAGE> 2
each February, the aggregate principal amount of Clean-Down Debt shall
not exceed the sum of (x) the amount shown below opposite such period
under Column A plus (y) an amount not less than zero equal to (i) the
Cumulative Stock Buyback Amount less (ii) the amount shown below
opposite such period under Column B:
Three Month
Period Ending A Amount B Amount
------------- ----------- -----------
2/28/98 $60,000,000 $20,000,000
2/28/99 50,000,000 60,000,000
2/28/00 20,000,000 60,000,000"
2.2 Subsections 6.3(vii), (viii) and (ix) of the Agreement are amended
and restated in their entirety as follows:
"(vii) The Borrowers may make Investments (other than
Investments in common stock of the Company), the aggregate
consideration (including assumed Indebtedness) for which shall not
exceed $70,000,000 in the aggregate since the Closing Date;
provided, however, that the Borrowers shall not make an Investment
in the common or preferred stock of any Person (A) IF SUCH
INVESTMENT WOULD RESULT IN AN AGGREGATE INVESTMENT IN EXCESS OF
$10,000,000 IN A SINGLE PERSON UNLESS SUCH INVESTMENT HAS BEEN
APPROVED BY AT LEAST 75% OF THE DIRECTORS OF THE COMPANY, OR (B) if
such Investment is opposed by the board of directors or management
of such Person; provided, further, no Event of Default or
Potential Event of Default has occurred and is continuing or would
result therefrom; and
"(viii) The Borrowers may make Investments in the common
stock of the Company not exceeding the Cumulative Stock Buyback
Amount; provided, however, that no Event of Default or Potential
Event of Default has occurred and is continuing or would result
therefrom."
2.3 The proviso to Section 6.7 of the Agreement is amended by
deleting "Section 6.3(viii)" and inserting "Sections 6.3(vii) and (viii)" in
lieu thereof.
3. Representations and Warranties. The Borrowers represent and
warrant to the Lenders and the Administrative Agent that, on and as of the date
hereof, and after giving effect to this First Amendment:
-2-
<PAGE> 3
3.1 Authorization. The execution, delivery and performance of this
First Amendment have been duly authorized by all necessary corporate action by
the Borrowers and this First Amendment has been duly executed and delivered by
the Borrowers.
3.2 Binding Obligation. This First Amendment is the legal, valid
and binding obligation of Borrowers, enforceable against the Borrowers in
accordance with its terms.
3.3 No Legal Obstacle to Agreement. The execution, delivery and
performance of this First Amendment will not (a) contravene the terms of the
Borrowers' certificate of incorporation, by-laws or other organization document;
(b) conflict with or result in any breach or contravention of the provisions of
any contract to which the Borrowers are a party, or result in the violation of
any law, judgment, decree or governmental order, rule or regulation applicable
to Borrowers, or (c) result in the creation under any agreement or instrument of
any security interest, lien, charge, or encumbrance upon any of the assets of
the Borrowers. No approval or authorization of any governmental authority is
required to permit the execution, delivery or performance by the Borrowers of
this First Amendment, or the transactions contemplated hereby.
3.4 Incorporation of Certain Representations. The representations
and warranties of the Borrowers set forth in Section 4 of the Agreement are
true and correct in all respects on and as of the date hereof as though made on
and as of the date hereof, except as to such representations made as of an
earlier specified date.
3.5 Default. No Potential Event of Default or Event of Default
under the Agreement has occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this First
Amendment shall be subject to the compliance by the Borrowers with their
agreements herein contained, and to the delivery of the following to the
Administrative Agent in form and substance satisfactory to the Administrative
Agent and the Lenders:
4.1 Secretary's Certificate. A certificate, signed by the Secretary
or an Assistant Secretary of each Borrower and dated the date of this First
Amendment, attaching a certified copy of corporate resolutions authorizing the
execution, delivery and performance of this First Amendment, and as to the
incumbency and specimen signature of the person or persons authorized to execute
and deliver this First Amendment and any instrument or agreement required
hereunder on behalf of each Borrower.
- 3 -
<PAGE> 4
4.2 Other Evidence. Such other evidence with respect to each
Borrower or any other person as the Administrative Agent or any Lender may
reasonably request in connection with this First Amendment and the compliance
with the conditions set forth herein.
5. Miscellaneous.
5.1 Effectiveness of the Agreement and the Loan Documents. Except
as hereby expressly amended, the Agreement and each other Loan Document shall
each remain in full force and effect, and are hereby ratified and confirmed in
all respects on and as of the date hereof.
5.2 Waivers. This First Amendment is limited solely to the matters
expressly set forth herein and is specific in time and in intent and does not
constitute, nor should it be construed as, a waiver or amendment of any other
term or condition, right, power or privilege under the Agreement or under any
agreement, contract, indenture, document or instrument mentioned therein; nor
does it preclude or prejudice any rights of the Administrative Agent or the
Lenders thereunder, or any exercise thereof or the exercise of any other right,
power or privilege, nor shall it require the Lenders to agree to an amendment,
waiver or consent for a similar transaction or on a future occasion, nor shall
any future waiver of any right, power, privilege or default hereunder, or under
any agreement, contract, indenture, document or instrument mentioned in the
Agreement, constitute a waiver of any other default of the same or of any other
term or provision.
5.3 Counterparts. This First Amendment may be executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument. This First Amendment shall not
become effective until the Borrowers, the Requisite Lenders and the
Administrative Agent shall have signed a copy hereof and the same shall have
been delivered to the Administrative Agent.
5.4 Jurisdiction. This First Amendment shall be governed by and
construed under the laws of the State of New York.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered as of the date first written above.
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
WEST COAST LIQUIDATORS, INC.
PNS STORES, INC.
By:
--------------------------------------
Title:
-----------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent
By:
--------------------------------------
Title:
-----------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
--------------------------------------
Yvonne Dennis
Vice President
BANK OF AMERICA ILLINOIS
By:
--------------------------------------
Yvonne Dennis
Vice President
PNC BANK, NATIONAL ASSOCIATION
By:
--------------------------------------
Title:
-----------------------------------
(Signatures continue)
- 5 -
<PAGE> 6
UNION BANK OF CALIFORNIA, N.A.
By:
----------------------------------------
Title:
-------------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY
By:
----------------------------------------
Title:
-------------------------------------
UNITED STATES NATIONAL BANK OF OREGON
By:
----------------------------------------
Title:
-------------------------------------
WELLS FARGO BANK, N.A.
By:
----------------------------------------
Title:
-------------------------------------
BANK LEUMI LE-ISRAEL B.M.
By:
----------------------------------------
Title:
-------------------------------------
THE SAKURA BANK, LIMITED
By:
----------------------------------------
Title:
-------------------------------------
(Signatures continue)
- 6 -
<PAGE> 7
BANK HAPOALIM, B.M.,
LOS ANGELES BRANCH
By:
-------------------------------
Title:
----------------------------
By:
-------------------------------
Title:
----------------------------
THE SUMITOMO TRUST & BANKING CO.,
LTD., LOS ANGELES AGENCY
By:
-------------------------------
Title:
----------------------------
- 7 -
<PAGE> 1
EXHIBIT 10.30
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and
entered into as of the Date of Grant indicated below by and between MacFrugal's
Bargains o Close-outs Inc., a Delaware corporation (the "Company"), and
_________ ("Optionee").
WHEREAS, the Compensation Committee of the Board of Directors
of the Company (the "Committee") and the Board of Directors of the Company (the
"Board") have approved the grant to Optionee of an option to purchase shares of
the common stock, par value $0.2778 per share, of the Company (the "Common
Stock"), on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Grant of Option; Certain Terms and Conditions.
Subject to and upon all of the terms and conditions of this Agreement, the
Company hereby grants to Optionee, and Optionee hereby accepts, as of the Date
of Grant set forth below, an option (the "Option") to purchase the number of
shares of Common Stock indicated below (the "Option Shares") at the exercise
price per share indicated below. The Exercise Price indicated below is the
closing price for shares of the Common Stock quoted on the New York Stock
Exchange on the Date of Grant. Unless the Option earlier terminates as
provided in this Agreement, the Option expires at 5:00 p.m. (local time at the
Company's executive offices) on the Expiration Date indicated below.
Notwithstanding anything else contained in this Agreement to the contrary with
the sole exception of Paragraph 2(b) below to which this sentence is subject,
the Option shall not vest and/or become exercisable with respect to any Option
Shares whatsoever until the third (3rd) anniversary of the Date of Grant at
which time the Option shall vest in full and become exercisable with respect to
all Option Shares but only if Optionee is a member of the Board on the third
(3rd) anniversary of the Date of Grant.
<TABLE>
<S> <C>
Date of Grant: ______________
Option Shares: 50,000
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Exercise Price per Share: $_____
Expiration Date: ______________
</TABLE>
The Option is not intended to qualify as an incentive stock option under the
Internal Revenue Code of 1986, as amended.
2. Acceleration and Termination.
(a) Termination of Position. The Option shall
automatically and immediately terminate in the event Optionee's relationship
with the Company as a member of its Board terminates prior to the third (3rd)
anniversary of the Date of Grant for no reason or for any reason. If
Optionee's relationship with the Company as a member of its Board is terminated
on or subsequent to the third (3rd) anniversary of the Date of Grant for no
reason or for any reason, then the Option shall terminate upon the earlier of
the Expiration Date or the close of business on the ninetieth (90th) day
following the date of such termination; provided, however, that (i) if the
termination of such relationship is caused by the total disability of Optionee,
then the Option shall terminate upon the earlier of the Expiration Date or the
first anniversary of the date of such termination; and (ii) if the termination
of such relationship is caused by the death of Optionee, then the Option shall
terminate upon the earlier of the Expiration Date or the first anniversary of
the date of such death. Notwithstanding the foregoing, the Board may terminate
the Option effective as of the date of such termination if it determines, in
its sole discretion, that such termination was caused, in whole or in part, by
(1) Optionee's refusal to perform his duties, (2) gross or willful misconduct
of Optionee that was materially harmful to the Company or any of its
subsidiaries, or (3) Optionee's conviction of a crime of moral turpitude or a
felony involving personal dishonesty.
(b) Acceleration of Option. Unless the Option
has sooner terminated or expired pursuant to any other provision of this
Agreement, the Option shall fully, immediately and automatically vest and
become exercisable with respect to all Option Shares in the event:
(i) of a reorganization, merger or
2
<PAGE> 3
consolidation of the Company as a result of which the outstanding securities of
the class then subject to the Option are exchanged for or converted into cash,
property and/or securities not issued by the Company or by an entity which is
wholly-owned by the Company immediately prior to such transaction; or
(ii) any "person" (as defined in Section
13(d) of the Securities and Exchange Act of 1934, as amended (the "1934 Act"))
becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act)
directly or indirectly of securities of the Company representing more than
thirty-five percent (35%) of the combined voting power of the Company's then
outstanding securities; or
(iii) of a sale of substantially all of the
property and assets of the Company.
3. Adjustments. In the event that the outstanding
securities of the class then subject to the Option are increased, decreased or
exchanged for or converted into cash, property and/or a different number or
kind of securities, or cash, property and/or securities are distributed in
respect of such outstanding securities, in either case as a result of a
reorganization, merger, consolidation, recapitalization, reclassification,
dividend (other than a cash dividend) or other distribution, stock split,
reverse stock split or the like, or in the event that substantially all of the
property and assets of the Company are sold, then the Board shall make
appropriate and proportionate adjustments in the number and type of shares or
other securities or cash or other property that may thereafter or thereupon be
acquired upon the exercise of the Option; provided, however, that any such
adjustments in the Option shall be made without changing the aggregate Exercise
Price of the then unexercised portion of the Option.
4. Exercise.
(a) Exercise Notice. The Option shall be
exercisable during Optionee's lifetime only by Optionee or by his guardian or
legal representative, and after Optionee's death only by the person or entity
entitled to do so under Optionee's last will and testament or applicable
intestate law. The Option may only be exercised by the delivery to the Company
of a written
3
<PAGE> 4
notice of such exercise (the "Exercise Notice"), which Exercise Notice shall
specify the number of Option Shares to be purchased (the "Purchased Shares")
and the aggregate Exercise Price for such shares, together with payment in full
of such aggregate Exercise Price in cash or check payable to the Company.
(b) Regulation T. If Optionee shall deliver to the
Company a duly executed copy of such Exercise Notice and, in accordance with
Section 220.3(e)(4) of Regulation T promulgated under the 1934 Act, a duplicate
copy of duly executed, irrevocable instructions to a broker promptly to deliver
to the Company a specified dollar amount from the proceeds of a sale of or loan
secured by such Purchased Shares, the Company shall promptly confirm to such
broker in writing that the Company shall issue and deliver such Purchased
Shares to the person or entity specified in such Exercise Notice promptly upon
the receipt by the Company of such aggregate Exercise Price in cash or other
immediately available funds.
5. Payment of Withholding Taxes.
(a) If the Company is obligated by law to withhold
any amounts on account of any federal, state or local tax imposed as a result
of the exercise of the Option, including, without limitation, any federal,
state or other income tax or any F.I.C.A., state disability insurance tax or
other employment tax (such amounts being referred to herein collectively as the
"Withholding Liability"), Optionee shall, on the first date upon which the
Company becomes obligated to pay the Withholding Liability to the appropriate
taxing authority (the "Withholding Payment Date") and as a condition precedent
to the issuance of any Option Shares, pay the Withholding Liability to the
Company in full in cash or by check.
(b) The Board may adopt such rules and
regulations as are consistent with and necessary to implement the foregoing.
The Board may permit Optionee to pay Withholding Liability in excess of the
minimum amount required by law, provided that the amount of withholding taxes
so paid does not exceed the estimated total federal, state and local tax
liability of Optionee attributable to such exercise.
6. Stock Exchange Requirements; Applicable Laws.
Notwithstanding anything to the contrary contained in this
4
<PAGE> 5
Agreement, no shares of stock purchased upon exercise of the Option, and no
certificate representing all or any part of such shares, shall be issued or
delivered if (a) such shares have not been admitted to listing upon official
notice of issuance on each stock exchange upon which shares of that class are
then listed or (b) in the opinion of counsel to the Company, such issuance or
delivery would cause the Company to be in violation of or to incur liability
under any federal, state or other securities law, or any requirement of any
stock exchange listing agreement to which the Company is a party, or any other
requirement of law or of any administrative or regulatory body having
jurisdiction over the Company.
7. Nontransferability. Neither the Option nor any
interest therein may be sold, assigned, conveyed, gifted, pledged, hypothecated
or otherwise transferred in any manner other than by will or by the laws of
descent and distribution. The designation of a beneficiary shall not
constitute a transfer.
8. Notices. Any notice or communication given pursuant
hereto shall be in writing and delivered personally or by mail, postage
prepaid, addressed to Optionee at his then-current address, as indicated in the
books and records of the Company, or addressed to the Company as follows:
MacFrugal's Bargains o Close-outs Inc.
2430 E. Del Amo Boulevard
Dominguez, CA 90220
Attention: Chief Executive Officer
or at such other address as either party hereto, by written notice to the
other, shall designate from time to time. Any such notice or communication by
Optionee shall be deemed given upon actual receipt by the Company. Any such
notice or communication by the Company, if mailed, shall be deemed given when
mailed.
9. Stockholder Rights. No person or entity shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of
any Option Shares until the Option shall have been duly exercised to purchase
such Option Shares in accordance with the provisions of this Agreement.
10. Rights to Remain a Director. No provision of this
5
<PAGE> 6
Agreement or of the Option granted hereunder shall (a) confer upon Optionee any
right to continue his relationship with the Company as a member of the Board,
(b) affect the right of the Company to terminate such relationship of Optionee
with the Company, with or without cause, or (c) confer upon Optionee any right
to participate in any welfare or benefit plan or other program of the Company
or any of its subsidiaries.
11. Applicable Law. This Agreement and the rights of the
parties hereunder shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware without regard to conflict of laws
principles.
IN WITNESS WHEREOF, the Company and Optionee have duly
executed this Agreement as of the Date of Grant.
MacFrugal's Bargains o Close-outs Inc.
By: _________________________
Philip L. Carter
Chief Executive Officer
Optionee
_____________________________
6
<PAGE> 1
EXHIBIT 10.31
SECOND AMENDED AND RESTATED
REDUCING REVOLVING CREDIT AGREEMENT
dated as of December 16, 1996
among
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.,
WEST COAST LIQUIDATORS, INC.,
PNS STORES, INC.,
THE LENDERS LISTED HEREIN,
and
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent
Arranged by
BA Securities, Inc.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . 2
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . 2
1.2 Computation of Time Periods . . . . . . . . . . . . . 26
1.3 Accounting Terms. . . . . . . . . . . . . . . . . . . 26
1.4 Other Definitional Provisions . . . . . . . . . . . . 26
Section 2. AMOUNT AND TERMS OF COMMITMENTS
AND LOANS . . . . . . . . . . . . . . . . . . . . 26
2.1 Loans . . . . . . . . . . . . . . . . . . . . . . . . 26
2.2 Making the Loans. . . . . . . . . . . . . . . . . . . 30
2.3 Fees. . . . . . . . . . . . . . . . . . . . . . . . . 37
2.4 Voluntary and Mandatory Reductions of Commitments . . 38
2.5 Repayment . . . . . . . . . . . . . . . . . . . . . . 39
2.6 Optional and Mandatory Prepayments. . . . . . . . . . 39
2.7 Interest. . . . . . . . . . . . . . . . . . . . . . . 41
2.8 Interest Rate Determination and Protection. . . . . . 42
2.9 Voluntary Conversion or Continuation of Loans . . . . 43
2.10 Increased Costs and Funding Losses . . . . . . . . . 44
2.11 Payments and Computations. . . . . . . . . . . . . . 46
2.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 47
2.13 Sharing of Payments, Etc.. . . . . . . . . . . . . . 50
2.14 Use of Proceeds. . . . . . . . . . . . . . . . . . . 51
2.15 Illegality . . . . . . . . . . . . . . . . . . . . . 51
2.16 Letters of Credit. . . . . . . . . . . . . . . . . . 52
2.17 Evidence of Debt; Notes. . . . . . . . . . . . . . . 59
2.18 Obligations Joint and Several. . . . . . . . . . . . 60
2.19 Contribution Among Borrowers . . . . . . . . . . . . 61
2.20 Financial Condition of Borrowers . . . . . . . . . . 62
2.21 Extension of Revolver Maturity Date. . . . . . . . . 62
2.22 Amendment and Restatement of Existing Credit
Agreement. . . . . . . . . . . . . . . . . . . . . . 63
Section 3. CONDITIONS WITH RESPECT TO LOANS
AND LETTERS OF CREDIT . . . . . . . . . . . . . . 63
3.1 Conditions to Initial Loans . . . . . . . . . . . . . 63
3.2 Conditions to All Loans . . . . . . . . . . . . . . . 65
3.3 Conditions to All Letters of Credit . . . . . . . . . 66
Section 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 67
4.1 Organization, Powers, Good Standing and
Subsidiaries. . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4.2 Authorization of Borrowing, etc.. . . . . . . . . . . 68
4.3 Financial Condition . . . . . . . . . . . . . . . . . 69
4.4 Changes, Etc. . . . . . . . . . . . . . . . . . . . . 69
4.5 Litigation; Adverse Facts . . . . . . . . . . . . . . 69
4.6 Payment of Tax. . . . . . . . . . . . . . . . . . . . 70
4.7 Materially Adverse Agreements; Performance. . . . . . 70
4.8 Governmental Regulation . . . . . . . . . . . . . . . 70
4.9 Securities Activities . . . . . . . . . . . . . . . . 71
4.10 Employee Benefit Plans . . . . . . . . . . . . . . . 71
4.11 Patents, Trademarks and Licenses . . . . . . . . . . 71
4.12 Title to Properties; Liens . . . . . . . . . . . . . 72
4.13 Environmental Protection . . . . . . . . . . . . . . 72
4.14 Labor Matters. . . . . . . . . . . . . . . . . . . . 74
4.15 Disclosure . . . . . . . . . . . . . . . . . . . . . 74
4.16 No Partnerships or Joint Ventures. . . . . . . . . . 74
Section 5. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 75
5.1 Financial Statements and Other Reports. . . . . . . . 75
5.2 Corporate Existence, etc. . . . . . . . . . . . . . . 79
5.3 Payment of Taxes and Claims; Tax Consolidation. . . . 79
5.4 Maintenance of Properties; Insurance. . . . . . . . . 80
5.5 Equal Security for Obligations; No Further
Negative Pledges. . . . . . . . . . . . . . . . . . . 81
5.6 Inspection; Records, etc. . . . . . . . . . . . . . . 81
5.7 Compliance with Laws, etc.. . . . . . . . . . . . . . 81
5.8 Further Assurances. . . . . . . . . . . . . . . . . . 82
5.9 Environmental Notice and Inspection . . . . . . . . . 82
Section 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 84
6.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . 84
6.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . 85
6.3 Investments . . . . . . . . . . . . . . . . . . . . . 86
6.4 Contingent Obligations. . . . . . . . . . . . . . . . 87
6.5 Restricted Junior Payments. . . . . . . . . . . . . . 88
6.6 Financial Covenants . . . . . . . . . . . . . . . . . 88
6.7 Restriction on Fundamental Changes. . . . . . . . . . 88
6.8 Restriction on Asset Sales. . . . . . . . . . . . . . 89
6.9 Sales and Lease-Backs . . . . . . . . . . . . . . . . 89
6.10 Sale or Discount of Receivables. . . . . . . . . . . 90
6.11 Transactions with Stockholders and Affiliates. . . . 90
6.12 Disposal of Subsidiary Stock . . . . . . . . . . . . 90
6.13 Limitation on Consolidated Capital Expenditures. . . 91
6.14 Conduct of Business. . . . . . . . . . . . . . . . . 91
6.15 Independence of Covenants. . . . . . . . . . . . . . 91
6.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . 91
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
6.17 Accounting Changes . . . . . . . . . . . . . . . . . 91
Section 7. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . 92
7.1 Failure to Make Payments When Due . . . . . . . . . . 92
7.2 Breach of Warranty. . . . . . . . . . . . . . . . . . 92
7.3 Breach of Covenants . . . . . . . . . . . . . . . . . 92
7.4 Breach of Other Agreements. . . . . . . . . . . . . . 92
7.5 Bankruptcy. . . . . . . . . . . . . . . . . . . . . . 93
7.6 Judgments . . . . . . . . . . . . . . . . . . . . . . 94
7.7 Dissolution . . . . . . . . . . . . . . . . . . . . . 94
7.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . 94
7.9 Control of the Borrowers. . . . . . . . . . . . . . . 95
Section 8. THE ADMINISTRATIVE AGENT . . . . . . . . . . . . . 98
8.1 Appointment and Authorization . . . . . . . . . . . . 98
8.2 Delegation of Duties. . . . . . . . . . . . . . . . . 98
8.3 Liability of Administrative Agent . . . . . . . . . . 99
8.4 Reliance by Administrative Agent. . . . . . . . . . . 99
8.5 Notice of Default . . . . . . . . . . . . . . . . . .100
8.6 Credit Decision . . . . . . . . . . . . . . . . . . .100
8.7 Indemnification . . . . . . . . . . . . . . . . . . .101
8.8 BofA in Individual Capacity . . . . . . . . . . . . .102
8.9 Successor Administrative Agent. . . . . . . . . . . .102
Section 9. THE LENDERS' REPRESENTATIONS . . . . . . . . . . .103
Section 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . .103
10.1 Amendments, Etc. . . . . . . . . . . . . . . . . . .103
10.2 Notices, Etc.. . . . . . . . . . . . . . . . . . . .104
10.3 No Waiver; Remedies. . . . . . . . . . . . . . . . .104
10.4 Costs and Expenses . . . . . . . . . . . . . . . . .105
10.5 Right of Set-off . . . . . . . . . . . . . . . . . .105
10.6 Indemnification. . . . . . . . . . . . . . . . . . .106
10.7 Binding Effect . . . . . . . . . . . . . . . . . . .107
10.8 Assignments and Participations . . . . . . . . . . .107
10.9 Severability . . . . . . . . . . . . . . . . . . . .110
10.10 Survival of Warranties and Certain Agreements . . .110
10.11 Headings. . . . . . . . . . . . . . . . . . . . . .110
10.12 Applicable Law; Jurisdiction; Waiver of Jury
Trial . . . . . . . . . . . . . . . . . . . . . . .111
10.13 Execution in Counterparts; Effectiveness. . . . . .111
10.14 Obligations Several . . . . . . . . . . . . . . . .112
10.15 Complete Agreement. . . . . . . . . . . . . . . . .112
SIGNATURE PAGES
</TABLE>
<PAGE> 5
EXHIBITS
A Form of Notice of Borrowing (1.1)
B Form of Notice of Conversion/Continuation (1.1)
C-1 Form of Revolving Loan Note (1.1)
C-2 Form of Bid Note (1.1)
D Form of Competitive Bid Request (2.2E)
E Form of Competitive Bid (2.2E)
F Form of Compliance Certificate (1.1)
G-1 Form of Outside Opinion of Counsel to Borrowers
(3.1)
G-2 Form of Inhouse Opinion of Counsel (3.1)
H Form of Assignment and Acceptance (1.1)
SCHEDULES
2.1A Commitments
4.1C Subsidiaries
4.2B Conflicts Disclosure
4.4 Restricted Junior Payments
4.5 Litigation Disclosure
4.11(i) Patent, Trademark and Copyright Disclosure
4.11(ii) Specified Trademarks
4.13 Environmental Disclosure
6.1 Existing Indebtedness and Liens
6.3 Existing Investments
6.4 Existing Contingent Obligations
10.2 Applicable Lending Offices
<PAGE> 6
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
WEST COAST LIQUIDATORS, INC.
PNS STORES, INC.
SECOND AMENDED AND RESTATED
REDUCING REVOLVING CREDIT AGREEMENT
This Second Amended and Restated Credit Agreement is dated as of
December 16, 1996 and is entered into by and among MAC FRUGAL'S BARGAINS o
CLOSE-OUTS INC., a Delaware corporation (the "Company"), WEST COAST LIQUIDATORS,
INC., a California corporation ("WCL"), PNS STORES, INC., a California
corporation ("PNS") (the Company, WCL and PNS are sometimes referred to herein
individually as a "Borrower" and collectively as the "Borrowers"), the LENDERS
listed on the signature pages hereof (such lenders, together with each Person
that may become a party hereto pursuant to Section 10.8 hereof, are referred to
herein individually as a "Lender" and collectively as the "Lenders") and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), as administrative agent
for the Lenders and the Issuing Banks (in such capacity, the "Administrative
Agent").
PRELIMINARY STATEMENTS
A. The Borrowers entered into a Credit Agreement dated as of May 15,
1991 with certain lenders and BofA, as agent, which Credit Agreement was amended
and restated by an Amended and Restated Credit Agreement dated as of October 5,
1993 with certain lenders (together with BofA in its capacity as a letter of
credit issuer thereunder, the "Existing Lenders"), BofA, as agent (as amended to
the date hereof, the "Existing Credit Agreement").
B. The Borrowers desire to amend and restate the Existing Credit
Agreement to provide, among other things, (i) that the Lenders extend certain
credit facilities to the Borrowers and that the Issuing Banks issue Letters of
Credit for the account of the Borrowers, (ii) for a bid loan option, (iii) for
performance-based pricing, and (iv) for certain other changes and amendments.
<PAGE> 7
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Borrowers, the Lenders, the
Administrative Agent and the Issuing Banks agree as follows:
Section 1. DEFINITIONS
1.1 Certain Defined Terms
The following terms used in this Agreement shall have the following
meanings:
"Absolute Rate" has the meaning assigned to such term
in Section 2.2E(iii)(b)(IV).
"Absolute Rate Auction" means a solicitation of Competitive Bids setting
forth Absolute Rates pursuant to Section 2.2E.
"Absolute Rate Bid Loan" means a Bid Loan that bears interest at a rate
determined with reference to the Absolute Rate.
"Adjusted Eurodollar Rate" means, for the Interest Period for each
Eurodollar Rate Loan comprising part of the same Borrowing, an interest rate
per annum equal to the rate per annum obtained by dividing (a) the rate of
interest determined by the Administrative Agent to be the rate per annum at
which deposits in U.S. dollars are offered by BofA in London, England to
prime banks in the London interbank market at 11:00 A.M. (London time) two
Business Days before the first day of such Interest Period in an amount
substantially equal to the Eurodollar Rate Loan comprising part of such
Borrowing and for a period equal to such Interest Period by (b) 1.00 minus
the Eurodollar Rate Reserve Percentage (as defined below) for such Interest
Period. The "Eurodollar Rate Reserve Percentage" for the Interest Period for
each Eurodollar Rate Loan comprising part of the same Borrowing means the
reserve percentage applicable two Business Days before the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement) for a member
bank of the
<PAGE> 8
Federal Reserve System in New York City with respect to liabilities or assets
consisting of or including eurocurrency liabilities (or with respect to any
other category of liabilities which includes deposits by reference to which
the interest rate on a Eurodollar Rate Loan is determined) having a term
equal to such Interest Period. The Adjusted Eurodollar Rate shall be adjusted
automatically as of the effective date of any change in the Eurodollar Rate
Reserve Percentage.
"Administrative Agent" means B of A, and any successor thereto appointed
pursuant to Section 8.9.
"Affiliate", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under
common control with"), as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of
voting securities or by contract or otherwise.
"Agent-Related Persons" means B of A and any successor agent arising
under Section 8.9, together with their respective Affiliates, and the
officers, directors, employees, agents and attorneys-in-fact of such Persons
and Affiliates.
"Agreed Upon Charge" has the meaning assigned to that
term in Section 2.16E.
"Agreement" means this Second Amended and Restated Reducing Revolving
Credit Agreement dated as of December 16, 1996, as it may hereafter be
amended, supplemented, restated or otherwise modified from time to time.
"Applicable Lending Office" means, with respect to any Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Loan and such
Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Loan.
"Applicable Margin" means with respect to Eurodollar Rate Loans, the
commitment fee and the fees payable with respect to Standby Letters of Credit
pursuant to Section 2.16E(2), the relevant percentage per annum set forth
below:
<TABLE>
<CAPTION>
Consolidated Eurodollar Rate Margin
Fixed Charge ----------------------------------- Commitment
Coverage Ratio Standby Letters of Credit Fee
-----------------------------------
A B
If Leverage If Leverage
Ratio Ratio
Less than or Greater than
equal to 0.50:1 0.50:1
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
I. Greater than or equal to 0.750% 0.875% 0.300%
1.40:1 but less than
1.60:1
II. Greater than or equal to
1.60:1 but less than
1.90:1 0.625% 0.750% 0.250%
III. Greater than or equal to
1.90:1 0.500% 0.625% 0.200%
</TABLE>
<PAGE> 9
The Applicable Margin shall be determined by the Consolidated Fixed
Charge Coverage Ratio for the four-fiscal quarter period covered by the
relevant Applicable Margin Certificate and the Leverage Ratio as of the
Fiscal Quarter End of such Applicable Margin Certificate; provided, however,
that from the Closing Date until August 3, 1997 the Eurodollar Rate Margin
and the Standby Letters of Credit fee shall not be less than 0.625% and the
commitment fee shall not be less than 0.250%. The Applicable Margin shall
become effective (including with respect to outstanding Eurodollar Rate Loans
and Standby Letters of Credit) upon delivery of an Applicable Margin
Certificate and shall remain effective until the delivery of the next
Applicable Margin Certificate; provided that if such Applicable Margin
Certificate is not delivered at the time required pursuant to Section
5.1(iii), the Eurodollar Rate Margin and the Standby Letters of Credit fee
shall be the amount set forth in Column B of Level I, and the Commitment fee
shall be the amount set forth in Level I, until the date such Applicable
Margin Certificate is delivered.
"Applicable Margin Certificate" means an Officers' Certificate delivered
with the financial statements required pursuant to Section 5.1(i) and (ii)
setting forth in reasonable detail calculation of the Consolidated Fixed
Charge Coverage Ratio for the four-fiscal quarter period ending as of the
Fiscal Quarter End of the last fiscal quarter covered by such financial
statements and the Leverage Ratio as of such Fiscal Quarter End.
"Asset Sale" means the sale, transfer or other disposition by any
Borrower or any of its Subsidiaries to any Person of any asset of any such
Borrower or any such Subsidiary (other than sales, transfers or other
dispositions of Inventory in the ordinary course of business and obsolete
equipment in the ordinary course of business for which aggregate
consideration for all such sales, transfers and dispositions of such
equipment does not exceed $1,000,000 per Fiscal Year).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the Administrative
Agent, in substantially the form of Exhibit H annexed hereto.
<PAGE> 10
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the allocated cost
of internal legal services and all disbursements of internal counsel.
"Authorized Person" means an officer or employee of a Borrower
designated by the President, an Executive Vice President or a Senior Vice
President of the Borrower making such designation, in a certificate delivered
to the Administrative Agent on the Closing Date as being authorized to give
Notices of Borrowing, Notices of Continuation/ Conversion or requests for
Letters of Credit, which certificate may be amended from time to time by the
President, any Executive Vice President or any Senior Vice President of such
Borrower to add or subtract names therefrom.
"BAI" means Bank of America Illinois.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy" as now and hereafter in effect, or any successor statute.
"Base Rate" means, for any period, a fluctuating interest rate per annum
as shall be in effect from time to time which rate per annum shall at all
times be equal to the higher of:
(a) the rate of interest announced publicly by BofA in San
Francisco, California, from time to time, as BofA's "reference rate". It
is a rate set by BofA based upon various factors including BofA's costs
and desired return, general economic conditions and other factors, and
is used as a reference point for pricing some loans, which may be priced
at, above, or below such announced rate; and
(b) 0.50% per annum above the latest Federal Funds
Rate.
Any change in the reference rate announced by BofA shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"Base Rate Loan" means a Committed Loan which bears interest as provided
in Section 2.7A.
<PAGE> 11
"Bid Borrowing" means a Borrowing hereunder consisting of one or more
Bid Loans made to the Borrowers on the same day by one or more Lenders.
"Bid Loan" means a Loan by a Lender to the Borrowers under Section 2.1C,
which may be a LIBOR Bid Loan or an Absolute Rate Bid Loan.
"Bid Loan Lender" means, in respect of any Bid Loan, the Lender making
such Loan to the Borrowers.
"Bid Note" means a promissory note issued pursuant to Section 2.17E
payable to the order of a Lender in substantially the form of Exhibit C-2
annexed hereto.
"BofA" means Bank of America National Trust and Savings Association, a
national banking association.
"Borrower" means any one or more of the Company, WCL or
PNS.
"Borrowing" means a borrowing consisting of Loans made on the same day,
and may be a Bid Borrowing or a Committed Borrowing.
"Business Day" means (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of New York or the State of
California or is a day on which banking institutions located in either state
are authorized by law or other governmental action to close and (ii) with
respect to all notices, determinations, fundings and payments in connection
with Eurodollar Rate Loans and LIBOR Bid Loans, any day which is a Business
Day described in clause (i) and which is also a day for trading by and
between banks in Dollar deposits in the Eurodollar market.
"Capital Adequacy Regulation" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule
or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a
bank.
"Capital Lease", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by
<PAGE> 12
that Person as a lessee that, in conformity with GAAP, should be accounted
for as a capital lease on the balance sheet of that Person.
"Cash" means money, currency or a credit balance in a
deposit account.
"Cash Collateral Account" has the meaning assigned to that term in the
penultimate paragraph of Section 7.
"Cash Equivalents" means (i) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, either (a) having a rating of at
least "A2" by Standard & Poor's Corporation or at least "P2" by Moody's
Investors Service, Inc. or an equivalent long-term debt rating or (b)
supported by standby letters of credit issued by any Lender; (iii) commercial
paper maturing no more than one year from the date of creation thereof and,
at the time of acquisition, having a rating of at least "A2" by Standard &
Poor's Corporation and at least "P2" by Moody's Investors Service, Inc.; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any Lender or by any other
commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia having combined capital and
surplus of not less than $200,000,000; (v) repurchase agreements with any
commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia having combined capital and
surplus of not less than $200,000,000, with any Lender or with any primary
dealer or investment bank with its long-term debt rated at least "A-" by
Standard & Poor's Corporation and at least "A3" by Moody's Investors Service,
Inc. and having combined capital and surplus of not less than $200,000,000,
in each case relating to marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States;
<PAGE> 13
provided, that the terms of such agreements comply with the guidelines set
forth in the Federal Financial Institutions Examination Council Supervisory
Policy-Repurchase Agreements of Depository Institutions With Securities
Dealers and Others as adopted by the Comptroller of the Currency on October
31, 1985; and (vi) money market mutual funds organized under the laws of the
United States of America or any state thereof or the District of Columbia
that invest primarily in any of the types of Cash Equivalents defined in
clauses (i) through (v) of this definition; provided, that in each case any
investment in such mutual funds by its terms requires, or permits the holder
of such investment at its option to require, repayment, redemption or
repurchase thereof on an overnight basis from the date of acquisition
thereof.
"Clean-Down Debt" means, as at any date of determination, the sum of (i)
the outstanding Loans, (ii) that portion of the Letter of Credit Usage
consisting of Unreimbursed drawings under Letters of Credit, and (iii)
outstanding Indebtedness of the Borrowers permitted under Sections 6.1(x) and
6.1(xi).
"Clean-Down Period" has the meaning assigned to such term
in Section 2.1A.
"Closing Date" means the date on or before December 16, 1996 that is the
date under this Agreement on which the initial Loans are made and the
conditions set forth in Section 3.1 are satisfied or waived.
"Commercial Letters of Credit" means Letters of Credit issued in favor
of the Borrowers for the purpose of providing the principal payment mechanism
in connection with the purchase of Inventory by the Borrowers in the ordinary
course of business.
"Commitment" of any Lender means such Lender's Revolving Commitment and
with respect to the Swing Line Lender, its Swing Line Commitment, and the
"Commitments" of any Lender means the total of all the Commitments of such
Lender.
"Committed Borrowing" means a Borrowing hereunder consisting of
Committed Loans made on the same day and, in the case of Eurodollar Rate
Loans, having the same Interest Periods.
<PAGE> 14
"Committed Loan" means a Revolving Loan made by a Lender under Section
2.1A, or a Swing Line Loan made by the Swing Line Lender under Section 2.1B
and may be a Eurodollar Rate Loan or a Base Rate Loan (each of which shall be
a "Type" of Loan).
"Company" means Mac Frugal's Bargains o Close-Outs Inc.
"Competitive Bid" means an offer by a Lender to make a Bid Loan in
accordance with Section 2.2E(ii).
"Competitive Bid Request" has the meaning assigned to
such term in Section 2.2E(i).
"Compliance Certificate" means a certificate substantially in the form
of Exhibit F annexed hereto, delivered to the Lenders by the Borrowers
pursuant to Section 5.1(iii).
"Consolidated", when used with respect to any of the terms defined
herein, refers to such terms as reflected in a consolidation of the accounts
of the Company and its Subsidiaries in conformity with GAAP (including giving
effect to the elimination of all intercompany items in conformity with GAAP).
"Consolidated Adjusted Cash Flow" means, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) depreciation
expense, (iii) amortization expense with respect to all intangibles of the
Company and its Subsidiaries (determined on a Consolidated basis in
conformity with GAAP), (iv) Consolidated Interest Expense (net of interest
income), (v) Consolidated Operating Lease Payments actually paid during such
period, (vi) increases in deferred income taxes, (vii) non-cash extraordinary
losses, minus the sum of (x) decreases in any deferred income taxes for such
period, (y) Consolidated Capital Expenditures for such period, and (z)
non-cash extraordinary gains increasing Consolidated Net Income for such
period.
"Consolidated Assets" means, as at any date of determination, the total
assets of the Company and the Subsidiaries on a Consolidated basis determined
in conformity with GAAP.
<PAGE> 15
"Consolidated Capital Expenditures" means, for any period, the
expenditures (excluding capitalized interest), whether paid in cash or
accrued as a liability, including the portion of Capital Leases that is
capitalized on the Consolidated balance sheet of the Company and its
Subsidiaries (but excluding Capital Leases resulting from sale and leasebacks
consummated within the same 12 month period in which the underlying property
has been acquired), by the Company and its Subsidiaries during that period
that are or should be included in "capital expenditures", "additions to
property, plant or equipment" or comparable items in the Consolidated cash
flow statement of the Company and its Subsidiaries; provided, however, that
expenditures of insurance or condemnation proceeds used to rebuild or replace
destroyed or lost properties relating to such insurance or condemnation
proceeds shall not be included as Consolidated Capital Expenditures.
"Consolidated Current Assets" means, as at any date of determination,
the Current Assets of the Company and its Subsidiaries on a Consolidated
basis determined in conformity with GAAP.
"Consolidated Current Liabilities" means, as at any date of
determination, the current liabilities of the Company and its Subsidiaries on
a Consolidated basis determined in conformity with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of (A) Consolidated Adjusted Cash Flow for such period to (B)
Consolidated Fixed Charges for such period.
"Consolidated Fixed Charges" means, for any period, the sum of (i)
Consolidated Interest Expense (net of interest income) for such period, (ii)
the aggregate regularly scheduled principal installments of all Consolidated
Funded Debt paid or payable during such period, and (iii) Consolidated
Operating Lease Payments paid or payable during such period.
"Consolidated Funded Debt" means, as at any date of determination, the
sum of (i) the outstanding Bid Loans, (ii) the outstanding Revolving Loans,
(iii) the outstanding Swing Line Loans, (iv) that portion of the Letter of
Credit Usage consisting of unreimbursed drawings under Letters of
<PAGE> 16
Credit, (v) the portion of obligations with respect to Capital Leases which
is properly classified as a liability on the Consolidated balance sheet of
the Borrowers in conformity with GAAP, (vi) Indebtedness of the Borrowers
secured by real property determined on a Consolidated basis in conformity
with GAAP and (vii) other Consolidated Long Term Indebtedness.
"Consolidated Interest Expense" means, for any period, total interest
expense (including that portion attributable to Capital Leases in conformity
with GAAP) of the Company and its Subsidiaries for such period on a
Consolidated basis, including, without limitation, net costs under Interest
Rate Agreements and fees payable to the Administrative Agent and the Lenders
in connection with the Loans (including, without limitation, the commitment
fees referred to in Section 2.3A and the fees referred to Section 2.3B, other
than fees paid on or prior to the Closing Date).
"Consolidated Liabilities" means, as at any date of determination, the
total liabilities of the Company and its Subsidiaries on a Consolidated basis
determined in conformity with GAAP, including, without limitation, (i) any
balance sheet liability with respect to a Pension Plan recognized pursuant to
Financial Accounting Standards Board Statements 87 or 88 and (ii) any
withdrawal liability under Section 4201 of ERISA with respect to a withdrawal
from a Multiemployer Plan, as such liability may be set forth in a notice of
withdrawal liability under Section 4219 (and as adjusted from time to time
subsequent to the date of such notice).
"Consolidated Long Term Indebtedness" means, at any date of
determination, (i) all Indebtedness maturing one year or more from the date
of creation thereof, (ii) all Indebtedness directly or indirectly renewable
or extendible, at the option of the debtor, by its terms or by the terms of
any instrument or agreement relating thereto, to a date one year or more from
the date of creation thereof and (iii) all Indebtedness under a revolving
credit or similar agreement obligating the lender or lenders to extend credit
over a period of one year or more even though such Indebtedness might
otherwise conform to the definition of Consolidated Current Liabilities.
"Consolidated Net Income" means, for any period, the net income (or
loss) of the Company and its Subsidiaries on a Consolidated basis determined
in conformity with GAAP for such
<PAGE> 17
period taken as a single accounting period; provided that there shall be
excluded (i) the income (or loss) of any Person (other than a Subsidiary of
the Company) in which any other Person (other than the Company or any of its
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any of its
Subsidiaries by such Person during such period, (ii) the income (or loss) of
any Person accrued prior to the date it becomes a Subsidiary of the Company
or is merged into or consolidated with the Company or any of its Subsidiaries
or that Person's assets are acquired by the Company or any of its
Subsidiaries, and (iii) the income of any Subsidiary (other than PNS and WCL)
of the Company to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary.
"Consolidated Operating Lease Payments" means, for any period, all
rental payments and other amounts due under all Operating Leases of the
Company and its Subsidiaries during such period.
"Consolidated Tangible Assets" means, at any date of determination, (i)
Consolidated Assets minus (ii) goodwill, patents, trademarks and other
intellectual property, organizational expense, deferred research and
development costs, deferred marketing expenses and other intangible assets of
the Company and its Subsidiaries (determined on a Consolidated basis in
conformity with GAAP) for the period commencing on the Closing Date and
ending on the date of such determination.
"Consolidated Tangible Net Worth" means, at any date of determination,
the excess of Consolidated Tangible Assets over Consolidated Liabilities.
"Contingent Obligation", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person with respect to
any Indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guarantied, endorsed (otherwise than for collection or deposit in
the ordinary course of business), co-made, or discounted or
<PAGE> 18
sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable, including, without limitation, any
such obligation for which that Person is in effect liable through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet item, level of income or other
financial condition of the obligor of such obligation, or to make payment for
any products, materials or supplies or for any transportation, services or
lease regardless of the non-delivery or non-furnishing thereof, in any case
if the purpose or intent of such agreement is to provide assurance that such
obligation will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof. The amount
of any Contingent Obligation shall be equal to the amount of the obligation
so guarantied or otherwise supported.
"Contractual Obligation", as applied to any Person, means any provision
of any material indenture, mortgage, deed of trust, contract, undertaking,
agreement or other instrument to which that Person is a party or by which it
or any of its properties is bound or to which it or any of its properties is
subject.
"Conversion" and "Convert" and "Converted" each refers to a conversion
of Eurodollar Rate Loans into Base Rate Loans, or vice versa, in accordance
with the terms of this Agreement.
"Cumulative Stock Buyback Amount" means, on any date, the cumulative
aggregate dollar amount paid by the Company for its common stock from the
Closing Date to such date of determination, which amount shall not exceed
$60,000,000."
"Current Assets" as applied to any Person, means, at any date of
determination, the total assets of such Person that may be properly
classified as current assets in conformity with GAAP.
"Dollars" or the sign "$" means the lawful money of the United States of
America.
<PAGE> 19
"Domestic Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Domestic Lending Office" opposite its name
on Schedule 10.2 hereto or in the Assignment and Acceptance pursuant to which
it became a Lender, or such other office of such Lender as such Lender may
from time to time specify to the Borrowers and the Administrative Agent.
"Eligible Assignee" means (i) a commercial bank organized under the laws
of the United States, or any State thereof and having a combined capital and
surplus of at least $500,000,000; (ii) a commercial bank organized under the
laws of any other country, or a political subdivision thereof, and having a
combined capital and surplus of at least $500,000,000 provided that (x) such
bank is acting through a branch or agency located in the United States or (y)
such bank is organized under the laws of a country that is a member of the
OECD or a political subdivision of such country; and (iii) any Affiliate of a
Lender, in each case that is reasonably acceptable to the Administrative
Agent; provided, however, that no Affiliate of any Loan Party shall be an
Eligible Assignee.
"Employee Benefit Plan" means any Pension Plan, any employee welfare
benefit plan, or any other employee benefit plan which is described in
Section 3(3) of ERISA and which is maintained for employees of the Borrowers
or any ERISA Affiliate of the Borrowers.
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including
all reasonable fees, disbursements and expenses of counsel, expert and
consulting fees and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest, incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including any
Hazardous Materials Law, permit, law, rule, regulation, order or agreement
with a governmental authority or other Person, arising from environmental,
health or safety conditions related to, or the Release or threatened Release
by reason of, the past, present or future operations of the Company or any of
its Subsidiaries.
<PAGE> 20
"Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate", as applied to any Person, means (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of
a group of trades or businesses under common control within the meaning of
Section 414(c) of the Internal Revenue Code of which that Person is a member;
and (iii) any member of an affiliated service group within the meaning of
Section 414(m) or (o) of the Internal Revenue Code of which that Person, any
corporation described in clause (i) above or any trade or business described
in clause (ii) above is a member.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule 10.2 hereto or in the Assignment and Acceptance pursuant
to which it became a Lender (or, if no such office is specified, its Domestic
Lending Office) or such other office of such Lender as such Lender may from
time to time specify to the Borrowers and the Administrative Agent.
"Eurodollar Rate Loan" means a Committed Loan which bears interest as
provided in Section 2.7B.
"Event of Default" means each of the events set forth in Section 7.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Existing Credit Agreement" has the meaning assigned to such term in the
Preliminary Statements to this Agreement.
"Existing Lenders" has the meaning assigned to such term in the
Preliminary Statements to this Agreement.
<PAGE> 21
"Existing Letters of Credit" has the meaning assigned to such term in
Section 2.22.
"Existing Loans" has the meaning assigned to such term in Section 2.22.
"Federal Funds Rate" means, for any period, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30
p.m. Quotation") for such day under the caption "Federal Funds Effective
Rate". If on any relevant day the appropriate rate for such previous day is
not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations,
the rate for such day will be the arithmetic mean of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York
time) on that day be each of three leading brokers of Federal funds
transactions in New York City selected by the Administrative Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"Fiscal Quarter End" means for any fiscal quarter in a Fiscal Year of
the Borrowers, the last day of such fiscal quarter which shall be determined
in accordance with GAAP applied on a consistent basis.
"Fiscal Year" means the fiscal year of the Borrowers, which shall be the
52 or 53 week period ending on the Sunday closest to January 31 in each year
or such other period as the Borrowers may designate and the Requisite Lenders
may approve in writing, such approval not to be unreasonably withheld and, if
such approval is withheld, with notice to the Borrowers specifying the basis
therefor.
"Funding Date" means the date of the funding of a Loan.
<PAGE> 22
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession, which are applicable to the circumstances as of
the date of determination.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Hazardous Materials" means (i) any chemical, material or substance
defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous waste,"
"restricted hazardous waste," or "toxic substances" or words of similar
import under any applicable local, state or federal law or under the
regulations adopted or promulgated pursuant thereto, including, without
limitation, Hazardous Materials Laws, (ii) any oil, petroleum or petroleum
derived substance, any drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil, any
flammable substances or explosives, any radioactive materials, (iii) asbestos
in any form which is or could become friable, urea formaldehyde foam
insulation, electrical equipment which contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts per
million, and (iv) any other chemical, material or substance, exposure to
which may or could pose a hazard to the health and safety of the owners or
occupants of or any Persons surrounding any of the properties of the Company
or any of its Subsidiaries.
"Hazardous Materials Laws" means all statutes, ordinances, orders,
rules, regulations, plans or decrees and the like relating to health or
welfare or protection of the environment, including, without limitation,
those relating to fines, orders, injunctions, penalties, damages,
contribution,
<PAGE> 23
cost recovery compensation, losses or injuries resulting from the Release or
threatened Release of Hazardous Materials and to the generation, use,
storage, transportation, or disposal of Hazardous Materials, in any manner
applicable to the Company or any of its Subsidiaries or any of their
respective properties, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section
9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section
1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section
6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section
1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Occupational
Safety and Health Act (29 U.S.C. Section 651 et seq.), and the Emergency
Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.),
each as amended or supplemented, and any analogous future or present local,
state and federal statutes and regulations promulgated pursuant thereto, each
as in effect as of the date of determination.
"Indebtedness", as applied to any Person, means (i) all indebtedness for
borrowed money, (ii) that portion of obligations with respect to Capital
Leases which is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed
money, (iv) any obligation owed for all or any part of the deferred purchase
price of property or services which purchase price is due more than six
months from the date of incurrence of the obligation in respect thereof or
evidenced by a note or similar written instrument, and (v) all similar
indebtedness secured by any Lien existing on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of
that Person.
"Interest Payment Date" means, with respect to any Eurodollar Rate Loan,
or Bid Loan, the last day of each Interest Period applicable to such Loan
and, with respect to Base Rate Loans, the last Business Day of each fiscal
quarter, provided, however, that (a) if any Interest Period for a Eurodollar
Rate Loan or Bid Loan exceeds three months, the date which falls three months
after the beginning of such Interest Period shall also be an "Interest
Payment Date" and
<PAGE> 24
(b) in respect of any Bid Loan, such intervening days prior to the maturity
thereof as may be agreed between the Borrowers and the applicable Bid Loan
Lender shall also be "Interest Payment Dates".
"Interest Period" means, (a) with respect to each Eurodollar Rate Loan
comprising part of the same Borrowing, the period commencing on the Funding
Date of such Eurodollar Rate Loan or the date of the Conversion of any Base
Rate Loan into such a Eurodollar Rate Loan and ending on the last day of the
period selected by the Borrowers pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the
period selected by the Borrowers pursuant to the provisions below and (b)
with respect to any Bid Loan, a period commencing on the Funding Date of such
Bid Loan and ending on the last day of the period selected by the Borrowers
pursuant to the provisions below. The duration of each such Interest Period
with respect to a Eurodollar Rate Loan shall be one, two, three or six months
(if available), as the Borrowers may, upon notice received by the
Administrative Agent not later than 9:00 A.M. (San Francisco time) on the
third Business Day prior to the first day of such Interest Period, select;
provided, however, that:
(i) no Interest Period with respect to any Bid Loan shall exceed
183 days in the case of an Absolute Rate Bid Loan and six months in the
case of a LIBOR Bid Loan;
(ii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day;
provided, however, that if such extension would cause the last day of
such Interest Period to occur in the next following calendar month, the
last day of such Interest Period shall occur on the next preceding
Business Day;
(iii)there shall be no more than fifteen Interest Periods
outstanding at any one time; and
(iv) no Interest Period shall extend beyond the Revolver Maturity
Date.
<PAGE> 25
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement, evidenced by an International Swap Dealers Association form
agreement, designed to protect the Borrowers against fluctuations in interest
rates; provided that the counterparty to any such agreement shall be a Lender
or an Affiliate of a Lender.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute.
"Inventory" means all of the Borrowers' now owned and hereafter acquired
goods, merchandise and other personal property (including freight and
handling costs capitalized under GAAP), wherever located, to be furnished
under any contract of service or held for sale or lease, all raw materials,
work in process, finished goods and materials and supplies of any kind,
nature or description which are or might be used or consumed in a person's
business or used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise and other
personal property, and all documents of title or other documents representing
them.
"Investment", as applied to any Person, means any direct or indirect
purchase or other acquisition by that Person of, or a beneficial interest in,
assets, stock or other securities of any other Person, or any direct or
indirect loan, advance (other than advances to employees or consultants for
moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business) or capital contribution by that Person to any
other Person, including all Indebtedness and accounts receivable from that
other Person which are not Current Assets or did not arise from sales to that
other Person in the ordinary course of business. The amount of any Investment
(for purposes of the Dollar limitations set forth in Section 6.3) shall be
the original cost of such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment.
"Invitation for Competitive Bids" means a solicitation for Competitive
Bids and has the meaning specified in Section 2.2E(ii).
<PAGE> 26
"Issuing Bank" means, with respect to a Letter of Credit, the Lender
selected by the applicable Borrower to issue such Letter of Credit under this
Agreement.
"Lenders" means the Lenders listed on the signature pages hereof and
each Eligible Assignee that shall become a party hereto pursuant to Section
10.8.
"Letter of Credit" means any Commercial Letter of Credit or Standby
Letter of Credit which is hereafter issued pursuant to this Agreement at the
request of and for the account of the Borrowers by an Issuing Bank.
"Letter of Credit Usage" means, as at any date of determination, the sum
of (i) the maximum aggregate amount that is or at any time thereafter may
become available for drawing under all Letters of Credit then issued and
outstanding plus (ii) the aggregate amount of all drawings under Letters of
Credit honored by the Issuing Bank and not theretofore reimbursed by the
Borrowers.
"Leverage Ratio" means, at any date of determination, the ratio of (A)
Consolidated Liabilities to (B) Consolidated Tangible Assets.
"LIBOR" means the rate of interest per annum determined by the
Administrative Agent to be the rate of interest per annum notified to the
Administrative Agent by BofA as the rate of interest (rounded upward to the
nearest 1/100th of one-percent) at which dollar deposits in an amount
approximately equal to the aggregate amount of LIBOR Bid Loans requested to
be borrowed, and having a maturity equal to such Interest Period are offered
to major banks in the London interbank market at their request at or about
11:00 a.m. (London time) on the second Business Day before the commencement
of such Interest Period.
"LIBOR Auction" means a solicitation of Competitive Bids setting forth a
LIBOR Bid Margin pursuant to Section 2.2E.
"LIBOR Bid Loan" means any Bid Loan that bears interest at a rate
determined with reference to LIBOR.
"LIBOR Bid Margin" has the meaning specified in
<PAGE> 27
Section 2.2E(iii)(b)(III).
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to
give any security interest).
"Loan" or "Loans" means one or more of the Loans made by the Lenders
pursuant to Section 2.1 and may be a Committed Loan or a Bid Loan.
"Loan Documents" means this Agreement, any Revolving Loan
Notes and the Bid Notes.
"Loan Parties" means the Borrowers.
"Margin Stock" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System, as in effect from time
to time.
"Material Adverse Effect" means (i) a material adverse effect upon the
business, operations, properties, assets, business prospects or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a
whole, or (ii) the material impairment of the ability of any Loan Party to
perform or of the Lenders to enforce the Obligations.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is maintained for employees of the Borrowers or any
ERISA Affiliate of the Borrowers.
"Net Cash Proceeds" means, in the case of any Asset Sale, cash payments
received (including any cash received by way of deferred payment pursuant to
a note receivable or otherwise, but only as and when so received) by any Loan
Party from any Asset Sale (other than liabilities assumed directly or
indirectly by the buyer) less (i) the amount of actual liabilities for taxes
(net of any amount of tax benefits) reasonably anticipated by the Borrowers
to be attributable to such sale or other disposition, (ii) the amount of any
reserves against any liabilities associated with such sale required to be
retained by any Loan Party after such sale or other disposition in conformity
with GAAP (but only for the
<PAGE> 28
period required to be retained as a reserve), (iii) the amount of
Indebtedness secured solely by the assets sold required to be repaid under
the terms thereof in connection with such Asset Sale and (iv) the amount of
fees and commissions payable to persons other than any Loan Party or any
Affiliate of any Loan Party, and other costs and expenses related to such
sale or other disposition that are to be paid in cash, in each case only to
the extent customarily borne by a seller in an arm's-length transaction or
reasonable in light of the applicable circumstances.
"New Orleans Distribution Center" means WCL's interest in the real
property and improvements thereon located at 3501 Jourdan Road, New Orleans,
Louisiana.
"Notice of Borrowing" means a notice substantially in the form of
Exhibit A annexed hereto with respect to a proposed Borrowing.
"Notice of Conversion/Continuation" means a notice substantially in the
form of Exhibit B annexed hereto delivered by the Borrowers to the
Administrative Agent pursuant to Section 2.9.
"Obligations" means all loans, advances, debts, reimbursement
obligations, liabilities, obligations, covenants and duties owing by any Loan
Party to any Lender, the Administrative Agent, the Issuing Bank, any
Affiliate of any Lender or the Administrative Agent, or Person entitled to
indemnification pursuant to Section 10.6 of this Agreement, of any kind or
nature, present or future, whether or not evidenced by any note, guaranty or
other instrument, and arising under this Agreement, under any other Loan
Document or under any Interest Rate Agreements (other than interest rate cap
agreements), whether or not for the payment of money, whether arising by
reason of an extension of credit, loan, guaranty, indemnification, foreign
exchange or interest rate swap transactions or in any other manner, whether
direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and
however acquired. The term includes, without limitation, all interest,
charges, expenses, fees, attorneys' fees and disbursements and any other sum
chargeable to any Loan Party under this Agreement, any other Loan Document or
any Interest Rate Agreements (other than interest rate cap
<PAGE> 29
agreements).
"OECD" means the Organization for Economic Cooperation and Development.
"Officers' Certificate" means a certificate executed on behalf of any
Loan Party, by its President, its Chief Executive Officer, any Executive Vice
President or any Senior Vice President and by its Chief Financial Officer, or
its Treasurer or Controller, in each case acting in such capacity.
"Operating Lease" means, as applied to any Person, any lease (including,
without limitation, leases that may be terminated by the lessee at any time)
of any property (whether real, personal or mixed) that is not a Capital Lease
other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor
thereto).
"Pension Plan" means any employee plan which is subject to Section 412
of the Internal Revenue Code and which is maintained for employees of the
Borrowers or any ERISA Affiliate of the Borrowers, other than a Multiemployer
Plan.
"Permitted Liens" means
(i) Liens for taxes, assessments or governmental charges or claims the
payment of which is not at the time required by the covenant on payment of
taxes;
(ii) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Persons and other Liens imposed by
law incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provisions, if any, as shall be required by GAAP shall have been made
therefor;
(iii)Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance
<PAGE> 30
and return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(iv) Any attachment or judgment Lien, unless the judgment it secures (a)
shall not, within 30 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within 30 days after the expiration of any such stay or (b) shall be in
effect and a period of 10 days or less remains prior to any proposed sale
thereunder; and
(v) Easements, rights of way, servitudes or zoning or building
restrictions and other minor encumbrances on real property which do not in
the aggregate materially interfere with or impair the operation of such
property for the purposes for which it is or may reasonably be expected to be
used.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
"PNS" means PNS Stores, Inc., a California corporation and a wholly
owned Subsidiary of the Company.
"Potential Event of Default" means a condition or event which, after
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or waived within any applicable grace or
cure period.
"Pro Rata Share" means, with respect to any of the Commitments of each
Lender (other than the Swing Line Commitment of the Swing Line Lender), or,
if such Commitment has terminated, the Loans or participations held by such
Lender with respect to such Commitment, the percentage designated as such
Lender's Pro Rata Share opposite the name of such Lender on Schedule 2.1A
hereto with respect to such Commitment, in each case as such percentage may
be adjusted as a result of assignments permitted under Section 10.8 and
evidenced as provided in Section 2.17.
"Refunded Swing Line Loans" has the meaning specified in
<PAGE> 31
Section 2.1B.
"Register" has the meaning specified in Section 10.8C.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of
any Hazardous Materials into the indoor or outdoor environment (including,
without limitation, the abandonment or disposal of any barrels, containers or
other closed receptacles containing any Hazardous Materials) or into or out
of any property owned, used or operated by the Company or any of its
Subsidiaries, including the movement of any Hazardous Materials through or in
the air, soil, surface water, groundwater or property.
"Remedial Action" means all actions required to (i) clean up, remove,
treat or in any other way address Hazardous Materials in the indoor or
outdoor environment; (ii) prevent the Release or threat of Release or
minimize the further Release of Hazardous Materials so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment; or (iii) perform pre-remedial studies and investigations
and post-remedial monitoring and care.
"Requisite Lenders" means Persons holding at any time at least 51% of
the sum of the aggregate Commitments or, in the event that the Commitments
have terminated, the Total Utilization of Revolving Commitments.
"Responsible Officer" means any of the Chief Executive Officer, any
Senior Vice President, any Executive Vice President, the Chief Financial
Officer or the Controller.
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of the Company or any of its Subsidiaries now or hereafter outstanding,
except a dividend payable solely in shares of that class of stock to the
holders of that class, (ii) any repurchase, redemption, retirement, sinking
fund or similar payment, purchase or other acquisition for value, direct or
indirect, of any shares of any class of stock of the Company or any of its
Subsidiaries now or hereafter outstanding, (iii) any payment or prepayment of
principal of, premium, if any, or interest on, redemption,
<PAGE> 32
purchase, retirement, defeasance, sinking fund or similar payment with
respect to, any Indebtedness owed to shareholders of the Company or any of
its Subsidiaries, and (iv) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of the Company or any of its Subsidiaries now or
hereafter outstanding.
"Revolver Maturity Date" means the earlier of (i) April 30, 2000 (or
such other date as the Lenders may consent to pursuant to Section 2.21), or
if such date is not a Business Day, the Business Day next succeeding such
date, and (ii) the date upon which the Revolving Commitments terminate in
accordance with Section 2.4 or any other provision contained in this
Agreement.
"Revolving Commitment" means the commitment or commitments of a Lender
or the Lenders to make Revolving Loans as set forth in Section 2.1A. The
amount of the original Commitment of each Lender is set forth on Schedule
2.1A hereto.
"Revolving Loan Note" means a promissory note issued pursuant to Section
2.17D payable to the order of a Lender in substantially the form of Exhibit
C-1 annexed hereto.
"Revolving Loan" means a Loan made by a Lender to the Borrowers pursuant
to Section 2.1A, which Loan may be a Base Rate Loan or a Eurodollar Rate
Loan.
"SEC" means the Securities and Exchange Commission, and any successor
thereto.
"Securities Act" means the Securities Act of 1933 as amended from time
to time, and any successor statute.
"Specified Trademarks" means the trademarks of the Borrowers identified
on Schedule 4.11(ii), as such Schedule 4.11(ii) may be amended from time to
time.
"Standby Letters of Credit" means any Letter of Credit which is not a
Commercial Letter of Credit.
"Subsidiary", with respect to any Person, means any corporation,
association or other business entity of which
<PAGE> 33
more than 50% of the total voting power of shares of stock entitled to vote
in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of
the other Subsidiaries of that Person or a combination thereof.
"Swing Line Commitment" means the commitment of the Swing Line Lender to
make Swing Line Loans as set forth in Section 2.1B.
"Swing Line Lender" means BofA, or any successor Swing Line Lender
appointed in accordance with Section 2.1B.
"Swing Line Loan" means a Loan made by the Swing Line Lender to the
Borrowers pursuant to Section 2.1B, which Swing Line Loan shall be a Base
Rate Loan.
"Termination Event" means (i) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder (other than a "Reportable
Event" not subject to the provision for 30-day notice to the PBGC under such
regulations), or (ii) the withdrawal of any Borrower or any of its ERISA
Affiliates from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii)
the distribution of a notice of intent to terminate a Pension Plan or the
treatment of a Pension Plan amendment as a termination under Section 4041 of
ERISA, or (iv) the institution of proceedings by the PBGC to terminate, or to
appoint a trustee to administer, a Pension Plan or (v) any other event or
condition which might reasonably be expected to constitute grounds under
ERISA for the termination of, or the appointment of a trustee to administer,
any Pension Plan, or (vi) the complete or partial withdrawal from a
Multiemployer Plan by any Borrower or any ERISA Affiliate that results in
liability under Section 4201 of ERISA or the receipt by any Borrower or any
ERISA Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or
that it intends to terminate or has terminated under Section 4041A of ERISA,
or (vii) the imposition of a lien pursuant to Section 412(n) of the Internal
Revenue Code.
"Total Utilization of Revolving Commitments" means, as at any date of
determination, the sum of (i) the aggregate principal amount of Revolving
Loans outstanding plus (ii) the
<PAGE> 34
aggregate principal amount of Swing Line Loans outstanding plus (iii) the
aggregate principal amount of Bid Loans outstanding plus (iv) the Letter of
Credit Usage.
"Type" has the meaning specified in the definition of "Committed Loans".
"WCL" means West Coast Liquidators, Inc., a California corporation and a
wholly owned Subsidiary of the Company.
1.2 Computation of Time Periods
In this Agreement, in the computation of periods of time from a
specified date to a later specified date, unless otherwise specifically
provided, the word "from" means "from and including" and the words "to" and
"until" each means "to but excluding".
1.3 Accounting Terms
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP.
1.4 Other Definitional Provisions
References to "Sections" shall be to Sections of this Agreement unless
otherwise specifically provided. Any of the terms defined in Section 1.1 may,
unless the context otherwise requires, be used in the singular or the plural
depending on the reference. Unless otherwise expressly provided herein,
references to agreements and other contractual instruments shall be deemed to
include all subsequent amendments and other modifications thereto, but only to
the extent such amendments and other modifications are not prohibited by the
terms of any Loan Document. References to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or regulation.
Section 2. AMOUNT AND TERMS OF COMMITMENTS
AND LOANS
2.1 Loans
A. Revolving Commitments. Each Lender severally
<PAGE> 35
agrees, on the terms and conditions hereinafter set forth, to make Revolving
Loans to the Borrowers from time to time on any Business Day during the period
from the date hereof until the Revolver Maturity Date in an aggregate amount not
to exceed at any time outstanding the amount set forth opposite such Lender's
name on Schedule 2.1A hereto, or, if such Lender has entered into one or more
Assignments and Acceptances, set forth for such Lender in the Register
maintained by the Administrative Agent, as such amount may be reduced pursuant
to Section 2.4 or any other provision contained in this Agreement (such Lender's
"Revolving Commitment"). The aggregate original amount of the Revolving
Commitments is $175,000,000. Each Borrowing shall be in an aggregate amount not
less than $3,000,000 or an integral multiple of $1,000,000 in excess thereof,
except in the case of Borrowings made to repay Swing Line Loans pursuant to
Section 2.1B. Each Committed Borrowing of Revolving Loans shall be made by the
Lenders proportionately to their Pro Rata Shares of the Revolving Commitments.
Within the limits of each Lender's Revolving Commitments, the Borrowers may from
time to time, borrow under this Section 2.1A, repay and reborrow under this
Section 2.1A. The Lenders' Revolving Commitments shall expire on the Revolver
Maturity Date.
Notwithstanding the foregoing provisions of this Section 2.1A, (i) at no
time shall the Total Utilization of Revolving Commitments exceed the aggregate
Revolving Commitments then in effect, and (ii) for 30 consecutive days during
each Fiscal Year (a "Clean-Down Period") set forth below, the aggregate
principal amount of Clean-Down Debt shall not exceed the sum of (x) $60,000,000
and (y) an amount not less than zero equal to the Cumulative Stock Buyback
Amount less the correlative amount indicated below:
<TABLE>
<CAPTION>
Fiscal
Year Cumulative Stock
Ending Buyback Amount Less
<S> <C>
1/31/97 0
1/31/98 $20,000,000
1/31/99 $40,000,000
1/31/00 $60,000,000
</TABLE>
B. Swing Line Commitment. The Swing Line Lender severally agrees, on the
terms and conditions hereinafter set forth, to make Swing Line Loans to the
Borrowers from time to
<PAGE> 36
time on any Business Day during the period from the date hereof until the
Revolver Maturity Date in an aggregate amount not to exceed at any time
outstanding $10,000,000 (the "Swing Line Commitment"). Each Borrowing shall be
in an aggregate amount not less than $100,000 or an integral multiple of $25,000
in excess thereof. Within the limits of the Swing Line Commitment, the Borrowers
may, from time to time, borrow under this Section 2.1B, repay and reborrow under
this Section 2.1B. The Swing Line Commitment shall expire on the Revolver
Maturity Date.
Notwithstanding the foregoing provisions of this Section 2.1B, (i) at no
time shall the aggregate principal amount of Swing Line Loans outstanding exceed
the Swing Line Commitment and (ii) at no time shall the Total Utilization of
Revolving Commitments exceed the aggregate Revolving Commitments then in effect.
The Swing Line Lender, in its sole and absolute discretion may, on and
after the fifth Business Day after the making of a Swing Line Loan which has not
been voluntarily prepaid by the Borrowers pursuant to Section 2.6A, on one
Business Day's notice to the Administrative Agent and the Borrowers, so long as
amounts are available to be borrowed under the Revolving Commitments, require
each Lender, including the Swing Line Lender, and each Lender hereby agrees,
subject to this Section 2.1B, to make a Revolving Loan in an amount equal to
such Lender's Pro Rata Share of the amount of the Swing Line Loans (the
"Refunded Swing Line Loans") outstanding on the date notice is given which the
Swing Line Lender requests the Lenders to prepay; provided that the obligation
of each Lender to make any such Revolving Loan is unconditional so long as one
of the following is true and applicable: (i) the Swing Line Lender believed in
good faith that all conditions under Section 3 to the making of the Swing Line
Loan were satisfied at the time such Swing Line Loan was made, or (ii) such
Lender had actual knowledge, by receipt of the statements required pursuant to
Section 5.1 or otherwise, that any such condition had not been satisfied and
failed to notify the Administrative Agent and the Swing Line Lender in writing
that it had no obligation to make Revolving Loans until such condition was
satisfied (which notice shall be effective as of the date of receipt by the
Administrative Agent and the Swing Line Lender), or (iii) the satisfaction of
any such condition not satisfied had been waived by Requisite Lenders prior to
or at the time such Swing Line Loan was made. In the case of Revolving Loans
made by Lenders other
<PAGE> 37
than the Swing Line Lender under the immediately preceding sentence, each such
Lender shall, before 10:00 A.M. (San Francisco time) on the Business Day next
succeeding the date such notice is given, make available for the account of its
Applicable Lending Office to the Administrative Agent the amount of its
Revolving Loan by depositing same day funds with the Administrative Agent. The
proceeds of such Revolving Loans shall be immediately delivered to the Swing
Line Lender (and not to the Borrowers) and applied to repay the Refunded Swing
Line Loans. On the day such Revolving Loans are made, the Swing Line Lender's
Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with
the proceeds of a Revolving Loan made by the Swing Line Lender and such portion
of the Swing Line Loan deemed to be so paid shall no longer be outstanding as
Swing Line Loans and shall only be outstanding as a Revolving Loan. The
Borrowers authorize the Swing Line Lender to charge the Borrowers' accounts with
the Swing Line Lender (up to the amount available in each such account) in order
to immediately pay the Swing Line Lender the amount of such Refunded Swing Line
Loans to the extent that amounts received from the Lenders, including amounts
deemed to be received from the Swing Line Lender, are not sufficient to repay in
full such Refunded Swing Line Loans, and the Swing Line Lender agrees to give
notice to the Borrowers of any such charge concurrently with the making of such
charge. If any portion of any such amount paid (or deemed to be paid) to the
Swing Line Lender should be recovered by or on behalf of the Borrowers from the
Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or
otherwise, the loss of the amount so recovered shall be ratably shared among all
Lenders that have made Refunded Swing Line Loans in the manner contemplated by
Section 2.13. Subject to the proviso contained in the first sentence of this
paragraph, each Lender's obligation to make the Revolving Loans referred to in
this paragraph shall be absolute and unconditional and shall not be affected by
any circumstance, including, without limitation (i) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against the Swing
Line Lender, the Borrowers or anyone else for any reason whatsoever, (ii) the
occurrence or continuance of an Event of Default or Potential Event of Default;
(iii) the occurrence of any Material Adverse Effect; (iv) any breach of this
Agreement by any of the Borrowers or any other Lender; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing. A copy of each notice given by the Swing Line Lender to the
Administrative Agent pursuant to this paragraph shall promptly be delivered by
the
<PAGE> 38
Administrative Agent to the Borrowers and the Lenders.
Notwithstanding anything herein to the contrary, the Swing Line Lender
shall not be obligated to make any Swing Line Loans if it has elected after the
occurrence and during the continuation of a Potential Event of Default or Event
of Default not to make Swing Line Loans and has notified the Borrowers in
writing or by telephone of such election. The Swing Line Lender shall promptly
give notice to the Administrative Agent of such election not to make Swing Line
Loans.
The Swing Line Lender may resign, effective as set forth below, at any
time by giving written notice thereof to the Administrative Agent and the
Borrowers. Upon any such resignation, Requisite Lenders shall have the right to
appoint one of the Lenders as successor Swing Line Lender. If no successor Swing
Line Lender shall have been so appointed by Requisite Lenders, and shall have
accepted such appointment within 30 days after the retiring Swing Line Lender's
giving of notice of resignation, then the retiring Swing Line Lender may appoint
a successor Swing Line Lender from among the Lenders. Upon the acceptance of any
appointment as Swing Line Lender hereunder by a successor Swing Line Lender, the
resignation of the retiring Swing Line Lender shall become effective and such
successor Swing Line Lender shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Swing Line Lender,
and the retiring Swing Line Lender shall be discharged from its duties and
obligations as Swing Line Lender under this Agreement.
C. Bid Borrowings. In addition to Committed Borrowings pursuant to
Sections 2.1A and 2.1B, each Lender severally agrees that the Borrowers may, as
set forth in Section 2.2E, from time to time request the Lenders prior to the
Revolver Maturity Date to submit offers to make Bid Loans to the Borrowers;
provided, however, that the Lenders may, but shall have no obligation to, submit
such offers and the Borrowers may, but shall have no obligation to, accept any
such offers; and provided, further, that (i) at no time shall the Total
Utilization of Revolving Commitments exceed the aggregate Revolving Commitments;
and (ii) at no time shall the outstanding aggregate principal amount of all Bid
Loans made by all Lenders exceed the lesser of (a) 50% of the aggregate
Revolving Commitments and (b) $75,000,000.
2.2 Making the Loans
<PAGE> 39
A. Procedure for Committed Borrowing. Each Committed Borrowing shall be
made on notice, given, in the case of Base Rate Loans, not later than 9:00 A.M.
(San Francisco time) on the Business Day prior to the date of such proposed
Borrowing, in the case of Swing Line Loans, not later than 11:00 A.M. (San
Francisco time) on the date of the proposed Borrowing and in the case of
Eurodollar Rate Loans, not later than 9:00 A.M. (San Francisco time) on the
third Business Day prior to the date of the proposed Borrowing, by the Borrowers
to the Administrative Agent, which shall give to the Swing Line Lender or each
Lender, as the case may be, prompt notice thereof by telecopy, telex or cable.
Each such notice of a Committed Borrowing (a "Notice of Borrowing") shall be by
telecopy, telex or cable, confirmed immediately in writing, in substantially the
form of Exhibit A hereto, specifying therein (i) whether such Borrowing is to
consist of a Swing Line Loan or Revolving Loans, (ii) the requested Funding Date
(which shall be a Business Day), (iii) whether such Committed Borrowing is to
consist of Base Rate Loans or Eurodollar Rate Loans, (iv) in the case of
Eurodollar Rate Loans, the requested Interest Period therefor, (v) the requested
aggregate amount of such Committed Borrowing, (vi) the Borrower that is to
receive the proceeds of such Borrowing and (vii) the amount of proceeds to be
received by each such Borrower. In addition, a Notice of Borrowing shall certify
that the amount of the proposed Borrowing, when added to the Total Utilization
of Revolving Loan Commitments immediately prior to such Borrowing, will not
exceed the aggregate Revolving Commitments then in effect. Each Lender shall,
before 10:00 A.M. (San Francisco time) on the date of such Committed Borrowing
of Revolving Loans, make available for the account of its Applicable Lending
Office to the Administrative Agent, such Lender's Pro Rata Share (with respect
to the applicable Commitment) of such Borrowing by depositing same day funds in
Account No. 12332-15414 re: Mac Frugal's Bargains o Close-Outs Inc. Attention:
Agency Administrative Services #5596, maintained at Bank of America National
Trust and Savings Association, ABA No. 1210-0035-8 or in such other account as
the Administrative Agent may from time to time specify in writing to the
Lenders. The Swing Line Lender shall, before 2:00 P.M. (San Francisco time) on
the date of such Borrowing of Swing Line Loans, make available to the
Administrative Agent, the amount of such Borrowing by depositing same day funds
with the Administrative Agent as described in the immediately preceding
sentence. Upon fulfillment of the applicable conditions set forth in Section 3,
the Administrative Agent will make the proceeds of the Loans received by it
<PAGE> 40
available to the Borrowers, that, in accordance with the related Notice of
Borrowing, are to receive such proceeds, by crediting such Borrowers' accounts
maintained at such office of BofA or any other account of any Borrower with BofA
as such Borrower shall advise the Administrative Agent in writing.
With respect to any Committed Borrowing, in lieu of delivering the above
described Notice of Borrowing, Authorized Persons, on behalf of the Borrowers,
may give the Administrative Agent telephonic notice by the required time of any
proposed borrowing under this Section 2.2; provided, however, that such notice
shall be promptly confirmed in writing by delivery of a Notice of Borrowing to
the Administrative Agent. The Administrative Agent shall incur no liability to
the Borrowers in acting upon any telephonic notice referred to above (or with
respect to any other Borrowing hereunder) which the Administrative Agent
believes in good faith to have been given by an Authorized Person or Authorized
Persons of the Borrowers or for otherwise acting in good faith under this
Section 2.2 and in making any Loans in accordance with this Agreement pursuant
to any telephonic notice.
B. Notice of Borrowing. Each Notice of Borrowing shall be irrevocable
and binding on the Borrowers. The Borrowers shall indemnify each Lender against
any loss, cost or expense incurred by such Lender as a result of any failure by
the Borrowers to fulfill on or before the date specified in such Notice of
Borrowing for such Borrowing the applicable conditions set forth in Section 3
(other than conditions that have been waived by the Lenders in accordance with
Section 10.1), including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund the Loan
to be made by such Lender as a part of such Borrowing when such Loan, as a
result of such failure, is not made on such date.
C. Payments by Lenders. Unless the Administrative Agent shall have
received notice from a Lender (i) prior to the date of any such Borrowing
(including without limitation Borrowings made pursuant to Section 2.1B) that
such Lender will not make available to the Administrative Agent such Lender's
Pro Rata Share (with respect to the applicable Commitment) of such Borrowing or
(ii) prior to the date of the issuance of any Letter of Credit that such Lender
will not purchase a participation in
<PAGE> 41
such Letter of Credit, in each case because of an existence of an Event of
Default or a Potential Event of Default, the Administrative Agent may assume
that such Lender has made such amount available to the Administrative Agent on
the date of such Borrowing in accordance with Section 2.2A (or otherwise in
accordance with Section 2.1B) or that such Lender will purchase a participation
in such Letter of Credit in accordance with Section 2.16, as the case may be,
and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrowers (or in the case of a Revolving Loan made pursuant to
Section 2.1B, to the Swing Line Lender) on such date a corresponding amount and
the Issuing Bank may, in reliance upon such assumption, issue the Letter of
Credit, as the case may be. If and to the extent that a Lender not providing
such notice shall not have so made its Pro Rata Share (with respect to the
applicable Commitment) available to the Administrative Agent, such Lender and
the Borrowers severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrowers or the Swing Line
Lender (as the case may be) until the date such amount is repaid to the
Administrative Agent, at (i) in the case of the Borrowers, the interest rate
applicable at the time to Loans comprising such Borrowing and (ii) in the case
of such Lender, the Federal Funds Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement. The Borrowers reserve all of their rights against any defaulting
Lender.
D. Several Obligations of Lenders. The failure of any Lender to make the
Loan to be made by it as part of any Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its Loan on the date of such
Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make the Loan to be made by such other Lender on the date of any
Borrowing.
E. Procedure for Bid Borrowings.
(i) When the Borrowers wish to request the Lenders to submit offers to
make Bid Loans hereunder, they shall transmit to the Administrative Agent by
telephone call followed promptly by written transmission a notice in
substantially the form of Exhibit D (a "Competitive Bid Request") so as to be
received no
<PAGE> 42
later than 9:00 A.M. (San Francisco time) (x) four Business Days prior to the
date of a proposed Bid Borrowing in the case of a LIBOR Auction, or (y) one
Business Day prior to the date of a proposed Bid Borrowing in the case of an
Absolute Rate Auction, specifying:
(a) the Funding Date for such Borrowing, which shall be a Business
Day;
(b) the aggregate amount of such Borrowing, which shall be a
minimum amount of $5,000,000 or in multiples of $1,000,000 in excess thereof;
(c) whether the Competitive Bids requested are to be for LIBOR Bid
Loans or Absolute Rate Bid Loans;
(d) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of "Interest Period;" and
(e) the Borrower that is to receive the proceeds of such Borrowing.
Subject to Section 2.2E(iii), the Borrowers may not request Competitive Bids
more than twice in any period of five consecutive Business Days.
(ii) Upon receipt of a Competitive Bid Request and a bid fee of $400 in
respect thereof, the Administrative Agent will promptly send to the Lenders by
telex or facsimile transmission an invitation by the Borrowers to each Lender to
submit Competitive Bids offering to make the Bid Loans to which such Competitive
Bid Request relates in accordance with this Section 2.2E (an "Invitation for
Competitive Bids").
(iii)(a) Each Lender may at its discretion submit a Competitive Bid
containing an offer or offers to make Bid Loans in response to any Invitation
for Competitive Bids. Each Competitive Bid must comply with the requirements
of this Section 2.2E(iii) and must be submitted to the Administrative Agent
by telex or facsimile transmission at the Administrative Agent's office
specified in the Invitation for Competitive Bids not later than (1) 7:30 A.M.
(San Francisco time) three Business Days prior to the proposed Funding Date,
in the case of a LIBOR
<PAGE> 43
Auction or (2) 7:30 A.M. (San Francisco time) on the proposed Funding Date,
in the case of an Absolute Rate Auction; provided that Competitive Bids
submitted by BofA or BAI (or any Affiliate of BofA or BAI) in the capacity of
a Lender may be submitted, and may only be submitted, if BofA or BAI or such
Affiliate notifies the Borrowers of the terms of the offer or offers
contained therein not later than (A) 7:15 A.M. (San Francisco time) three
Business Days prior to the proposed Funding Date, in the case of a LIBOR
Auction or (B) 7:15 A.M. (San Francisco time) on the proposed Funding Date,
in the case of an Absolute Rate Auction.
(b) Each Competitive Bid shall be in substantially the form of
Exhibit E, specifying therein:
(I) the proposed Funding Date;
(II) the principal amount of each Bid Loan for which such
Competitive Bid is being made, which principal amount (x) may be equal
to, greater than or less than the Revolving Commitment of the quoting
Lender, (y) must be $5,000,000 or in multiples of $1,000,000 in excess
thereof, and (z) may not exceed the principal amount of Bid Loans for
which Competitive Bids were requested;
(III) in case the Borrowers elect a LIBOR Auction, the margin
above or below LIBOR (the "LIBOR Bid Margin") offered for each such Bid
Loan, expressed as a percentage (rounded to the nearest 1/1000th of 1%)
to be added to or subtracted from the applicable LIBOR and the Interest
Period applicable thereto;
(IV) in case the Borrowers elect an Absolute Rate Auction, the
rate of interest per annum (rounded upward to the nearest 1/100th of 1%)
(the "Absolute Rate") offered for each such Bid Loan;
(V) the identity of the quoting Lender; and
(VI) any Interest Payment Dates other than the last day of the
Interest Period applicable thereto.
<PAGE> 44
A Competitive Bid may contain up to three separate offers by the quoting
Lender with respect to each Interest Period specified in the related
Invitation for Competitive Bids.
(c) Any Competitive Bid shall be disregarded if
it:
(I) is not substantially in conformity with Exhibit E or does
not specify all of the information required by Section (iii)(b) of this
Section;
(II) contains qualifying, conditional or
similar language;
(III) proposes terms other than or in addition to those set
forth in the applicable Invitation for Competitive Bids; or
(IV) arrives after the time set forth in Section 2.2E(iii)(a).
(iv) Promptly on receipt and not later than 8:00 A.M. (San Francisco
time) three Business Days prior to the proposed Funding Date in the case of a
LIBOR Auction, or 8:00 A.M. (San Francisco time) on the proposed Funding Date,
in the case of an Absolute Rate Auction, the Administrative Agent will notify
the Borrowers of the terms (a) of any Competitive Bid submitted by a Lender that
is in accordance with Section 2.2E(iii)(a), and (b) of any Competitive Bid that
amends, modifies or is otherwise inconsistent with a previous Competitive Bid
submitted by such Lender with respect to the same Competitive Bid Request. Any
such subsequent Competitive Bid shall be disregarded by the Administrative Agent
unless such subsequent Competitive Bid is submitted solely to correct a manifest
error in such former Competitive Bid and only if received within the times set
forth in Section 2.2E(iii). The Administrative Agent's notice to the Borrowers
shall specify (1) the aggregate principal amount of Bid Loans for which offers
have been received for each Interest Period specified in the related Competitive
Bid Request; and (2) the respective principal amounts and LIBOR Bid Margins or
Absolute Rates, as the case may be, so offered. Subject only to the provisions
of Section 3.2 hereof and the provisions of this Section (iv), any Competitive
Bid shall be irrevocable except with the written consent of the Administrative
Agent given on the written instructions of the Borrowers.
<PAGE> 45
(v) Not later than 8:45 A.M. (San Francisco time) three Business Days
prior to the proposed Funding Date, in the case of a LIBOR Auction, or 8:45 A.M.
(San Francisco time) on the proposed Funding Date, in the case of an Absolute
Rate Auction, the Borrowers shall notify the Administrative Agent of their
acceptance or non-acceptance of the offers so notified to them pursuant to
Section 2.2E(iv). The Borrowers shall be under no obligation to accept any offer
and may choose to reject all offers. In the case of acceptance, such notice
shall specify the aggregate principal amount of offers for each Interest Period
that is accepted. The Borrowers may accept any Competitive Bid in whole or in
part; provided that:
(a) the aggregate principal amount of each Bid Borrowing may not
exceed the applicable amount set forth in the related Competitive Bid
Request;
(b) the principal amount of each Bid Borrowing
must be $5,000,000 or in any multiple of $1,000,000 in
excess thereof;
(c) acceptance of offers may only be made on the basis of ascending
LIBOR Bid Margins or Absolute Rates within each Interest Period, as the case
may be; and
(d) the Borrowers may not accept any offer that is described in
Section 2.2E(iii)(c) or that otherwise fails to comply with the requirements
of this Agreement.
(vi) If offers are made by two or more Lenders with the same LIBOR Bid
Margins or Absolute Rates, as the case may be, for a greater aggregate principal
amount than the amount in respect of which such offers are accepted for the
related Interest Period, the principal amount of Bid Loans in respect of which
such offers are accepted shall be allocated by the Administrative Agent among
such Lenders as nearly as possible (in such multiples, not less than $1,000,000,
as the Administrative Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determination by the Administrative Agent of
the amounts of Bid Loans shall be conclusive in the absence of manifest error.
(vii) (a) The Administrative Agent will promptly by no later than 9:15
A.M. notify each Lender having submitted a Competitive Bid whether or not its
offer has been accepted
<PAGE> 46
and, if its offer has been accepted, of the amount of the Bid Loan or Bid
Loans to be made by it on the Funding Date.
(b) Each Lender, which has received notice pursuant to Section
2.2E(vii)(a) that its Competitive Bid has been accepted, shall make the
amounts of such Bid Loans available to the Administrative Agent for the
account of the Borrowers at the Administrative Agent's payment office, by
12:00 Noon (San Francisco time) in the case of Absolute Rate Bid Loans, and
by 12:00 Noon (San Francisco time) in the case of LIBOR Bid Loans, on such
Funding Date, in funds immediately available to the Administrative Agent for
the account of the Borrowers at the Administrative Agent's payment office.
(c) Promptly following each Bid Borrowing, the Administrative Agent
shall notify each Lender of the ranges of bids submitted and the highest and
lowest Competitive Bids accepted for each Interest Period requested by the
Borrowers and the aggregate amount borrowed pursuant to such Bid Borrowing.
(d) From time to time, the Borrowers and the Lenders shall furnish
such information to the Administrative Agent as the Administrative Agent may
request relating to the making of Bid Loans, including the amounts, interest
rates, dates of borrowings and maturities thereof, for purposes of the
allocation of amounts received from the Borrowers for payment of all amounts
owing hereunder.
(viii) If, on or prior to the proposed Funding Date, the Revolving
Commitments have not been terminated and if, on such proposed Funding Date all
applicable conditions to funding referenced in Section 3.2 hereof are satisfied,
the Lender or Lenders whose offers the Borrowers have accepted will fund each
Bid Loan so accepted. Nothing in this Section 2.2E shall be construed as a right
of first offer in favor of the Lenders or to otherwise limit the ability of the
Borrowers to request and accept credit facilities from any Person (including any
of the Lenders), provided that no Potential Event of Default or Event of Default
would otherwise arise or exist as a result of the Borrower executing, delivering
or performing under such credit facilities.
<PAGE> 47
(ix) Each outstanding Bid Loan shall reduce pro tanto the available
Revolving Commitments, but shall not reduce or affect the Bid Loan Lender's
available Revolving Commitment or its Pro Rata Share.
2.3 Fees
A. Commitment Fees.
(i) The Borrowers agree to pay a commitment fee to each Lender on the
average daily unused portion of such Lender's Pro Rata Share of the Revolving
Commitments at a rate per annum equal to the Applicable Margin for the
commitment fee, from the Closing Date, and from the effective date specified in
the Assignment and Acceptance pursuant to which it became a Lender in the case
of each other Lender, until the Revolver Maturity Date. Such commitment fee
shall be payable on the last Business Day of each fiscal quarter in arrears for
such fiscal quarter (or portion thereof).
(ii) Anything contained in this Agreement to the contrary
notwithstanding, for purposes of calculating the commitment fees payable by the
Borrowers hereunder, (a) the "unused portion" of the Revolving Commitments, as
of any date of determination, shall be an amount equal to the aggregate amount
of the Revolving Commitments in effect on such date of determination minus the
sum of (1) the Revolving Loans outstanding on such date of determination and (2)
the Letter of Credit Usage as of such date of determination and (b) such
calculation shall not give effect to any limitation on the amount available for
borrowing set forth in Section 2.1A but shall give effect to any voluntary
reduction pursuant to Section 2.4.
B. Other Fees. The Borrowers agree to pay all other fees, including
without limitation the arrangement fee and the annual agency fee, referred to in
the fee letter dated November 1, 1996 between the Company and the Administrative
Agent at the times and in the amounts specified in such letter.
C. Participation Fee. The Borrowers agree to pay on the Closing Date to
the Administrative Agent for allocation to the Banks a participation fee in an
amount referred to in the fee letter dated December 10, 1996 between the Company
and the Administrative Agent.
<PAGE> 48
2.4 Voluntary and Mandatory Reductions of Commitments
A. Voluntary Reductions. The Borrowers, acting together, shall have the
right, at any time and from time to time, to terminate in whole or permanently
reduce ratably in part, without premium or penalty, the unused portions of the
Lenders' respective Commitments, by giving not less than five Business Days'
prior written notice to the Administrative Agent or telephonic notice promptly
confirmed in writing designating that the Commitments are to be reduced, the
date (which shall be a Business Day) of any such termination or reduction and
the amount of any partial reduction. Such termination or partial reduction of
the Commitments shall be effective on the dates specified in such notice. Any
such partial reduction of the Commitments shall be in an aggregate minimum
amount of $5,000,000 and integral multiples of $1,000,000 in excess of that
amount.
B. Mandatory Reduction. The aggregate Revolving Commitments shall
automatically reduce to $150,000,000 on January 31, 1999.
C. Terms Applicable to all Commitment Reductions and Termination. Any
voluntary or mandatory termination or partial reduction of the Revolving
Commitments shall reduce the respective Commitment of each Lender
proportionately to its Pro Rata Share of the aggregate Revolving Commitments.
Any reduction of the aggregate Revolving Commitments to an amount below the then
current amount of the Swing Line Commitment shall result in an automatic
corresponding reduction of the Swing Line Commitment to the amount of the
Revolving Commitments, as so reduced.
2.5 Repayment
A. Each Bid Loan shall mature, and the principal amount thereof shall be
due and payable, on the last day of the Interest Period applicable thereto.
Subject to Section 10.1, the Borrowers may not voluntarily prepay all or any
portion of the principal amount of any Bid Loan prior to the maturity thereof.
B. The Borrowers shall repay to the Administrative Agent the principal
amount of each Revolving Loan owing to each Lender for the account of each
Lender and all other amounts owing hereunder with respect to the Revolving
Commitments on the Revolver Maturity Date for the account of each Lender.
<PAGE> 49
C. The Borrowers shall repay to the Administrative Agent the principal
amount of each Swing Line Loan for the account of the Swing Line Lender and all
other amounts owing hereunder with respect to the Swing Line Commitment on the
Revolver Maturity Date for the account of the Swing Line Lender.
2.6 Optional and Mandatory Prepayments
A. Optional Prepayments. The Borrowers may, upon written notice to the
Administrative Agent stating the Type of the Loans to be prepaid and the
Committed Borrowing of which such Loans were a part, and the proposed date and
aggregate principal amount of the prepayment (provided that such notice shall be
given not later than 10:00 A.M. (San Francisco time) (a) on the proposed date of
such prepayment in the case of a Swing Line Loan, (b) at least one Business Day
prior to the proposed date of such prepayment, in the case of a prepayment of
Revolving Loans that are Base Rate Loans and (c) at least four Business Days
prior to the proposed date of such prepayment, in the case of Revolving Loans
that are Eurodollar Rate Loans prepaid on other than the last day of the
Interest Period applicable thereto), and if such notice is given, the Borrowers
shall, prepay without premium or penalty the outstanding principal amounts of
the Loans of the Type specified comprising part of the same Borrowing in whole
or ratably in part; provided, however, that any prepayment of any Eurodollar
Rate Loans on other than the last day of an Interest Period for such Loans shall
be subject to Section 2.10; and provided, further, that each partial prepayment
of the Loans shall be in an aggregate principal amount not less than $3,000,000
or an integral multiple of $1,000,000 in excess thereof. In lieu of delivering
the above described notice, Authorized Persons, on behalf of the Borrowers, may
give the Administrative Agent telephonic notice by the required time of any
proposed prepayments; provided, however that such notice shall be promptly
confirmed in writing. The Administrative Agent shall incur no liability to the
Borrowers in acting upon any such telephonic notice which the Administrative
Agent believes in good faith to have been given by an Authorized Person or
Authorized Persons of the Borrowers or for otherwise acting in good faith under
this Section 2.6A. Notice of prepayment having been given as aforesaid, the
principal amount of the Loans specified in such notice, and, in the case of
Eurodollar Loans, all interest accrued thereon through the date of prepayment,
shall become due and payable on the prepayment date.
<PAGE> 50
B. Mandatory Prepayments. At any time the Total Utilization of Revolving
Commitments outstanding exceeds the aggregate Revolving Commitments then in
effect the Borrowers shall immediately prepay the Loans in an amount equal to
the applicable excess. In addition, at the commencement of and during the 30
consecutive day period set forth in clause (ii) of the last paragraph of Section
2.1A, the Borrowers shall immediately prepay the Loans in an amount necessary to
reduce and maintain the aggregate principal amount of Clean-Down Debt to the
level required thereby. In addition, the Borrowers shall immediately prepay
Loans in an amount equal to any cash payments received by any Loan Party from
any transaction permitted pursuant to Section 6.1(xi), less (A) the amount of
any fees and commissions payable to persons other than any Loan Party or any
Affiliate of any Loan Party in connection with such transaction, (B) other costs
and expenses related to such transaction that are to be paid in cash, in each
case only to the extent customarily borne by an issuer/obligor/lessee in an
arm's-length transaction or reasonable in light of the applicable circumstances,
and (C) in the case of sale and leaseback transactions only, the related amount
described in clause (i) of the definition of Net Cash Proceeds (collectively,
the "net proceeds"), and the Revolving Commitments shall be reduced by an amount
equal to such net proceeds, up to an aggregate reduction not exceeding
$50,000,000; provided, that up to $10,000,000 in the aggregate of such net
proceeds received by the Borrowers in respect of sale and leaseback transactions
only shall be excluded from such prepayment or Commitment reduction requirement.
C. Application of Mandatory Prepayments.
(i) Application to Loans. Mandatory prepayments of Loans shall be
applied first to prepay outstanding Swing Line Loans, to the full extent
thereof, second to prepay outstanding Revolving Loans, to the full extent
thereof, third to prepay outstanding Bid Loans, to the full extent thereof,
and fourth to cash collateralize all Letters of Credit and to repay amounts
to become due thereunder.
(ii) Application by Type of Loan. Subject to clause (i) above, any
mandatory prepayment shall be applied first to Base Rate Loans and Absolute
Rate Bid Loans to the full extent thereof before application to Eurodollar
Rate Loans and LIBOR Bid Loans.
<PAGE> 51
(iii) Application to Principal and Interest of Loans. All mandatory
prepayments of Eurodollar Rate Loans and LIBOR Bid Loans shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied to payment of interest before application to principal.
2.7 Interest
The Borrowers shall pay interest on the unpaid principal amount of each
Loan made by each Lender from the date of each such Loan until such principal
amount shall be paid in full, at the applicable rate set forth below:
A. Base Rate Loans. During such periods as a Committed Loan is a
Base Rate Loan, at a rate per annum equal at all times to the Base Rate, in
effect from time to time, payable in arrears on each Interest Payment Date
with respect to such Loan during such periods and on the date such Loan shall
be paid in full; provided, however, that after the occurrence and during the
continuance of any Event of Default, the Base Rate Loans shall bear interest,
payable on demand, at a rate per annum equal at all times to 2.00% per annum
above the rate of interest otherwise payable under this Agreement;
B. Eurodollar Rate Loans. During such periods as a Committed Loan
is a Eurodollar Rate Loan, at a rate per annum equal at all times during each
Interest Period for such Loan to the sum of the Adjusted Eurodollar Rate for
such Interest Period plus the Applicable Margin for Eurodollar Rate Loans,
payable in arrears on each Interest Payment Date with respect to such Loan
during such Interest Period, and on the date such Loan shall be paid in full;
provided, however, that after the occurrence and during the continuation of
any Event of Default, the Eurodollar Rate Loans shall bear interest, payable
on demand, at a rate per annum equal at all times to 2.00% per annum above
the rate of interest otherwise payable under this Agreement. Anything herein
to the contrary notwithstanding, (x) none of the Loans made pursuant to
Section 2.1A shall constitute a Eurodollar Rate
<PAGE> 52
Loan (or shall bear interest at the rate provided in this Section 2.7B)
unless the Borrowers shall so request by notice given pursuant to Section 2.2
or 2.9; (y) in the absence of such request by the Borrower, or if an Event of
Default or Potential Event of Default occurs and is continuing, none of the
Loans made pursuant to Section 2.1A shall constitute a Eurodollar Rate Loan
(or shall bear interest at the rate provided in this Section 2.7B) and with
respect to an outstanding Eurodollar Rate Loan, at the end of the Interest
Period in effect at the time of such Event of Default or Potential Event of
Default, such Loan shall constitute a Base Rate Loan and shall bear interest
at the rate provided in Section 2.7A above; and (z) none of the Swing Line
Loans shall constitute a Eurodollar Rate Loan.
C. LIBOR Bid Loans. During such period as a Bid Loan is a LIBOR Bid
Loan, at a rate per annum equal at all times to LIBOR plus (or minus) the
LIBOR Bid Margin, payable in arrears on each Interest Payment Date with
respect to such Loan during the applicable Interest Period and on the date
such Loan is paid in full; provided, however, that after the occurrence and
during the continuance of any Event of Default, the LIBOR Bid Loans shall
bear interest, payable on demand, at a rate per annum equal at all times to
2.00% per annum above the rate of interest otherwise payable under this
Agreement.
D. Absolute Rate Bid Loans. During such period as a Bid Loan is an
Absolute Rate Bid Loan, at a rate per annum equal at all times to the
Absolute Rate, payable in arrears on each Interest Payment Date with respect
to such Loan during the applicable Interest Period and on the date such Loan
is paid in full; provided, however, that after the occurrence and during the
continuance of any Event of Default, the Absolute Bid Rate Loans shall bear
interest, payable on demand , at a rate per annum equal at all times to 2.00%
per annum above the rate of interest otherwise payable under this Agreement.
2.8 Interest Rate Determination and Protection
A. The Administrative Agent shall give prompt notice to the Borrowers
and the Lenders of the applicable interest rate determined by the Administrative
Agent for purposes of Section 2.7.
B. If, with respect to any Eurodollar Rate Loans or LIBOR Bid Loans, any
Lender notifies (and provides a certificate in reasonable detail as to the
reasons and amounts relating thereto) the Borrowers with a copy to the
Administrative Agent that, as a result of circumstances affecting Eurodollar
markets, the Adjusted Eurodollar Rate or LIBOR, as the case may be for any
Interest Period for such Loans will not adequately reflect the
<PAGE> 53
cost to such Lender of making, funding or maintaining its Eurodollar Rate Loans
or LIBOR Bid Loans for such Interest Period, whereupon:
(i) the Borrowers shall from time to time pay to the Administrative
Agent for the account of such Lender all amounts payable under Section 2.10A
and 2.10B,
(ii) each such Eurodollar Rate Loan by such Lender will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Loan (or, if such Loan is then a Base Rate Loan,
will continue as a Base Rate Loan), and
(iii) the obligations of such Lender to make, or to Convert Loans
into, Eurodollar Rate Loans shall be suspended until the Administrative Agent
shall notify the Borrowers that the circumstances causing such suspension by
such Lender no longer exist (and such Lender shall make all of its Loans as
Base Rate Loans notwithstanding any election by the Borrowers to have the
Lenders make, or to Convert any Loans into, Eurodollar Rate Loans).
C. If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Loans in accordance with the provisions contained
in the definition of "Interest Period" in Section 1.1, the Administrative Agent
will forthwith so notify the Borrowers and the Lenders and such Loans will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Loans.
2.9 Voluntary Conversion or Continuation of Loans
The Borrowers may, subject to the provisions of Sections 2.8 and 2.15,
(i) Convert all or any portion of the Base Rate Loans (other than Swing Line
Loans) into Eurodollar Rate Loans, and vice versa and (ii) upon the expiration
of any Interest Period applicable to a Eurodollar Rate Loan, continue all or any
portion of such Loan as a Eurodollar Rate Loan; provided, however, that any such
Conversion of any Eurodollar Rate Loans into Base Rate Loans shall be made on,
and only on, the last day of an Interest Period for such Eurodollar Rate Loans,
and any such Conversion of Base Rate Loans into Eurodollar Rate Loans shall (i)
be in an amount not less than the minimum amount specified in Section 2.1 for a
Borrowing of the relevant type and
<PAGE> 54
(ii) not be made if an Event of Default or Potential Event of Default has
occurred and is continuing.
The Borrowers shall deliver a Notice of Conversion/Continuation
(executed by an Authorized Person from each Borrower) to the Administrative
Agent no later than 9:00 A.M. (San Francisco time) at least (A) three Business
Days in advance of the proposed conversion/continuation date in the case of a
Conversion to, or a continuation of, a Eurodollar Rate Loan, and (B) one
Business Day in advance of the proposed conversion of Eurodollar Rate Loans into
Base Rate Loans. A Notice of Conversion/Continuation shall certify (i) the
proposed conversion/continuation date (which shall be a Business Day), (ii) the
type and amount of the Loan to be converted/continued, (iii) the nature of the
proposed conversion/continuation, (iv) in the case of a Conversion to, or a
continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v)
that no Potential Event of Default or Event of Default has occurred and is
continuing or would result from the proposed conversion/continuation. In lieu
of delivering the above described Notice of Conversion/Continuation, Authorized
Persons of the Borrowers may give the Administrative Agent telephonic notice by
the required time of any proposed conversion/continuation under this Section
2.9; provided that such notice shall be promptly confirmed in writing by
delivery of a Notice of Conversion/Continuation to the Administrative Agent on
or before the proposed conversion/continuation date.
Neither the Administrative Agent nor any Lender shall incur any
liability to the Borrowers in acting upon any telephonic notice referred to
above that the Administrative Agent believes in good faith to have been given by
an Authorized Person or Authorized Persons on behalf of the Borrowers or for
otherwise acting in good faith under this Section 2.9 and upon conversion/
continuation by the Administrative Agent in accordance with this Agreement
pursuant to any telephonic notice, the Borrowers shall have effected the
conversion/continuation of Loans hereunder.
A Notice of Conversion/Continuation for Conversion to, or continuation
of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be
irrevocable on and after such notice is given and the Borrowers shall be bound
to Convert or continue in accordance therewith.
Notwithstanding anything herein to the contrary, the
<PAGE> 55
Borrowers shall not have any right to Convert outstanding Swing Line Loans which
are Base Rate Loans into Eurodollar Rate Loans.
After the occurrence of and during the continuance of a Potential Event
of Default or Event of Default, the Borrowers may not elect to have a Loan be
made or continued as, or Converted to, a Eurodollar Rate Loan, in each case
after the expiration of any Interest Period then in effect for that Loan.
2.10 Increased Costs and Funding Losses
A. If, due to either (i) the introduction of or any change after the
date hereof (other than any change by way of imposition or increase of reserve
requirements included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation of any law or regulation by any Governmental Authority or (ii)
the compliance with any guideline or request issued or made after the date
hereof from any central bank or other Governmental Authority (whether or not
having the force of law), there shall be any increase in the cost to any Lender
or any Issuing Bank of agreeing to make or making, funding or maintaining
Eurodollar Rate Loans, LIBOR Bid Loans, or the Letters of Credit under this
Agreement, then the Borrowers shall from time to time, upon demand by such
Lender or Issuing Bank (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender or Issuing Bank
additional amounts sufficient to compensate such Lender or Issuing Bank for such
increased cost. A certificate specifying in reasonable detail the amount of such
increased cost, the calculation thereof, and the basis therefor submitted to the
Borrowers and the Administrative Agent by such Lender or Issuing Bank, shall be
conclusive and binding for all purposes, absent manifest error. If the Borrowers
so notify the Administrative Agent within five Business Days after any Lender
notifies the Borrowers of any increased cost pursuant to the foregoing
provisions of this Section 2.10, the Borrowers may Convert all Eurodollar Rate
Loans of such Lender then outstanding into Base Rate Loans in accordance with
Section 2.8 and, additionally, shall reimburse such Lender for such increased
cost in accordance with this Section 2.10.
B. If any Lender or Issuing Bank determines that (i) the introduction of
any Capital Adequacy Regulation after the date hereof, (ii) any change in any
Capital Adequacy Regulation after the date hereof, (iii) any change after the
date hereof in
<PAGE> 56
the interpretation or administration of any Capital Adequacy Regulation by any
central bank or other Governmental Authority charged with the interpretation or
administration thereof, or (iv) compliance by such Lender or Issuing Bank (or
its Applicable Lending Office) or any corporation controlling such Lender or
Issuing Bank with any of the foregoing, affects or would affect the amount of
capital required or expected by any Governmental Authority to be maintained by
such Lender or Issuing Bank or any corporation controlling such Lender or
Issuing Bank and (taking into consideration such Lender's or Issuing Bank's or
such corporation's policies with respect to capital adequacy and such Lender's
or Issuing Bank's desired return on capital) reasonably determines that the
amount of such capital is increased as a consequence of its commitments, loans,
credits or obligations or the existence of Letters of Credit under this
Agreement, then, within five Business Days of a demand by such Lender or Issuing
Bank to the Borrowers (with a copy of such demand to the Administrative Agent),
the Borrowers shall pay to the Administrative Agent for the account of such
Lender or Issuing Bank, from time to time as specified by such Lender or Issuing
Bank, additional amounts sufficient to compensate such Lender, Issuing Bank or
other corporation for such increase. A certificate specifying in reasonable
detail the amounts, the calculation of such amounts and the basis therefor
submitted to the Borrowers and the Administrative Agent by such Lender or
Issuing Bank shall be conclusive and binding for all purposes, absent manifest
error. Each Lender and each Issuing Bank agrees promptly to notify the Borrowers
and the Administrative Agent of any circumstances that would cause the Borrowers
to pay additional amounts pursuant to this Section; provided that the failure to
give such notice shall not affect the Borrowers' obligation to pay such
additional amounts hereunder.
C. The Borrowers shall compensate each Lender, upon written request by
that Lender (which request shall set forth in reasonable detail the basis for
requesting such amounts), for all losses, expenses and liabilities (including,
without limitation, any loss or expense arising from interest or fees paid or
payable by that Lender to lenders of funds borrowed by it to make or carry its
Eurodollar Rate Loans or Bid Loans and any loss sustained by that Lender in
connection with the re-employment of such funds), that such Lender may sustain:
(i) if for any reason (other than a default or error by that Lender) a borrowing
of any Eurodollar Rate Loan or Bid Loan does not occur on a date specified
therefor in a Notice of Borrowing, a Notice of
<PAGE> 57
Conversion/Continuation, Invitation for Competitive Bids or a telephonic request
for borrowing or conversion/continuation or a successive Interest Period does
not commence after notice therefor is given pursuant to Section 2.9, (ii) if any
payment or prepayment (by acceleration of maturity, mandatory prepayments or
otherwise) of any of its Eurodollar Rate Loans or Bid Loan occurs on a date that
is not the last day of an Interest Period applicable to that Loan, (iii) if any
payment or prepayment (by acceleration of maturity, mandatory prepayments or
otherwise) of any of its Eurodollar Rate Loans or Bid Loans is not made on any
date specified in a notice of prepayment given by the Borrowers, or (iv) as a
consequence of any other default by the Borrowers to repay its Eurodollar Rate
Loans or Bid Loans when required by the terms of this Agreement. Such written
determination of such amount by such Lender shall be conclusive and binding in
all matters in the absence of manifest error. This covenant shall survive
termination of this Agreement and payment of the outstanding Obligations.
2.11 Payments and Computations
A. Manner and Time of Payment. The Borrowers shall make each payment
hereunder irrespective of and without condition or deduction for any
counterclaim, defense, recoupment or setoff in U.S. dollars and in same day
funds delivered to the Administrative Agent not later than 11:00 A.M. (San
Francisco time) on the date when due by deposit of such funds to Account No.
12332-15414, re: Mac Frugal's Bargains o Close-Outs Inc., Attention: Agency
Administrative Services #5596, maintained at Bank of America National Trust and
Savings Association, ABA No. 1210-0035-8, or at such other account as the
Administrative Agent may from time to time designate by notice to the Borrowers.
The Administrative Agent will promptly thereafter cause to be distributed like
funds relating to (i) the payment of principal or interest relating to the Bid
Loans to the Bid Loan Lenders for the account of their respective Applicable
Lending Offices, (ii) the payment of principal, interest or commitment fees
relating to the Revolving Loans ratably (other than amounts payable pursuant to
Section 2.10 or 2.12) to the Lenders for the account of their respective
Applicable Lending Offices, and (iii) the payment of any other amount payable to
any Lender to such Lender for the account of its Applicable Lending Office, in
each case to be applied in accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of the information
contained therein in the
<PAGE> 58
Register pursuant to Section 10.8D, from and after the effective date specified
in such Assignment and Acceptance, the Administrative Agent shall make all
payments hereunder in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
B. Authorization to Charge Accounts. The Borrowers hereby authorize each
Lender and Issuing Bank, if and to the extent payment owed to such Lender or
Issuing Bank is not made to the Administrative Agent when due hereunder, to
charge from time to time against any or all of the Borrowers' accounts with such
Lender or Issuing Bank any amount so due; provided that no such charge shall be
deemed a set-off by the Administrative Agent.
C. Computations. All computations of interest and commitment fees shall
be made by the Administrative Agent, and all computations of interest pursuant
to Section 2.10 shall be made by a Lender, on the basis of a year of 365 or 366
days, as the case may be, with respect to interest on Base Rate Loans and a year
of 360 days in all other cases, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or commitment fees are payable; provided, that if a Loan is
repaid on the same day on which it is made, one day's interest shall be paid on
that Loan. Each determination by the Administrative Agent (or, in the case of
Section 2.10, by a Lender) of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
D. Payment on Non-Business Days. Whenever any payment hereunder shall be
stated to be due on a day other than a Business Day, such payment shall be made
by the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or commitment fee, as
the case may be; provided, however, that if such extension would cause payment
of interest on or principal of Eurodollar Rate Loans or LIBOR Bid Loans to be
made in the next following calendar month, such payment shall be made on the
next preceding Business Day.
2.12 Taxes
A. Any and all payments by the Borrowers hereunder
<PAGE> 59
shall be made, in accordance with Section 2.11, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of each Lender, each Issuing Bank, and the Administrative Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which such Lender, each Issuing Bank, or the Administrative
Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Lender or Issuing Bank, taxes imposed on its income,
and franchise taxes imposed on it, by the jurisdiction of such Lender's or
Issuing Bank's Applicable Lending Office or any political subdivision thereof
(all such non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If the Borrowers
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to any Lender, any Issuing Bank, or the Administrative Agent,
(i) the sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.12) such Lender, such Issuing Bank, or the
Administrative Agent, as the case may be, receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrowers shall
make such deductions and (iii) the Borrowers shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law; provided that the Borrowers shall not be required pursuant to
clause (i) above to increase the sum payable to any Lender, any Issuing Bank, or
the Administrative Agent organized under the laws of a jurisdiction outside of
the United States if such Lender, such Issuing Bank, or the Administrative Agent
shall have failed to provide either the forms or documents referred to in
Section 2.12E or a letter from such Lender, such Issuing Bank, or the
Administrative Agent stating that it is not legally entitled to provide such
forms or documents.
B. In addition, the Borrowers agree to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
C. The Borrowers will indemnify each Lender, each
<PAGE> 60
Issuing Bank and the Administrative Agent for the full amount of Taxes or Other
Taxes (including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.12) paid by such Lender,
such Issuing Bank or the Administrative Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted; provided, in the case of Taxes or Other Taxes imposed by
jurisdictions outside of the United States of America, the Borrowers shall not
be required to indemnify any Lender, any Issuing Bank or the Administrative
Agent for any liability resulting from the failure of such Lender, such Issuing
Bank or the Administrative Agent to notify the Borrowers on a timely basis of
the assertion of such Taxes or Other Taxes. This indemnification shall be made
within 30 days from the date such Lender, such Issuing Bank or the
Administrative Agent (as the case may be) makes written demand therefor. Each
Lender, each Issuing Bank and the Administrative Agent agrees to reimburse the
Borrowers for amounts paid by the Borrowers pursuant to this Section 2.12 to the
extent that such Lender, such Issuing Bank or the Administrative Agent actually
recovers all or any portion of such amounts from the applicable taxing
authority.
D. Within 60 days after the date of any payment of Taxes, the Borrowers
will furnish to the Administrative Agent, at its address referred to in Section
10.2, the original or a certified copy of a receipt evidencing payment thereof
or other evidence of the payment thereof reasonably satisfactory to the
Administrative Agent.
E. Prior to the date of the initial Borrowing in the case of each Lender
listed on the signature pages hereof, and on the date of the Assignment and
Acceptance pursuant to which it became a Lender in the case of each other
Lender, (and from time to time thereafter if requested by the Borrowers or the
Administrative Agent) organized under the laws of a jurisdiction outside the
United States shall provide the Administrative Agent and the Borrowers with the
forms prescribed by the Internal Revenue Service of the United States certifying
as to such Lender's status for purposes of determining exemption from United
States withholding taxes with respect to all payments to be made to such Lender
hereunder or other documents satisfactory to the Borrowers and the
Administrative Agent indicating that all payments to be made to such Lender
hereunder are subject to such
<PAGE> 61
taxes at a rate reduced by an applicable tax treaty. Unless the Borrowers and
the Administrative Agent have received forms or other documents satisfactory to
them indicating that payments hereunder are not subject to United States
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Borrowers or the Administrative Agent shall withhold taxes from
such payments at the applicable statutory rate in the case of payments to or for
any Lender organized under the laws of a jurisdiction outside the United States.
F. Any Lender or any Issuing Bank claiming any additional amounts
payable pursuant to this Section 2.12 shall use its reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
change the jurisdiction of its Applicable Lending Office if the making of such a
change would avoid the need for, or reduce the amount of, any such additional
amounts which may thereafter accrue and would not, in the reasonable judgment of
such Lender or Issuing Bank, be otherwise disadvantageous to such Lender or
Issuing Bank.
G. Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in this Section 2.12 shall survive the payment in full of principal and interest
hereunder.
H. In the event that any Lender shall give notice to the Borrowers that
such Lender is entitled to compensation under this Section 2.12, and such
requested compensation materially exceeds the requests, if any, for compensation
made by the other Lenders under this Section, and unless the change or
circumstance giving rise to such compensation is no longer in effect and is not
reasonably likely to reoccur, the Borrowers may (upon 30 days' prior written
notice to the Administrative Agent and such Lender) elect to cause such Lender
to assign its Loans and Commitments in full first, if requested by the
Administrative Agent and agreed to by the Lenders to whom such Loans and
Commitments are being assigned, to the Lenders on a pro rata basis in accordance
with their Pro Rata Shares then in effect or in such other proportions as
otherwise allocated by the Administrative Agent in its sole discretion and
agreed to by the Lender or Lenders to whom such Loans and Commitments are being
assigned and, second to an Eligible Assignee agreeing thereto acceptable to the
Administrative Agent and the Borrowers in their sole discretion, in each case in
accordance with the provisions of Section 10.8 (so long as such Lender received
payment in full
<PAGE> 62
of the principal amount of all Loans outstanding, together with all interest on
such Loans and other amounts payable to such Lender hereunder to the date of
such assignment).
2.13 Sharing of Payments, Etc.
If any Lender shall obtain any payment (whether voluntary, involuntary,
through the exercise of any right of set-off, or otherwise) on account of the
Committed Loans owing to it (other than a payment on account of Revolving Loans
and Letters of Credit provided for herein, as to which the payments relating
thereto are to be shared ratably among the Lenders and other than payments
pursuant to Section 2.10 or 2.12) in excess of its ratable share of payments on
account of the Committed Loans obtained by all the Lenders such Lender shall
forthwith purchase from the other Lenders such participations in the Committed
Loans owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them, provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrowers agree that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.13 or
any other provision of this Agreement may, to the fullest extent permitted by
law, exercise all of its rights of payment (including the right to set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrowers in the amount of such participation.
2.14 Use of Proceeds
A. Loans and Letters of Credit. The proceeds of the Loans made by the
Lenders and the Letters of Credit issued hereunder to the Borrowers shall be
used by the Borrowers (i) to repay the Existing Loans, (ii) to continue the
Existing Letters of Credit, (iii) for working capital purposes of the Borrowers,
(iv) for other letter of credit requirements incurred in the ordinary course of
business of the Borrowers, (v) for refinancing
<PAGE> 63
of indebtedness and the payment of Restricted Junior Payments to the extent
permitted under and subject to the restrictions of this Agreement, (vi) for
acquisitions permitted under Section 6.7, and (vii) for the general corporate
purposes of the Borrowers.
B. Prohibited Uses. No portion of the proceeds of any Borrowing under
this Agreement shall be used by the Borrowers in any manner which might cause
the Borrowing or the application of such proceeds to violate Regulation G,
Regulation U, Regulation T, or Regulation X of the Board of Governors of the
Federal Reserve System or any other regulation of the Board or to violate the
Exchange Act, in each case as in effect on the date or dates of such Borrowing
and such use of proceeds.
C. Acknowledgement. The Borrowers hereby acknowledge
and agree that the restrictions on the use of proceeds set forth
herein are commercially reasonable and made in good faith.
2.15 Illegality
Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to make Eurodollar Rate Loans or LIBOR Bid Loans or to continue
to fund or maintain Eurodollar Rate Loans or LIBOR Bid Loans hereunder (any such
introduction, change or assertion being an "Event of Illegality"), then, on
notice thereof (which notice shall specify the basis therefor) and demand
therefor by such Lender to the Borrowers through the Administrative Agent, (a)
the obligation of such Lender to make Eurodollar Rate Loans or LIBOR Bid Loans
and to Convert Base Rate Loans into Eurodollar Rate Loans shall terminate (and
such Lender shall make all of its Loans as Base Rate Loans notwithstanding any
election by the Borrowers to have the Lenders make, or to Convert any Loans
into, Eurodollar Rate Loans) and (b) the Borrowers shall within five Business
Days of such notice and demand, Convert all Eurodollar Rate Loans of such Lender
then outstanding into Base Rate Loans in accordance with Section 2.9; provided,
however, that, before making any such demand, such Lender agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Eurodollar Lending Office if the making
of such a designation would allow such Lender or its Eurodollar
<PAGE> 64
Lending office to continue to perform its obligations to make Eurodollar Rate
Loans or to continue to fund or maintain Eurodollar Rate Loans and would not, in
the judgment of such Lender, be otherwise disadvantageous to such Lender; and
provided further, however, that if at any time after such Conversion no such
Event of Illegality shall be continuing, such Lender shall promptly so notify
the Administrative Agent and the Borrowers, and the obligation of such Lender to
make Eurodollar Rate Loans shall be reinstated; and provided further, however,
that neither the Administrative Agent nor such Lender shall have any liability
for the manner or timeliness of such notice.
2.16 Letters of Credit
A. Letters of Credit. In addition to the Borrowers requesting that the
Lenders make Revolving Loans pursuant to Section 2.1, the Borrowers may request,
in accordance with the provisions of this Section 2.16A, that on and after the
Closing Date an Issuing Bank issue Letters of Credit for the account of the
Borrowers; provided that: (i) the Borrowers shall not request that any Issuing
Bank issue any Letter of Credit if, after giving effect to such issuance, the
Total Utilization of Revolving Commitments would exceed the aggregate Revolving
Commitments then available, as the amount available under the Revolving
Commitments may be reduced from time to time pursuant to Section 2.4 or limited
from time to time pursuant to Section 2.1A; (ii) in no event shall any Issuing
Bank issue (x) any Letter of Credit having an expiration date later than the
Revolver Maturity Date, (y) any Commercial Letter of Credit having an expiration
date more than 180 days after its date of issuance; provided that the Issuing
Bank may issue Commercial Letters of Credit having expiration dates between 181
days and 270 days after the date of issuance so long as, after giving effect to
the issuance thereof the aggregate face amount of all such Commercial Letters of
Credit outstanding does not exceed $7,500,000, or (z) any Standby Letter of
Credit having an expiration date more than one year after its date of issuance;
and (iii) the Borrowers shall not request that any Issuing Bank issue any Letter
of Credit if, after giving effect to such issuance, the Letter of Credit Usage
in respect of all Letters of Credit would exceed the lesser of $50,000,000 or
the Revolving Commitments. The issuance of any Letter of Credit in accordance
with the provisions of this Section 2.16 shall be given effect in the
calculation of the Total Utilization of Revolving Commitments and shall require
the satisfaction of each condition set forth in Section 3.3.
<PAGE> 65
Immediately upon the issuance of each Letter of Credit by the Issuing
Bank, each Lender shall be deemed to, and hereby agrees to, have irrevocably
purchased from the Issuing Bank a participation in such Letter of Credit and
drawings thereunder in an amount equal to such Lender's Pro Rata Share (with
respect to the Revolving Commitments) of the maximum amount that is or at any
time may become available to be drawn thereunder.
B. Notice of Issuance. Whenever the Borrowers desire the issuance or
amendment of a Letter of Credit, they shall make request therefor to the Issuing
Bank at least two Business Days, or such shorter period as may be agreed to by
the Issuing Bank in any particular instance, in advance of the proposed date of
issuance or amendment, specifying (i) the proposed date of issuance or amendment
(which shall be a business day under the laws of the jurisdiction of the Issuing
Bank), (ii) the face amount of the Letter of Credit, (iii) the expiration date
of the Letter of Credit, (iv) the name and address of the beneficiary and (v)
whether the Letter of Credit requested is a Standby Letter of Credit or a
Commercial Letter of Credit.
Together with such request for the issuance or amendment of a Letter of
Credit, the Borrowers shall deliver to the Issuing Bank and the Administrative
Agent a notice which shall certify that (i) the Letter of Credit requested to be
issued or amended, when added to the then Total Utilization of Revolving
Commitments, will not exceed the aggregate Revolving Commitments therein
available, as the amount available under the Revolving Commitments may be
reduced from time to time pursuant to Section 2.4 or limited from time to time
pursuant to Section 2.1A and (ii) Section 3.2B is satisfied on and as of the
date of delivery of such notice to the same extent as though the issuance or
amendment of such Letter of Credit were the making of a Loan, and shall deliver
to the Issuing Bank an executed application for such Letter of Credit in the
form customarily required by the Issuing Bank for the issuance or amendment of
commercial letters of credit or standby letters of credit, as the case may be,
and specify a precise description of the documents and the verbatim text of any
certificate to be presented by the beneficiary which, if presented by the
beneficiary prior to the expiration date of the Letter of Credit, would require
the Issuing Bank to make payment under the Letter of Credit; provided that the
Issuing Bank, in its reasonable judgment, may require changes in any such
documents and certificates. In determining whether to pay under any Letter of
Credit, the Issuing Bank shall be responsible only
<PAGE> 66
to determine that the documents and certificates required to be delivered under
that Letter of Credit have been delivered and that they comply on their face
with the requirements of that Letter of Credit.
Upon receipt by the Issuing Bank of such notice and such other documents
from the Borrowers requesting the issuance or amendment of a Letter of Credit,
if the Issuing Bank elects to issue or amend such Letter of Credit, it shall so
notify the Borrowers and the Administrative Agent of the proposed issuance or
amendment and the Issuing Bank shall issue or amend such Letter of Credit. If
the Issuing Bank, in its sole discretion, elects not to issue or amend such
Letter of Credit because issuance or amendment of such Letter of Credit may
violate any applicable laws or any applicable policies of the Issuing Bank or
any Lender, the Issuing Bank shall promptly so notify the Borrowers and the
Administrative Agent and no Letter of Credit will be issued or amended. Upon the
issuance, negotiation, amendment or expiration of a Letter of Credit, each
Issuing Bank shall notify the Administrative Agent of such activity and on no
less than a semi-monthly basis, the Administrative Agent shall notify each
Lender of such activity and the aggregate face amount of all outstanding Letters
of Credit.
C. Payment of Amounts Drawn Under Letters of Credit. In the event of any
request for drawing under any Letter of Credit by the beneficiary thereof, the
Issuing Bank shall immediately notify the Borrowers and the Administrative
Agent, and the Borrowers shall reimburse such Issuing Bank on the day on which
such drawing is honored in an amount in same day funds equal to the amount of
such drawing. If the Borrowers shall fail to reimburse such Issuing Bank on the
date of any drawing under a Letter of Credit issued by it in an amount equal to
the amount of such drawing, (i) the Borrowers shall be deemed to have given a
Notice of Borrowing to the Administrative Agent requesting the Lenders to make
Revolving Loans that are Base Rate Loans on the date on which such drawing is
honored in an amount equal to the amount of such drawing, and (ii) subject to
satisfaction or waiver of the conditions specified in Sections 2.1A and 3.2, the
Lenders shall, on the Business Day next following the date of such drawing, make
Revolving Loans that are Base Rate Loans in the amount of such drawing together
with accrued interest thereon at the rate for Base Rate Loans from the date of
drawing to the date of such Loans (and shall make such amounts available to the
Administrative Agent), the proceeds of which shall be applied
<PAGE> 67
directly by the Administrative Agent to reimburse such Issuing Bank for the
amount of such drawing together with such accrued interest thereon; provided,
that, if for any reason proceeds of Revolving Loans are not received by such
Issuing Bank on such date in an amount equal to the amount of such drawing
together with accrued interest thereon, the Borrowers shall reimburse such
Issuing Bank, within three Business Days of the date of such drawing, in an
amount in same day funds equal to the excess of the amount of such drawing over
the amount of such Revolving Loans, if any, that are so received, plus accrued
interest thereon. Interest on all amounts not reimbursed to such Issuing Bank on
the date of such drawing shall accrue at the rates set forth in the proviso to
Section 2.7A.
D. Payment by Lenders. If the Borrowers shall fail to reimburse an
Issuing Bank as provided in Section 2.16C in an amount equal to the amount of
any drawing honored by such Issuing Bank under a Letter of Credit issued by it
together with accrued interest thereon, such Issuing Bank shall promptly notify
the Administrative Agent of the unreimbursed amount of such drawing together
with accrued interest thereon and the Administrative Agent shall notify each
Lender of such Lender's respective participation therein based on such Lender's
Pro Rata Share of the Revolving Commitments. Each Lender shall make available to
the Administrative Agent for the account of such Issuing Bank an amount equal to
its respective participation, in same day funds, at the office of the
Administrative Agent, not later than 9:00 A.M. (San Francisco time) on the
Business Day next following the date notified by the Administrative Agent. The
day of payment by each Lender to the Administrative Agent and the day of notice
by the Administrative Agent to each Lender shall be both a Business Day and a
business day under the laws of the jurisdiction of each such Lender. If any
Lender fails to make available to the Administrative Agent the amount of such
Lender's participation in such Letter of Credit as provided in this Section
2.16D, such Issuing Bank shall be entitled to recover such amount on demand from
such Lender, together with interest (to the extent such interest is not received
from the Borrowers) until such amount is recovered at the Federal Funds Rate.
Nothing in this Section 2.16 shall be deemed to prejudice the right of any
Lender to recover from an Issuing Bank any amounts made available by such Lender
to such Issuing Bank pursuant to this Section 2.16D if it is determined by a
judgment of a court of competent jurisdiction that the payment with respect to a
Letter of Credit by such Issuing Bank in respect of which payment
<PAGE> 68
was made by such Lender constituted gross negligence or willful misconduct on
the part of such Issuing Bank. Each Issuing Bank shall distribute through the
Administrative Agent to each other Lender which has paid all amounts payable by
it under this Section 2.16D with respect to any Letter of Credit issued by such
Issuing Bank such other Lender's Pro Rata Share (with respect to the Revolving
Commitments) of all payments received by such Issuing Bank from any Loan Party
in reimbursement of drawings honored by such Issuing Bank under such Letter of
Credit when such payments are received. The Borrowers shall be liable to the
Lenders for all of the principal and interest made available by the Lenders to
any Issuing Bank pursuant to this Section 2.16D and interest on all amounts made
available by Lenders to any Issuing Bank shall accrue at the rates set forth in
the proviso to Section 2.7A. All such principal and interest amounts shall be
part of the Obligations.
E. Compensation. The Borrowers agree to pay the
following amounts to the Issuing Bank with respect to each Letter
of Credit issued by it:
(1) if a Commercial Letter of Credit, a Commercial Letter of Credit fee
equal to the greater of the Dollar amount or the percentage set forth below
opposite the corresponding tenor of the maximum amount available to be drawn
under such Commercial Letter of Credit, payable on the date of issuance:
<TABLE>
<CAPTION>
Tenor Fee (the greater of)
<S> <C>
Up to 180 days 1/4% or $150
181 - 270 days 3/8% or $300
</TABLE>
(2) if a Standby Letter of Credit, a Standby Letter of Credit fee equal
to the Applicable Margin (plus an additional charge as mutually agreed upon
by the Borrowers and the Issuing Bank (the "Agreed Upon Charge")) of the
maximum amount available to be drawn under such Standby Letter of Credit on
the basis of the actual number of days elapsed in a (360-day) year, payable
quarterly in arrears on the last Business Day of each fiscal quarter;
provided, however, that after the occurrence and during the continuance of
any Event of Default, such Standby Letter of Credit fee shall increase, from
the date on which such Event of Default shall have occurred until the
expiration of such Standby Letter of Credit, payable on demand, 2.00% per
annum above the Standby Letter of Credit fee
<PAGE> 69
otherwise payable under this Agreement;
(3) with respect to drawings made under any Letter of Credit which have
not been immediately reimbursed by the Borrowers as provided in Section
2.16C, interest, payable on demand, on the amount paid by the Issuing Bank in
respect of each such drawing from the date of the drawing through the date
such amount is reimbursed by the Borrowers at a rate equal to the Base Rate
in effect from time to time; provided, however, that after the occurrence and
during the continuance of an Event of Default, such unreimbursed drawing
shall bear interest, from the date on which such Event of Default shall have
occurred until such amount is paid in full, payable on demand, at a rate per
annum equal at all times to 2.00% per annum above the rate of interest
otherwise payable under this Agreement; and
(4) negotiation, amendment, presentation, administrative, documentary
and processing charges and other charges in accordance with the Issuing
Bank's standard schedule for such charges from time to time in effect or as
otherwise mutually agreed.
Promptly upon receipt by the Issuing Bank of any amount described in
clauses (1), (2) and (3) of this Section 2.16E, the Issuing Bank shall deliver
to the Administrative Agent for distribution to each Lender of its Pro Rata
Share of such amount, which amount shall be distributed to the Lenders no less
than quarterly in arrears; provided, that with respect to any amount described
in clause (2), the Issuing Bank shall retain the Agreed Upon Charge for its own
account prior to making the foregoing delivery to the Administrative Agent. The
Issuing Bank shall retain amounts described in clause (4). All amounts provided
for by this Section 2.16E are payable notwithstanding any cancellation or
prepayment of any Letter of Credit issued hereunder.
F. Obligations Absolute. The obligation of the Borrowers to reimburse
each Issuing Bank for drawings made under the Letters of Credit issued by it
and, subject to Section 2.2C, the obligations of the Lenders under Section 2.16D
shall be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances, including, without
limitation, the following circumstances:
<PAGE> 70
(i) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, set-off, recoupment, defense or other
right that any Loan Party or any Lender may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any persons or
entities for whom any such transferee may be acting), any Lender or any other
Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between any Borrower or any of its Subsidiaries and the
beneficiary for which the Letter of Credit was procured);
(iii)any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by the Issuing Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document that does
not comply with the terms of such Letter of Credit; provided that such
payment does not constitute gross negligence or willful misconduct of the
Issuing Bank, as determined by a judgment of a court of competent
jurisdiction;
(v) the occurrence of any Material Adverse Effect;
(vi) any breach of this Agreement or any other Loan Document by any Loan
Party, the Administrative Agent or any Lender;
(vii) the fact that an Event of Default or a Potential Event of Default
shall have occurred and be continuing; or
(viii) any other circumstance or happening whatsoever that is similar to
any of the foregoing.
G. Indemnification; Nature of Issuing Bank's Duties. In addition to
amounts payable as elsewhere provided in this Section 2.16, the Borrowers hereby
agree to protect, indemnify, pay and hold each Issuing Bank harmless from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges
<PAGE> 71
and expenses (including reasonable out-of-pocket attorneys' fees and costs) that
such Issuing Bank may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit, or (ii) the failure of
such Issuing Bank to honor a drawing under any 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 are herein called "Government Acts").
As between the Borrowers and any Issuing Bank, the Borrowers assume all
risks of the acts and omissions of, or misuse of the Letters of Credit issued by
such Issuing Bank by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, subject to the last
paragraph of this Section 2.16G, the Issuing Bank shall not be responsible: (i)
for the form, validity, sufficiency, accuracy, genuineness or legal effect of
any document submitted by any party in connection with the application for and
issuance of such Letters of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii)
for 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 or for the identity of any purported
transferee or assignee of any beneficiary thereof; (iii) for failure of the
beneficiary of any such Letter of Credit to comply fully with conditions
required in order to draw upon such Letter of Credit; (iv) for 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) for errors in interpretation of technical terms; (vi) for 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) for
the misapplication by the beneficiary of any such Letter of Credit of the
proceeds of any drawing under such Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of the Issuing Bank,
including, without limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of any of the Issuing Bank's rights or
powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or
<PAGE> 72
omitted to be taken by the Issuing Bank under or in connection with the Letters
of Credit issued by it or the related certificates, if taken or omitted in good
faith, and to the extent not with gross negligence or willful misconduct as
determined by a judgment of a court of competent jurisdiction, shall not put
such Issuing Bank under any resulting liability to any Borrower or any of its
Subsidiaries.
Notwithstanding anything to the contrary contained in this Section
2.16G, the Borrowers shall have no obligation to indemnify any Issuing Bank in
respect of any liability incurred by such Issuing Bank arising out of the gross
negligence or willful misconduct of such Issuing Bank, as determined by a
judgment of a court of competent jurisdiction.
H. Computation of Interest. Interest payable pursuant to this Section
2.16 shall be computed on the basis of a 360-day year and the actual number of
days elapsed in the period during which it accrues.
2.17 Evidence of Debt; Notes
A. Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrowers to such Lender
resulting from each Committed Loan owing to such Lender from time to time,
including the amounts of principal and interest payable and paid to such Lender
from time to time hereunder.
B. The Register maintained by the Administrative Agent pursuant to
Section 10.8C shall include a control account and a subsidiary account for each
Lender, in which accounts (taken together) shall be recorded (i) the date and
amount of each Borrowing made hereunder, (ii) the terms of each Assignment and
Acceptance delivered to and accepted by it, (iii) the amount of any principal or
interest due and payable or to become due and payable from the Borrowers to each
Lender hereunder, and (iv) the amount of any sum received by the Administrative
Agent from the Borrowers hereunder and each Lender's share thereof.
C. The entries made in an account or accounts pursuant to paragraph A of
this Section 2.17 and on any Note pursuant to paragraph D of this Section 2.17
shall be conclusive and binding for all purposes, absent manifest error;
provided, however, that the failure of any Lender or the Administrative Agent to
maintain
<PAGE> 73
such accounts or any error therein shall not in any manner affect the
obligations of the Borrowers to repay principal and pay interest hereunder.
D. Upon the request of any Lender made through the Administrative Agent,
the Revolving Loans made by such Lender shall be evidenced by a Revolving Loan
Note payable to the order of such Lender. Each such Lender shall endorse on the
schedules annexed to its Revolving Loan Note the date, amount and maturity of
each Committed Loan made by it and the amount of each payment of principal made
by the Borrowers with respect thereto. Each Lender is irrevocably authorized by
the Borrowers to endorse its Revolving Loan Note and each Lender's record shall
be conclusive and binding for all purposes, absent manifest error; provided,
however, that the failure of a Lender to make, or an error in making, a notation
thereon with respect to any Committed Loan shall not limit or otherwise affect
the obligations of the Borrowers hereunder or under any such Revolving Loan Note
to such Lender.
E. The Bid Loans made by each Lender shall be evidenced by a Bid Note
payable to the order of such Lender. Each Lender shall endorse on the schedules
annexed to its Bid Note the date, amount and maturity of each Bid Loan made by
it and the amount of each payment of principal made by the Borrowers with
respect thereto. Each Lender is irrevocably authorized by the Borrowers to
endorse its Bid Note and each Lender's record shall be conclusive and binding
for all purposes, absent manifest error; provided, however, that the failure of
a Lender to make, or an error in making, a notation thereon with respect to any
Bid Loan shall not limit or otherwise affect the obligations of the Borrowers
hereunder or under any such Bid Note to such Lender.
2.18 Obligations Joint and Several
Anything herein to the contrary notwithstanding, each Borrower hereby
agrees and acknowledges that the obligation of each Borrower for payment of the
Obligations shall be joint and several with the obligations of each other
Borrower hereunder.
Each Borrower agrees that its joint and several obligation to pay all
Obligations hereunder is irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than the indefeasible
<PAGE> 74
payment in full of the Obligations, and the liability of each Borrower with
respect to the Obligations shall not be affected, reduced or impaired by (i)
consideration of the amount of proceeds of the Loans received by any Borrower
relative to the aggregate amount of the Loans, (ii) consideration of the face
amount of Letters of Credit issued for the account of any Borrower relative to
the aggregate face amount of all Letters of Credit issued hereunder, (iii) the
dissolution or termination of or any increase, decrease or change in personnel
of, any other Borrower, (iv) the insolvency or business failure of, or any
assignment for the benefit of creditors by, or the commencement of any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceedings by or against any other Borrower or (v) the appointment of a
receiver for, or the attachment, restraint of or making or levying of any order
of court or legal process affecting, the property of any other Borrower. Each
Borrower agrees that a separate action or actions may be brought and prosecuted
against such Borrower whether or not action is brought against any other
Borrower and whether or not any other Borrower is joined in any such action or
actions. Any Borrower's payment of a portion, but not all, of the Obligations
shall in no way limit, affect, modify or abridge such Borrower's liability for
that portion of the Obligations which is not paid.
Each Borrower hereby waives any right to require the Administrative
Agent or any Lender, as a condition of payment or performance of the Obligations
by such Borrower, to proceed against any other Borrower or any other Person, to
exhaust any security held from any Borrower, or pursue any other remedy in the
power of the Administrative Agent or any Lender. Each Borrower hereby waives any
defense arising by reason of incapacity, lack of authority or any disability or
other defense that may be available to any other Borrower and any defenses or
benefits that may be derived or afforded by law which would limit the liability
of or exonerate any guarantor or surety with respect to the Obligations, or
which may conflict with the terms and provisions of this Agreement.
2.19 Contribution Among Borrowers
In order to provide for just and equitable contribution among Borrowers,
each Borrower hereby agrees that if any Borrower shall make payments on the
Obligations in an amount in excess of the net value of the benefits received by
such Borrower and its Subsidiaries from extensions of credit hereunder
(including
<PAGE> 75
receipt of the proceeds of Loans and any Letters of Credit), it shall have a
right of contribution against each other Borrower for such excess; provided,
that such right of contribution shall be subordinate to the Lenders' right to
receive indefeasible payment in full of the Obligations. The parties hereto
acknowledge that the right to contribution hereunder shall constitute an asset
of any Borrower to which such contribution is owing.
For the purposes of this Section 2.19, the "net value of the benefits"
received by any Borrower from extensions of credit hereunder shall include
benefits of funds constituting proceeds of Loans advanced by the Lenders to such
Borrower or its Subsidiaries and benefits consisting of any drawings under
Letters of Credit issued for the account or benefit of such Borrower or its
Subsidiaries.
Nothing in this Section 2.19 shall impair the absolute and unconditional
obligation of the Borrowers jointly and severally to pay all Obligations when
the same shall become due in accordance with the terms of this Agreement.
2.20 Financial Condition of Borrowers
Neither the Administrative Agent nor any Lender shall have any
obligation to any Borrower to disclose or discuss with such Borrower the
Administrative Agent's or any Lender's assessment of the financial condition of
any Borrower, and each Borrower hereby waives any obligation of any Lender to
disclose any matter, fact or thing relating to the business, operations or
conditions of any Borrower now or hereafter known by the Administrative Agent or
any Lender. Each Borrower assumes the responsibility for being and keeping
informed of the financial condition of each other Borrower and of all
circumstances bearing upon the risk of nonpayment of the Obligations by any
other Borrower. No Lender shall have any obligation to any Borrower arising from
any Lender's assessment of, or failure to assess, any Borrower's financial
condition in connection with the granting of any Loans or other extensions of
credit hereunder.
2.21 Extension of Revolver Maturity Date
Not later than 60 days nor earlier than 90 days prior to April 30, 1998
or any subsequent anniversary thereof, the Borrowers may request a one-year
extension of the Revolver
<PAGE> 76
Maturity Date by written notice to the Administrative Agent, which shall
promptly notify the Lenders of such request, and the Lenders agree to respond to
the Borrowers' request for an extension within 45 days of receipt of such
written notice from the Administrative Agent; provided, however, that the
consent of 100% of the Lenders shall be required to extend the Revolver Maturity
Date and the failure of any Lender to respond to such request within such 45-day
period shall be deemed a rejection of such request and shall not in any manner
constitute an extension of the Revolver Maturity Date. Each Lender's decision
with respect to any requested extension of the Revolver Maturity Date shall be
in its sole discretion. If all of the Lenders consent to such extension, the
Revolver Maturity Date then in effect shall automatically be extended by one
year without any further action on the part of the Administrative Agent, the
Lenders or the Borrowers.
2.22 Amendment and Restatement of Existing Credit Agreement
Subject to the terms and conditions of this Agreement and in reliance
upon the representations and warranties of the Borrowers herein set forth and
subject to satisfaction of the conditions set forth in Section 3.1 on or before
the Closing Date, this Agreement shall amend and restate the Existing Credit
Agreement effective as of the Closing Date. As of the Closing Date, all loans
outstanding under the Existing Credit Agreement on the Closing Date (the
"Existing Loans") shall be assigned by the Existing Lenders to the Lenders
proportionately to their Pro Rata Shares, and concurrently therewith shall be
repaid in full with the proceeds of the initial Loans hereunder. Any amounts of
accrued interest, commitment fees, letter of credit fees or other amounts
(including, without limitation, any Eurodollar Loan breakage costs payable with
respect to the assignment and repayment of the Existing Loans) owed (whether or
not presently due and payable) by the Borrowers to the Existing Lenders under or
in respect of the Existing Loans and Existing Letters of Credit shall be due and
payable to the Existing Lenders on the Closing Date.
Section 3. CONDITIONS WITH RESPECT TO LOANS AND LETTERS OF CREDIT
3.1 Conditions to Initial Loans
<PAGE> 77
The obligation of each Lender to make or continue its initial Revolving
Loan, the obligation of the Swing Line Lender to make the initial Swing Line
Loan and the obligation of the Issuing Bank to issue the initial Letter of
Credit are, in addition to the conditions precedent specified in Sections 3.2
and 3.3, subject to the prior or concurrent fulfillment to its satisfaction of
the following conditions on or before the Closing Date:
A. Delivery of the Borrower Documents. On or before the Closing Date,
each Borrower shall deliver the following to the Administrative Agent for the
Lenders with sufficient originally executed copies for each Lender, the
Administrative Agent and its counsel each, unless otherwise noted, dated the
Closing Date:
(i) Certified copies of the Articles of Incorporation of each Borrower,
together with, as soon as reasonably practicable after the Closing Date, a
good standing certificate from the Secretary of State of the State of its
incorporation, and good standing certificates from each state in which such
Borrower is required to be qualified to transact business as a foreign
corporation, each to be dated as of a recent date;
(ii) Copies of each Borrower's Bylaws certified by its
corporate secretary or an assistant secretary;
(iii) Resolutions of each Borrower's Board of Directors approving and
authorizing the execution, delivery and performance of this Agreement and the
issuance and payment of the Revolving Loan Notes and the Bid Notes to which
it is a party, and any other documents, instruments and certificates required
to be executed by such Borrower in connection herewith or therewith, each
certified by its corporate secretary or an assistant secretary;
(iv) Signature and incumbency certificates of each Borrower's officers
executing this Agreement, the other Loan Documents to which it is a party and
any other documents, instruments and certificates required to be executed by
such Borrower in connection herewith or therewith;
(v) Executed copies of this Agreement, any Revolving Loan Notes
requested by any Lender and the Bid Notes, each
<PAGE> 78
payable to the Lenders with appropriate insertions and any other Loan
Documents to which any Borrower is a party; and
(vi) Such other documents as the Administrative Agent or the Lenders may
reasonably request.
B. Delivery of Opinions of Counsel to the Borrowers. On the Closing
Date, the Administrative Agent shall have received originally executed copies
(with sufficient copies for the Lenders, the Administrative Agent and its
counsel) of one or more favorable written opinions of (i) Gibson, Dunn &
Crutcher, counsel for the Company and (ii) Dan Zuckerman, counsel for WCL and
PNS, substantially in the form of Exhibit G annexed hereto, and as to such other
matters as the Administrative Agent or the Lenders may reasonably request.
C. Fees. On or before the Closing Date, the Borrowers shall have paid to
the Administrative Agent the fees payable on the Closing Date to the
Administrative Agent on behalf of itself and the Lenders pursuant to Sections
2.3B and 2.3C, and the Attorney Costs of the Administrative Agent's counsel
incurred through the Closing Date.
D. Other Corporate Actions. On or before the Closing Date, all corporate
and other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Lenders or the Administrative Agent, acting on behalf of the
Lenders, and its counsel shall be reasonably satisfactory in form and substance
to the Administrative Agent and such counsel, and the Administrative Agent and
such counsel shall have received all such counterpart originals or certified
copies of such documents as the Administrative Agent may reasonably request.
E. On or before the Closing Date, the Borrowers shall have delivered to
the Administrative Agent (with sufficient copies for the Lenders, the
Administrative Agent and its counsel) such other documents as the Lenders may
reasonably request.
3.2 Conditions to All Loans
The obligation of each Bid Loan Lender to make each Bid Loan on each
Funding Date, the obligation of the Swing Line Lender to make each Swing Line
Loan on each Funding Date (including the initial Funding Date) and the
obligation of each
<PAGE> 79
Lender to make each Revolving Loan on each Funding Date (including the initial
Funding Date) are subject to prior or concurrent fulfillment to such Lender's
satisfaction, as the case may be, of the following further conditions precedent:
A. Delivery of Notice. Prior to each such Funding Date with respect to a
Committed Loan, the Administrative Agent shall have received, in accordance with
the provisions of Section 2.2, an originally executed Notice of Borrowing signed
by an Authorized Person of each of the Borrowers. The giving of such Notice of
Borrowing shall be deemed to be a representation by the Borrowers that all of
the conditions to borrowing set forth in this Section 3.2 shall have been
satisfied as of the date of such Notice of Borrowing.
B. Other Requirements.
(i) The representations and warranties of the Borrowers contained herein
and in the other Loan Documents shall be true, correct and complete on and as
of each Funding Date to the same extent as though made on and as of that
date;
(ii) No event shall have occurred and be continuing or would result from
the consummation of the Borrowing contemplated by the applicable Notice of
Borrowing that would constitute an Event of Default or a Potential Event of
Default;
(iii) The making of any Loan and the use of the proceeds thereof, shall
not violate Regulation U, Regulation G, Regulation T or Regulation X of the
Board of Governors of the Federal Reserve System, and the Administrative
Agent shall on each Funding Date have received from the Borrowers such
documents and information as it may request (including but not limited to
opinions of counsel) relating to the satisfaction of such conditions;
(iv) There shall not be pending or, to the knowledge of any Borrower
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting any Loan Party or any property of any Loan
Party that has not been disclosed by the Borrowers in writing prior to the
execution of this Agreement and there shall have occurred no development not
so disclosed in any such action, suit, proceeding, governmental investigation
or arbitration so
<PAGE> 80
disclosed, which, in either event, in the opinion of the Lenders, (as
communicated by Requisite Lenders to the Administrative Agent and evidenced
by a written notice from the Administrative Agent to the Borrowers), could be
expected to prohibit the making of the Loans hereunder or extensions of
credit under the other financing agreements contemplated hereby or otherwise
result in a Material Adverse Effect. No injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect to
any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of,
or that could otherwise prohibit the making of Loans hereunder, the
application of the proceeds thereof as contemplated hereby, the extensions of
credit under any of the other financing agreements contemplated hereby or any
of the transactions contemplated by the foregoing.
3.3 Conditions to All Letters of Credit
The issuance of any Letter of Credit by an Issuing Bank hereunder,
amending any Letter of Credit to extend the maturity thereof or to increase the
amount of any drawing thereunder and the participation therein by the Lenders
are subject to prior or concurrent satisfaction of all of the following
conditions:
A. On or before the date of issuance or amendment of such Letter of
Credit, each of the conditions set forth in Section 3.1 shall have been
satisfied or waived and the initial Loans shall have been made.
B. The Issuing Bank (and, to the extent applicable, the Administrative
Agent) shall have received, in accordance with the provisions of Section 2.16B,
a notice requesting the issuance or amendment of such Letter of Credit, an
executed application for such Letter of Credit in the form customarily required
by the Issuing Bank for the issuance or amendment of letters of credit, as the
case may be, all other information specified in Section 2.16B and such other
documents as the Issuing Bank may reasonably require in connection with the
issuance or amendment of such Letter of Credit.
C. Each of the other conditions to the issuance of such Letter of Credit
set forth in Section 2.16 shall have been satisfied.
<PAGE> 81
The Issuing Bank shall have the right, at the direction of the Requisite
Lenders, to deliver a notice to the beneficiary of any "evergreen" Letter of
Credit terminating such Letter of Credit in accordance with the terms thereof,
if on any notice date, or at any time within a 30-day period preceding any such
notice date, the conditions precedent set forth in this Section 3.2C (with
reference to the continuation of such Letter of Credit) are not satisfied. For
purposes of this paragraph, "notice date" means any date on or by which a notice
may be given under a Letter of Credit notifying the beneficiary that such Letter
of Credit is being terminated.
Section 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and to make
the Loans and to induce the Issuing Banks to issue the Letters of Credit, each
Borrower represents and warrants to the Lenders that the following statements
are true, correct and complete.
4.1 Organization, Powers, Good Standing and Subsidiaries
A. Organization and Powers. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own and operate its properties and to carry on its business as now
conducted and proposed to be conducted. Each Loan Party has all requisite
corporate power and authority to enter into this Agreement, each other Loan
Document to which it is a party, and to carry out the transactions contemplated
hereby and thereby.
B. Good Standing. Each Loan Party is in good standing wherever necessary
to carry on its present business and operations, except in jurisdictions where
the failure to be in good standing has not and will not have a Material Adverse
Effect.
C. Subsidiaries. All of the Subsidiaries of each Loan Party as of the
Closing Date are identified in Schedule 4.1C annexed hereto. The capital stock
of each Person identified in Schedule 4.1C is duly authorized, validly issued,
fully paid and nonassessable and such shares of capital stock are free and clear
of any claim, lien, encumbrance or agreement with respect
<PAGE> 82
thereto. Except as set forth on Schedule 4.1C, no capital stock (or any
securities, instruments, warrants, option or purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital stock) of any Person identified in Schedule 4.1C is
subject to issuance under any security instrument, warrant, option or purchase
right, conversion or exchange right, call, commitment or claim of any right,
title or interest therein or thereto. Except as otherwise indicated on Schedule
4.1C, the capital stock of each Person identified on Schedule 4.1C is not Margin
Stock. Schedule 4.1C correctly sets forth as of the Closing Date the ownership
interest of each Loan Party in each of its Subsidiaries.
4.2 Authorization of Borrowing, etc.
A. Authorization. The execution, delivery and performance by each Loan
Party of each Loan Document to which it is a party, have been duly authorized by
all necessary corporate action.
B. No Conflict. The execution, delivery and performance by each Loan
Party of each Loan Document to which it is a party, the application of the
proceeds of the Loans and the consummation of any other transactions
contemplated by the Loan Documents do not and will not (i) violate any provision
of law applicable to any Loan Party, the Certificate or Articles of
Incorporation or Bylaws (or other charter documents) of, or any order, judgment
or decree of any court or other agency of government binding on, such Loan
Party, (ii) except as disclosed on Schedule 4.2B annexed hereto, conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any Contractual Obligation of any Loan Party, (iii) result in or
require the creation or imposition of any Lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of any Loan Party or (iv)
require any approval of stockholders or any approval or consent of any Person
under any Contractual Obligation of any Loan Party, other than such approvals or
consents which have been previously obtained and described in a writing and
delivered to the Lenders no later than five Business Days prior to the Closing
Date and which are identified as being delivered pursuant to this Section 4.2B.
C. Governmental Consents. The execution, delivery and performance by
each Loan Party of each Loan Document to which it
<PAGE> 83
is a party and, the application of the proceeds of the Loans and the
consummation of any other transactions contemplated by the Loan Documents do not
and will not require any registration with, consent or approval of, or notice
to, or other action with or by, any federal, state or other governmental
authority or regulatory body or other Person except for filings, consents or
notices required by federal or state securities laws, all of which filings,
recordings, consents and notices have been obtained or made and all applicable
waiting periods relating thereto have expired.
D. Binding Obligation. This Agreement is and the other Loan Documents
when executed and delivered will be, the legally valid and binding obligations
of the applicable Loan Party, enforceable against the applicable Loan Party in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors rights generally and subject to the availability of equitable
remedies.
4.3 Financial Condition
The Borrowers have heretofore delivered to the Lenders, at the Lenders'
request, (i) a Consolidated balance sheet of the Company and its Subsidiaries
for the Fiscal Year ending January 28, 1996 and the related Consolidated
statements of income, retained earnings and cash flows for such Fiscal Year and
(ii) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 28, 1996. None of the Loan Parties has any material Contingent Obligation,
contingent liability or liability for taxes, long term lease or unusual forward
or long term commitment, which is not reflected in the foregoing financial
statements or the notes thereto.
4.4 Changes, Etc.
There has been no change in the business, operations, properties,
assets, liabilities, business condition (financial or otherwise) or business
prospects of the Company or any of its Subsidiaries since January 28, 1996,
which has been, either in any case or in the aggregate, materially adverse to
the Company and its Subsidiaries, taken as a whole. The destruction of the New
Orleans Distribution Center in March 1996 shall not be considered such a change.
Since January 28, 1996, none of the Company or any of its Subsidiaries, has
directly or indirectly
<PAGE> 84
declared, ordered, paid or made or set apart any payment (whether in cash or
securities) for any Restricted Junior Payment or agreed to do so except as
described in Schedule 4.4.
4.5 Litigation; Adverse Facts
Except as otherwise set forth in Schedule 4.5 annexed hereto, there is
no action, suit, proceeding or arbitration (whether or not purportedly on behalf
of any Loan Party) at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, pending against any Loan Party or, to the
knowledge of any Borrower, threatened against or affecting any Loan Party or any
property of any Loan Party which is reasonably likely to result in a Material
Adverse Effect, and there is no basis known to any Borrower for any such action,
suit or proceeding. No Loan Party is (i) in violation of any applicable law in a
manner which materially adversely affects or is reasonably likely to materially
adversely affect the business, operations, properties, assets, business
prospects or condition (financial or otherwise) of such Loan Party, or (ii)
subject to or in default with respect to any final judgment, writ, injunction,
decree, rule or regulation of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, in a manner which is reasonably likely to have a Material
Adverse Effect. There is no action, suit, proceeding or investigation pending
or, to the best knowledge of any Borrower, threatened against or affecting any
Loan Party which questions the validity or the enforceability of any Loan
Document.
4.6 Payment of Tax
All tax returns and reports of each Loan Party required to be filed by
such Loan Party have been timely filed (after giving effect to any extensions
for filing obtained), and all taxes, assessments, fees and other governmental
charges upon each Loan Party and their respective properties, assets, income and
franchises (if any) which are due and payable have been paid when due and
payable, except (i) to the extent contemplated by the proviso in Section 5.3A
hereof or (ii) to the extent that such taxes, assessments, fees and other
governmental charges or the failure to pay the same would not be material to the
condition of such Loan Party. The Borrowers know of no proposed tax assessment
against any Loan Party that would be material to the
<PAGE> 85
condition (financial or otherwise) of such Loan Party.
4.7 Materially Adverse Agreements; Performance
A. Agreements. No Loan Party is a party to or subject to any material
agreement or instrument or charter or other internal restriction materially
adversely affecting the business, properties, assets, operations, business
prospects or condition (financial or otherwise) of such Loan Party.
B. Performance. No Loan Party is in default in the performance,
observance or fulfillment of any of the material obligations, covenants or
conditions contained in any of its Contractual Obligations, and no condition
exists which, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not have a Material Adverse Effect.
4.8 Governmental Regulation
No Loan Party is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the
Investment Company Act of 1940 or to any United States federal or state statute
or regulation limiting its ability to incur Indebtedness for money borrowed or
to become contingently liable for the Indebtedness of another.
4.9 Securities Activities
No Loan Party is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any Margin Stock.
4.10 Employee Benefit Plans
A. Each Loan Party and each of its ERISA Affiliates is in compliance in
all material respects with any applicable provisions of ERISA and the
regulations and published interpretations thereunder with respect to all
Employee Benefit Plans.
B. No Termination Event has occurred or is reasonably expected to occur
with respect to any Pension Plan that could reasonably be expected to result in
a liability of any Loan Party
<PAGE> 86
or its ERISA Affiliates in excess of $1,000,000.
C. The actuarial present value of all benefit liabilities under all
Pension Plans (excluding in such computation Pension Plans with assets greater
than benefit liabilities) does not exceed the fair market value of the assets
allocable to such benefit liabilities. For purposes of the preceding sentence,
the terms "actuarial present value" and "benefit liabilities" shall have the
meanings specified in Section 4001 of ERISA.
4.11 Patents, Trademarks and Licenses
Except as disclosed on Schedule 4.11(i) annexed hereto, each Loan Party
possesses all of the licenses, patents, patent applications, copyrights, service
marks, trademarks and trade names necessary to continue to conduct its business
as heretofore conducted by it, all of which are set forth in Schedule 4.11(ii).
The Borrowers own all of the Specified Trademarks free and clear of all Liens,
claims, licenses and interests. All information furnished any or all of the
Lenders concerning the Specified Trademarks is, or will be at the time the same
is furnished, accurate and correct in all material respects. To the best of any
Borrower's knowledge and belief after due inquiry, no material infringement or
unauthorized use is presently made of any of the Specified Trademarks. Except as
disclosed on Schedule 4.11(i), there has not been to the Closing Date any claim
or litigation pending, or to the best of any Borrower's knowledge after diligent
inquiry, threatened by or against any Borrower relating to any of the Specified
Trademarks. Except as disclosed in Schedule 4.11(i), there are no agreements,
licenses or understandings permitting the use by any Person of any of the
Specified Trademarks or restricting in any manner any Borrower's use thereof.
The consummation of the transactions contemplated by this Agreement and the
other Loan Documents will not in any manner or to any extent materially impair
the ownership of or the license to use, as the case may be, any of the Specified
Trademarks.
4.12 Title to Properties; Liens
Each of the Company and its Subsidiaries has good, sufficient and legal
title to all of its properties and assets reflected in the Consolidated balance
sheet of the Company and its Subsidiaries as of January 31, 1996 or in the most
recent
<PAGE> 87
financial statements delivered pursuant to Section 5.1, except for assets
acquired or disposed of since the date of such financial statements and Capital
Leases of which the Company or its Subsidiaries is a lessee shown as being owned
by the Company or its Subsidiaries. Except for Permitted Liens and as permitted
by this Agreement, all such properties and assets are free and clear of Liens.
Each Borrower enjoys peaceful and undisturbed possession under all the leases to
which it is lessee. All of the material leases under which the Company or its
Subsidiaries is a lessee are valid and subsisting, no default of any Borrower
exists under any of them and, to the knowledge of the Borrowers, no default of
any other party exists under any of them.
4.13 Environmental Protection
Except as disclosed in Schedule 4.13 annexed hereto:
(i) The operations of the Company and its Subsidiaries
comply in all material respects with all Hazardous Materials
Laws;
(ii) The Company and its Subsidiaries have obtained all permits,
licenses and approvals under all Hazardous Materials Laws necessary for their
respective operations, and all such permits, licenses and approvals are in
good standing and the Company and its Subsidiaries are in compliance with all
material terms and conditions of such permits, licenses and approvals;
(iii)The Company and its Subsidiaries and all of their present property
or operations, and to the best of any Borrower's knowledge, their past
property or operations, are not subject to any outstanding written order from
or agreement with any Governmental Authority or other Person and are not
subject to any judicial or docketed administrative proceeding or
investigation, respecting (a) any specific existing, potential or alleged
violation of any Hazardous Materials Laws, (b) any Remedial Action which has
or could reasonably be expected to have a Material Adverse Effect or (c) any
material Environmental Liabilities and Costs;
(iv) None of the Company or any of its Subsidiaries has ever been or is
now a treatment, storage or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.,
related regulations or
<PAGE> 88
any other state equivalent;
(v) None of the Company or any of its Subsidiaries has filed or should
have filed any notice required under any Hazardous Materials Laws reporting a
Release into the environment which Release has or would have any reasonable
likelihood of having a Material Adverse Effect and none of the Company or any
of its Subsidiaries has filed or should have filed any notice pursuant to
Section 103(a) or (c) of the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA");
(vi) There is not now on or in any property of the Company or any of its
Subsidiaries:
(a) any underground storage tanks or surface impoundments,
(b) any Hazardous Materials, or
(c) any polychlorinated biphenyls (PCBs) used in electrical or
other equipment,
the presence of which has any reasonable likelihood of having a Material
Adverse Effect;
(vii) None of the Company or any of its Subsidiaries has received (i)
any notice or claim to the effect that it is or may be liable to any Person
as a result of a Release or threatened Release which Release or threatened
Release has any reasonable likelihood of having a Material Adverse Effect, or
(ii) any letter or request for information under Section 104 of CERCLA or
comparable State laws;
(viii) To the best knowledge of the Company and its Subsidiaries, there
are no past or present conditions or circumstances which may give rise to any
Environmental Liabilities or Costs arising from the operations of the Company
or any Subsidiary of the Company, including but not limited to off-site
disposal of any Hazardous Materials by or on behalf of the Company or any of
its Subsidiaries, which in the aggregate have any reasonable likelihood of
having a Material Adverse Effect;
(ix) No Environmental Lien (whether recorded or
<PAGE> 89
unrecorded) has attached to any real or personal property owned, used or
operated by the Company or any of its Subsidiaries which individually or in
the aggregate has a reasonable likelihood of having a Material Adverse
Effect; and
(x) The Company and each of its Subsidiaries is in compliance in all
material respects with any applicable financial responsibility requirements
of all Hazardous Materials Laws, including without limitation those contained
in 40 C.F.R., parts 264 and 265, subpart H, and any state equivalents.
4.14 Labor Matters
There are no strikes or other labor disputes or grievances pending or,
to the knowledge of any Borrower, threatened against any Borrower or its
Subsidiaries that could reasonably be expected to have a Material Adverse
Effect.
4.15 Disclosure
As of the Closing Date and as of any date thereafter on which
representations and warranties are made, no representation or warranty of any
Loan Party contained in this Agreement or any other document, certificate or
written statement furnished to the Administrative Agent or the Lenders, or any
of them, by or on behalf of such Loan Party for use in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
(known to any Borrower in the case of any document not furnished by it)
necessary in order to make the statements contained herein or therein not
misleading. The projections and pro forma financial information contained in
such materials are based upon good faith estimates and assumptions believed by
such Persons to be reasonable at the time made, it being recognized by the
Lenders that such projections as to future events are not to be viewed as facts
or guarantees and that actual results during the period or periods covered by
any such projections may differ from the projected results. There is no fact
known to any Borrower (other than matters of a general economic nature) which
could have a Material Adverse Effect, which has not been disclosed herein or in
such other documents, certificates and statements furnished to the Lenders for
use in connection with the transactions contemplated hereby.
<PAGE> 90
4.16 No Partnerships or Joint Ventures
No Loan Party has any interest in or is party to any partnership, joint
venture or similar arrangement, whether in corporate, partnership or other legal
form.
Section 5. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, so long as any portion of the
aggregate Commitments hereunder shall be in effect and until payment in full of
all of the Loans, and all other amounts owing hereunder and the expiration of
all Letters of Credit, unless Requisite Lenders shall otherwise give prior
written consent in accordance with Section 10.1 of this Agreement, the Borrowers
shall perform all covenants in this Section 5.
5.1 Financial Statements and Other Reports
The Borrowers will maintain a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP applied on a consistent basis.
The Borrowers will deliver to the Administrative Agent with sufficient copies
for the Lenders and the Administrative Agent:
(i) as soon as practicable and in any event within 45 days (or 60 days
if an extension from the SEC for the filing of the Company's Quarterly Report
on Form 10-Q has been obtained; provided that the Company shall give the
Administrative Agent prompt written notice of any such extension requested)
(in the case of the first three fiscal quarters) after the end of each of the
first three fiscal quarters in each Fiscal Year, the Consolidated balance
sheets of the Company as at the end of such period and the related
Consolidated statements of income and retained earnings of the Company for
such fiscal quarter and the related statement of cash flow for the period
from the beginning of the then current Fiscal Year to the end of such fiscal
quarter, setting forth in comparative form the corresponding figures for the
corresponding periods of the previous Fiscal Year and the corresponding
figures from the Consolidated plan for such fiscal quarter, all in reasonable
detail and certified by the chief financial officer, the controller or the
treasurer of
<PAGE> 91
the Company, that they fairly present the financial condition of the Company
and its Subsidiaries, as at the dates indicated and the results of their
operations and changes in their financial position for the periods indicated,
subject to changes resulting from audit and normal year-end adjustment;
(ii) as soon as practicable and in any event within 90 days (or 105 days
if an extension from the SEC for the filing of the Company's Annual Report on
Form 10-K has been obtained; provided that the Company shall give the
Administrative Agent prompt written notice of any such extension requested)
after the end of each Fiscal Year, (a) the Consolidated balance sheet of the
Company as at the end of such year and the related Consolidated statements of
income, retained earnings and cash flow of the Company for such Fiscal Year,
setting forth in comparative form the corresponding figures from the
Consolidated plan and the audited financial statements from the previous
Fiscal Year, all in reasonable detail, and (b) in the case of such
Consolidated financial statements, accompanied by a report thereon of an
independent certified public accountant of recognized national standing
selected by the Company, which report shall be unqualified as to going
concern and scope of audit and shall state that such Consolidated financial
statements present fairly the financial position of the Company and its
Subsidiaries as at the dates indicated and the results of their operations
and changes in their financial position for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years (except
as otherwise stated therein) and that the examination by such accountants in
connection with such Consolidated financial statements has been made in
accordance with generally accepted auditing standards;
(iii) together with each delivery of financial statements of the Company
and its Subsidiaries pursuant to Sections (i) and (ii) above, (a) an
Officers' Certificate of the Borrowers stating that the signers have reviewed
the terms of this Agreement and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions and condition
of the Company and its Subsidiaries during the accounting period covered by
such financial statements and that such review has not disclosed the
existence during or at the end of such accounting period, and that the
signers do not have knowledge of the existence as at the date of the
Officers' Certificate, of any condition or event that
<PAGE> 92
constitutes an Event of Default or Potential Event of Default, or, if any
such condition or event existed or exists, specifying the nature and period
of existence thereof and what action the Borrowers have taken, are taking and
propose to take with respect thereto; (b) a Compliance Certificate
demonstrating in reasonable detail compliance by the Borrowers at the end of
such accounting periods with the restrictions contained in Sections 6.1, 6.3,
6.5, 6.6, 6.7, 6.8, 6.9 and 6.13 and, if not specified in the financial
statements delivered pursuant to subdivision (i) or (ii) above, as the case
may be, specifying the aggregate amount of interest paid or accrued by the
Company and its Subsidiaries, and the aggregate amount of depreciation,
depletion and amortization charged on the books of the Company and its
Subsidiaries during such accounting period; and (c) an Applicable Margin
Certificate.
(iv) together with each delivery of audited financial statements of the
Company and its Subsidiaries pursuant to subdivision (ii) above, a written
statement by the independent public accountants of recognized national
standing giving the report thereon (a) stating that their audit examination
has included a review of the terms of this Agreement as they relate to
accounting matters, (b) stating whether, in connection with their audit
examination, any condition or event that constitutes an Event of Default or
Potential Event of Default has come to their attention, and if such a
condition or event has come to their attention, specifying the nature and
period of existence thereof; provided that such accountants shall not be
liable by reason of any failure to obtain knowledge of any such Event of
Default or Potential Event of Default with respect to accounting matters that
would not be disclosed in the course of their audit examination, and (c)
stating that based on their audit examination nothing has come to their
attention that causes them to believe that the information contained in the
certificate delivered therewith pursuant to subdivision (iii) above is not
correct;
(v) promptly upon receipt thereof, copies of all significant reports
submitted to any of the Company and its Subsidiaries by independent public
accountants of recognized national standing in connection with each annual,
interim or special audit or review of the financial statements or practices
of the Company and its Subsidiaries, made by such accountants, including,
without limitation, the comment letter
<PAGE> 93
submitted by such accountants to management in connection with their annual
audit;
(vi) promptly upon their becoming available but no later than 15 days
after any filing hereof with any regulatory agency, copies of (a) all
financial statements, reports, notices and proxy statements sent or made
available generally by any of the Company and its Subsidiaries to their
security holders, (b) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by any of the Company and its
Subsidiaries with any securities exchange or with the SEC or any governmental
or private regulatory authority and (c) all press releases and other
statements regarding management or financial matters made available generally
by any of the Company and its Subsidiaries to the public concerning material
developments in the business of any Loan Party;
(vii) promptly upon any officer of any Borrower obtaining knowledge (a)
that a condition or event has occurred and is continuing that constitutes an
Event of Default or Potential Event of Default, or becoming aware that any
Lender or the Agent has given any notice or taken any other action with
respect to a claimed Event of Default or Potential Event of Default under
this Agreement, (b) that any Person has given any notice to any Borrower or
any of its Subsidiaries or taken any other action with respect to a claimed
default or event or condition of the type referred to in Section 7.4, or (c)
of a material adverse change in the business, operations, properties, assets
or condition (financial or otherwise) of the Company and its Subsidiaries
taken as a whole, an Officers' Certificate specifying the nature and period
of existence of such condition or event, or specifying the notice given or
action taken by such holder or Person and the nature of such claimed default,
Event of Default, Potential Event of Default, event or condition, and what
action the Borrowers have taken, are taking and propose to take with respect
thereto;
(viii) promptly upon any officer of any Borrower obtaining knowledge of
(a) the institution of, or nonfrivolous threat of, any action, suit,
proceeding, governmental investigation or arbitration against or affecting
any Borrower or any of its Subsidiaries or any property of any Borrower or
any of its Subsidiaries not previously disclosed by the Borrowers to the
<PAGE> 94
Lenders, or (b) any material development in any such action, suit,
proceeding, governmental investigation or arbitration, that, in either case:
(y) creates a reasonable possibility of a Material Adverse Effect;
or
(z) seeks to enjoin or otherwise prevent the consummation of, or to
recover any damages in excess of $1,000,000 or obtain relief as a result
of, the Loans;
the Borrowers shall promptly give notice thereof to the Administrative Agent
and the Lenders and provide such other information as may be reasonably
available to it to enable the Lenders and their counsel to evaluate such
matters;
(ix) promptly upon becoming aware that one of the following has occurred
or is about to occur: (a) Termination Event, or (b) "prohibited transaction,"
as such terms are defined in Section 4975 of the Internal Revenue Code or
Section 406 of ERISA, in connection with any Employee Benefit Plan or any
trust created thereunder, a written notice specifying the nature thereof,
what action the Borrowers have taken, are taking or propose to take with
respect thereto, and, when known, any action taken or threatened by the
Internal Revenue Service, the Department of Labor, or the PBGC with respect
thereto;
(x) with reasonable promptness copies of (a) all notices received by any
Borrower or any of its ERISA Affiliates of the PBGC's intent to terminate any
Pension Plan or to have a trustee appointed to administer any Pension Plan;
(b) each Schedule B (Actuarial Information) to the annual report (Form 5500
Series) filed by any Borrower or any of its ERISA Affiliates with the
Internal Revenue Service with respect to each Pension Plan; and (c) all
notices received by any Borrower or any of its ERISA Affiliates from a
Multiemployer Plan sponsor concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA;
(xi) as soon as practicable and in any event within 90 days after the
beginning of each Fiscal Year, a Consolidated plan and financial forecast for
the Company and its Subsidiaries for the then current Fiscal Year and each
subsequent Fiscal Year through the Fiscal Year in which the
<PAGE> 95
Revolver Maturity Date occurs, including without limitation, a forecasted
Consolidated balance sheet and Consolidated statements of income and cash
flow for each such Fiscal Year, each such plan and forecast to be in form
similar to the plans and forecasts delivered to the Administrative Agent and
the Lenders prior to the Closing Date;
(xii) within 10 Business Days of the end of any Clean-Down Period, an
Officers' Certificate identifying the beginning and ending dates of such
Clean-Down Period and certifying that Clean-Down Debt outstanding during such
Clean-Down Period did not at any time exceed the level required pursuant to
Section 2.1A;
(xiii) as soon as practicable, and in any event within 90 days after the
last day of each Fiscal Year, a statement of Inventory for each of PNS and
WCL in form and substance reasonably satisfactory to the Lenders and the
Administrative Agent;
(xiv) with reasonable promptness, such other information and data with
respect to any of the Company and its Subsidiaries as from time to time may
be reasonably requested by any Lender or the Administrative Agent.
5.2 Corporate Existence, etc.
Each Borrower will, and will cause each of its Subsidiaries to, at all
times preserve and keep in full force and effect its corporate existence,
licenses, bonds, franchises, leases, patents, trademarks, contracts and other
rights material to its business. Each of PNS and WCL will at all times be a
wholly-owned Subsidiary of the Company. PNS and WCL will preserve and retain at
all times their separate corporate existence and keep separate books, records
and accounts identifying their respective assets and liabilities.
5.3 Payment of Taxes and Claims; Tax Consolidation
A. Payment of Taxes and Claims. Each Borrower will, and will cause each
of its Subsidiaries to, pay all taxes, assessments and other governmental
charges imposed upon it or any of its material properties or assets or in
respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon, and all claims (including, without
<PAGE> 96
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a Lien upon any
of its material properties or assets, prior to the time when any penalty or fine
shall be incurred with respect thereto; provided that no such tax, assessment,
charge or claim need be paid if being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if such reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor.
B. Tax Consolidation. No Borrower will, nor will it permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person (other than the Company or any of its Subsidiaries)
unless that other Person shall have agreed in writing with the Borrowers that
the Borrowers' liability with respect to taxes as a result of the filing of any
such consolidated income tax return with such Person shall not be greater, nor
the receipt of any tax benefits less, than they would have been had the
Borrowers continued to file an unconsolidated income tax return.
5.4 Maintenance of Properties; Insurance
Each Borrower will maintain or cause to be maintained in good repair,
working order and condition all material properties used or useful in the
business of the Company and its Subsidiaries and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof.
Each Borrower will maintain or cause to be maintained, with financially sound
and reputable insurers, insurance with respect to its properties and business
and the properties and business of its Subsidiaries against loss or damage of
the kinds customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such types
and in such amounts as are customarily carried under similar circumstances by
such other corporations. On or before the end of the first fiscal quarter of
each Fiscal Year, the Borrowers shall submit to the Administrative Agent (i) an
Officers' Certificate setting forth in detail the type and amount of insurance
maintained pursuant to this Section 5.4 and (ii) a certificate from an
independent insurance brokerage confirming the insurance coverage required to be
maintained by the preceding sentence.
<PAGE> 97
5.5 Equal Security for Obligations; No Further Negative Pledges
A. If any Borrower or any of its Subsidiaries shall create or assume any
Lien upon any of its property or assets, whether now owned or hereafter
acquired, other than Liens excepted by the provisions of Section 6.2, it shall
make or cause to be made effective provision whereby the Obligations will be
secured by such Lien equally and ratably with any and all other Indebtedness
thereby secured as long as any such Indebtedness shall be secured; provided
that, notwithstanding the foregoing, this covenant shall not be construed as a
consent by the Requisite Lenders to any creation or assumption of any such Lien
not permitted by the provisions of Section 6.2.
B. Except with respect to (i) lease provisions prohibiting the creation
or assumption of Liens upon the particular property subject to such leases and
(ii) specific property encumbered to secure payment of particular Indebtedness,
none of the Borrowers and any of their respective Subsidiaries shall enter into
any agreement (other than the Loan Documents) prohibiting the creation or
assumption of any Lien upon its properties or assets, whether now owned or
hereafter acquired.
5.6 Inspection; Records, etc.
The Borrowers will permit any Persons designated by the Administrative
Agent or by any Lender to visit and inspect any of the properties of the Company
and its Subsidiaries including the Company and its Subsidiaries' financial and
accounting records, and to make copies and take extracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
officers and independent public accountants, all during regular business hours,
upon reasonable notice to the office of the chief financial officer or
controller of the Company and as often as may be reasonably requested.
5.7 Compliance with Laws, etc.
Each Borrower shall, and shall cause its Subsidiaries to, (i) comply
with all applicable laws, rules, regulations and orders of all governmental
authority, noncompliance of which could materially adversely affect or impair
the Lenders' rights, remedies or privileges under or enforceability of any of
the Loan Documents, including, without limitation, the Fair Labor
<PAGE> 98
Standards Act, and (ii) exercise all due diligence in order to comply with the
requirements of all other applicable laws, rules, regulations and orders of any
governmental authority (including without limitation, all Hazardous Materials
Laws), noncompliance with which could reasonably be expected to result in a
Material Adverse Effect.
5.8 Further Assurances
At any time or from time to time upon the request of any Lender, each
Borrower shall execute and deliver such further documents and do such other acts
and things as any Lender or the Administrative Agent may reasonably request in
order to effect fully the purposes of this Agreement and to provide for payment
of the Loans and interest thereon, in accordance with the terms of this
Agreement.
5.9 Environmental Notice and Inspection
Each Borrower shall:
(i) Exercise, and shall cause each of its Subsidiaries to exercise, all
due diligence in order to comply and cause (a) all tenants under any lease or
occupancy agreement affecting any portion of any property owned, used, leased or
operated by the Company or any of its Subsidiaries and (b) all other Persons on
or occupying such property, to comply with all Hazardous Materials Laws;
(ii) Notify the Lenders and the Administrative Agent in writing and in
reasonable detail, promptly, and in any event within 30 days of the Company or
any of its Subsidiaries receiving any of the following:
(a) written notice or claim to the effect that the Company or any of its
Subsidiaries is or may be liable to any Person as a result of the Release or
threatened Release or has or is in violation of any Hazardous Materials Laws,
in each case if the same has any reasonable likelihood of having a Material
Adverse Effect;
(b) written notice that any real or personal property of the Company or
any of its Subsidiaries is subject to an Environmental Lien; and
<PAGE> 99
(c) written notice of the commencement of any judicial or administrative
proceeding or investigation alleging a violation of any Hazardous Materials
Laws or subjecting the Company or any of its Subsidiaries to Environmental
Liabilities and Costs, in each case if the same has any reasonable likelihood
of having a Material Adverse Effect;
(iii) Notify the Lenders and the Administrative Agent promptly and in
any event within 30 days, of:
(a) any Release required to be reported to any federal, state or local
governmental or regulatory agency under any applicable Hazardous Materials
Laws;
(b) any and all written communications with respect to any Environmental
Liabilities and Costs that are reasonably likely to have a Material Adverse
Effect or any Release required to be reported to any federal, state or local
governmental or regulatory agency;
(c) any Remedial Action taken by the Company, any of its Subsidiaries or
any other Person in response to (1) any Hazardous Materials on, under or
about any property owned, used or operated by the Company or any of its
Subsidiaries, the existence of which is reasonably likely to result in a
Material Adverse Effect or (2) any Environmental Liabilities and Costs that
are reasonably likely to result in a Material Adverse Effect;
(d) The Company's or any of its Subsidiaries' discovery of any
occurrence or condition on any real property adjoining or in the vicinity of
any facility owned, used or operated by the Company or any of its
Subsidiaries that could reasonably be expected to cause such property to be
subject to any restrictions on the ownership, occupancy, transferability or
use thereof under any Hazardous Materials Laws which restrictions,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect;
(e) any request for information from any governmental agency that
suggests that such agency is investigating whether the Company or any of its
Subsidiaries may be potentially responsible for a Release;
(f) any proposed acquisition of stock, assets, real
<PAGE> 100
estate, or leasing of property by the Company or any of its Subsidiaries that
could reasonably be expected to subject the Company or any of its
Subsidiaries to a Material Adverse Effect resulting from Environmental
Liabilities and Costs;
(g) any proposed action taken by the Company or any of its Subsidiaries
to commence manufacturing, industrial, or other operations that could
reasonably be expected to subject the Company or any of its Subsidiaries to
additional laws, rules or regulations, including but not limited to the
obtaining of environmental, health, or safety permits, licenses or approvals
or Environmental Liabilities and Costs, that could reasonably be expected to
have a Material Adverse Effect.
(iv) Submit, upon written request by the Administrative Agent, a report
providing an update of the status of any environmental, health or safety
compliance, hazard or liability issue identified in any notice or report
required pursuant to this Section 5.9 and any other environmental, health or
safety compliance obligation, remedial obligation or liability that could have a
Material Adverse Effect.
Section 6. NEGATIVE COVENANTS
Each Borrower agrees that, so long as any portion of the aggregate
Commitments shall be in effect and until payment in full of all of the Loans and
all other amounts owing hereunder and the expiration of all Letters of Credit,
unless the Lenders shall otherwise give prior written consent in accordance with
Section 10.1 of this Agreement, the Borrowers shall perform all covenants in
this Section 6.
6.1 Indebtedness
Each Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume, guaranty, or otherwise become or
remain directly or indirectly liable with respect to, any Indebtedness, except:
(i) The Borrowers may become and remain liable with respect to
Capital Leases permitted by Sections 6.9 and 6.13;
(ii) The Borrowers may become and remain liable
<PAGE> 101
with respect to Contingent Obligations permitted by Section 6.4 and, upon any
obligations actually arising pursuant thereto, the Indebtedness corresponding
to the Contingent Obligations so extinguished;
(iii) The Borrowers may remain liable with respect to the Existing
Indebtedness described in Schedule 6.1 annexed hereto and any renewals or
extensions thereof; provided that any such renewal or extension does not (a)
increase the principal amount of Indebtedness outstanding immediately prior
to such renewal or extension and (b) have terms and conditions more onerous
to the Borrowers than those terms and conditions in existence immediately
prior to such renewal or extension;
(iv) The Borrowers may become and remain liable with respect to the
Obligations;
(v) Each Borrower may become and remain liable with respect to
Indebtedness owing to any other Borrower, provided that such Indebtedness is
hereby subordinated in right of payment to the payment in full of the
Obligations on terms and conditions satisfactory to the Lenders;
(vi) The Borrowers may become and remain liable with respect to
Indebtedness assumed or incurred in connection with the acquisition of
property permitted under Sections 6.7 and 6.13; provided that the amount of
Indebtedness assumed or incurred in connection with any such acquisition does
not exceed (a) 100% of the purchase price of such acquired property in the
case of equipment acquisitions and (b) 85% of the purchase price of such
acquired property in the case of real property acquisitions; provided,
further, that in connection with acquisitions of up to four stores per Fiscal
Year, up to 100% of the purchase price thereof may be assumed or incurred in
connection with such acquisitions so long as the aggregate principal amount
of such Indebtedness does not exceed $8,000,000;
(vii) The Borrowers may become and remain liable with respect to
interest rate protection agreements, including without limitation, Interest
Rate Agreements;
(viii) The Borrowers may become and remain liable with respect to
Indebtedness in connection with the financing of insurance premiums of the
Borrowers in an aggregate amount not
<PAGE> 102
to exceed $1,000,000 at any time outstanding;
(ix) The Borrowers may become and remain liable with respect to
Indebtedness consisting of promissory notes payable to insurance companies or
their subsidiaries in connection with workers' compensation insurance;
provided that the aggregate principal amount of such notes shall not exceed
the aggregate face amount of all Letters of Credit issued for the benefit of
such insurance companies or their subsidiaries in connection with such
workers' compensation;
(x) The Borrowers may become and remain liable with respect to
unsecured Indebtedness not exceeding $40,000,000 in the aggregate at any time
outstanding; and
(xi) The Borrowers may become and remain liable with respect to (a)
deed of trust/mortgage financing or sale and leaseback transactions relating
to properties utilized in the ordinary course of the Borrowers' business,
having a maturity or an initial lease term of not less than 15 years, and/or
(b) unsecured Indebtedness having an average life and final maturity date
after the Revolver Maturity Date; provided, however, that the sum of (A) the
Net Cash Proceeds of sale and leaseback transactions plus (B) the amount of
other Indebtedness described in clauses (a) and (b) above shall not exceed
$60,000,000 in the aggregate at any time outstanding; provided, further, that
the Loans are prepaid, and the Revolving Commitments are reduced, as required
by Section 2.6B in connection with any such transaction.
6.2 Liens
Each Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or permit to exist any Lien on or
with respect to any property or asset of a Borrower or any of its Subsidiaries,
whether now owned or hereafter acquired, or any income or profits therefrom,
except:
(i) Permitted Liens;
(ii) Purchase money Liens securing Indebtedness permitted pursuant
to Section 6.1(vi); provided that such Liens shall extend only to the
property financed;
<PAGE> 103
(iii) Liens existing on the date hereof described in Schedule 6.1
annexed hereto securing Indebtedness permitted pursuant to Section 6.1(iii);
and
(iv) Liens securing Indebtedness permitted pursuant to Section
6.1(xi)(a); provided, that such Liens shall extend only to the property
financed.
6.3 Investments
Each Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, except:
(i) The Borrowers may make and own Investments in Cash and Cash
Equivalents;
(ii) The Borrowers may make and own Investments described in
Schedule 6.3 annexed hereto existing on the date hereof;
(iii) The Borrowers may make and own Investments consisting of the
intercompany Indebtedness permitted by Section 6.1(v);
(iv) The Company may own all of the outstanding capital stock of
PNS and WCL;
(v) The Borrowers may make and own Investments received in
connection with the bankruptcy or reorganization of suppliers and customers
and in settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(vi) The Borrowers may make advances secured by Liens on
residential real estate to their respective officers and employees in the
ordinary course of business in an aggregate amount not exceeding $750,000 at
any time; provided that up to $250,000 of such advances may be unsecured;
(vii) The Borrowers may make and own Investments to the extent such
Investments are acquisitions permitted under Section 6.7;
(viii) The Borrowers may make and own Investments
<PAGE> 104
in the assets or common or preferred stock of Persons primarily engaged in
the business of discount retailing, the aggregate consideration (including
assumed Indebtedness) for which shall not exceed $15,000,000; provided that
such consideration, together with the aggregate Cumulative Stock Buyback
Amount since the Closing Date shall not exceed $60,000,000 in the aggregate;
provided, further, that no Event of Default or Potential Event of Default has
occurred and is continuing or would result therefrom; and
(ix) In addition to the foregoing Investments permitted by clauses
(i) - (viii) above, the Borrowers may make and own Investments not exceeding
$1,000,000 at any time outstanding.
6.4 Contingent Obligations
Each Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or become or be liable with respect to any
Contingent Obligation except:
(i) The Borrowers may be liable with respect to guaranties
resulting from endorsement of negotiable instruments for collection in the
ordinary course of business;
(ii) The Borrowers may be liable with respect to contingent
reimbursement obligations with respect to Letters of Credit issued pursuant
hereto;
(iii)The Borrowers may be liable with respect to Contingent
Obligations existing on the date hereof described in Schedule 6.4 annexed
hereto;
(iv) Each Borrower may be liable with respect to guaranties of
Indebtedness of another Borrower; provided that such Indebtedness is
permitted under Section 6.1;
(v) The Borrowers may be liable with respect to forward purchase
contracts or similar hedging instruments in connection with the purchase of
up to one year's supply of commodities used in the ordinary course of the
business of the Borrowers; and
(vi) The Borrowers may be liable with respect to percentage rents
incurred under leases permitted hereunder.
<PAGE> 105
6.5 Restricted Junior Payments
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for
(by way of defeasance or otherwise) any Restricted Junior Payment; provided,
that so long as no Event of Default or Potential Event of Default has
occurred and is continuing, (i) the Subsidiaries of the Company may make
Restricted Junior Payments to the Company and (ii) the Company may make
Restricted Junior Payments to purchase outstanding capital stock of the
Company in open market purchases or otherwise or to pay cash dividends to its
shareholders so long as after giving effect to such proposed Restricted
Junior Payments, the aggregate of all such Restricted Junior Payments made
pursuant to this clause (ii) since the Closing Date does not exceed
$60,000,000.
6.6 Financial Covenants
A. Minimum Consolidated Tangible Net Worth. The Borrowers will not
permit, on any Fiscal Quarter End during the period from the Closing Date until
the Revolver Maturity Date, Consolidated Tangible Net Worth to be less than the
sum of $204,000,000, plus 50% of Consolidated Net Income (with no deduction for
losses) from July 28, 1996 to such Fiscal Quarter End, minus the Cumulative
Stock Buyback Amount.
B. Minimum Consolidated Fixed Charge Coverage Ratio. The Borrowers will
not permit, on any Fiscal Quarter End during the period from the Closing Date
until the Revolver Maturity Date, the Consolidated Fixed Charge Coverage Ratio
for the four fiscal quarters ending on such Fiscal Quarter End to be less than
1.40 to 1.00 on the Fiscal Quarter End.
C. Maximum Leverage Ratio. The Borrowers will not permit, on any Fiscal
Quarter End occurring during the period from the Closing Date to the Revolver
Maturity Date, commencing with the fiscal quarter ending on October 27, 1996,
the Leverage Ratio to be more than (a) 0.55 to 1.00 on each Fiscal Quarter End
through and including January 31, 1999, and (b) 0.50 to 1.00 on each Fiscal
Quarter End thereafter.
6.7 Restriction on Fundamental Changes
None of the Borrowers or any of their respective
<PAGE> 106
Subsidiaries will enter into any transaction of merger or consolidation, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), or acquire by purchase or otherwise all or substantially all the
business, property or fixed assets of, or stock or other evidence of beneficial
ownership of, any Person, in each case, without the prior written consent of
Requisite Lenders; provided that the Borrowers may make Investments to the
extent permitted under Section 6.3(viii).
6.8 Restriction on Asset Sales
None of the Borrowers or any of their respective Subsidiaries will
convey, sell, lease, sublease, transfer or otherwise dispose of, any of its
business, property or fixed assets, whether now owned or hereafter acquired;
except that each Borrower and its Subsidiaries may:
(i) sell or dispose of Inventory and worn-out or obsolete equipment
in the ordinary course of business;
(ii) consummate any Asset Sale in a single transaction or a series
of related transactions so long as (a) such Asset Sale is an arms-length
transaction, (b) the sales price equals or exceeds the estimated fair market
value of the assets sold as determined in good faith by the selling Borrower
and (c) after giving effect to such Asset Sale, the aggregate sales price for
all such Asset Sales consummated during the then current Fiscal Year does not
exceed $7,500,000; provided that if, after giving effect to such Asset Sale,
the aggregate sales prices for all such Asset Sales consummated in the then
current Fiscal Year exceeds $3,000,000, the Borrowers shall give notice to
the Administrative Agent of all such Asset Sales and each other Asset Sale
thereafter consummated during such Fiscal Year;
(iii) enter into sale-leaseback transactions permitted by Section
6.9;
(iv) lease or sublease to a third Person buildings or portions
thereof (and any related parking lots) for use in a manner substantially
similar to the Company's past use of such property or other uses customarily
found in shopping centers; and
(v) renew, extend or replace the real property
<PAGE> 107
leases existing on the Closing Date; provided that any property subject to
any such replacement lease shall not be used in any manner not substantially
similar to the use of such property by the previous lessee or for any use not
customarily found in shopping centers.
6.9 Sales and Lease-Backs
Each Borrower will not, and will not permit any of its Subsidiaries,
directly or indirectly, to become or remain liable as lessee or as guarantor or
other surety with respect to any lease with any Person, whether an Operating
Lease or a Capital Lease, of any property (whether real or personal or mixed)
whether now owned or hereafter acquired, (i) which a Borrower or any of its
Subsidiaries has sold or transferred or is to sell or transfer to such Person or
such Person's Affiliate, or (ii) which a Borrower or any such Subsidiary intends
to use for substantially the same purpose as any other property which has been
or is to be sold or transferred by the Company or any such Subsidiary to such
Person or such Person's Affiliate in connection with such lease; provided that
Borrowers may enter into any sale and leaseback of real property, improvements
thereon and equipment of the Borrowers entered into to finance or refinance the
purchase price or construction of such real property, improvements and
equipment; provided that the Net Cash Proceeds of each such Asset Sale described
in this Section 6.9 will not cause the limit set forth in Section 6.1(xi) to be
exceeded.
6.10 Sale or Discount of Receivables
Each Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, (i) sell with recourse, or discount or otherwise sell
for less than the face value thereof, notes or accounts receivable or (ii) sell,
assign, pledge, hypothecate, transfer or otherwise dispose of any of their
rights and claims to the payment or receipt of money or other forms of
consideration of any kind other than pursuant to the Loan Documents.
6.11 Transactions with Stockholders and Affiliates
Each Borrower will not, and will not permit any of its Subsidiaries to,
enter into any transaction (including, without limitation, the purchase, sale,
lease or exchange of any property
<PAGE> 108
or the rendering of any service) with any holder of 5% or more of any class of
equity securities of a Borrower or with any Affiliate of a Borrower or any such
holder on terms that are less favorable to a Borrower or any such Subsidiary
than those which might be obtained at the time from Persons who are not such a
holder or Affiliate.
6.12 Disposal of Subsidiary Stock
Except as permitted by Section 6.7 and 6.8, the Company not,
(i) directly or indirectly sell, assign, pledge or otherwise encumber or
dispose of any shares of capital stock or other equity securities of (or
warrants, rights or options to acquire shares or other equity securities of)
any of its Subsidiaries, except to qualify directors if required by
applicable law; or
(ii) permit any of its Subsidiaries directly or indirectly to sell,
assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other securities of (or warrants, rights or options to acquire
shares or other securities of) any of its Subsidiaries, except to the
Company, another Subsidiary of the Company, pursuant to the Collateral
Documents or to qualify directors if required by applicable law.
6.13 Limitation on Consolidated Capital Expenditures
Each Borrower will not, and will not permit its Subsidiaries to, incur
aggregate Consolidated Capital Expenditures during any Fiscal Year in excess of
$30,000,000; provided that any amounts not used in one Fiscal Year may be
carried forward and used during the first six months of the succeeding Fiscal
Year in addition to the amount set forth above for such succeeding Fiscal Year.
6.14 Conduct of Business
Each Borrower will not, and will not permit any of its Subsidiaries to,
engage in any business other than the business engaged in by it on the date
hereof and any businesses or activities substantially similar or related
thereto; provided, that PNS will not engage in any business other than that of a
<PAGE> 109
retail merchant and WCL will not engage in any business other than that of a
wholesaler. The Company will not engage in any business other than owning the
outstanding capital stock of its wholly owned Subsidiaries.
6.15 Independence of Covenants
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitations of, another covenant shall not avoid the occurrence of an Event of
Default or Potential Event of Default if such action is taken or condition
exists.
6.16 Use of Proceeds
The Borrowers will not use all or any portion of the proceeds of any
Loan or Letter of Credit for any purpose other than the purposes set forth in
Section 2.14.
6.17 Accounting Changes
The Borrowers shall not, and shall not suffer or permit any Subsidiary
to, make any significant change in accounting treatment or reporting practices,
except as required by GAAP, or change the fiscal year of the Company or of any
Subsidiary.
Section 7. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default") shall
occur and be continuing:
7.1 Failure to Make Payments When Due
The Borrowers shall fail to pay any principal of any Loan or shall fail
to pay any other amount due under this Agreement (other than interest on the
Loans and fees due to the Lenders hereunder) when the same becomes due and
payable; or the Borrowers shall fail to pay any interest on any Loan or any fees
due to the Lenders under this Agreement within five days after the same becomes
due and payable; or
7.2 Breach of Warranty
<PAGE> 110
Any representation or warranty made or deemed made by any Loan Party (or
any of its officers) in any Loan Document or certificate or other writing
delivered pursuant thereto shall prove to have been incorrect or misleading in
any material respect when made or deemed made; or
7.3 Breach of Covenants
Any Loan Party shall fail to perform or observe any term, covenant or
agreement contained in Section 5 or Section 6; or any Loan Party shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement or any other Loan Document on its part to be performed or observed if
such failure shall remain unremedied or unwaived for 10 days after the earlier
of (a) the date upon which any Responsible Officer of any of the Borrowers knew
of such failure or (b) the date upon which written notice thereof shall have
been given to such Loan Party by the Administrative Agent; or
7.4 Breach of Other Agreements
Any Loan Party shall fail to pay any portion of principal of or premium
or interest on any Indebtedness, which Indebtedness is in an aggregate principal
amount greater than $1,000,000 (but excluding Indebtedness outstanding
hereunder) or shall fail to pay any portion of a Contingent Obligation, which
Contingent Obligation is in an aggregate principal amount of greater than
$1,000,000, when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue unwaived after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness or
Contingent Obligation; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Indebtedness or
Contingent Obligation and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness or Contingent Obligation; or any such Indebtedness or
Contingent Obligation shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof; or
7.5 Bankruptcy
<PAGE> 111
(i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of any Loan Party or any of its
Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, which decree or
order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or
(ii) An involuntary case is commenced against any Loan Party or any
of its Subsidiaries under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect; or a decree or order of a court
having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over any Loan Party or any of its Subsidiaries, or over all or a
substantial part of its property, shall have been entered; or there shall be
the involuntary appointment of an interim receiver, trustee or other
custodian of any Loan Party or any of its Subsidiaries for all or a
substantial part of its property; or there shall be the issuance of a warrant
of attachment, execution or similar process against any substantial part of
the property of any Loan Party or any of its Subsidiaries, and the
continuance of any such event referred to in this clause (ii) for 60 days
unless dismissed, bonded or discharged; or
(iii) Any Loan Party or any of its Subsidiaries shall have an order
for relief entered with respect to it or commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property or shall make any assignment for the benefit of
creditors; or
(iv) Any Loan Party or any of its Subsidiaries shall fail, be
unable, or admit its inability to pay its debts as such debts become due; or
the Board of Directors of any Loan Party or any of its Subsidiaries (or any
committee thereof) adopts any resolution to approve or otherwise authorizes
any of the actions referred to in clause (iii) above or this clause (iv); or
<PAGE> 112
7.6 Judgments
Any unpaid judgments, orders for the payment of money (other than
judgments and orders covered by insurance, but only if the insurer has admitted
liability with respect to such judgments and orders), writs or warrants of
attachment involving amounts in excess of $1,000,000 in the aggregate shall be
entered or filed against any of the Borrowers or any of their respective
Subsidiaries and shall remain undischarged, unvacated, unbonded or unstayed for
a period of 30 days or in any event later than 30 days prior to any sale under
any such judgment, order, writ or warrant; or
7.7 Dissolution
Any order, judgment or decree shall be entered against any Loan Party or
any of its Subsidiaries decreeing the dissolution or split up of any Loan Party
or any of its Subsidiaries and such order shall remain undischarged or unstayed
for a period in excess of 30 days; or
7.8 ERISA
(i) Any Borrower or any of its ERISA Affiliates fails to make full
payment when due of all amounts in excess of $1,000,000 in the aggregate
which, under the provisions of any Pension Plan, Multiemployer Plan or
Section 412 of the Internal Revenue Code, such Borrower or any of its ERISA
Affiliates is required to pay as contributions thereto;
(ii) Any accumulated funding deficiency in excess of $1,000,000 in
the aggregate occurs or exists, whether or not waived, with respect to any
Pension Plan;
(iii) The excess of the actuarial present value of all benefit
liabilities under all Pension Plans over the fair market value of the assets
of such Pension Plans (excluding in such computation Pension Plans with
assets greater than benefit liabilities) allocable to such benefit
liabilities is greater than $1,000,000;
(iv) Any Borrower or any of its ERISA Affiliates enters into any
transaction which has as its principal purpose the evasion of liability under
Subtitle D or E of Title IV of ERISA;
<PAGE> 113
(v) (A) Any Pension Plan maintained by any Borrower or any of its
ERISA Affiliates shall be terminated within the meaning of Title IV of ERISA,
or (B) a trustee shall be appointed by an appropriate United States district
court to administer any Pension Plan, or (C) the PBGC shall institute
proceedings to terminate, or to appoint a trustee to administer any Pension
Plan or Multiemployer Plan, or (D) any Borrower or any of its ERISA
Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension Plan
or under Sections 4203 or 4205 from a Multiemployer Plan, if as of the date
of the event listed in subclauses (A)-(D) above or any subsequent date, any
Borrower or any of its ERISA Affiliates have incurred or are reasonably
likely to incur any liability in excess of $1,000,000 (such liability to
include, without limitation, any liability to any Pension Plan, Multiemployer
Plan, or the PBGC, or to any other part under Sections 4062, 4063 or 4064 of
ERISA or any other provision of law) resulting from or otherwise associated
with the events listed in subclause (A)-(D) above;
As used in this Section 7.8 the term "accumulated funding deficiency"
has the meaning specified in Section 412 of the Internal Revenue Code, and the
terms "actuarial present value" and "benefit liabilities" have the meanings
specified in Section 4001 of ERISA; or
7.9 Control of the Borrowers
(i) Any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities and Exchange Act of
1934, as amended), directly or indirectly, of securities of any Borrower (or
other securities convertible into such securities) representing 50% or more of
the combined voting power of all securities of such Borrower entitled to vote in
the election of directors, other than securities having such power only by
reason of the happening of a contingency; or
(ii) Any Person or two or more Persons acting in concert shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement which upon consummation will result in its or their acquisition of,
the power to exercise, directly or indirectly, control over securities of any
Borrower (or other securities convertible into such securities)
<PAGE> 114
representing 50% or more of the combined voting power of all securities of such
Borrower entitled to vote in the election of directors, other than securities
having such power only by reason of the happening of a contingency; or
(iii) Any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities and Exchange Act of
1934, as amended), directly or indirectly, of securities of any Borrower (or
other securities convertible into such securities) representing 35% or more of
the combined voting power of all securities of such Borrower entitled to vote in
the election of directors, other than by reason of the happening of a
contingency and during any period commencing with the acquisition of such
securities and ending with the next stockholders' meeting at which (a) a
majority of individuals constituting the board of directors of such Borrower
will be elected, and (b) the Person acquiring such securities shall have the
right to vote, individuals who prior to such election were directors of such
Borrower shall cease for any reason (other than death or incapacity) to
constitute 50% of the board of directors of such Borrower; or
(iv) Any Person or two or more Persons acting in concert shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement which upon consummation will result in its or their acquisition of,
the power to exercise, directly or indirectly, control over securities of any
Borrower (or other securities convertible into such securities) representing 35%
or more of the combined voting power of all securities of such Borrower entitled
to vote in the election of directors, other than by reason of the happening of a
contingency and during any period commencing with the acquisition of such
securities and ending with the next stockholders' meeting at which (a) a
majority of individuals constituting the board of directors of such Borrower
will be elected, and (b) the Person acquiring such securities shall have the
right to vote, individuals who prior to such election were directors of such
Borrower shall cease for any reason (other than death or incapacity) to
constitute 50% of the board of directors of such Borrower; or
(v) The Company shall cease to own 100% of the issued and outstanding
capital stock of PNS and WCL;
<PAGE> 115
then, and in any such event, the Administrative Agent shall at the request, or
may with the consent, of the Requisite Lenders, (i) by notice to the Borrowers,
declare the obligation of each Lender to make Loans and the obligation of the
Issuing Banks to issue Letters of Credit to be terminated, whereupon the same
shall forthwith terminate, (ii) shall at the request, or may with the consent,
of Requisite Lenders, by notice to the Borrowers, declare (x) the Loans and all
interest thereon, (y) an amount equal to the maximum amount that may at any time
be drawn under all Letters of Credit then outstanding (whether or not any
beneficiary under any Letter of Credit shall have presented, or shall be
entitled at such time to present, the drafts and other documents required to
draw under such Letter of Credit), and (z) all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Loans, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrowers; (iii) exercise any other remedies
provided under this Agreement and the other Loan Documents or by law; provided,
however, that in the event of an actual or deemed entry of an order for relief
with respect to the Company or any of its Subsidiaries under the Bankruptcy
Code, (A) the obligation of each Lender to make Loans and the obligation of the
Issuing Banks to issue Letters of Credit shall automatically be terminated and
(B) the Loans, the amount set forth in clause (y) above, all such interest and
all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrowers; provided further that the foregoing shall not
affect in any way the obligations of the Revolving Lenders to purchase from any
Issuing Bank participations in the unreimbursed amount of any drawings under any
Letters of Credit as provided in Section 2.16E. So long as any Letters of Credit
shall remain outstanding, any amounts described in clause (y) above with respect
to Letters of Credit, when received by the Administrative Agent, shall be held
by the Administrative Agent as cash collateral for the obligation of the
Borrowers to reimburse the Issuing Banks in the event of any drawing under
outstanding Letters of Credit, and upon any drawing under any outstanding Letter
of Credit in respect of which the Administrative Agent has deposited in a cash
collateral account (the "Cash Collateral Account") any amounts described in
clause (y) above, the Administrative Agent shall apply such amounts to reimburse
the Issuing Bank with respect to such Letter of Credit for the amount
<PAGE> 116
of such drawing. In the event of the cancellation or expiration of any Letter of
Credit in respect of which the Administrative Agent has deposited in Cash
Collateral Account any amounts described in clause (y) above or in the event of
any reduction in the maximum amount available at any time for drawing under
Letters of Credit ("Maximum Available Amount"), the Administrative Agent shall
apply the amount then in the Cash Collateral Account less the Maximum Available
Amount immediately after such cancellation, expiration or reduction, if any,
first to reimburse the Issuing Banks for any drawings under outstanding Letters
of Credit, second to the payment in full of the Obligations, and third to
whomsoever shall be lawfully entitled to receive such funds.
Upon acceleration, the Lenders and the Administrative Agent, or any of
them, without notice to or demand upon the Borrowers which are expressly waived
by the Borrowers, may proceed (but only with the consent of Requisite Lenders)
to protect, exercise, and enforce their rights and remedies under the Loan
Documents and such other rights and remedies as are provided by law or equity.
Requisite Lenders may determine in their sole discretion the order and manner in
which the Lenders' rights and remedies are to be exercised, and all payments
received by the Administrative Agent or the Lenders, or any one or more of them,
shall be applied as follows (regardless of how each Lender may treat the
payments for the purpose of its own accounting); first, to all costs and
expenses (including, without limitation, attorneys' fees, costs of maintaining,
preserving and/or disposing of any real, personal or mixed property of the
Company and its Subsidiaries which secures the Obligations to the Lenders and
costs of settlement) incurred by the Administrative Agent or the Lenders, or any
of them, in enforcing any Obligations of, or in collecting any payments due
from, the Borrowers hereunder by reason of such Event of Default; second, to all
fees and expenses due and owing to the Administrative Agent or the Lenders,
third, ratably to accrued interest; fourth, ratably to principal amounts
outstanding; fifth, to other Obligations then due and owing under any of the
Loan Documents; and sixth to whomsoever shall be lawfully entitled to receive
such funds.
Section 8. THE ADMINISTRATIVE AGENT
8.1 Appointment and Authorization
<PAGE> 117
Each Lender hereby irrevocably appoints, designates and authorizes the
Administrative Agent to take such action on its behalf under the provisions of
this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Administrative Agent have or be deemed
to have any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
8.2 Delegation of Duties
The Administrative Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
8.3 Liability of Administrative Agent
None of the Agent-Related Persons shall (a) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement or any other Loan Document (except for its own gross negligence or
willful misconduct), or (b) be responsible in any manner to any of the Lenders
for any recital, statement, representation or warranty made by any Borrower or
any Subsidiary or Affiliate of any Borrower, or any officer thereof, contained
in this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of any Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the
<PAGE> 118
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Borrower or any of the Borrowers' Subsidiaries or
Affiliates.
8.4 Reliance by Administrative Agent
(a) The Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Borrowers), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Requisite Lenders as it deems appropriate and, if it so requests, it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Requisite
Lenders and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions specified
in Sections 3.1 and 3.2, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with each
document or other matter either sent by the Administrative Agent to such Lender
for consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to the Lender, unless
an officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from the Lender
prior to the applicable Borrowing specifying its objection thereto and either
such objection shall not have been withdrawn by notice to the Administrative
Agent to that effect or the Lender shall not have made available to the
Administrative Agent the Lender's ratable portion of such Committed Borrowing.
<PAGE> 119
8.5 Notice of Default
The Administrative Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default or Event of Default, except with respect to
defaults in the payment of principal, interest and fees required to be paid to
the Administrative Agent for the account of the Lenders, unless the
Administrative Agent shall have received written notice from a Lender or the
Borrowers referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be requested by
the Requisite Lenders in accordance with Section 7; provided, however, that
unless and until the Administrative Agent shall have received any such request,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Lenders.
8.6 Credit Decision
Each Lender expressly acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
the Company and its Subsidiaries shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Company and its Subsidiaries, and
all applicable bank regulatory laws relating to the transactions contemplated
thereby, and made its own decision to enter into this Agreement and extend
credit to the Borrowers hereunder. Each Lender also represents that it will,
independently and without reliance upon the Administrative Agent and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it
<PAGE> 120
deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrowers.
Except for notices, reports and other documents expressly herein required to be
furnished to the Lenders by the Administrative Agent, the Administrative Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of the Borrowers which may
come into the possession of any of the Agent-Related Persons.
8.7 Indemnification
Whether or not the transactions contemplated hereby shall be
consummated, the Lenders shall indemnify upon demand the Agent-Related Persons
(to the extent not reimbursed by or on behalf of the Borrowers and without
limiting the obligation of the Borrowers to do so), ratably from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind whatsoever which
may at any time (including at any time following the repayment of the Loans and
the termination or resignation of the related Administrative Agent) be imposed
on, incurred by or asserted against any such Person any way relating to or
arising out of this Agreement or any document contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by any such Person under or in connection with any of
the foregoing; provided, however, that no Lender shall be liable for the payment
to the Agent-Related Persons of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender shall reimburse the
Administrative Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by the Administrative
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein to the extent that the Administrative
Agent is not reimbursed for such expenses by or on behalf of the Borrowers. To
the extent indemnification payments made by the Lenders pursuant to this
<PAGE> 121
Section 8.7 are subsequently reimbursed by, or on behalf of, the Borrowers, the
Administrative Agent will promptly refund such previously paid indemnification
payments to the Lenders. Without limiting the generality of the foregoing, if
the Internal Revenue Service or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent did
not properly withhold tax from amounts paid to or for the account of any Lender
(because the appropriate form was not delivered, was not properly executed, or
because such Lender failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify the
Administrative Agent fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to the
Administrative Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders in this Section shall
survive the payment of all Obligations hereunder.
8.8 BofA in Individual Capacity
BofA and its Affiliates may make loans to, issue letters of credit for
the account of, accept deposits from, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory or other business with
the Company and its Subsidiaries and Affiliates as though it were not the
Administrative Agent hereunder and without notice to or consent of the Lenders.
With respect to its Loans, BofA shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not
the Administrative Agent, and the terms "Lender" and "Lenders" shall include
BofA in its individual capacity.
8.9 Successor Administrative Agent
The Administrative Agent may, and at the request of the Requisite
Lenders shall, resign as Administrative Agent upon 30 days' notice to the
Lenders and the Borrowers. If the Administrative Agent shall resign as
Administrative Agent under this Agreement, the Requisite Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall be reasonably acceptable to the Borrowers. If no successor agent shall
have been appointed by the Requisite
<PAGE> 122
Lenders and shall have accepted such appointment within 10 days prior to the
effective date of the resignation of the Administrative Agent, the
Administrative Agent may appoint, after consulting with the Lenders and the
Borrowers, a successor agent from among the Lenders. If no successor agent shall
have been so appointed by the Administrative Agent and shall have accepted such
appointment prior to the effective date of the resignation of the Administrative
Agent, the Administrative Agent may appoint a successor agent which shall be a
commercial bank organized under the laws of the United States or any state
thereof having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring
Administrative Agent and the term "Administrative Agent" shall mean such
successor agent and the retiring Administrative Agent's appointment, powers and
duties as Administrative Agent shall be terminated. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Section 8 and Sections 10.4 and 10.6 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
Section 9. THE LENDERS' REPRESENTATIONS
Each Lender hereby represents that it is a commercial lender or
financial institution which makes loans in the ordinary course of its business
and that it will make each Loan hereunder and participate in each Letter of
Credit issued hereunder in the ordinary course of such business; provided,
however, that the disposition of any evidence of indebtedness held by such
Lender shall at all times be within its exclusive control subject to Section
10.8.
Section 10. MISCELLANEOUS
10.1 Amendments, Etc.
No amendment or waiver of any provision of this Agreement or any other
Loan Document nor consent to any departure by any Loan Party therefrom, shall in
any event be effective unless the same shall be in writing and signed by
Requisite Lenders, and then such waiver or consent shall be effective only in
the
<PAGE> 123
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following: (a) increase the Commitments
of the Lenders or subject the Lenders to any additional obligations, (b) reduce
the principal of, or interest on, the Loans or any fees or other amounts payable
hereunder, (c) postpone any date fixed for any scheduled payment of principal
of, or interest on, the Loans or any fees or other amounts payable hereunder,
(d) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans, or the number of Lenders, which shall be required
for the Lenders or any of them to take any action hereunder or (e) amend this
Section 10.1 or Section 2.13; and provided, further, that no amendment, waiver
or consent shall, unless in writing and signed by the Administrative Agent in
addition to the Lenders required above to take such action, shall affect the
rights or duties of the Administrative Agent under this Agreement or any other
Loan Document. No notice to or demand on the Borrowers in any case shall entitle
the Borrowers to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 10.1 shall be binding upon each holder
of any indebtedness resulting from the making of Loans hereunder at the time
outstanding, each future holder of any such indebtedness, and if signed by the
Borrowers, on the Borrowers. Notwithstanding the foregoing, each Bid Loan Lender
may, in its sole discretion, if there exists no Potential Event of Default or
Event of Default, and without the consent or signature of the Administrative
Agent or any other Lender (provided, however, that prompt notice thereof is
provided by such Bid Loan Lender to the Administrative Agent), accept any
prepayment on account of any such Bid Loan Lender's Bid Loans.
10.2 Notices, Etc.
All notices and other communications provided for hereunder shall be in
writing (including telegraphic, telex, facsimile transmission or cable
communication) and mailed, telegraphed, telexed, cabled or delivered. For the
purposes hereof, the addresses of the parties named on Schedule 10.2 hereto
shall be as set forth opposite each party's name on Schedule 10.2 hereto (or
with respect to any Lender not listed on Schedule 10.2 hereto, at the address
specified for such Lender in the Assignment and Acceptance pursuant to which it
became a Lender) or, as to the Borrowers or the Administrative Agent, at
<PAGE> 124
such other address as shall be designated by such party in a written notice to
the other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrowers and the
Administrative Agent. All such notices and communications shall, when delivered,
mailed, telegraphed, telexed, telecopied or cabled, be effective when delivered,
three days after mailing, when delivered to the telegraph company, when
confirmed by telecopy response, when confirmed by telex answerback or when
delivered to the cable company, respectively, except that notices and
communications to the Administrative Agent pursuant to Section 2 or 8 shall not
be effective until received by the Administrative Agent.
10.3 No Waiver; Remedies
No failure on the part of any Lender or the Administrative Agent to
exercise, and no delay in exercising, any right hereunder or under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
10.4 Costs and Expenses
Whether or not the transactions contemplated hereby shall be
consummated, the Borrowers agree to pay on demand all reasonable costs and
expenses incurred by the Administrative Agent in connection with the
administration, development, preparation, execution, delivery, syndication,
filing, recording, modification, supplement, waiver and amendment of (whether or
not consummated), and searching or filing or recording of files in respect of,
the Loan Documents and the other documents (including without limitation, legal,
appraisal, environmental, valuation, audit, insurance and travel costs and
expenses) to be delivered under the Loan Documents, including, without
limitation, independent accounting firms for the Administrative Agent, and
Attorney Costs with respect thereto and with respect to advising the
Administrative Agent as to its rights and responsibilities under the Loan
Documents. In addition, the Borrowers agree to pay on demand, all reasonable
costs and expenses of the Lenders and the Administrative Agent, if any
(including, without limitation, legal, appraisal, environmental, valuation,
audit, consulting, travel costs and expenses, Attorney Costs and the fees and
expenses of independent accounting firms or other
<PAGE> 125
experts for the Administrative Agent or the Lenders) in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
the Loan Documents and the other documents to be delivered under the Loan
Documents, or in connection with any refinancing or restructuring of the credit
arrangement provided under the Loan Documents in the nature of a "workout" or of
any insolvency or bankruptcy proceeding.
10.5 Right of Set-off
Upon (i) the occurrence and during the continuance of any Event of
Default and (ii) the making of the request or the granting of the consent
specified by Section 7 to authorize the Administrative Agent to declare the
Loans and other amounts due and payable pursuant to the provisions of Section 7,
each Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for the credit or the
account of any Borrower against any and all of the Obligations of the now or
hereafter existing under any Loan Document, irrespective of whether or not such
Lender shall have made any demand under such Loan Document and although such
Obligations may be unmatured. Each Lender agrees promptly to notify such
Borrower after any such set-off and application made by such Lender, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of each Lender under this Section 10.5 are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Lender may have.
10.6 Indemnification
Each Borrower jointly and severally agrees to pay, and on demand to
indemnify and hold harmless the Administrative Agent and each Lender and their
respective Affiliates, and each of their respective successors, assigns,
directors, officers, employees, servants, attorneys and agents (collectively,
the "Indemnitees") from and against any and all claims, including claims based
on strict liability in tort, damages, losses, liabilities, demands, suits,
judgments, causes of action and all legal proceedings, whether civil, criminal,
administrative or in arbitration, whether or not such Indemnitee is a party
thereto, penalties, fines and other sanctions and expenses, including,
<PAGE> 126
without limitation Attorney Costs, which may be imposed on, incurred by or
asserted against any Indemnitee:
(a) by reason of any inaccuracy in any material respect, or any untrue
statement or alleged untrue statement of any material fact, made in any
report, exhibit or publication in connection with the effectiveness of this
Agreement, the incurrence of the Indebtedness hereunder and the transactions
contemplated hereby, or by reason of the omission or alleged omission to
state therein a material fact necessary to make such statements, in the light
of the circumstances under which they were made, not misleading; or
(b) by reason of or in connection with the execution, delivery,
performance, administration or enforcement of any Loan Document or any
proposal, fee, or commitment letter relating thereto, or any transaction
contemplated by any Loan Document; or
(c) arising under or pursuant to activities of any Loan
Party that violate Hazardous Materials Laws;
(d) arising out of or relating to the use of proceeds of
the Loans or the Letters of Credit;
provided, however, that the Borrowers shall not be liable to any Indemnitee for
(i) any portion of such claims, damages, liabilities and expenses that a court
of competent jurisdiction shall have determined by a judgment to have directly
resulted from such Indemnitee's gross negligence or willful misconduct or (ii)
any settlement by such Indemnitee of any claim or action involving the payment
of monetary damages effected without the consent of the Borrowers, which consent
shall not be unreasonably withheld; provided, further, that such consent shall
not be required if such Indemnitee determines in good faith on advice of counsel
that such settlement is advisable to avoid fines or other penalties (whether or
not monetary) adverse to the interests of such Indemnitee. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the immediately
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Borrowers shall contribute the maximum portion which they are
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or any
of them.
<PAGE> 127
10.7 Binding Effect
This Agreement shall become effective when it shall have been executed
by the Borrowers, the Administrative Agent and the Lenders and thereafter shall
be binding upon and inure to the benefit of each Borrower, the Administrative
Agent, each Lender and their respective successors and assigns permitted under
Section 10.8, except that no Borrower shall have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
10.8 Assignments and Participations
A. Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment), the Loans and its
participations in the Letters of Credit owing to it); provided, however, that
(i) no assignment shall, without the consent of the Borrowers, require the
Borrowers to file a registration statement with the Securities and Exchange
Commission or apply to qualify the Loans under the blue sky laws of any state,
(ii) each such assignment by a Lender shall be of a constant, and not a varying,
percentage of all of the assigning Lender's rights and obligations under this
Agreement with respect to the Loans and Commitments, (iii) the amount of the
Commitments or Loans of the assigning Lender being assigned pursuant to each
such assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000;
provided, however, that the amount of the Commitments and Loans of the assigning
Lender being assigned may be in an amount equal to such assigned Lender's entire
Commitments and outstanding Loans, (iv) each such assignment shall be to an
Eligible Assignee and, in the case of an Eligible Assignee that is not a Lender
or an Affiliate of a Lender, shall be consented to in advance in writing by the
Administrative Agent and the Borrowers (which consent shall not be unreasonably
withheld), and (v) the parties to each such assignment shall execute and deliver
to the Administrative Agent (with a copy to the Borrowers), for its acceptance
and recording in the Register, an Assignment and Acceptance, together with a
processing and recordation fee of $2,500. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto
and, to the extent that rights
<PAGE> 128
and obligations hereunder have been assigned to it pursuant to such Assignment
and Acceptance, have the rights and obligations of a Lender hereunder and (y)
the Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
B. By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other instrument or
document furnished pursuant hereto; (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Loan Party or the performance or observance by any
Loan Party of any of its obligations under this Agreement or any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.3 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Administrative
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as agent,
respectively, on its behalf and to exercise such powers under this Agreement and
the other Loan Documents as are delegated to the Administrative Agent by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
<PAGE> 129
terms all of the obligations which by the terms of this Agreement are required
to be performed by it as a Lender.
C. The Administrative Agent shall maintain at its address referred to in
Section 10.2 a copy of each Assignment and Acceptance delivered to and accepted
by it and records for the recordation of the names and addresses of the Lenders
and the Commitments of, and principal amount of the Revolving Loans owing to,
each Lender from time to time (collectively, such records are the "Register").
The Borrowers, the Administrative Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrowers,
the Administrative Agent or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
D. Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
the Administrative Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit G annexed hereto, and
subject to receipt of the written consent of the Borrowers and the
Administrative Agent, if required hereby, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrowers.
E. Each Lender may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitments,
the Loans owing to it and its participations in Letters of Credit issued
hereunder); provided, however, that (i) no participation shall, without the
consent of the Borrowers, require the Borrowers to file a registration statement
with the Securities and Exchange Commission or apply to qualify the Loans under
the blue sky laws of any state, (ii) such Lender's obligations under this
Agreement (including, without limitation, its Commitment to the Borrowers
hereunder) shall remain unchanged, (iii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iv) the Borrowers, the Administrative Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and (v) no
<PAGE> 130
Lender shall sell any participation under which the participant shall have
rights to approve any amendment or waiver of any Loan Document except to the
extent such amendment or waiver would (a) postpone any date fixed for any
scheduled payments of principal of or interest with respect to the Loans or any
fees or other amounts payable hereunder or (b) reduce the principal of, or
interest on, the Loans or any fees or other amounts payable hereunder.
F. Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 10.8, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrowers furnished to such Lender by or on behalf of the
Borrowers; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any confidential information relating to the Borrowers
received by it from such Lender.
G. Notwithstanding any other provision contained in this Agreement or
any other Loan Document to the contrary, any Lender may assign all or any
portion of the Loans held by it to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank, provided that any payment in respect of such assigned
Loans made by the Borrowers to or for the account of the assigning and/or
pledging Lender in accordance with the terms of this Agreement shall satisfy the
Borrowers' obligations hereunder in respect to such assigned Loans to the extent
of such payment. No such assignment shall release the assigning Lender from its
obligations hereunder.
10.9 Severability
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
10.10 Survival of Warranties and Certain Agreements
<PAGE> 131
A. All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the making of the Loans
hereunder and the issuance of the Letters of Credit hereunder and, except as set
forth in Section 10.10B, terminate upon the indefeasible payment in full of the
Obligations.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Borrowers set forth in Sections 2.10, 2.12,
10.4, 10.5 and 10.6 shall survive the payment of the Loans, the expiration of
the Letters of Credit and the termination of this Agreement.
10.11 Headings
Section and Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
10.12 Applicable Law; Jurisdiction; Waiver of Jury Trial
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES. The Lenders retain all of their rights under
federal law, including those relating to interest rates. Each Borrower and each
Lender hereby submits to the non-exclusive jurisdiction of the state courts of
the State of New York and the federal courts located in the State of New York
for all matters arising under this Agreement and related documents. Service of
process sufficient for personal jurisdiction in any action against any Borrower
in New York may be made by registered or certified mail, return receipt
requested, to the address specified pursuant to Section 10.2.
THE BORROWERS, THE ADMINISTRATIVE AGENT, THE LENDERS AND THE ISSUING
BANK HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN
DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
LOAN TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED.
The scope of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter of
this transaction,
<PAGE> 132
including without limitation, contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. The Administrative Agent,
the Lenders, the Issuing Banks and the Borrowers each acknowledge that this
waiver is a material inducement to enter into a business relationship, that each
has already relied on the waiver in entering into this Agreement, and that each
will continue to rely on the waiver in their related future dealings. The
Administrative Agent, the Lenders, the Issuing Banks and the Borrowers further
warrant and represent that each has reviewed this waiver with its legal counsel,
and that each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
LOAN. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
10.13 Execution in Counterparts; Effectiveness
This Agreement and any amendments, waivers, consents, or supplements may
be executed in any number of counterparts, and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
10.14 Obligations Several
The obligation of each Lender hereunder is several, and no Lender shall
be responsible for the obligation or commitment of any other Lender hereunder.
Nothing contained in this Agreement and no action taken by the Lenders pursuant
hereto shall be deemed to constitute the Lenders to be a partnership, an
association, a joint venture or any other kind of entity.
10.15 Complete Agreement
This written Agreement, together with the exhibits to this Agreement and
other documents described herein is intended by the parties as a final
expression of their agreement and is intended as a complete statement of the
terms and conditions of their agreement.
<PAGE> 133
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
MAC FRUGAL'S BARGAINS ! CLOSE-OUTS
INC.
WEST COAST LIQUIDATORS, INC.
PNS STORES, INC.
By: ______________________________
Title: ___________________________
<PAGE> 134
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent
By: ______________________________
Title: ___________________________
<PAGE> 135
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: ______________________________
Title: ___________________________
<PAGE> 136
BANK OF AMERICA ILLINOIS
By: ______________________________
Yvonne Dennis
Vice President
<PAGE> 137
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
<PAGE> 138
UNION BANK OF CALIFORNIA, N.A.
By:
Title:
<PAGE> 139
THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED, LOS ANGELES AGENCY
By:
Title:
<PAGE> 140
UNITED STATES NATIONAL BANK OF OREGON
By:
Title:
<PAGE> 141
WELLS FARGO BANK, N.A.
By:
Title:
<PAGE> 142
BANK LEUMI LE-ISRAEL B.M.
By:
Title:
<PAGE> 143
THE SAKURA BANK, LIMITED
By:
Title:
<PAGE> 144
BANK HAPOALIM, B.M.,
LOS ANGELES BRANCH
By:
Title:
By:
Title:
<PAGE> 145
THE SUMITOMO TRUST & BANKING CO.,
LTD., LOS ANGELES AGENCY
By:
Title:
<PAGE> 1
EXHIBIT 22.1
------------
Subsidiaries of Mac Frugal's Bargains o Close-outs Inc.
1. PNS Stores, Inc.
State of Incorporation: California
Business Names: Pic 'N' Save
Mac Frugal's Bargains o Close-outs
2. West Coast Liquidators, Inc.
State of Incorporation: California
Business Names: West Coast Liquidators
<PAGE> 1
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Mac Frugal's Bargains o Close-outs Inc.
Dominguez, California:
We consent to the incorporation by reference in Registration Statement
No. 33-43661 and Registration Statement No. 33-55130 of Mac Frugal's Bargains o
Close-outs Inc. on Form S-8 of our report dated March 12, 1997, appearing in
this Annual Report on Form 10-K of Mac Frugal's Bargains o Close-outs Inc. and
subsidiaries for the year ended February 2, 1997.
DELOITTE & TOUCHE
Los Angeles, California
May 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> FEB-02-1997
<CASH> 9,639
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 182,275
<CURRENT-ASSETS> 209,998
<PP&E> 306,188
<DEPRECIATION> 132,693
<TOTAL-ASSETS> 384,996
<CURRENT-LIABILITIES> 116,977
<BONDS> 0
0
0
<COMMON> 729
<OTHER-SE> 251,300
<TOTAL-LIABILITY-AND-EQUITY> 384,996
<SALES> 772,648
<TOTAL-REVENUES> 772,648
<CGS> 438,302
<TOTAL-COSTS> 438,302
<OTHER-EXPENSES> 258,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,232
<INCOME-PRETAX> 69,594
<INCOME-TAX> 26,445
<INCOME-CONTINUING> 43,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,149
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 0
</TABLE>
