<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 1995
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
COMMISSION FILE NUMBER 1-9505
-----------------------------
HILLS STORES COMPANY
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1153510
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15 DAN ROAD, CANTON, MASSACHUSETTS 02021
---------------------------------- -----
(Address of principal executive offices) (Zip Code)
617-821-1000
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
-------- --------
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
YES X NO
-------- --------
The number of shares of common stock outstanding as of August
29, 1995 was 9,798,050 shares.
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HILLS STORES COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of July 29, 1995,
January 28, 1995, and July 30, 1994 3
Consolidated Statements of Operations for the
Thirteen and Twenty-six Weeks Ended July 29, 1995
and July 30, 1994 4
Consolidated Statements of Cash Flows for the
Twenty-six Weeks Ended July 29, 1995 and July
30, 1994 5
Notes to Consolidated Financial Statements 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 14
ITEM 2: CHANGES IN SECURITIES 14
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 15
ITEM 5: OTHER INFORMATION 16
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 17
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<TABLE>
HILLS STORES COMPANY AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 29, January 28, July 30,
(in thousands) 1995 1995 1994
-----------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 456 $ 180,051 $ 4,701
Trade receivables, net 48,915 23,471 47,108
Inventories 442,565 313,851 396,044
Deferred tax asset 20,923 20,923 -
Other current assets 6,231 4,743 4,319
-------- --------- --------
Total current assets 519,090 543,039 452,172
Property and equipment, net 181,654 154,950 151,707
Property under capital leases,
net 118,941 124,108 129,284
Beneficial lease rights, net 8,661 9,075 9,489
Other assets, net (Note 5) 8,187 6,380 8,351
Deferred tax asset 10,061 10,061 -
Reorganization value in excess of
amounts allocable to identifiable
assets, net 140,887 144,765 172,235
--------- --------- ---------
$ 987,481 $ 992,378 $ 923,238
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving
credit facility (Note 5) $ 115,000 $ - $ -
Current portion of capital
leases 6,121 6,121 5,532
Accounts payable, trade 122,873 82,943 112,121
Other accounts payable and
accrued expenses 181,400 212,489 183,264
--------- --------- ---------
Total current liabilities 425,394 301,553 300,917
Senior notes (Note 5) 160,000 160,000 160,000
Obligations under capital leases 121,525 124,508 127,927
Financing obligation -
sale/leaseback 25,169 25,169 -
Other liabilities 8,935 10,263 10,118
Commitments and contingencies - - -
Preferred stock, at mandatory
redemption value (Note 2) 25,716 64,144 77,671
Common shareholders' equity (Note 4):
Common stock 97 108 101
Additional paid-in capital 208,486 229,967 216,228
Retained earnings 12,159 76,666 30,276
--------- -------- --------
Total common shareholders'
equity 220,742 306,741 246,605
--------- -------- ---------
$ 987,481 $ 992,378 $ 923,238
========= ========= =========
See Notes to Consolidated Financial Statements
</TABLE>
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HILLS STORES COMPANY AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- -----------------------
(unaudited) July 29, July 30, July 29, July 30,
(in thousands, except per 1995 1994 1995 1994
share amounts)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 389,424 $ 375,632 $ 752,286 $ 741,229
Cost of sales 288,683 269,173 550,235 534,436
Selling and administrative
expenses 98,149 92,231 189,214 177,750
Depreciation and amortization 9,480 8,772 18,580 17,191
Costs related to change in
control (Note 5) 43,292 - 43,292 -
-------- -------- -------- ---------
Operating earnings (loss) ( 50,180) 5,456 ( 49,035) 11,852
Other income (expense):
Capital lease interest ( 3,538) ( 3,696) ( 7,117) ( 7,428)
Other interest ( 8,186) ( 5,820) ( 15,578) ( 11,485)
Other income, net 152 463 1,962 1,102
---------- -------- -------- ---------
( 11,572) ( 9,053) ( 20,733) ( 17,811)
---------- -------- -------- ---------
Loss before income taxes ( 61,752) ( 3,597)( 69,768) ( 5,959)
Income tax benefit 16,582 - 20,261 -
---------- -------- -------- ---------
Net loss applicable to common
shareholders ($ 45,170) ($ 3,597)($ 49,507) ($ 5,959)
========== ======== ======== ========
Primary loss per share
applicable to common
shareholders (Note 3) ($ 4.66) ($ 0.36)($ 5.11) ($ 0.61)
========== ======== ======== ========
Fully-diluted loss per share
applicable to common
shareholders (Note 3) ($ 4.64) ($ 0.36)($ 4.90) ($ 0.59)
========== ======== ======== ========
See Notes to Consolidated Financial Statements
</TABLE>
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HILLS STORES COMPANY AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-six Weeks Ended July 29, 1995 and July 30, 1994
<CAPTION>
(unaudited)
(in thousands) 1995 1994
---------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($ 49,507) ($ 5,959)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 20,867 18,448
Gain on conversion of pension plan - ( 4,479)
Increase in accounts receivable and other
current assets ( 26,932) ( 23,412)
Increase in inventories ( 128,714) ( 69,579)
Increase in accounts payable and other
accrued expenses 7,895 40,485
Other, net 227 185
-------- --------
Net cash used for operating activities ( 176,164) ( 44,311)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 36,080) ( 26,431)
-------- --------
Net cash used for investing activities ( 36,080) ( 26,431)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility 133,000 -
Repayments of borrowings under revolving
credit facility ( 18,000) -
Principal payments under capital lease
obligations ( 2,983) ( 2,699)
Cash distributions pursuant to the Plan
of Reorganization ( 1,615) ( 11,907)
Shares repurchased in self-tender ( 75,000) -
Other financing activities ( 2,753) -
-------- --------
Net cash provided by (used for)
financing activities 32,649 ( 14,606)
-------- --------
Net decrease in cash and cash equivalents ( 179,595) ( 85,348)
Cash and cash equivalents at beginning of
period 180,051 90,049
-------- --------
Cash and cash equivalents at end of period $ 456 $ 4,701
======== =========
See Notes to Consolidated Financial Statements
</TABLE>
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HILLS STORES COMPANY AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. The
information furnished reflects all normal recurring adjustments
which are, in the opinion of management, necessary to present a
fair statement of the results for the interim period.
The accompanying unaudited consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and
consequently do not include all the disclosures normally required
by generally accepted accounting principles nor those normally made
in the Company's annual Form 10-K filing; however, the Company
considers the disclosures adequate to make the information
presented not misleading. Reference should be made to the
Company's Annual Report on Form 10-K for additional disclosures,
including a summary of the Company's accounting policies, which
have not changed. The Company's business is seasonal in nature and
the results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full
fiscal year. The fourth quarter of each fiscal year provides the
major portion of the Company's annual sales and operating earnings,
with operating earnings particularly concentrated in the Christmas
selling season.
2. HILLS STORES SERIES A CONVERTIBLE PREFERRED STOCK
-------------------------------------------------
During the first half of the year, 1,921,371 shares of the
Company's Series A Convertible Preferred Stock (the "Preferred
Stock") were converted to Hills Stores Common Stock (the "Common
Stock") on a share for share basis. These noncash conversions
amounted to $38.4 million.
3. EARNINGS PER SHARE
------------------
Primary loss per share for the thirteen week periods ended July 29,
1995 and July 30, 1994 was computed based on the weighted average
number of common shares assumed to be outstanding during the period
of 9,699,128 shares and 9,920,354 shares, respectively. Fully-
diluted loss per share for the thirteen week periods ended July 29,
1995 and July 30, 1994 was computed based on the weighted average
number of common shares assumed to be outstanding during the period
of 9,730,370 shares and 9,920,354 shares, respectively. The
calculation of the fully-diluted loss per share assumes that actual
conversions of Preferred Stock during the thirteen week periods
occurred as of the beginning of the period being reported on. The
weighted average number of shares reflects all shares of common
stock intended to be issued in accordance with the Plan of
Reorganization.
Primary loss per share for the twenty-six week periods ended July
29, 1995 and July 30, 1994 was computed based on the weighted
average number of common shares assumed to be outstanding during
the period of 9,682,708 shares and 9,739,327 shares, respectively.
Fully-diluted loss per share for the twenty-six week periods ended
July 29, 1995 and July 30, 1994 was computed based on the weighted
6
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HILLS STORES COMPANY AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EARNINGS PER SHARE (CONTINUED)
------------------------------
average number of common shares assumed to be outstanding during
the period of 10,108,912 shares and 10,116,464 shares,
respectively. The calculation of the fully-diluted loss per share
assumes that actual conversions of Preferred Stock during the
twenty-six week periods occurred as of the beginning of the period
being reported on. The weighted average number of shares used
reflects all shares of common stock intended to be issued in
accordance with the Plan of Reorganization.
4. SELF-TENDER FOR COMMON STOCK
----------------------------
In August 1994, Dickstein Partners, L.P., et al. ("Dickstein")
commenced a consent solicitation to replace four members of the
then current Board of Directors with Dickstein nominees. In
response to the Dickstein consent solicitation, the Company's Board
of Directors announced a program to enhance shareholder value,
including the approval of a self-tender to purchase up to 3,000,000
common shares at $25 per share in cash.
Effective February 21, 1995, the Company accepted for payment
3,000,000 shares of Common Stock which were validly tendered
pursuant to the Company's offer, and for which payment of
$75,000,000 was made in March. The excess of the purchase price
over the original issue price of the Common Stock, or $15,000,000,
was charged to retained earnings. In connection with the offer,
561,863 shares of Preferred Stock were converted to Common Stock.
5. CHANGE IN CONTROL
-----------------
At the June 1995 Annual Meeting, Dickstein nominees were elected to
the Board of Directors. On July 5, 1995, the election of the
Dickstein nominees was certified.
On August 21, 1995, in connection with the change in control, Hills
Department Store Company ("HDSC"), a wholly-owned subsidiary of the
Company, entered into a new $300 million secured revolving credit
facility (the "Facility"), of which up to $100 million is available
as a letter of credit facility. The Facility expires May 1, 1997
(or May 1, 1996 if the Company has not exercised its option by
April 30, 1996 to extend the Senior Note redemption). If the
Senior Notes are refinanced on terms acceptable to the lenders or
their redemption date is extended to a date later than April 30,
1998, the Facility will be automatically extended to April 30,
1998. Borrowings under the Facility are limited by a borrowing
base, as defined, and bear interest, at the option of the borrower,
at either of (1) the Adjusted London Interbank Offered Rate plus
2.75%, or (2) the highest of (a) Chemical Bank's Prime Rate plus
1.75%, (b) the Federal Funds Effective rate plus 2.25%, and (c) the
Base CD Rate plus 2.75%. HDSC must pay commitment fees at an
annual rate of 1/2% on the average daily unused portion of the
commitment. HDSC must also pay letter of credit fees on the
7
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HILLS STORES COMPANY AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CHANGE IN CONTROL (CONTINUED)
-----------------------------
aggregate face amount of outstanding standby letters of credit at
an annual rate equal to 2.75%, and on the face amount of
outstanding trade letters of credit at an annual rate of 2.25%.
The Facility is secured by a pledge of all of the capital stock of
HDSC and an interest in all tangible and intangible assets of HDSC.
The Facility is guaranteed by the Company. The Facility also
contains, among other restrictions, requirements regarding the
maintenance of certain financial ratios, minimum net worth
requirements, and provisions limiting: business combinations, the
issuance of additional debt including capital lease obligations,
the redemption and repurchase of common and preferred stock, the
repurchase and prepayment of debt, the amount of rent expense, and
the payment of dividends. In addition, the Facility also requires,
on a date (the "Clean-Up Date") determined at the discretion of the
Company between December 1 and April 1 of each year, HDSC to pay or
prepay all of the outstanding loans and for a period of at least
thirty consecutive days following the Clean-Up Date, HDSC shall
have no loans outstanding.
Under the terms of the Senior Note Indenture (the "Indenture"),
because of the election of the new Board of Directors, the Company
was required to offer to redeem all of the Senior Notes at 101% of
par. Effective August 1, 1995, the Indenture was amended to permit
the Company to defer the redemption of the Senior Notes until May
3, 1996, and, at the option of the Company, upon the payment of an
additional fee of $7.5 million, to May 5, 1997. In addition, the
change of control put price under the Indenture would be increased
to 102% if no notice of redemption is mailed to Senior Note holders
before January 1, 1997. The amendment also allowed the Company to
increase the amount of its working capital facility from $225
million to $300 million. In connection with obtaining this
amendment, the consenting holders of the Senior Notes were paid $6
million in August 1995, which has been included in costs related to
change in control. The Company does not intend to redeem the
Senior Notes during fiscal 1996 and therefore has classified the
debt as long-term, however, the Company may refinance the Senior
Notes.
In connection with the change in control, the Company recognized
$33.8 million in expense related to severance and retirement
payments, including certain taxes attributable thereto, to six
senior executives, a consultant to the Company and approximately 20
associates of the Company.
6. STOCK RIGHTS
------------
On August 22, 1995, the Company repurchased 693,092 of its 700,000
outstanding stock rights in exchange for 198,026 shares of newly
issued common stock. The par value of the newly issued common
shares was reclassified from additional paid-in capital to common
stock.
8
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HILLS STORES COMPANY AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
LITIGATION
----------
Following the change in control of the Company resulting from the
election of seven new directors, the parties to two previously-
reported lawsuits (which have been dismissed by stipulation) filed
a joint class-action lawsuit on August 7, 1995 in the Court of
Chancery of the State of Delaware, under the names of Gayle
Dolowicz, Ivan J. Dolowicz and Joseph Weiss, as plaintiffs, against
those seven new directors of the Company, Dickstein Partners Inc.
and the Company. The plaintiffs claim that in connection with
Dickstein Partners Inc.'s effort to solicit proxies in support of
the election of its nominees to be directors of the Company,
Dickstein Partners Inc. issued a number of false and misleading
statements regarding its offer to acquire all of the Company's
shares it did not already own. The plaintiffs seek an order
nullifying the election of directors, declaring there has been no
"change of control" of the Company and directing that Dickstein
Partners Inc. pay damages resulting from dissemination of allegedly
false and misleading statements.
On August 2, 1995, in a complaint filed in the U.S. District Court
for Massachusetts, Mitchell Dobies and Leslie Susser filed a class
action lawsuit against Dickstein Partners Inc. and Mark Dickstein
as defendants, and Leslie Susser individually filed a derivative
action against the seven former directors of the Company, with the
Company named a "nominal defendant." The plaintiffs allege that
Dickstein Partners Inc. and Mark Dickstein issued false and
misleading statements and omitted to state material facts in
response to an intended acquisition of or sale of the Company.
Plaintiff Susser, derivatively, claims the former directors
breached their fiduciary duties by not approving the change in
control resulting from the election of the Dickstein Partners Inc.
nominees to the Board of Directors, thus allowing "golden
parachute" severance payments to be made to a director and six
senior officers (two of whom were also directors) of the Company.
The plaintiffs seek compensatory money damages for themselves and
the class, an order that each former director account for damages
to the Company caused by an alleged breach of fiduciary duties, and
an award of pre-and-post-judgment interest along with attorneys'
fees and expenses, including experts' fees.
Jeffery B. Cross and Nancy Cross also filed a class action lawsuit
against Dickstein Partners Inc. and Mark Dickstein as defendants
and a derivative action suit against the former directors, with the
Company named as a nominal defendant in the derivative action. The
dual complaint was filed in the U.S. District Court for the
Southern District of New York and seeks the same or similar relief
being sought in the Massachusetts lawsuit described in the
preceding paragraph.
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HILLS STORES COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JULY 29, 1995 VERSUS
THIRTEEN WEEKS ENDED JULY 30, 1994
Sales increased 3.7% compared to the same period in 1994. This
increase is primarily attributable to the opening of eight new
stores and strong increases in the housewares categories, partially
offset by weak apparel sales. Comparable store sales were $376.3
million compared to $374.6 million in 1994, a 0.4% increase.
Cost of sales as a percentage of sales was 74.1% in 1995 compared
to 71.7% in 1994. The increase of 2.4% is primarily due to a
higher rate of markdowns, particularly in the apparel categories.
Selling and administrative expenses as a percentage of sales was
25.2% compared to 24.5% in 1994, a 0.7% increase. The increase is
attributable to the additional operating costs associated with new
stores and increased advertising in the Company's new markets.
Costs related to the July 5, 1995 change in control (see Note 5 of
Notes to Consolidated Financial Statements) were $43.3 million.
These costs consist of $33.8 million for severance and retirement
payments, including certain taxes attributable thereto, to six
senior executives, a consultant to the Company and approximately 20
associates of the Company, $6.0 million paid to holders of the Senior Notes
and legal and other miscellaneous change in control costs.
Other interest expense was $8.2 million for the second quarter of
1995 compared to $5.8 million for the same period in 1994. The
$2.4 million increase is due primarily to interest on borrowings
under the revolving credit facility and sale/leaseback financing.
Average direct borrowings under the revolving credit facility were
$42.2 million during the second quarter of 1995 while there were no
borrowings during the same period of 1994.
The Company's effective tax rate was 26.9% in the second quarter
compared to a rate of 47.0% for the year ended January 28, 1995.
The decrease in the rate results principally from approximately $30
million in non-deductible expenses associated with the change in
control.
TWENTY-SIX WEEKS ENDED JULY 29, 1995 VERSUS
TWENTY-SIX WEEKS ENDED JULY 30, 1994
Sales increased 1.5% compared to the same period in 1994. The
increase is due to eight new stores, increased sales in hardlines,
particularly housewares and music and video, partially offset by
weak apparel sales. Comparable store sales were $727.6 million
compared to $740.2 million in 1994, a 1.7% decrease.
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HILLS STORES COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
TWENTY-SIX WEEKS ENDED JULY 29, 1995 VERSUS
TWENTY-SIX WEEKS ENDED JULY 30, 1994 (CONTINUED)
Cost of sales as a percentage of sales was 73.1% in 1995 compared
to 72.1% in 1994. The increase of 1.0% is associated with
increased markdowns, especially in women's clothing and
accessories, and a shift in the mix of sales towards hardlines with
a lower purchase markon.
Selling and administrative expenses as a percentage of sales was
25.2% compared to 24.0% in 1994, an increase of 1.2%. The prior
year expenses include a $4.5 million gain from the elimination of
pension obligations, which represents 0.6% of the increase from
year to year. The increase is also attributable to the additional
operating costs of new stores and increased advertising in the
Company's new markets. In response to the increase, the Company
has and is continuing to examine its cost structure to identify
expense savings for the second half of fiscal 1995.
Depreciation and amortization as a percentage of sales was 2.5% in
1995 compared to 2.3% for the same period in 1994. The increase is
due to additional depreciation on a higher fixed asset base as a
result of the Company's remodeling and expansion program.
Costs related to the July 5, 1995 change in control (see Note 5 of
Notes to Consolidated Financial Statements) were $43.3 million.
These costs consist of $33.8 million for severance and retirement
payments, including certain taxes attributable thereto, to six
senior executives, a consultant to the Company and approximately 20
associates of the Company, $6.0 million paid to holders of the Senior
Notes and legal and other miscellaneous change in control costs.
Other interest expense was $15.6 million in 1995 compared to $11.5
million in 1994. This $4.1 million increase is primarily due to
interest on the sale/leaseback financing, interest on borrowings
under the revolving credit facility and additional amortization of
deferred financing costs. Average direct borrowings under the
revolving credit facility were $21.1 million during the first half
of 1995 while there were no borrowings during the same period of
1994.
The Company's effective tax rate was 29.0% for the first half of
1995 compared to a rate of 47.0% for the year ended January 28,
1995. The decrease in the rate results principally from
approximately $30 million in non-deductible expenses associated
with the change in control.
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HILLS STORES COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital as of July 29, 1995 decreased by
$147.8 million from January 28, 1995. The working capital decrease
is primarily due to the Company's payment of $75 million for its
self-tender offer of 3,000,000 shares of Common Stock (see Note 4 of
Notes to Consolidated Financial Statements) and the recognition of
$43.3 million in expenses related to the change in control (see Note 5
of Notes to Consolidated Financial Statements).
Net cash used for operating activities for the twenty-six weeks
ended July 29, 1995 increased $131.9 million compared to the same
period in 1994. This use of cash for operating activities is
primarily due to the payment of $33.8 million for severance and
retirement as noted above, the expenses related to new
stores and the seasonal build-up of inventory for the back-to-
school selling season.
Capital expenditures, primarily for the remodeling and upgrading of
existing stores and the opening of five new stores, were $36.1
million for the twenty-six weeks ended July 29, 1995. During
fiscal 1995, capital expenditures are expected to approximate $57
million, with an additional five new store openings in the fall
season.
As of July 29, 1995, the outstanding loan balance under the
Company's previous $225 million Revolving Credit Agreement was $115
million.
On August 21, 1995, in connection with the change in control, Hills
Department Store Company ("HDSC"), a wholly-owned subsidiary of the Company,
entered into a new $300 million secured revolving credit facility (the
"Facility"), of which up to $100 million is available as a letter of credit
facility. The Facility expires May 1, 1997 (or May 1, 1996 if the Company
has not exercised its option by April 30, 1996 to extend the Senior Note
redemption). If the Senior Notes are refinanced on terms acceptable to the
lenders or their redemption date is extended to a date later than April 30,
1998, the Facility will be automatically extended to April 30, 1998.
Borrowings under the Facility are limited by a borrowing base, as defined,
and bear interest, at the option of the borrower, at either of (1) the
Adjusted London Interbank Offered Rate plus 2.75%, or (2) the highest of
(a) Chemical Bank's Prime Rate plus 1.75%, (b) the Federal Funds Effective
rate plus 2.25%, and (c) the Base CD Rate plus 2.75%. HDSC must pay
commitment fees at an annual rate of 1/2% on the average daily unused
portion of the commitment. HDSC must also pay letter of credit fees on the
aggregate face amount of outstanding standby letters of credit at an annual
rate equal to 2.75%, and on the face amount of outstanding trade letters of
credit at an annual rate of 2.25%. The Facility is secured by a pledge of
all of the capital stock of HDSC and an interest in all tangible and
intangible assets of HDSC. The Facility is guaranteed by the Company. The
Facility also contains, among other restrictions, requirements regarding the
maintenance of certain financial ratios, minimum net worth
12
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HILLS STORES COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
requirements, and provisions limiting: business combinations, the
issuance of additional debt including capital lease obligations,
the redemption and repurchase of common and preferred stock, the
repurchase and prepayment of debt, the amount of rent expense, and
the payment of dividends. In addition, the Facility also requires,
on a date (the "Clean-Up Date") determined at the discretion of the
Company between December 1 and April 1 of each year, HDSC to pay or
prepay all of the outstanding loans and for a period of at least
thirty consecutive days following the Clean-up Date, HDSC shall
have no loans outstanding.
Under the terms of the Senior Note Indenture (the "Indenture"),
because of the election of the new Board of Directors, the Company
was required to offer to redeem all of the Senior Notes at 101% of
par. Effective August 1, 1995, the Indenture was amended to permit
the Company to defer the redemption of the Senior Notes until May
3, 1996, and, at the option of the Company, upon the payment of an
additional fee of $7.5 million, to May 5, 1997. In addition, the
change in control put price under the Indenture would be increased
to 102% if no notice of redemption is mailed to Senior Note holders
before January 1, 1997. The amendment also allowed the Company to
increase the amount of its working capital facility from $225
million to $300 million. In connection with obtaining this
amendment, the consenting holders of the Senior Notes were paid $6
million in August 1995, which has been included in costs related to
change in control. The Company does not intend to redeem the
Senior Notes during fiscal 1996 and therefore has classified the
debt as long-term, however, the Company may refinance the Senior
Notes.
Management believes that amounts available under the Company's new
borrowing agreement, together with cash from operations, will
enable the Company to fund its current liquidity and capital
expenditure requirements.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
------- -----------------
a) Following the change in control of the Company resulting from
the election of seven new directors, the parties to the two
previously-reported lawsuits filed in May, 1995 (which have been
dismissed by stipulation) filed a joint class-action lawsuit on
August 7, 1995 in the Court of Chancery of the State of Delaware,
under the names of Gayle Dolowicz, Ivan J. Dolowicz and Joseph
Weiss, as plaintiffs, against those seven new directors of the
Company, Dickstein Partners Inc. and the Company. The plaintiffs
claim that in connection with Dickstein Partners Inc.'s effort to
solicit proxies in support of the election of its nominees to be
directors of the Company, Dickstein Partners Inc. issued a number
of false and misleading statements regarding its offer to acquire
all of the Company's shares it did not already own. The plaintiffs
seek an order nullifying the election of directors, declaring there
has been no "change of control" of the Company and directing that
Dickstein Partners Inc. pay damages resulting from dissemination of
allegedly false and misleading statements.
b) On August 2, 1995, in a complaint filed in the U.S. District
Court for Massachusetts, Mitchell Dobies and Leslie Susser filed a
class action lawsuit against Dickstein Partners Inc. and Mark
Dickstein as defendants, and Leslie Susser individually filed a
derivative action against the seven former directors of the
Company, with the Company named a "nominal defendant." The
plaintiffs allege that Dickstein Partners Inc. and Mark Dickstein
issued false and misleading statements and omitted to state
material facts in response to an intended acquisition of or sale of
the Company. Plaintiff Susser, derivatively, claims the former
directors breached their fiduciary duties by not approving the
change in control resulting from the election of the Dickstein
Partners Inc. nominees to the Board of Directors, thus allowing
"golden parachute" severance payments to be made to a director and
six senior officers (two of whom were also directors) of the
Company. The plaintiffs seek compensatory money damages for
themselves and the class, an order that each former director
account for damages to the Company caused by an alleged breach of
fiduciary duties, and an award of pre-and-post-judgment interest
along with attorneys' fees and expenses, including experts' fees.
c) Jeffery B. Cross and Nancy Cross also filed a class action
lawsuit against Dickstein Partners Inc. and Mark Dickstein as
defendants and a derivative action suit against the former
directors, with the Company named as a nominal defendant in the
derivative action. The dual complaint was filed in the U.S.
District Court for the Southern District of New York and seeks the
same or similar relief being sought in the Massachusetts lawsuit
described in the preceding paragraph.
ITEM 2. Changes in Securities
------- ---------------------
The 10.25% Senior Notes due 2003 are registered securities and are
listed on the New York Stock Exchange. See Note 5 of Notes to
14
<PAGE> 15
PART II - OTHER INFORMATION (CONTINUED)
ITEM 2. Changes in Securities (continued)
------- --------------------------------
Consolidated Financial Statements relating to the redemption rights of
noteholders arising from a change in control of the Company as
modified in the Second Supplemental Indenture, effective as of
August 1, 1995, to the Senior Note Indenture. The Second
Supplemental Indenture also (i) increased the Senior Principal
Limitation (as defined in the Indenture) from $280 million to $300
million, (ii) provided that any supplement to the Indenture which
previously required approval by a majority of the outstanding
principal amount of the Senior Notes will now require approval of
60% of the outstanding principal amount of the Senior Notes, and
(iii) provided that the Company will not pay any future
consideration to any holder of any of the Senior Notes as an
inducement to obtaining any future consent, waiver or amendment of
any of the terms of the Indenture or the Senior Notes that is
binding on all holders unless such consideration is paid pro rata
upon the same terms and conditions to all holders of Senior Notes,
regardless of whether each such holder has agreed to such consent,
waiver or amendment.
ITEM 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
a) The Company held its Annual Meeting of shareholders on June 23,
1995. At the Annual Meeting, the following directors, comprising
the whole Board, were elected for one year terms, as confirmed on
July 5, 1995 by an independent, certified tally:
NOMINEES VOTES FOR VOTES WITHHELD
-------- --------- --------------
Mark Dickstein 5,887,808 2,688
David Brail 5,844,403 2,688
Mark D. Brodsky 5,844,403 2,688
John W. Burden, III 5,887,808 2,688
Chaim Y. Edelstein 5,887,808 2,688
Samuel L. Katz 5,844,403 2,688
Mark L. Kaufman 5,887,808 2,688
b) The tally for the other nominees was:
NOMINEES VOTES FOR VOTES WITHHELD
-------- ---------- --------------
Thomas H. Lee 1,835,299 4,522
Michael Bozic 1,835,299 4,522
Susan E. Engel 1,791,894 4,522
Richard B. Loynd 1,791,894 4,522
Norman S. Matthews 1,791,894 4,522
James L. Moody, Jr. 1,791,894 4,522
John G. Reen 1,835,299 4,522
c) The shareholders voted against a 1995 Incentive and Non-
Qualified Stock Option Plan, adopted by the Board of Directors to
15
<PAGE> 16
PART II - OTHER INFORMATION (CONTINUED)
ITEM 4. Submission of Matters to a Vote of Security Holders (continued)
------- ---------------------------------------------------------------
grant options for up to an aggregate of 500,000 shares of Common
Stock of the Company as additional incentive to executives and
other key employees, and for certain other individuals providing
services to or acting as directors of the Company, its parent and
subsidiaries. The votes were:
BROKER
FOR AGAINST ABSTAIN NONVOTES
--- ------- ------- --------
2,419,383 5,113,393 154,136 -0-
(d) The shareholders voted for the Hills Stores Company Associate
Stock Purchase Plan, adopted by the Board of Directors to permit
present and future associates of the Company and its subsidiaries
to purchase up to an aggregate of 500,000 shares of common stock of
the Company at a discount, through payroll deductions with maximum
annual limits for the individual associate. The votes were:
BROKER
FOR AGAINST ABSTAIN NONVOTES
--- ------- ------- --------
5,162,510 1,160,652 1,363,750 -0-
ITEM 5. Other Information
------- -----------------
a) On August 21, 1995, the Company, and Hills Department Store
Company ("HDSC") as the borrower, entered into a new secured
working capital credit facility (the "Facility") with a syndicate
of lending institutions having Chemical Bank as administrative
agent and fronting bank, and NatWest Bank, N.A. as managing
agent.
The Facility will provide a new credit facility of up to $300
million, of which up to $100 million will be available as a
letter of credit facility. Loans under the Facility may be used
to provide working capital to HDSC and its subsidiaries, funds
needed to pay expenses incurred in connection with the election
of new members of the Board of Directors of the Company (the
"1995 Change of Control"), a fee in connection with the Company's
option to extend from May 3, 1996 to May 5, 1997 the redemption
date contemplated by the Senior Note Indenture in respect to the
1995 Change in Control, and for general corporate purposes in the
ordinary course of HDSC's business. Letters of credit under the
Facility may be issued in the form of standby letters of credit
for general corporate purposes and trade letters of credit to
support the shipment of inventory from locations outside the
United States. Advances under the Facility are subject to an
annual "clean-up" requirement under which no borrowing may remain
outstanding during a period of 30 consecutive days and which must
begin between December 1 and April 1. The letter of credit
facility will remain available during the clean-up period.
The Facility has an initial maturity date of May 1, 1996, which
is deferred to May 1, 1997 if the Extension Election is exercised
16
<PAGE> 17
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5. Other Information (continued)
------- -----------------------------
and will be further deferred to April 30, 1998 if the above-
described redemption date of the Senior Notes is extended beyond
April 30, 1998 or the Senior Notes are refinanced by new debt
providing for no prepayment of principal prior to May 1, 1998.
All obligations of HDSC under the Facility will be unconditionally
guaranteed by the Company and by each subsidiary of HDSC. The
Facility and the related guarantees referred to in the previous
sentence are secured by a pledge of all of the capital stock of
HDSC and each of its direct and indirect subsidiaries, and by
security interests granted in the tangible and intangible personal
property, including inventory, of the Company, HDSC and each
subsidiary of HDSC and by mortgages on real estate owned by HDSC.
(b) On September 1, 1995, Robert J. Stevenish, Senior Executive
Vice President and Chief Operating Officer of the Company, resigned
to accept a senior executive position with Montgomery Ward & Co.
ITEM 6. Exhibits and Reports on Form 8-K
------ --------------------------------
a. The following documents are filed as part of this report:
3
2.1 First Amended Consolidated Plan of Reorganization, dated as of
July 16, 1993.
3
2.2 September 10, 1993 Amendment to such Plan of Reorganization.
4
3.1 Amended and Restated Certificate of Incorporation of the Company, dated
September 27, 1993.
4
3.2 Amendment dated January 18, 1995 to the Certificate of Incorporation
of the Company.
6
3.3 Amended and Restated By-Laws of the Company.
1
4.1 Certificate of the Voting Powers, Preferences and other designated
attributes of the Series A Convertible Preferred Stock of the Company.
5
4.2 Form of Series 1993 Stock Right.
1
4.3 Indenture relating to the 10.25% Senior Notes due 2003 of the
Company.
4.4 First Supplemental Indenture dated as of January 1, 1995 to the Senior
Note Indenture.
17
<PAGE> 18
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6. Exhibits and Reports on Form 8-K (continued)
------ --------------------------------------------
4.5 Second Supplemental Indenture dated as of August 1, 1995 to
the Senior Note Indenture.
2
4.6 Series 1993 Warrant Agreement dated October 4, 1993 between
the Company and Chemical Bank, as warrant agent.
6
4.7 Rights Agreement dated as of August 16, 1994 between the
Company and Chemical Bank, as Rights Agent.
6
4.8 Form of Certificate of the Voting Powers, Preferences and
other designated attributes of Series B Participating
Cumulative Preferred Stock of the Company (which is attached
as Exhibit A to the Rights Agreement incorporated by reference
as Exhibit 4.7 hereto).
6
4.9 Form of Right Certificate (which is attached as Exhibit B to
the Rights Agreement incorporated by reference as Exhibit 4.7
hereto).
10.1* Employment Agreement made as of July 6, 1995 with E. Jackson
Smailes.
10.2* Employment Agreement made as of July 6, 1995 with William K.
Friend.
10.3* 1995 Cash-Only Rights Plan adjunct to the contract with Messrs.
Smailes and Friend.
10.4 Credit Agreement dated as of August 21, 1995 among Hills Stores
Company, Hills Department Store Company, the Lenders named therein,
Chemical Bank as Administrative Agent and Fronting Bank, and NatWest
Bank, N.A., as Managing Agent.
11 Statements regarding computation of per share earnings.
15 Letters regarding unaudited interim financial information.
27 Financial Data Schedule.
---------------
* Executive Compensation Plans and Arrangements.
1. Incorporated by reference from the Form 8-A of the Company
filed on October 5, 1993.
2. Incorporated by reference from the Report on Form 8-K of the
Company dated October 4, 1993.
18
<PAGE> 19
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6. Exhibits and Reports on Form 8-K (continued)
------ --------------------------------------------
3. Incorporated by reference from the Report on Form 8-K of Hills
Department Stores, Inc. dated September 10, 1993 (same
Commission File No. 1-9505).
4. Incorporated by reference from the Annual Report on Form 10-K
of the Company for the fiscal year ended January 28, 1995.
5. Incorporated by reference from the Annual Report on Form 10-K
of the Company for the fiscal year ended January 29, 1994.
6. Incorporated by reference from the Form 8-K of the Company
dated August 23, 1994.
7. Incorporated by reference from the Form 10-K/A (Amendment No.
1) for the fiscal year ended January 28, 1995.
b. Reports on Form 8-K
A report on Form 8-K dated July 5, 1995 was filed by the Company
during the quarter ended July 29, 1995, stating that a change in
control of the Company occurred by the election of seven nominees
of Dickstein Partners Inc. following a proxy contest. The report
noted certain effects such change in control had in reference to
the Company's revolving credit facility agreement, Senior Notes
indenture, sale-leaseback arrangements, changes in senior
management and fees and expenses incurred in connection with such
change in control.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HILLS STORES COMPANY
Date: August 11, 1995 /s/E. Jackson Smailes
---------------------
E. Jackson Smailes
President and Acting Chief
Executive Officer
Date: August 11, 1995 /s/Kim D. Ahlholm
-----------------
Kim D. Ahlholm
Vice President - Controller
20
<PAGE> 21
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit Title
------- -----
4.4 First Supplemental Indenture to the Senior Note
Indenture
4.5 Second Supplemental Indenture to the Senior
Note Indenture
10.1 Employment Agreement for E. Jackson Smailes
10.2 Employment Agreement for William K. Friend
10.3 1995 Cash-Only Rights Plan adjunct to the
contracts with Messrs. Smailes and Friend
10.6 Credit Agreement dated August 21, 1995
11 Statements regarding computations of earnings
per share
15 Letters regarding unaudited interim financial
information
27 Financial Data Schedule
21
<PAGE> 1
EXHIBIT 4.4
=================================================================
HILLS STORES COMPANY,
ISSUER
and
HILLS DEPARTMENT STORE COMPANY,
GUARANTOR
to
FLEET BANK OF MASSACHUSETTS, N.A.,
TRUSTEE
----------------------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF JANUARY 1, 1995
SUPPLEMENTAL TO INDENTURE
DATED AS OF OCTOBER 1, 1993
--------------------------
10.25% SENIOR NOTES DUE 2003
=================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
PAGE
----
PARTIES........................................................1
RECITALS.......................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Capitalized Terms.................................1
SECTION 102. Definitions.......................................1
Tender Offer......................................2
Tender Offer Completion Date......................2
SECTION 103. Effectiveness of First Supplemental Indenture.....2
SECTION 104. Incorporation of First Supplemental Indenture
into Indenture....................................2
SECTION 105. Governing Law.....................................2
ARTICLE TWO
LIMITATIONS ON RESTRICTED PAYMENTS
SECTION 201. Limitations on Restricted Payments................2
ARTICLE THREE
MISCELLANEOUS
SECTION 301. Effect of First Supplemental Indenture
on Indenture......................................4
SECTION 302. Counterparts......................................4
TESTIMONIUM ...................................................5
SIGNATURES AND SEALS...........................................5
ACKNOWLEDGMENTS................................................6
------------------------
NOTE: This table of contents shall not, for any purpose, be
deemed to be part of the Indenture.
(i)
<PAGE> 3
FIRST SUPPLEMENTAL INDENTURE, dated as of January 1, 1995, among
HILLS STORES COMPANY (the "Company") and HILLS DEPARTMENT STORE
COMPANY (the "Guarantor"), each a corporation duly organized and
existing under the laws of the State of Delaware with its principal
office at 15 Dan Road, Canton, Massachusetts 02021-9128, and FLEET
BANK OF MASSACHUSETTS, N.A., a national banking association (the
"Trustee"), with its Corporate Trust Office at Fleet Center,
Mailstop MA BO F04B, 75 State Street, Boston, Massachusetts 02109-
1810, as Trustee under the Indenture dated as of October 1, 1993,
among the Company, the Guarantor and the Trustee.
WHEREAS, Section 902 of the Indenture provides that, except with
respect to certain of its provisions, the Indenture may be
supplemented or modified with the consent of the Holders of a
majority in principal amount of the Outstanding Notes for the
purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or modifying in
any manner the rights of the Holders; and
WHEREAS, the Company and the Guarantor wish to supplement the
Indenture to change the provisions of the Indenture relating to
limitations on Restricted Payments; and
WHEREAS, the Holders of a majority in principal amount of the
Outstanding Notes have consented to change the provisions of the
Indenture relating to limitations on Restricted Payments; and
WHEREAS, the Company, the Guarantor and the Trustee mutually
covenant and represent that they are duly authorized to execute
this First Supplemental Indenture.
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually
covenanted and agreed, for the equal and proportionate benefit of
all registered holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. CAPITALIZED TERMS.
Capitalized terms used herein and not otherwise defined herein
are used with the same meanings ascribed to such terms in the
Indenture.
SECTION 102. DEFINITIONS.
Section 101 of the Indenture is hereby amended by inserting the
following definitions of "Tender Offer" and "Tender Offer
Completion Date" after the definition of "TIA" or "Trust Indenture
Act" and before the definition of "Transferee" therein.
" "Tender Offer" means one or more offers to purchase
1
<PAGE> 4
up to an aggregate of three millon shares of Common Stock
at $25 per share in cash to be made by the Company pursuant to
an offer or offers to purchase filed with the Commission on
Schedule 13E-4 and mailed to the holders of Common Stock and
the Series A Convertible Preferred Stock, par value $.10 per
share, of the Company promptly following the effective time of
this First Supplemental Indenture provided that all such
offers shall be completed by June 30, 1995.
"Tender Offer Completion Date" means the date on
which the Company completes the payment for shares of
Common Stock tendered to the Company for payment pursuant
to the Tender Offer."
SECTION 103. EFFECTIVENESS OF FIRST SUPPLEMENTAL INDENTURE.
This First Supplemental Indenture shall be effective on the later
to occur of: (1) the execution by the Company, the Guarantor and
the Trustee of this First Supplemental Indenture or (2) the filing
with the Secretary of State of the State of Delaware of a
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of the Company adopting an amendment to the Amended
and Restated Certificate of Incorporation of the Company providing
that subject to any By-law provision to the contrary, any action
required or permitted to be taken by the stockholders of the
Company must be effected at a duly called annual or special meeting
of such holders and may not be effected by a consent in writing by
any such holders. If such Certificate of Amendment is not filed
with the Secretary of State of the State of Delaware on or prior to
June 30, 1995, then the provisions of this First Supplemental
Indenture shall be null and void and shall have no force or effect.
SECTION 104. INCORPORATION OF FIRST SUPPLEMENTAL INDENTURE INTO
INDENTURE.
This First Supplemental Indenture is executed by the Company, the
Guarantor and the Trustee pursuant to the provisions of Section 902
of the Indenture, and the terms and conditions hereof shall be
deemed to be part of the Indenture for all purposes upon the
effectiveness of this First Supplemental Indenture pursuant to
Section 103 of this First Supplemental Indenture. Subject to the
effectiveness of this First Supplemental Indenture, the Indenture,
as supplemented by this First Supplemental Indenture, is in all
respects hereby adopted, ratified and confirmed.
SECTION 105. GOVERNING LAW.
This First Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York.
2
<PAGE> 5
ARTICLE TWO
LIMITATIONS ON RESTRICTED PAYMENTS
SECTION 201. LIMITATIONS ON RESTRICTED PAYMENTS.
Effective upon the effectiveness of this First Supplemental
Indenture, Section 1007 of the Indenture shall be deleted in its
entirety and the following shall be substituted therefor:
"SECTION 1007. LIMITATIONS ON RESTRICTED PAYMENTS.
(a) Except to the extent permitted by Section 1007(b)
hereof, the Company will not directly or indirectly (i)
declare or pay any cash dividend or make any cash distribution
on its Capital Stock or (ii) purchase, redeem or otherwise
acquire or retire for value, or permit any Subsidiary of the
Company directly or indirectly to purchase, redeem or
otherwise acquire or retire for value, any shares of its
Capital Stock, other than in exchange for Common Stock or
options, warrants or other rights to purchase Common Stock or
Capital Stock of the same class and series or, if such Capital
Stock is Redeemable Stock, in exchange for Capital Stock of
the Company that is not Redeemable Stock and is not
exchangeable for or convertible into Redeemable Stock or
Indebtedness of the Company or any of its Subsidiaries and
other than as may be required by or for the purpose of
reissuing shares of Capital Stock pursuant to stock option
plans, stock purchase plans and the like (the foregoing
actions set forth in Clauses (i) and (ii) being referred to as
"Restricted Payments") if at the time of such Restricted
Payment:
(A) an Event of Default or an event that, with notice
or lapse of time or both, would become an Event of Default
shall have occurred and be continuing; or
(B) after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments since October
4, 1993 (including the fair market value of non-cash
Restricted Payments as determined by the Company's Board
of Directors, which determination shall be evidenced by a
Board Resolution) would exceed the sum of (I) 50% of the
aggregate Consolidated Net Income, determined on a
cumulative basis, with respect to the period from August
1, 1993 through the end of the Company's most recently
completed fiscal quarter (or, in the event such
Consolidated Net Income as so determined shall be a
deficit, minus the amount of such deficit), (II) the
aggregate net proceeds (including the fair market value of
non-cash proceeds as determined by the Company's Board of
Directors, which determination shall be evidenced by a
Board Resolution) received by the Company from the issuance
or sale of its Capital Stock, and (III) $10,000,000.
3
<PAGE> 6
(b) Notwithstanding the provisions of Section 1007(a) of
this Indenture, the Company may make Restricted Payments
aggregating up to $75 million in connection with the purchase
of shares of Common Stock tendered to the Company pursuant to
the Tender Offer. Upon the Company first making any
Restricted Payment that would, in the absence of the
immediately preceding sentence, have violated the provisions
of Section 1007(a), the provisions of Section 1007(a) (other
than the definition of "Restricted Payments" contained
therein) will be of no further force or effect (other than in
connection with the Tender Offer) and, thereafter, the Company
will not directly or indirectly make any Restricted Payment if
at the time of such Restricted Payment:
(A) an Event of Default or an event that, with notice
or lapse of time or both, would become an Event of Default
shall have occurred and be continuing; or
(B) after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments since the
Tender Offer Completion Date (including the fair market
value of non-cash Restricted Payments as determined by the
Company's Board of Directors, which determination shall be
evidenced by a Board Resolution) would exceed the sum of
(I) twenty-five (25%) percent of the aggregate Consolidated
Net Income, determined on a cumulative basis, with respect
to the period from October 30, 1994 through the earlier of
(x) the end of the Company's most recently completed fiscal
quarter and (y) November 2, 1996 (or, in the event such
Consolidated Net Income as so determined shall be a
deficit, minus the amount of such deficit), (II) fifty
(50%) percent of the aggregate Consolidated Net Income of
the Company and its subsidiaries, if any, determined on a
cumulative basis, with respect to the period from November
3, 1996 through the end of the Company's most recently
completed fiscal quarter (or, in the event such
Consolidated Net Income as so determined shall be a
deficit, minus the amount of such deficit), and (III) the
aggregate net proceeds (including the fair market value of
non-cash proceeds as determined by the Company's Board of
Directors, which determination shall be evidenced by a
Board Resolution) received by the Company from the issuance
or sale of its Capital Stock from and after the Tender
Offer Completion Date.
(c) The foregoing provisions of Section 1007 shall not be
violated by reason of the payment of any dividend within sixty
days of declaration thereof, if at such date of declaration
such payment would comply with the foregoing."
ARTICLE THREE
MISCELLANEOUS
SECTION 301. EFFECT OF FIRST SUPPLEMENTAL INDENTURE ON INDENTURE.
4
<PAGE> 7
Except as otherwise modified and amended by this First
Supplemental Indenture, all other terms of the Indenture remain in
full force and effect.
SECTION 302. COUNTERPARTS.
This First Supplemental Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but
one and the same instrument.
5
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first
above written.
HILLS STORES COMPANY
[CORPORATE SEAL]
By: /s/ William K. Friend
-------------------------------
Vice President-Secretary &
Corporate Counsel
Attest:
By: /s/ Joseph E. Andres
----------------------
Assistant Secretary HILLS DEPARTMENT STORE COMPANY
[CORPORATE SEAL]
By: /s/ John G. Reen
--------------------------------
Executive Vice President - C.F.O.
Attest:
By: /s/ Joseph E. Andres
----------------------
Assistant Secretary
FLEET BANK OF MASSACHUSETTS, N.A., as
Trustee
[CORPORATE SEAL]
By: /s/ Franklin Cockrell
--------------------------------
Vice President
Attest:
By: /s/ Timothy Donmoyer
----------------------
Vice President
6
<PAGE> 9
THE COMMONWEALTH OF MASSACHUSETTS )
COUNTY OF NORFOLK )SS.:
On the 11th day of January, 1995, before me personally came
William K. Friend, residing at 704 Main Street, Hingham, MA, to me
known, who, being by me duly sworn, did depose and say that he is
Vice President-Secretary & Corporate Counsel of Hills Stores
Company, one of the corporations described in and which executed
the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto
by like authority.
[SEAL]
/s/ Kelly D. McCarthy
---------------------
My Commission Expires 8/11/2000
THE COMMONWEALTH OF MASSACHUSETTS )
COUNTY OF NORFOLK )SS.:
On the 11th day of January, 1995, before me personally came
John G. Reen residing at 12 Margaret Street, Canton, MA, to me
known, who, being by me duly sworn, did depose and say that he is
Executive Vice President - C.F.O. of Hills Department Store
Company, one of the corporations described in and which executed
the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board
of Directors of said corporation, and that he signed his name
thereto by like authority.
[SEAL]
/s/ Kelly D. McCarthy
---------------------
My Commission Expires 8/11/2000
THE COMMONWEALTH OF MASSACHUSETTS )
COUNTY OF ______________ )SS.:
On the 11th day of January, 1995, before me personally came
Franklin C. Cockrell, residing at 17 Tucker Street, Milton, MA,
to me known, who, being by me duly sworn, did depose and say that
he is Vice President, Corporate Trust of Fleet National Bank of
Massachusetts, N.A., one of the corporations described in and
which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that he signed his
7
<PAGE> 10
name thereto by like authority.
[SEAL]
/s/ Deborah A. Micue
--------------------
My Commission Expires 4/20/2001
8
<PAGE> 1
EXHIBIT 4.5
=================================================================
HILLS STORES COMPANY,
ISSUER
and
HILLS DEPARTMENT STORE COMPANY,
GUARANTOR
to
FLEET BANK OF MASSACHUSETTS, N.A.,
TRUSTEE
--------------
SECOND SUPPLEMENTAL INDENTURE
DATED AS OF AUGUST 1, 1995
SUPPLEMENTAL TO INDENTURE
DATED AS OF OCTOBER 1, 1993
As Amended by the First Supplemental Indenture
Dated as of January 1, 1995
----------------
10.25% Senior Notes due 2003
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TABLE OF CONTENTS
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PAGE
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Parties........................................................ 1
Recitals....................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Capitalized Terms................................ 1
SECTION 102. Effectiveness of Second Supplemental Indenture... 1
Section 103. Incorporation of Second Supplemental Indenture
into Indenture................................... 2
SECTION 104. Effect of Headings and Table of Contents......... 2
SECTION 105. Governing Law.................................... 2
SECTION 106. Counterparts..................................... 2
ARTICLE TWO
AMENDMENTS TO PROVISIONS OF INDENTURE
SECTION 201. Definitions...................................... 2
SECTION 202. Form of Note..................................... 3
SECTION 203. Events of Default................................ 3
SECTION 204. Supplemental Indentures with Consent of Holders.. 3
SECTION 205. Payment for Consent.............................. 4
SECTION 206. Redemption at Option of Holders.................. 4
TESTIMONIUM.................................................... 6
SIGNATURES AND SEALS........................................... 6
ACKNOWLEDGMENTS................................................ 7
(i)
<PAGE> 3
SECOND SUPPLEMENTAL INDENTURE, dated as of August 1,
1995, among HILLS STORES COMPANY (the "Company") and HILLS
DEPARTMENT STORE COMPANY (the "Guarantor"), each a corporation duly
organized and existing under the laws of the State of Delaware with
its principal office at 15 Dan Road, Canton, Massachusetts 02021-
9128, and FLEET BANK OF MASSACHUSETTS, N.A. (the "Trustee"), a
national banking association with its Corporate Trust Office at
Fleet Center, Mailstop MA BO F04B, 75 State Street, Boston,
Massachusetts 02109-1810, as trustee under the Indenture dated as
of October 1, 1993, as amended by the First Supplemental Indenture
dated as of January 1, 1995, among the Company, the Guarantor and
the Trustee (as so amended, the "Indenture").
RECITALS
Section 902 of the Indenture provides that, except
with respect to certain specified provisions, the Indenture may be
supplemented with the consent of the Holders of a majority in
principal amount of the Outstanding Notes for the purpose of adding
any provisions to or changing in any manner or eliminating any of
the provisions of the Indenture or modifying in any manner the
rights of the Holders under the Indenture.
The Company and the Guarantor wish to supplement the
Indenture to change certain provisions of the Indenture as set
forth below, and the Holders of a majority in principal amount of
the Outstanding Notes as of July 24, 1995 have consented to such
changes and to the execution of this Second Supplemental Indenture.
The Company and the Guarantor hereby covenant and
represent that all things necessary have been done to make this
Second Supplemental Indenture a legal, valid and binding agreement
of the Company and the Guarantor in accordance with the terms
hereof and of the Indenture. The Trustee hereby covenants and
represents that it has power and authority to enter into this
Second Supplemental Indenture.
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE
WITNESSETH:
For and in consideration of the premises, it is
mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. CAPITALIZED TERMS.
Capitalized terms used herein and not otherwise
defined herein are used with the respective meanings ascribed to
such terms in the Indenture.
SECTION 102. EFFECTIVENESS OF SECOND SUPPLEMENTAL INDENTURE.
This Second Supplemental Indenture shall be effective
upon its execution by the Company, the Guarantor and the Trustee.
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SECTION 103. INCORPORATION OF SECOND SUPPLEMENTAL INDENTURE INTO
INDENTURE.
This Second Supplemental Indenture is executed by the
Company, the Guarantor and the Trustee pursuant to the provisions
of Section 902 of the Indenture, and the terms and conditions
hereof shall be deemed to be part of the Indenture for all purposes
upon the effectiveness of this Second Supplemental Indenture
pursuant to Section 102 of this Second Supplemental Indenture.
Subject to the effectiveness of this Second Supplemental Indenture,
the Indenture, as supplemented by this Second Supplemental
Indenture, is in all respects hereby adopted, ratified and
confirmed.
SECTION 104. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table
of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 105. GOVERNING LAW.
This Second Supplemental Indenture shall be governed
by and construed in accordance with the laws of the State of New
York.
SECTION 106. COUNTERPARTS.
This Second Supplemental Indenture may be executed in
any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument.
ARTICLE TWO
AMENDMENTS TO PROVISIONS OF INDENTURE
SECTION 201. DEFINITIONS.
Section 101 of the Indenture is hereby amended as follows:
(a) The following definitions are inserted between the
definitions of "Common Stock" and "Consolidated Fixed
Charge Coverage Ratio":
"'Consent' means a consent validly delivered (and
not revoked) pursuant to, and in accordance with, the
Company's Consent Solicitation Statement dated July 17, 1995,
as amended by the Supplement thereto dated July 24, 1995, with
respect to the Second Supplemental Indenture to this Indenture.
"'Consent Fee' has the meaning specified in Section 1103(d).
"'Consenting Holder' means, with respect to a
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Note, a Person who was the Holder of such Note as of 5:00
p.m. (Boston, MA time) on July 24, 1995 and who validly
delivered a Consent with respect to such Note. The status of
any Person as a Consenting Holder with respect to
a Note shall not be affected by the fact that such Person ceases
for any reason (including the sale or other disposition of such
Note) to be the Holder of such Note at any time after July 24, 1995."
(b) The following definition is inserted between the definitions
of "Defaulted Interest" and "Discharged":
"'DPI Change of Control Event' means the Change
of Control Event occurring upon, and as a result of,
(i) the election of seven individuals nominated by
Dickstein Partners Inc. as directors of the Company at
the 1995 annual meeting of stockholders of the
Company, which election became effective on July 5,
1995, and/or (ii) the election on or before July 7,
1995 of four additional directors by the newly
constituted Board of Directors of the Company."
(c) The definition of "Senior Principal Limitation"
is amended by deleting the amount "$280,000,000" therein
and substituting "$300,000,000" therefor.
SECTION 202. FORM OF NOTE.
Section 202 of the Indenture is hereby amended as follows:
(a) The phrase "(or, to the extent contemplated by
Section 1103(b)(i) or 1103(c)(i), 102%)" is inserted after the
number "101%" in the second line of the fourth paragraph of the
[Form of Reverse of Note] in Section 202.
(b) The words "a majority" in the fourth line of the
eighth paragraph of the [Form of Reverse of Note] in Section 202
are deleted and the words "sixty percent" are substituted therefor.
SECTION 203. EVENTS OF DEFAULT.
Section 501 of the Indenture is hereby amended as follows:
(a) The words "Section 1103(b)" in the second line of
clause (a) are deleted and the words "Section 1103(b) or
(c) or a default in any payment that may be due under
Section 1103(d)(ii), as the case may be" are substituted
therefor.
(b) The words "Section 1103(b)" in the second line of
clause (c) are deleted and the words "Sections 1103(b),
(c) or (d), as the case may be" are substituted
therefor.
SECTION 204. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
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Section 902 of the Indenture is hereby amended as follows:
(a) The words "a majority" in the first line of the
first paragraph of Section 902 are deleted and the words
"sixty percent" are substituted therefor.
(b) The words "Section 1103(b)" at the end of the
tenth line and the beginning of the eleventh line of
clause (a)(i) are deleted and the words "Sections
1103(b), (c) or (d), as the case may be (which notice
has not been revoked in accordance with Section
1103(d))" are inserted after the word "to" and before
the word "and".
(c) The word "and" at the end of Section 902(b) is
deleted.
(d) The period (".") at the end of Section 902(c) is
deleted and "; and" is substituted therefor.
(e) The following subsection is inserted after
Section 902(c):
"(d) no such supplemental indenture shall,
without the consent of each Consenting Holder affected
thereby, modify Section 1103(c) or Section 1103(d) to
eliminate payment or reduce the amount of or modify
the timing or manner of payment of the Consent Fee if,
and when, the same shall become due.
SECTION 205. PAYMENT FOR CONSENT.
The following Section is inserted after Section 1010:
"SECTION 1011. PAYMENT FOR CONSENT.
Neither the Company, the Guarantor nor any of
their Subsidiaries or Affiliates shall, directly or
indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any
Holder of any Notes for or as an inducement to
obtaining any consent, waiver or amendment of any of
the terms or provisions of this Indenture or the Notes
that is binding on all Holders, unless (i) such
consideration is offered or agreed to be paid pro rata
and upon the same terms and conditions to all Holders
of Outstanding Notes as of the Record Date, if any,
and (ii) if any such consideration is paid, it shall
be paid pro rata upon the same terms and conditions to
all Holders of Outstanding Notes, as of the Record
Date, if any, regardless of whether each such Holder
has agreed to such consent, waiver or amendment;
PROVIDED that the foregoing shall not apply to any
consideration paid or payable to Consenting Holders in
connection with the delivery of Consents."
SECTION 206. REDEMPTION AT OPTION OF HOLDERS.
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Section 1103 of the Indenture is hereby amended as follows:
(a) The phrase "(or, to the extent contemplated by
Sections 1103(b)(i) or 1103(c)(i), 102%)" is inserted
after the number "101%" in the first paragraph of
Section 1103(a).
(b) The words "paragraph (b) below" at the end of the
first paragraph of Section 1103(a) are deleted and the
words "paragraph (b) or (c) below, as the case may be"
are substituted therefor.
(c) The phrase "(other than a DPI Change of Control
Event)" is inserted in the first line of Section
1103(b), after the word "Event" and before the comma
(",").
(d) The following provision is inserted in the last
line of Section 1103(b)(i), after the words "Redemption
Date" and before the semicolon (";"):
", PROVIDED that if (x) no notice under paragraph (b)
or (c) of this Section 1103 has been mailed on or
before December 31, 1996 (which notice has not been
revoked in accordance with Section 1103(d)), and (y)
such a notice is mailed on or after January 1, 1997,
(A) such Redemption Price shall equal 102% of the
principal amount of such Notes, plus accrued interest,
if any, to the Redemption Date, and (B) such notice
shall specify such higher Redemption Price"
(e) The following subsections are inserted after
Section 1103(b):
"(c) On or before April 3, 1996 (or, in the event
the Company exercises its election pursuant to Section
1103(d), on or before April 5, 1997), the Company
shall mail to each Holder of Notes, with a copy to the
Trustee, a notice with respect to the DPI Change of
Control Event stating:
"(i) that as a result of the DPI Change of
Control Event, such Holder has the right to
elect to have the Company redeem all (but not
less than all) of such Notes at a Redemption
Price equal to 101% of the principal amount
thereof, plus accrued interest, if any, to the
Redemption Date, provided that if (x) no notice
under paragraph (b) or (c) of the Section 1103
has been mailed on or before December 31, 1996
(which notice has not been revoked in accordance
with Section 1103(d)), and (y) such a notice is
mailed on or after January 1, 1997, (A) such
Redemption Price shall equal 102% of the
principal amount of such Notes, plus accrued
interest, if any, to the Redemption Date, and
(B) such notice shall specify such higher
Redemption Price;
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"(ii) the circumstances and relevant facts
regarding the DPI Change of Control Event
(including, to the extent the Company determines
to be appropriate, information with respect to
pro forma historical income, cash flow and
capitalization after giving effect to the DPI
Change of Control Event);
"(iii) the Redemption Date, which shall be no
earlier than 30 days and no later than 60 days
from the date such notice is mailed and which
shall in any event be no later than May 3, 1996
(or, in the event the Company exercises its
election pursuant to Section 1103(d), no later
than May 5, 1997); and
"(iv) such other instructions as the Company may
establish, consistent with this Section, in
order for such Holder to elect to have such
Notes redeemed, which instructions shall afford
such Holder at least 15 days from the date such
notice is mailed to provide written notice of
such Holder's election to have such Notes
redeemed.
"Any notice mailed in the manner herein provided shall
be conclusively presumed to have been duly given,
whether or not the Holder receives the notice. In any
case, failure duly to give such notice by mail, or any
defect in such notice, to any Holder shall not affect
the validity of the proceedings for the redemption of
any Notes held by other Holders.
"(d) The Company may, but shall not be obligated
to, elect to defer the mailing of the notice
contemplated by Section 1103(c) such that the notice
need not be mailed on or before April 3, 1996, but
shall instead be mailed on or before April 5, 1997.
In order to make such election, the Company shall (i)
mail to each Holder on or before April 19, 1996 a
notice stating that the Company has elected to defer
the mailing of the notice contemplated by Section
1103(c) until on or before April 5, 1997 and (ii) pay
to the Consenting Holders (regardless of whether they
are Holders as of such election date) on or before May
3, 1996 an aggregate amount of $7,500,000 (the
"Consent Fee"). In the event that at the time of
mailing of the election by the Company pursuant to
this Section 1103(d) the Company has previously mailed
the notice contemplated by Section 1103(c), such
election pursuant to Section 1103(d) shall revoke and
make null and void any such notice mailed pursuant to
Section 1103(c). The Consent Fee shall be paid PRO
RATE on the basis of the principal amounts of the
Notes with respect to which Consents had been
received, and shall otherwise be paid in the manner
specified in the several Consents. No consent or
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other approval of, or any action by, any Holder (or
Consenting Holder) shall be required in order for the
Company to exercise the election set forth in this
Section 1103(d)."
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and
year first above written.
HILLS STORES COMPANY
[CORPORATE SEAL]
By: /s/ William K. Friend
---------------------------
Vice President-Secretary
Attest:
By: /s/ Richard C. Doran
-------------------------
Assistant Secretary
HILLS DEPARTMENT STORE COMPANY
[CORPORATE SEAL]
By: /s/ William K. Friend
-----------------------------
Vice President-Secretary
Attest:
By: /s/ Richard C. Doran
------------------------
Assistant Secretary
FLEET BANK OF MASSACHUSETTS, N.A., as
Trustee
[CORPORATE SEAL]
By: /s/ James M. O'Neil Jr.
------------------------------
Attest:
By: /s/ Franklin Cockrell
------------------------
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THE COMMONWEALTH OF MASSACHUSETTS )
COUNTY OF NORFOLK )SS.:
On the 23rd day of August, 1995, before me personally came
William K. Friend, residing at Canton, Massachusetts, to me known,
who, being by me duly sworn, did depose and say that he is Vice
President-Secretary of Hills Stores Company, one of the
corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
[SEAL]
/s/ Kelly D. McCarthy
----------------------------
My Commission Expires 8/11/2000
THE COMMONWEALTH OF MASSACHUSETTS )
COUNTY OF NORFOLK )SS.:
On the 23rd day of August, 1995, before me personally came
William K. Friend, residing at Canton, Massachusetts, to me known,
who, being by me duly sworn, did depose and say that he is Vice
President-Secretary of Hills Department Store Company, one of the
corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
[SEAL]
/s/ Kelly D. McCarthy
----------------------------
My Commission Expires 8/11/2000
THE COMMONWEALTH OF MASSACHUSETTS )
COUNTY OF SUFFOLK )SS.:
On the 1st day of August, 1995 before me personally came James
M. O'Neil Jr., residing at Boston, Massachusetts, to me known, who,
being by me duly sworn, did depose and say that he is Officer,
Corporate Trust of Fleet National Bank of Massachusetts, N.A., one
of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
[SEAL]
/s/ Siobhan M. Colomey
----------------------------
My Commission Expires 11/6/1998
8
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EMPLOYMENT AGREEMENT made as of July 6, 1995 by and between
Hills Stores Company (the "Company"), a Delaware corporation having
its principal office at 15 Dan Road, Canton, Massachusetts
("Principal Office"), Hills Department Store Company, a Delaware
corporation and wholly-owned subsidiary of the Company having its
principal office at the Principal Office (the "Subsidiary"), and
the person ("Executive") set forth on the signature page hereof,
who resides at the address specified in Schedule A.
WHEREAS, Executive was previously employed by the Company and
the Subsidiary pursuant to an employment agreement with the
Subsidiary made as of September 30, 1994 (the "Former Agreement");
and
WHEREAS, Executive terminated his employment on July 5, 1995
for purposes of Section 9 of the Former Agreement following a
Change in Control (as defined therein) and received certain
payments pursuant to Sections 10(c) and 11 of the Former Agreement
and is entitled to receive certain other benefits through December
31, 1996; and
WHEREAS, the Company and the Subsidiary desire to secure the
services of Executive with the title and the position specified in
Schedule A (such title and position, the "Executive Position");
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the Company, the Subsidiary
and Executive agree as follows:
SECTION 1. EMPLOYMENT. The Company and the Subsidiary hereby
agree to employ Executive in the Executive Position, and Executive
hereby accepts such employment.
SECTION 2. TERM. The employment of Executive by the Company
and the Subsidiary as provided in Section 1 shall continue through
and including the date specified in SCHEDULE A (including any
extension, the "Term") unless further extended by the mutual
consent of the Company, the Subsidiary and the Executive or earlier
terminated as hereinafter provided.
SECTION 3. POSITION AND AUTHORITY. Executive shall be
employed by the Company and the Subsidiary in the Executive
Position and shall have the responsibilities and authority
specified in SCHEDULE A; provided, however, that the Company and
the Subsidiary shall have the right to make reasonable changes in
the Executive's responsibilities and authority to comport with
business necessities as long as there is not a significant
diminution in the Executive's responsibilities and authority (such
responsibilities and authority, the "Executive's Authority").
SECTION 4. PLACE OF PERFORMANCE. Executive may not, without
Executive's consent, be required to perform Executive's duties at
any location that is more than fifty (50) miles from the Principal
Office or the Subsidiary's field office headquarters in Aliquippa,
Pennsylvania (if the Executive currently maintains his primary
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office at such facility), except for necessary travel on the
Company's or Subsidiary's business to an extent substantially
consistent with the Executive Position.
SECTION 5. COMPENSATION AND EXPENSES.
(a) SALARY. Executive shall receive the base
salary specified in SCHEDULE A. In accordance with the Company's
practice for its senior executives, Executive will be paid a pro
rata portion of his base salary twice each month. Base salary
shall be reviewed on an annual basis. There shall be no decrease
in base salary during the Term.
(b) BONUSES. Executive shall receive the annual
bonuses specified in SCHEDULE A. Such annual bonuses shall be paid
to Executive within sixty (60) days after the end of each of the
Company's fiscal years during the term of this Agreement or as
otherwise required hereunder.
(c) BENEFITS. Executive shall be included in all
plans now existing or hereafter adopted for the general benefit of
the Company's or the Subsidiary's employees, such as bonuses, stock
option or other incentive compensation plans, profit sharing plans,
retirement plans, life and health insurance plans, or other
insurance plans and benefits (not including, however, the retention
bonus and separation pay programs adopted by the Board of Directors
of the Company on July 12, 1995), if and to the extent that
Executive is and remains eligible to participate thereunder, and
subject to the provisions of such plans as the same may be in
effect from time to time. Executive will be included in any
Company or Subsidiary benefit plans in which executives in
positions comparable to the Executive participate.
(d) VACATION. Executive shall be entitled to at
least the same vacation as Executive was entitled under the Former
Agreement, provided that, in determining such entitlement to
vacation, there shall be included any vacation in the current year
taken under the Former Agreement.
(e) PERQUISITES. The Company and the Subsidiary
shall make available to Executive at least those perquisites
granted Executive under the Former Agreement.
(f) EXPENSES. The Company and the Subsidiary shall
reimburse Executive for all reasonable out-of-pocket expenses
incurred by Executive in connection with the business of the
Company or the Subsidiary and in performance of Executive's duties
under this Agreement.
(g) CHANGE IN CONTROL BONUS. The Company shall pay
Executive a cash bonus ( the "Change in Control Bonus") as set
forth in SCHEDULE A upon the occurrence of any Change in Control
(as defined below) during the period ending upon the expiration of
the Term of this Agreement, provided however, that no Change in
Control Bonus shall be payable in the event that prior to the
occurrence of a Change in Control, the employment of Executive is
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terminated by the Company for "Cause" (as defined below) or by
Executive without "Good Reason" (as defined below).
"Change in Control" shall mean the earliest
date after the date hereof on which either of the following occurs:
(i) the Company or the Subsidiary has sold all or substantially all
of its assets in one or more related transactions; or (ii) the
Company or the Subsidiary engages in any merger, consolidation,
reorganization or similar event as a result of which the holders of
the voting stock of the Company or the Subsidiary prior to such
merger, consolidation, reorganization or similar event hold less
than a majority of the voting stock of the surviving entity
(provided that, if within one year prior to such merger,
consolidation, reorganization or similar event any person (an
"Acquiring Person"), together with its affiliates and associates
(as defined in Rule 12b-2 under the Securities Exchange Act of
1934, or any successor rule thereto) shall become the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act),
including by tender offer, merger or otherwise, of more than fifty
percent (50%) of the total voting power of all classes of voting
stock of the Company or the Subsidiary, then such Acquiring Person
shall be deemed not to have owned such shares prior to, and to have
acquired all such shares pursuant to, such merger, consolidation,
reorganization or similar event).
SECTION 6. TERMINATION BY THE COMPANY.
(a) The Company shall have the right to terminate
Executive's employment at any time for "Cause." For purposes of
this Agreement, "Cause" shall mean (i) the wilful and intentional
engagement by Executive in conduct which is materially injurious to
the Company, the Subsidiary or any of their respective
subsidiaries; (ii) any wilful breach by Executive of Section 12 of
this Agreement; (iii) any other material breach by Executive of the
provisions of this Agreement or any material neglect of the duties
of Executive in connection with the business and affairs of the
Company, the Subsidiary or any of their respective subsidiaries
which breach or neglect shall have continued for thirty (30)
calendar days after written notice from the Company or the
Subsidiary to the Executive specifying the nature of such breach or
neglect; or (iv) the conviction of or guilty plea by Executive of
a felony or of any act of fraud or embezzlement against the
Company, its Subsidiary or any of their respective subsidiaries.
For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "wilful" unless such act, or
failure to act, was not in good faith and was without reasonable
belief that such action or omission was in the best interest of the
Company, the Subsidiary or their respective subsidiaries.
(b) The Company and Subsidiary shall have the right
to terminate Executive's employment upon not less than 30 calendar
days' written notice, without cause, or at any time following a
Change in Control, and the provisions of Section 10 shall be
applicable.
SECTION 7. TERMINATION BY DEATH In the event Executive dies
during the Term, Executive's employment shall terminate (effective
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on the date of Executive's death) and the provisions of Section 10
shall be applicable.
SECTION 8. TERMINATION BY DISABILITY. In the event that
Executive suffers a disability which prevents Executive from
substantially performing Executive's duties under this Agreement
for a period of at least one hundred and eighty (180) consecutive
or nonconsecutive calendar days within any three hundred and sixty-
five (365) calendar day period, the Company shall have the right,
after such one hundred and eighty (180) calendar day period has
elapsed, to terminate Executive's employment hereunder upon thirty
(30) calendar days' written notice to Executive and the provisions
of Section 10 shall be applicable.
SECTION 9. TERMINATION BY EXECUTIVE. Notwithstanding any
other provision of this Agreement, Executive may terminate
Executive's employment either (i) for "Good Reason" (as defined
below), (ii) upon 60 calendar days' written notice, or (iii) at any
time following a Change in Control and the provisions of Section 10
shall be applicable.
For purposes of this Agreement, the term "Good Reason"
shall mean:
(i) any action by the Company or the
Subsidiary which results in a diminution in the Executive Position
or in the Executive's Authority which action shall have continued
for thirty (30) calendar days after written notice from Executive
to the Company or the Subsidiary specifying the nature of such
breach, except for the actions permitted to be made by the Company
or the Subsidiary in Section 3 above;
(ii) any failure by the Company or the
Subsidiary to timely pay the amounts or provide the benefits
described in Section 5 of this Agreement, other than isolated
failures not occurring in bad faith and which are remedied promptly
after receipt of written notice thereof given by Executive;
(iii) a material breach by the Company or the
Subsidiary of any of the provisions of this Agreement which breach
shall have continued for thirty (30) calendar days after written
notice from Executive to the Company or the Subsidiary specifying
the nature of such breach; or
(iv) any action by the Company or the
Subsidiary that would result in a violation of Section 4.
SECTION 10. EFFECT OF TERMINATION.
(a) BY COMPANY OR EXECUTIVE FOLLOWING CHANGE IN
CONTROL. In the event of termination of this Agreement by the
Company, the Subsidiary or the Executive for any reason (other than
death or disability) following a Change in Control, the Company and
the Subsidiary shall promptly pay Executive any base salary or
other compensation (but not including any bonus other than the
Change in Control Bonus or bonuses related to time periods which
have been completed but not paid prior to termination) earned
through the date of termination to the extent not paid to Executive
prior to the effective date of such termination.
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(b) BY COMPANY FOR CAUSE; BY EXECUTIVE WITHOUT GOOD
REASON. In the event of termination of this Agreement (i) by the
Company or the Subsidiary for Cause prior to any Change in Control,
or (ii) by Executive without Good Reason prior to any Change in
Control, the Company and the Subsidiary shall pay Executive (A) any
base salary or other compensation earned and (B) a pro rata portion
of the bonus payable pursuant to Section 5(b) with respect to the
year in which termination occurred provided that all Company and
Individual performance goals and objectives are achieved
(determined as of the time that such Company and Individual
performance goals and objectives are or would have been otherwise
evaluated, but assuming compliance with those Individual
performance goals that require the personal services of Executive
following the date of the termination of employment), in each case
to the extent not paid to Executive prior to the effective date of
such termination. The compensation payable pursuant to clause (A)
of the preceding sentence shall be paid within thirty (30) calendar
days after the effective date of such termination and the
compensation payable pursuant to clause (B) of the preceding
sentence shall be paid at the time such compensation would
otherwise have been payable had the employment of Executive not
been terminated.
(c) BY COMPANY WITHOUT CAUSE AND NO CHANGE IN
CONTROL; BY EXECUTIVE FOR GOOD REASON AND NO CHANGE IN CONTROL. In
the event of (i) termination of this Agreement by the Company other
than for Cause prior to any Change in Control or (ii) termination
of this Agreement by Executive for Good Reason prior to any Change
in Control, the Company shall pay Executive, in a lump sum within
thirty (30) calendar days after termination under this
Section 10(b), the Executive's Annual Compensation for the
remaining Term of this Agreement.
The term "Executive's Annual Compensation"
shall mean the sum of (A) the Executive's base salary in effect at
the time of termination and (B) any bonus compensation to which
Executive would have been entitled pursuant to Section 5(b) if
Executive had continued to be employed under this Agreement to the
end of the Term assuming that all Company and Individual
performance goals and objectives had been achieved.
(d) DISABILITY; DEATH. In the event of termination
of this Agreement by reason of disability or death, the Company
shall continue to pay Executive (or Executive's beneficiary in the
event of Executive's death) (A) Executive's base salary at the time
of such termination through the remainder of the month in which
such termination occurs and (B) a pro rata portion of the bonus
payable with respect to the year in which termination occurred,
provided all Company and Individual performance goals are achieved
(determined as of the time that such Company and Individual
performance goals and objectives are or would have been otherwise
evaluated, but assuming compliance with those Individual
performance goals that require the personal services of Executive
following the date of the termination of employment), in each case
to the extent not paid to Executive prior to the effective date of
such termination and, in the case of termination by reason of
death, the Company shall pay Executive's beneficiary any death
benefits that Executive is entitled to under the Company's policies
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in effect on Executive's date of death. The compensation payable
pursuant to clause (A) of the preceding sentence shall be paid
within thirty (30) calendar days after the effective date of such
termination and the compensation payable pursuant to clause (B) of
the preceding sentence shall be paid at the time such compensation
would otherwise have been payable had the employment of Executive
not been terminated.
(e) NON-EXTENSION OF TERM. In the event that the
Company fails to offer to extend this Agreement on terms at least
as favorable to Executive for a period of at least six months, the
sole annual goal for purposes of calculating Executive's bonus
payable pursuant to Section 5(b) hereof for the fiscal year ending
January 31, 1997 shall be the attainment of earnings before
interest, taxes, depreciation and amortization of $140,000,000 on
a consolidated basis (as computed by the Company's independent
auditors pursuant to generally accepted accounting principles,
consistently applied).
(f) BENEFITS AND PERQUISITES. Following
termination of the Executive's employment under this Agreement,
Executive shall not be entitled, except as may be required by law
or the terms of any benefit plan, to any of the benefits or
perquisites set forth in Section 5(c) and 5(e) regardless of the
reason for such termination. Notwithstanding the foregoing,
Executive shall continue to receive following termination of his
employment under this Agreement all benefits and perquisites to
which he is entitled under the Former Agreement, regardless of the
reason for such termination hereunder.
(g) CHANGE IN CONTROL BONUS. The obligation of the
Company to pay the Change in Control Bonus shall survive the
termination of the employment of the Executive to the extent
contemplated by Section 5(g) above.
SECTION 11. NO MITIGATION; NO OFFSET. Executive shall be
under no obligation to mitigate damages or the amount of any
payment provided for under this Agreement by seeking other
employment or otherwise and there shall be no offset against
amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that
Executive may obtain.
SECTION 12. COVENANTS OF EXECUTIVE.
(a) Executive recognizes that the knowledge of,
information concerning and relationship with customers, suppliers
and agents, and the knowledge of the Company's business methods,
systems, plans and policies which Executive will establish, receive
or obtain as an employee of the Company, are valuable and unique
assets of the business of the Company. Executive will not, during
or within two (2) years after the Term, disclose any such knowledge
or information pertaining to the Company, its customers, suppliers,
agents, policies or other aspects of its business, for any reason
or purpose whatsoever except pursuant to Executive's duties
hereunder or as otherwise authorized by the Company in writing.
The foregoing restriction shall not apply, following termination of
Executive's employment hereunder, to knowledge or information which
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(i) is in or enters the public domain without violation of this
Agreement or the Former Agreement (including any predecessor
agreement) or other obligations of confidentiality by Executive or
his agents or representatives, (ii) Executive can demonstrate was
in his possession on a non-confidential basis prior to the
commencement of his employment with the Company (including under
the Former Agreement and any predecessor agreement) or (iii)
Executive can demonstrate was received or obtained by him on a non-
confidential basis from a third party who did not acquire it
wrongfully or under an obligation or confidentiality, subsequent to
the termination of his employment hereunder.
(b) All memoranda, notes, records or other
documents made or compiled by Executive or made available to
Executive while employed concerning customers, suppliers, agents or
personnel of the Company, or the Company's business methods,
systems, plans and policies shall be the Company's property and
shall be delivered to the Company on termination of Executive's
employment or at any other time on request.
(c) During the term of Executive's employment and
for two (2) years thereafter, Executive shall not, except pursuant
to and in furtherance of his duties hereunder, directly or
indirectly solicit or initiate contact with any employee of the
Company with a view to inducing or encouraging such employee to
leave the employ of the Company for the purpose of being hired by
Executive, an employer affiliated with him or any competitor of the
Company.
(d) Executive acknowledges that the provisions of
this Section are reasonable and necessary for the protection of the
Company and that the Company will be irrevocably damaged if such
covenants are not specifically enforced. Accordingly, Executive
agrees that, in addition to any other relief to which the Company
may be entitled in the form of actual or punitive damages, the
Company shall be entitled to seek and obtain injunctive relief from
a court of competent jurisdiction for the purposes of restraining
Executive from any actual or threatened breach of such covenants.
(e) In the event that, following the termination of
this Agreement, Executive is entitled to receive any further
payments other than for compensation or other amounts accrued prior
to termination or expiration of this Agreement, such payments shall
nonetheless cease and the Company shall no longer be obligated to
make such payments if there is a material breach of any of the
covenants in this Section and Executive shall forthwith upon demand
of the Company repay any such amounts paid to Executive subsequent
to the date such breach occurred.
(f) For purposes of this Section 12, the term
"Company" includes the Company, the Subsidiary and each of their
respective subsidiaries.
SECTION 13. INDEMNIFICATION. Throughout the Term (commencing
with the termination of Executive's employment under the Former
Agreement) and thereafter, the Company shall indemnify Executive to
the fullest extent not prohibited by law against any and all
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expenses, fees (including reasonable legal fees), liabilities and
obligations of any nature whatsoever paid or incurred by Executive
in connection with any suit, proceeding, inquiry, hearing or
investigation arising out of or related to (a) the fact that
Executive is or was an employee, officer, director or agent of the
Company, (b) anything done or not done by Executive in any such
capacity, or (c) enforcement of the terms of this Agreement. Such
indemnification shall be paid upon the submission of invoices,
records or other evidence of the expenses, fees, liabilities or
obligations accrued or incurred.
SECTION 14. GRANT OF CASH-ONLY RIGHTS. The Company hereby
agrees to grant to Executive cash-only rights pursuant to a plan,
substantially in the form attached hereto as SCHEDULE B, to be
adopted by the duly authorized Compensation Committee of the
Company, comprised solely of directors who are "disinterested
persons" within the meaning of 12 C.F.R 240.16b-3(c)(2).
SECTION 15. EXCLUSIVE AGREEMENT. Executive agrees to devote
all customary business time and attention to the affairs of the
Company except during vacation periods and reasonable periods of
illness or other incapacity consistent with the practices of the
Company for executives in comparable positions, and agrees that
Executive's services shall be completely exclusive to the Company
during the term hereof.
SECTION 16. PAYMENTS UNDER FORMER AGREEMENT.
(a) Executive agrees to cooperate with the Company
and the Subsidiary in reviewing the payments (the "Change in
Control Payments") received by Executive pursuant to the Former
Agreement and the Subsidiary's Supplemental Executive Retirement
Plan paid as a result of the election of the nominees of Dickstein
Partners Inc. as directors of the Company at the 1995 Annual
Meeting of the Shareholders of the Company, for the purpose of
verifying the calculation of (i) amounts payable under the terms of
such agreement and plan, and (ii) the taxes payable as a result of
the Change in Control Payments, including in consideration of
applicable tax and employee benefit laws, and in making such
adjustments (if any) to the Change in Control Payments to correct
errors or miscalculations, and to the taxes payable in respect
thereof, as may be required based upon the results of such
verification. The Company and the Subsidiary acknowledge that (i)
Executive is required to be made whole on an after tax basis for
any income, excise or other taxes imposed as a result of such
Change in Control Payments (including any additional payments made
in respect of such tax liabilities) pursuant to the "gross up"
provisions of Section 11 of the Former Agreement and (ii) nothing
in this Agreement shall affect the validity of the previously
executed release of Executive by the Company and Subsidiary
relating to the Former Agreement and Change in Control Payments.
(b) Executive further agrees to file such requests
for refunds from the Internal Revenue Service or any state or local
taxing authority with respect to, and take such other actions to
recover, the withholding tax or any portion thereof paid by the
Subsidiary or the Company in respect of the Change in Control
Payments as the Subsidiary or the Company shall reasonably request,
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provided that any such filing or other action shall be at the sole
cost and expense of the Company or the Subsidiary, and, subject
only to the preceding Section 16(a), such filing or other action
shall not result in any reduction in the amount of the Change in
Control Payments received by Executive, net of all applicable
taxes. If and to the extent that Executive receives any refund of
the withholding taxes paid by the Company or the Subsidiary in
respect of the Change in Control Payments, Executive shall promptly
so inform the Company and remit the amount of such refund to the
Company or the Subsidiary as the Company shall direct.
(c) Without limiting the generality of Section 13,
the provisions of Section 13 shall apply to any actions taken by
Executive pursuant to this Section 16.
SECTION 17. ENTIRE AGREEMENT. This Agreement contains the
entire understanding of the parties with respect to the subject
matter hereof. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective legal
representatives, executors, heirs, administrators, successors and
assigns.
SECTION 18. GOVERNING LAW. This Agreement and all matters
and issues collateral thereto shall be governed by the laws of the
Commonwealth of Massachusetts applicable to contracts performed
entirely therein.
SECTION 19. SEVERABILITY. If any provision of this
Agreement, as applied to either party or to any circumstance, shall
be adjudged by a court to be void and unenforceable, the same shall
in no way affect any other provision of this Agreement or the
validity or enforceability thereof.
SECTION 20. NOTICES. All notices or other communications
hereunder shall be given in writing and shall be deemed given if
served personally or mailed by registered or certified mail, return
receipt requested, to the parties at their respective addresses
above indicated, or at such other address or addresses as they may
hereafter designate in writing.
SECTION 21. EXPENSES. The Company shall pay all legal
expenses incurred by Executive in connection with the preparation,
negotiation and execution of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of July 6, 1995.
EXECUTIVE
By: /s/ E. Jackson Smailes
------------------------------
HILLS STORES COMPANY
By: /s/ Mark Dickstein
------------------------------
Chairman of the Board
HILLS DEPARTMENT STORE COMPANY
By: /s/ William K. Friend
-------------------------------
Vice President-Secretary
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Schedule A
to
Employment Agreement
between
Hills Stores Company,
Hills Department Store Company
and
Executive
NAME E. Jackson Smailes
ADDRESS 387 Far Reach Road, Westwood, MA 02090
TITLE OF POSITION President and Acting Chief Executive
Officer of Hills Stores Company and Hills
Department Store Company
TERM OF EMPLOYMENT January 31, 1997
RESPONSIBILITY
AND AUTHORITY Chief Executive Officer of Hills Stores
Company and Hills Department Store
Company. Executive shall be the sole
officer or employee reporting directly to
the Board of Directors of the Company or
the Subsidiary
AUTHORITY AND
LINE OF REPORTING Reports to the Board of Directors of
Hills Stores Company and Hills Department
Store Company
BASE SALARY $600,000
ANNUAL BONUSES 50% of base salary if annual goals
established by the new Board are met (any
annual goals based on operating results
will exclude costs and expenses
associated with Change in Control and
related proxy contest in connection with
the June 23, 1995 meeting of shareholders
and related compensation payments to
officers, employees and consultants)
CHANGE IN CONTROL
BONUS An amount equal to the positive
difference (if any) between (x) the Base
Salary level in effect upon or prior to
such Change in Control and (y) the cash
deemed received by Executive pursuant to
the exercise of any cash-only rights
granted pursuant to Section 14 of this
Agreement. If any such cash-only rights
are then exercisable and have not yet
been exercised, the cash received by
Executive for purposes of clause (y)
above with respect to such rights shall
be computed as if such cash-only rights
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had been exercised immediately prior to
the Change in Control. If Executive
previously exercised any such cash-only
rights, the cash received by Executive
for purposes of clause (y) above with
respect to such rights shall be computed
as the greater of (A) the amount actually
received by Executive upon exercise and
(B) the amount that would have been
received had such cash-only rights been
exercised at the earlier of (i) the date
such rights would terminate pursuant to
their terms or (ii) immediately prior to
the Change in Control. If any such cash-
only rights expired unexercised, the cash
received by Executive for purposes of
clause (y) above with respect to such
rights shall be deemed to be zero.
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EMPLOYMENT AGREEMENT made as of July 6, 1995 by and between
Hills Stores Company (the "Company"), a Delaware corporation having
its principal office at 15 Dan Road, Canton, Massachusetts
("Principal Office"), Hills Department Store Company, a Delaware
corporation and wholly-owned subsidiary of the Company having its
principal office at the Principal Office (the "Subsidiary"), and
the person ("Executive") set forth on the signature page hereof,
who resides at the address specified in Schedule A.
WHEREAS, Executive was previously employed by the Company and
the Subsidiary pursuant to an employment agreement with the
Subsidiary made as of September 30, 1994 (the "Former Agreement");
and
WHEREAS, Executive terminated his employment on July 5, 1995
for purposes of Section 9 of the Former Agreement following a
Change in Control (as defined therein) and received certain
payments pursuant to Sections 10(c) and 11 of the Former Agreement
and is entitled to receive certain other benefits through December
31, 1996; and
WHEREAS, the Company and the Subsidiary desire to secure the
services of Executive with the title and the position specified in
Schedule A (such title and position, the "Executive Position");
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the Company, the Subsidiary
and Executive agree as follows:
SECTION 1. EMPLOYMENT. The Company and the Subsidiary hereby
agree to employ Executive in the Executive Position, and Executive
hereby accepts such employment.
SECTION 2. TERM. The employment of Executive by the Company
and the Subsidiary as provided in Section 1 shall continue through
and including the date specified in SCHEDULE A (including any
extension, the "Term") unless further extended by the mutual
consent of the Company, the Subsidiary and the Executive or earlier
terminated as hereinafter provided.
SECTION 3. POSITION AND AUTHORITY. Executive shall be
employed by the Company and the Subsidiary in the Executive
Position and shall have the responsibilities and authority
specified in SCHEDULE A; provided, however, that the Company and
the Subsidiary shall have the right to make reasonable changes in
the Executive's responsibilities and authority to comport with
business necessities as long as there is not a significant
diminution in the Executive's responsibilities and authority (such
responsibilities and authority, the "Executive's Authority").
SECTION 4. PLACE OF PERFORMANCE. Executive may not, without
Executive's consent, be required to perform Executive's duties at
any location that is more than fifty (50) miles from the Principal
Office or the Subsidiary's field office headquarters in Aliquippa,
Pennsylvania (if the Executive currently maintains his primary
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office at such facility), except for necessary travel on the
Company's or Subsidiary's business to an extent substantially
consistent with the Executive Position.
SECTION 5. COMPENSATION AND EXPENSES.
(a) SALARY. Executive shall receive the base
salary specified in SCHEDULA A. In accordance with the Company's
practice for its senior executives, Executive will be paid a pro
rata portion of his base salary twice each month. Base salary
shall be reviewed on an annual basis. There shall be no decrease
in base salary during the Term.
(b) BONUSES. Executive shall receive the annual
bonuses specified in SCHEDULE A. Such annual bonuses shall be paid
to Executive within sixty (60) days after the end of each of the
Company's fiscal years during the term of this Agreement or as
otherwise required hereunder.
(c) BENEFITS. Executive shall be included in all
plans now existing or hereafter adopted for the general benefit of
the Company's or the Subsidiary's employees, such as bonuses, stock
option or other incentive compensation plans, profit sharing plans,
retirement plans, life and health insurance plans, or other
insurance plans and benefits (not including, however, the retention
bonus and separation pay programs adopted by the Board of Directors
of the Company on July 12, 1995), if and to the extent that
Executive is and remains eligible to participate thereunder, and
subject to the provisions of such plans as the same may be in
effect from time to time. Executive will be included in any
Company or Subsidiary benefit plans in which executives in
positions comparable to the Executive participate.
(d) VACATION. Executive shall be entitled to at
least the same vacation as Executive was entitled under the Former
Agreement, provided that, in determining such entitlement to
vacation, there shall be included any vacation in the current year
taken under the Former Agreement.
(e) PERQUISITES. The Company and the Subsidiary
shall make available to Executive at least those perquisites
granted Executive under the Former Agreement.
(f) EXPENSES. The Company and the Subsidiary shall
reimburse Executive for all reasonable out-of-pocket expenses
incurred by Executive in connection with the business of the
Company or the Subsidiary and in performance of Executive's duties
under this Agreement.
(g) CHANGE IN CONTROL BONUS. The Company shall pay
Executive a cash bonus ( the "Change in Control Bonus") as set
forth in SCHEDULE A upon the occurrence of any Change in Control
(as defined below) during the period ending upon the expiration of
the Term of this Agreement, provided however, that no Change in
Control Bonus shall be payable in the event that prior to the
occurrence of a Change in Control, the employment of Executive is
terminated by the Company for "Cause" (as defined below) or by
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<PAGE> 3
Executive without "Good Reason" (as defined below).
"Change in Control" shall mean the earliest
date after the date hereof on which either of the following occurs:
(i) the Company or the Subsidiary has sold all or substantially all
of its assets in one or more related transactions; or (ii) the
Company or the Subsidiary engages in any merger, consolidation,
reorganization or similar event as a result of which the holders of
the voting stock of the Company or the Subsidiary prior to such
merger, consolidation, reorganization or similar event hold less
than a majority of the voting stock of the surviving entity
(provided that, if within one year prior to such merger,
consolidation, reorganization or similar event any person (an
"Acquiring Person"), together with its affiliates and associates
(as defined in Rule 12b-2 under the Securities Exchange Act of
1934, or any successor rule thereto) shall become the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act),
including by tender offer, merger or otherwise, of more than fifty
percent (50%) of the total voting power of all classes of voting
stock of the Company or the Subsidiary, then such Acquiring Person
shall be deemed not to have owned such shares prior to, and to have
acquired all such shares pursuant to, such merger, consolidation,
reorganization or similar event).
SECTION 6. TERMINATION BY THE COMPANY.
(a) The Company shall have the right to terminate
Executive's employment at any time for "Cause." For purposes of
this Agreement, "Cause" shall mean (i) the wilful and intentional
engagement by Executive in conduct which is materially injurious to
the Company, the Subsidiary or any of their respective
subsidiaries; (ii) any wilful breach by Executive of Section 12 of
this Agreement; (iii) any other material breach by Executive of the
provisions of this Agreement or any material neglect of the duties
of Executive in connection with the business and affairs of the
Company, the Subsidiary or any of their respective subsidiaries
which breach or neglect shall have continued for thirty (30)
calendar days after written notice from the Company or the
Subsidiary to the Executive specifying the nature of such breach or
neglect; or (iv) the conviction of or guilty plea by Executive of
a felony or of any act of fraud or embezzlement against the
Company, its Subsidiary or any of their respective subsidiaries.
For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "wilful" unless such act, or
failure to act, was not in good faith and was without reasonable
belief that such action or omission was in the best interest of the
Company, the Subsidiary or their respective subsidiaries.
(b) The Company and Subsidiary shall have the right
to terminate Executive's employment upon not less than 30 calendar
days' written notice, without cause, or at any time following a
Change in Control, and the provisions of Section 10 shall be
applicable.
SECTION 7. TERMINATION BY DEATH. In the event Executive dies
during the Term, Executive's employment shall terminate (effective
on the date of Executive's death) and the provisions of Section 10
shall be applicable.
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SECTION 8. TERMINATION BY DISABILITY. In the event that
Executive suffers a disability which prevents Executive from
substantially performing Executive's duties under this Agreement
for a period of at least one hundred and eighty (180) consecutive
or nonconsecutive calendar days within any three hundred and sixty-
five (365) calendar day period, the Company shall have the right,
after such one hundred and eighty (180) calendar day period has
elapsed, to terminate Executive's employment hereunder upon thirty
(30) calendar days' written notice to Executive and the provisions
of Section 10 shall be applicable.
SECTION 9. TERMINATION BY EXECUTIVE. Notwithstanding any
other provision of this Agreement, Executive may terminate
Executive's employment either (i) for "Good Reason" (as defined
below), (ii) upon 60 calendar days' written notice, or (iii) at any
time following a Change in Control and the provisions of Section 10
shall be applicable.
For purposes of this Agreement, the term "Good Reason"
shall mean:
(i) any action by the Company or the
Subsidiary which results in a diminution in the Executive Position
or in the Executive's Authority which action shall have continued
for thirty (30) calendar days after written notice from Executive
to the Company or the Subsidiary specifying the nature of such
breach, except for the actions permitted to be made by the Company
or the Subsidiary in Section 3 above;
(ii) any failure by the Company or the
Subsidiary to timely pay the amounts or provide the benefits
described in Section 5 of this Agreement, other than isolated
failures not occurring in bad faith and which are remedied promptly
after receipt of written notice thereof given by Executive;
(iii) a material breach by the Company or the
Subsidiary of any of the provisions of this Agreement which breach
shall have continued for thirty (30) calendar days after written
notice from Executive to the Company or the Subsidiary specifying
the nature of such breach; or
(iv) any action by the Company or the
Subsidiary that would result in a violation of Section 4.
SECTION 10. EFFECT OF TERMINATION.
(a) BY COMPANY OR EXECUTIVE FOLLOWING CHANGE IN
CONTROL. In the event of termination of this Agreement by the
Company, the Subsidiary or the Executive for any reason (other than
death or disability) following a Change in Control, the Company and
the Subsidiary shall promptly pay Executive any base salary or
other compensation earned (but not including any bonus other than
the Change in Control Bonus or bonuses related to time periods
which have been completed but not paid prior to termination)
through the date of termination to the extent not paid to Executive
prior to the effective date of such termination.
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<PAGE> 5
(b) BY COMPANY FOR CAUSE; BY EXECUTIVE WITHOUT GOOD
REASON. In the event of termination of this Agreement (i) by the
Company or the Subsidiary for Cause prior to any Change in Control,
or (ii) by Executive without Good Reason prior to any Change in
Control, the Company and the Subsidiary shall pay Executive (A) any
base salary or other compensation earned and (B) a pro rata portion
of the bonus payable pursuant to Section 5(b) with respect to the
year in which termination occurred provided that all Company and
Individual performance goals and objectives are achieved
(determined as of the time that such Company and Individual
performance goals and objectives are or would have been otherwise
evaluated, but assuming compliance with those Individual
performance goals that require the personal services of Executive
following the date of the termination of employment), in each case
to the extent not paid to Executive prior to the effective date of
such termination. The compensation payable pursuant to clause (A)
of the preceding sentence shall be paid within thirty (30) calendar
days after the effective date of such termination and the
compensation payable pursuant to clause (B) of the preceding
sentence shall be paid at the time such compensation would
otherwise have been payable had the employment of Executive not
been terminated.
(c) BY COMPANY WITHOUT CAUSE AND NO CHANGE IN
CONTROL; BY EXECUTIVE FOR GOOD REASON AND NO CHANGE IN CONTROL. In
the event of (i) termination of this Agreement by the Company other
than for Cause prior to any Change in Control or (ii) termination
of this Agreement by Executive for Good Reason prior to any Change
in Control, the Company shall pay Executive, in a lump sum within
thirty (30) calendar days after termination under this
Section 10(b), the Executive's Annual Compensation for the
remaining Term of this Agreement.
The term "Executive's Annual Compensation"
shall mean the sum of (A) the Executive's base salary in effect at
the time of termination and (B) any bonus compensation to which
Executive would have been entitled pursuant to Section 5(b) if
Executive had continued to be employed under this Agreement to the
end of the Term assuming that all Company and Individual
performance goals and objectives had been achieved.
(d) DISABILITY; DEATH. In the event of termination
of this Agreement by reason of disability or death, the Company
shall continue to pay Executive (or Executive's beneficiary in the
event of Executive's death) (A) Executive's base salary at the time
of such termination through the remainder of the month in which
such termination occurs and (B) a pro rata portion of the bonus
payable with respect to the year in which termination occurred,
provided all Company and Individual performance goals are achieved
(determined as of the time that such Company and Individual
performance goals and objectives are or would have been otherwise
evaluated, but assuming compliance with those Individual
performance goals that require the personal services of Executive
following the date of the termination of employment), in each case
to the extent not paid to Executive prior to the effective date of
such termination and, in the case of termination by reason of
death, the Company shall pay Executive's beneficiary any death
benefits that Executive is entitled to under the Company's policies
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in effect on Executive's date of death. The compensation payable
pursuant to clause (A) of the preceding sentence shall be paid
within thirty (30) calendar days after the effective date of such
termination and the compensation payable pursuant to clause (B) of
the preceding sentence shall be paid at the time such compensation
would otherwise have been payable had the employment of Executive
not been terminated.
(e) BENEFITS AND PERQUISITES. Following
termination of the Executive's employment under this Agreement,
Executive shall not be entitled, except as may be required by law
or the terms of any benefit plan, to any of the benefits or
perquisites set forth in Section 5(c) and 5(e) regardless of the
reason for such termination. Notwithstanding the foregoing,
Executive shall continue to receive following termination of his
employment under this Agreement all benefits and perquisites to
which he is entitled under the Former Agreement, regardless of the
reason for such termination hereunder.
(f) CHANGE IN CONTROL BONUS. The obligation of the
Company to pay the Change in Control Bonus shall survive the
termination of the employment of the Executive to the extent
contemplated by Section 5(g) above.
SECTION 11. NO MITIGATION; NO OFFSET. Executive shall be
under no obligation to mitigate damages or the amount of any
payment provided for under this Agreement by seeking other
employment or otherwise and there shall be no offset against
amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that
Executive may obtain.
SECTION 12. COVENANTS OF EXECUTIVE.
(a) Executive recognizes that the knowledge of,
information concerning and relationship with customers, suppliers
and agents, and the knowledge of the Company's business methods,
systems, plans and policies which Executive will establish, receive
or obtain as an employee of the Company, are valuable and unique
assets of the business of the Company. Executive will not, during
or within two (2) years after the Term, disclose any such knowledge
or information pertaining to the Company, its customers, suppliers,
agents, policies or other aspects of its business, for any reason
or purpose whatsoever except pursuant to Executive's duties
hereunder or as otherwise authorized by the Company in writing.
The foregoing restriction shall not apply, following termination of
Executive's employment hereunder, to knowledge or information which
(i) is in or enters the public domain without violation of this
Agreement or the Former Agreement (including any predecessor
agreement) or other obligations of confidentiality by Executive or
his agents or representatives, (ii) Executive can demonstrate was
in his possession on a non-confidential basis prior to the
commencement of his employment with the Company (including under
the Former Agreement and any predecessor agreement) or (iii)
Executive can demonstrate was received or obtained by him on a non-
confidential basis from a third party who did not acquire it
wrongfully or under an obligation or confidentiality, subsequent to
the termination of his employment hereunder.
6
<PAGE> 7
(b) All memoranda, notes, records or other
documents made or compiled by Executive or made available to
Executive while employed concerning customers, suppliers, agents or
personnel of the Company, or the Company's business methods,
systems, plans and policies shall be the Company's property and
shall be delivered to the Company on termination of Executive's
employment or at any other time on request.
(c) During the term of Executive's employment and
for two (2) years thereafter, Executive shall not, except pursuant
to and in furtherance of his duties hereunder, directly or
indirectly solicit or initiate contact with any employee of the
Company with a view to inducing or encouraging such employee to
leave the employ of the Company for the purpose of being hired by
Executive, an employer affiliated with him or any competitor of the
Company.
(d) Executive acknowledges that the provisions of
this Section are reasonable and necessary for the protection of the
Company and that the Company will be irrevocably damaged if such
covenants are not specifically enforced. Accordingly, Executive
agrees that, in addition to any other relief to which the Company
may be entitled in the form of actual or punitive damages, the
Company shall be entitled to seek and obtain injunctive relief from
a court of competent jurisdiction for the purposes of restraining
Executive from any actual or threatened breach of such covenants.
(e) In the event that, following the termination of
this Agreement, Executive is entitled to receive any further
payments other than for compensation or other amounts accrued prior
to termination or expiration of this Agreement, such payments shall
nonetheless cease and the Company shall no longer be obligated to
make such payments if there is a material breach of any of the
covenants in this Section and Executive shall forthwith upon demand
of the Company repay any such amounts paid to Executive subsequent
to the date such breach occurred.
(f) For purposes of this Section 12, the term
"Company" includes the Company, the Subsidiary and each of their
respective subsidiaries.
SECTION 13. INDEMNIFICATION. Throughout the Term (commencing
with the termination of Executive's employment under the Former
Agreement) and thereafter, the Company shall indemnify Executive to
the fullest extent not prohibited by law against any and all
expenses, fees (including reasonable legal fees), liabilities and
obligations of any nature whatsoever paid or incurred by Executive
in connection with any suit, proceeding, inquiry, hearing or
investigation arising out of or related to (a) the fact that
Executive is or was an employee, officer, director or agent of the
Company, (b) anything done or not done by Executive in any such
capacity, or (c) enforcement of the terms of this Agreement. Such
indemnification shall be paid upon the submission of invoices,
records or other evidence of the expenses, fees, liabilities or
obligations accrued or incurred.
SECTION 14. GRANT OF CASH-ONLY RIGHTS. The Company hereby
agrees to grant to Executive cash-only rights pursuant to a plan,
7
<PAGE> 8
substantially in the form attached hereto as SCHEDULE B, to be
adopted by the duly authorized Compensation Committee of the
Company, comprised solely of directors who are "disinterested
persons" within the meaning of 12 C.F.R 240.16b-3(c)(2).
SECTION 15. EXCLUSIVE AGREEMENT. Executive agrees to devote
all customary business time and attention to the affairs of the
Company except during vacation periods and reasonable periods of
illness or other incapacity consistent with the practices of the
Company for executives in comparable positions, and agrees that
Executive's services shall be completely exclusive to the Company
during the term hereof.
SECTION 16. PAYMENTS UNDER FORMER AGREEMENT.
(a) Executive agrees to cooperate with the Company
and the Subsidiary in reviewing the payments (the "Change in
Control Payments") received by Executive pursuant to the Former
Agreement and the Subsidiary's Supplemental Executive Retirement
Plan paid as a result of the election of the nominees of Dickstein
Partners Inc. as directors of the Company at the 1995 Annual
Meeting of the Shareholders of the Company, for the purpose of
verifying the calculation of (i) amounts payable under the terms of
such agreement and plan, and (ii) the taxes payable as a result of
the Change in Control Payments, including in consideration of
applicable tax and employee benefit laws, and in making such
adjustments (if any) to the Change in Control Payments to correct
errors or miscalculations, and to the taxes payable in respect
thereof, as may be required based upon the results of such
verification. The Company and the Subsidiary acknowledge that (i)
Executive is required to be made whole on an after tax basis for
any income, excise or other taxes imposed as a result of such
Change in Control Payments (including any additional payments made
in respect of such tax liabilities) pursuant to the "gross up"
provisions of Section 11 of the Former Agreement and (ii) nothing
in this Agreement shall affect the validity of the previously
executed release of Executive by the Company and Subsidiary
relating to the Former Agreement and Change in Control Payments.
(b) Executive further agrees to file such requests
for refunds from the Internal Revenue Service or any state or local
taxing authority with respect to, and take such other actions to
recover, the withholding tax or any portion thereof paid by the
Subsidiary or the Company in respect of the Change in Control
Payments as the Subsidiary or the Company shall reasonably request,
provided that any such filing or other action shall be at the sole
cost and expense of the Company or the Subsidiary, and, subject
only to the preceding Section 16(a), such filing or other action
shall not result in any reduction in the amount of the Change in
Control Payments received by Executive, net of all applicable
taxes. If and to the extent that Executive receives any refund of
the withholding taxes paid by the Company or the Subsidiary in
respect of the Change in Control Payments, Executive shall promptly
so inform the Company and remit the amount of such refund to the
Company or the Subsidiary as the Company shall direct.
(c) Without limiting the generality of Section 13,
the provisions of Section 13 shall apply to any actions taken by
Executive pursuant to this Section 16.
8
<PAGE> 9
SECTION 17. ENTIRE AGREEMENT. This Agreement contains the
entire understanding of the parties with respect to the subject
matter hereof. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective legal
representatives, executors, heirs, administrators, successors and
assigns.
SECTION 18. GOVERNING LAW. This Agreement and all matters
and issues collateral thereto shall be governed by the laws of the
Commonwealth of Massachusetts applicable to contracts performed
entirely therein.
SECTION 19. SEVERABILITY. If any provision of this
Agreement, as applied to either party or to any circumstance, shall
be adjudged by a court to be void and unenforceable, the same shall
in no way affect any other provision of this Agreement or the
validity or enforceability thereof.
SECTION 20. NOTICES. All notices or other communications
hereunder shall be given in writing and shall be deemed given if
served personally or mailed by registered or certified mail, return
receipt requested, to the parties at their respective addresses
above indicated, or at such other address or addresses as they may
hereafter designate in writing.
SECTION 21. EXPENSES. The Company shall pay all legal
expenses incurred by Executive in connection with the preparation,
negotiation and execution of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of July 6, 1995.
EXECUTIVE
/s/ William K. Friend
------------------------------
HILLS STORES COMPANY
By: /s/ Mark Dickstein
---------------------------
Chairman of the Board
HILLS DEPARTMENT STORE COMPANY
By: /s/ E. Jackson Smailes
--------------------------
President & Acting C.E.O
9
<PAGE> 10
Schedule A
to
Employment Agreement
between
Hills Stores Company,
Hills Department Store Company
and
Executive
NAME William K. Friend
ADDRESS 704 Main Street, Hingham, MA 02043
TITLE OF POSITION Vice President, Secretary and Corporate
Counsel of the Company and Hills Stores
Company
TERM OF EMPLOYMENT July 6, 1997
RESPONSIBILITY
AND AUTHORITY Senior Legal Executive and Corporate
Secretary of the Company and Hills Stores
Company
AUTHORITY AND
LINE OF REPORTING Reports to President and Chief Executive
Officer of the Company and Hills Stores
Company
BASE SALARY $169,500
ANNUAL BONUSES 40% of base salary if annual goals
established by the new Board are met (any
annual goals based on operating results
will exclude costs and expenses
associated with Change in Control and
related proxy contest in connection with
the June 23, 1995 meeting of shareholders
and related compensation payments to
officers, employees and consultants)
CHANGE IN CONTROL
BONUS An amount equal to the positive
difference (if any) between (x) the Base
Salary level in effect upon or prior to
such Change in Control and (y) the cash
deemed received by Executive pursuant to
the exercise of any cash-only rights
granted pursuant to Section 14 of this
Agreement. If any such cash-only rights
are then exercisable and have not yet
been exercised, the cash received by
Executive for purposes of clause (y)
above with respect to such rights shall
be computed as if such cash-only rights
had been exercised immediately prior to
10
<PAGE> 11
the Change in Control. If Executive
previously exercised any such cash-only
rights, the cash received by Executive
for purposes of clause (y) above with
respect to such rights shall be computed
as the greater of (A) the amount actually
received by Executive upon exercise and
(B) the amount that would have been
received had such cash-only rights been
exercised at the earlier of (i) the date
such rights would terminate pursuant to
their terms or (ii) immediately prior to
the Change in Control. If any such cash-
only rights expired unexercised, the cash
received by Executive for purposes of
clause (y) above with respect to such
rights shall be deemed to be zero.
11
<PAGE> 1
HILLS STORES COMPANY
1995 CASH-ONLY RIGHTS PLAN
1. PURPOSE.
-------
The purpose of this plan (the "Plan") is to secure for Hills
Stores Company (the "Company") and its subsidiaries the
benefits arising from the continued services of certain key
executives who are expected to contribute to the Company's and
such subsidiaries' future growth and success. Except where
the context otherwise requires, the "Company" shall include
all present and future subsidiaries of the Company as defined
in Section 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code").
2. TYPES OF RIGHTS AND ADMINISTRATION.
(a) TYPES OF RIGHTS. This Plan relates to cash-only rights
(the "Rights") intended to meet all of the provisions of
Rule 16a-1(c)(3)(i) promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") or any
successor rule ("Rule 16a-1(c)(3)(i)"). Each Right shall
entitle the recipient, upon exercise thereof, to receive
within ten days of such exercise an amount in cash per
Right calculated as set forth in Section 4 below. To the
extent that the Plan or the Rights granted hereunder do
not comply with the provisions of Rule 16a-1(c)(3)(i),
the Plan and/or the Rights granted hereunder shall be
amended or modified to the extent required to so comply,
without any further action by the Company or any
recipient of such Rights.
(b) ADMINISTRATION. The Plan will be administered by the
Compensation Committee of the Board of Directors, all of
whom shall be "disinterested persons" within the meaning
of Rule 16b-3(c)(2) promulgated under the Exchange Act or
any successor rule. The Compensation Committee shall
have authority, subject to the express provisions of the
Plan, to construe the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective
grants under the Plan, and to make all other
determinations which are, in the reasonable judgment of
the Compensation Committee, necessary or desirable for
the administration of the Plan. The Compensation
Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any grant
hereunder in the manner and to the extent it shall deem
necessary to carry the Plan into effect and it shall be
the sole and final judge of such expediency.
3. GRANTS. Rights shall be and hereby are granted to those
individuals set forth in EXHIBIT A hereto, in the amounts set
1
<PAGE> 2
forth opposite their names on said EXHIBIT A. Those rights on
EXHIBIT A labeled "one year rights" shall terminate and expire
and be of no further force and effect if not exercised on or
before 5:00 p.m., Boston time, on July 8, 1996. Those rights
on EXHIBIT A labeled "90-day rights" shall terminate and
expire and be of no further force and effect if not exercised
on or before 5:00 p.m., Boston time, on the earlier of (i) the
day next preceding the tenth anniversary of the date of the
adoption of this Plan by the Compensation Committee (ii) 90
days after the date of the termination of employment of the
recipient thereof with the Company, if such termination is on
account of the death or disability of the recipient, or such
termination is by the Company without Cause (as defined in the
recipient's employment agreement) or by the recipient for Good
Reason (as defined in the recipient's employment agreement) or
by the Company or the recipient for any reason following a
Change in Control (as defined in the recipient's employment
agreement) or (iii) at the time of termination of employment
of the recipient, if such termination is by the Company for
Cause or by the recipient without Good Reason, in each case
prior to the occurrence of a Change in Control. For all
purposes of the Plan, "employment" shall be defined in
accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations)
promulgated under the Code.
No additional rights are or may be granted pursuant to the
Plan.
4. EXERCISE OF RIGHTS. A recipient of a Right granted hereunder
may exercise such Right in whole or in part at any time prior
to the expiration of such Right by providing written notice to
the Treasurer of the Company, specifying the number of Rights
being exercised and the computation of amounts payable upon
exercise of such Right; provided that no recipient shall
exercise any Right granted hereunder at any time when such
recipient is an officer or director of the Company if the
purchase or sale of the Company's common stock at such time
would be prohibited by any Company policy applicable to all
officers and directors of the Company. The computation of the
amounts so payable shall be determined by determining the
difference (if any) per Right between (x) "Fair Market Value"
per share (as defined below) of the Company's common stock and
(y) the "base value" of the Right (as set forth in EXHIBIT
A). "Fair Market Value" of a share of the Company's common
stock shall mean the reported closing sales price on the next
business day immediately following the date the Right is
exercised or, in case no such sale takes place on such date,
the highest closing bid quotation on the principal United
States securities exchange registered under the Exchange Act
on which such stock is listed on such date, or if such stock
is not listed on any such exchange, the Nasdaq National Market
or any system then in use, or if no such prices or quotations
are available, the fair market value on the day in question as
determined by the Board of Directors in good faith; provided
that, if the base value shall equal or exceed the Fair Market
2
<PAGE> 3
Value as so determined, such exercise shall be deemed
rescinded AB INITIO and the recipient may thereafter exercise
such Right subject to the terms of this Plan. Following any
tender offer, merger, consolidation, reorganization or similar
event resulting in a Change in Control or the delisting of the
Company's common stock under Section 12 of the Exchange Act,
Fair Market Value shall be equal to the Fair Market Value
immediately prior to consummation of such tender offer,
merger, consolidation, reorganization or similar event or, in
the case of any series of such events that are part of a
single scheme, the first of such events.
5. NONTRANSFERABILITY OF RIGHTS. Rights granted hereunder shall
not be assignable or transferable by the person to whom they
are granted, either voluntarily or by operation of law, except
Rights granted hereunder may be transferred (i) by will or the
laws of descent and distribution, or (ii) pursuant to a
qualified domestic relations order as defined in Section
414(p) of the Code.
6. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan
or in any grant shall confer upon any recipient of a Right
granted hereunder any right with respect to the continuation
of his or her employment by the Company or interfere in any
way with the ability of the Company at any time to terminate
such employment or to increase or decrease the compensation of
the recipient of any Right.
7. WITHHOLDING. The Company may deduct from payments otherwise
due hereunder any federal, state or local taxes of any kind
required by law to be withheld from the recipient upon
exercise of Rights granted hereunder.
8. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED
TRANSACTIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets
of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares
of the Company's common stock are increased, decreased or
exchanged for a different number or kind of shares of the
Company, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets
are distributed with respect to such shares of the Company's
common stock, an appropriate and proportionate adjustment
shall be made in the number and base value of each Right
outstanding under the Plan.
9. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC. In the
event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which
outstanding shares of the Company's common stock are exchanged
for securities, cash or other property of any other
corporation or business entity or in the event of a
liquidation of the Company, the Company, or any corporation
assuming the obligations of the Company, shall provide that
all outstanding Rights shall be assumed by the acquiring or
succeeding corporation (or an affiliate thereof).
3
<PAGE> 4
10. EFFECTIVE DATE AND DURATION OF THE PLAN. The Plan shall
become effective when adopted by the Compensation Committee.
The Plan shall terminate at 5:00 p.m., Boston time, on the
earlier of (i) the day next preceding the tenth anniversary of
the date of its adoption by the Compensation Committee or (ii)
the date on which all Rights granted under the Plan have
terminated or been exercised in full.
Adopted by the Compensation
Committee of the Board of
Directors on August 16, 1995.
4
<PAGE> 5
Exhibit A
----------
Recipient One Year Rights 90-Day Rights
--------- --------------- -------------
William Friend 26,500 Rights with 12,500 Rights with
base value of $18.49 base value of $20.125
per share per share
E. Jackson Smailes 72,000 Rights with 50,000 Rights with
base value of $18.56 base value of $20.125
per share per share
Robert Stevenish 72,000 Rights with 50,000 Rights with
base value of $18.56 base value of $20.125
per share per share
5
<PAGE> 1
EXHIBIT 10.6
EXECUTION COPY
=================================================================
CREDIT AGREEMENT
Dated as of August 21, 1995
Among
HILLS STORES COMPANY,
HILLS DEPARTMENT STORE COMPANY,
the Lenders named herein
And
CHEMICAL BANK,
as Administrative Agent and Fronting Bank
=================================================================
<PAGE> 2
CREDIT AGREEMENT dated as of August 21, 1995, among HILLS
STORES COMPANY, a Delaware corporation (the PARENT ), HILLS
DEPARTMENT STORE COMPANY, a Delaware corporation (the BORROWER)
and a wholly owned subsidiary of the Parent, the financial
institutions listed on Schedule 2.01 (the LENDERS ), NATWEST BANK
N.A., a Delaware corporation (in such capacity, the "MANAGING
AGENT"), CREDIT LYONNAIS NEW YORK BRANCH and CREDIT LYONNAIS
CAYMAN ISLAND BRANCH, each a branch, duly licensed under the
laws of the State of New York and the laws of Cayman Island,
respectively, of Credit Lyonnais, a banking corporation organized
and existing under the laws of the Republic of France (in such
capacity, each a "CO-AGENT"), INTERNATIONALE NEDERLADEN (U.S.)
CAPITAL CORPORATION, a Delaware corporation (in such capacity, a
"CO-AGENT"), THE CIT GROUP/BUSINESS CREDIT, INC., a Delaware
corporation (in such capacity, a CO-AGENT ), and CHEMICAL
BANK, a New York banking corporation ( CHEMICAL BANK ), as
agent for the Lenders (in such capacity, the ADMINISTRATIVE
AGENT and, together with the Managing Agent and the
Co-Agents, the AGENTS ) and as fronting bank (in such
capacity, the FRONTING BANK).
The Borrower has requested (a) the Lenders to extend credit in
order to enable the Borrower, on the terms and subject to the
conditions set forth in this Agreement, to borrow on a revolving
basis, at any time and from time to time prior to the Maturity
Date (such term and each other capitalized term used herein but
not defined herein having the meanings given to such terms in
Section 1.01), an aggregate principal amount at any time
outstanding not to exceed (i) the lesser of (A) $300,000,000 and
(B) the Borrowing Base at such time minus (ii) the LC Exposure at
such time and (b) the Fronting Bank to issue, on the terms and
subject to the conditions set forth in this Agreement, Letters of
Credit in an aggregate face amount at any time outstanding not in
excess of $100,000,000. The proceeds of such borrowings are to be
used (a) on the Closing Date, solely (i) to refinance all
indebtedness outstanding under the Existing Credit Agreement,
(ii) to pay fees and expenses of Dickstein Partners Inc. not in
excess of $2,500,000 incurred in connection with the 1995 Change
in Control and (iii) to pay fees and expenses related to the
transactions contemplated hereby and (b) after the Closing Date,
solely (i) to provide working capital to the Borrower and its
Subsidiaries, (ii) for other general corporate purposes in the
ordinary course of the Borrower's business or as permitted under
this Agreement, (iii) to pay the Continuation Fee and (iii) to
pay any unpaid portion of the amounts described in
clauses (a)(ii) and (a)(iii) of this sentence. The Letters of
Credit may be issued in the form of (a) standby Letters of Credit
for general corporate purposes of the Borrower ( STANDBY LETTERS
OF CREDIT ) and (b) trade Letters of Credit to support the
shipment to the Borrower or CRH of inventory from locations
outside the continental United States and the States of Alaska
and Hawaii ( TRADE LETTERS OF CREDIT ), in each case in the
ordinary course of the Borrower's business. The Lenders are
willing to extend such credit to the Borrower, and the Fronting
Bank is willing to issue the Letters of Credit, on the terms and
subject to the conditions set forth in this Agreement.
Accordingly, the Borrower, the Parent, the Lenders, the Agents
and the Fronting Bank agree as follows:
1
<PAGE> 3
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the
following terms shall have the meanings specified below:
ABR BORROWING shall mean a Borrowing comprised of ABR Loans.
ABR LOAN shall mean any Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance
with the provisions of Article II.
ABR SPREAD shall mean 1-3/4% per annum.
ADJUSTED LIBO RATE shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to
the product of (a) the LIBO Rate in effect for such Interest
Period and (b) Statutory Reserves. For purposes hereof, the term
LIBO RATE shall mean the rate (rounded upwards, if necessary,
to the next 1/16 of 1%) at which dollar deposits approximately
equal in principal amount to the Administrative Agent's portion
of such Eurodollar Borrowing and for a maturity comparable to
such Interest Period are offered to the principal London office
of the Administrative Agent in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest
Period.
ADMINISTRATIVE QUESTIONNAIRE shall mean an Administrative
Questionnaire in the form of Exhibit A.
AFFILIATE shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one
or more intermediaries, Controls or is Controlled by or is under
common Control with the person specified.
ALTERNATE BASE RATE shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to
the greatest of (a) the Prime Rate in effect on such day, (b) the
Base CD Rate in effect on such day plus 1% and (c) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof, the term PRIME RATE shall mean the rate of
interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as being
effective. The term BASE CD RATE shall mean the sum of (a) the
product of (i) the Three-Month Secondary CD Rate and (ii) Statutory
Reserves and (b) the Assessment Rate. The term THREE-MONTH SECONDARY
CD RATE shall mean, for any day, the secondary market rate for three-
month certificates of deposit reported as being in effect on such day
(or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board through the public information telephone
line of the Federal Reserve Bank of New York (which rate will, under
the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or
2
<PAGE> 4
such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of
major money center banks in New York City received at approxi-
mately 10:00 a.m., New York City time, on such day (or, if such
day shall not be a Business Day, on the next preceding Business
Day) by the Administrative Agent from three New York City
negotiable certificate of deposit dealers of recognized standing
selected by it. If for any reason the Administrative Agent shall
have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Base CD Rate
or the Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Administrative Agent to
obtain sufficient quotations in accordance with the terms
thereof, the Alternate Base Rate shall be determined without
regard to clause (b) or (c), or both, of the first sentence of
this definition, as appropriate, until the circumstances giving
rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the Three-
Month Secondary CD Rate or the Federal Funds Effective Rate shall
be effective on the effective date of such change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
APPLICABLE PERCENTAGE shall mean, with respect to any Lender,
the percentage of the aggregate Commitments represented by such
Lender's Commitment.
ASSESSMENT RATE shall mean for any date the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most
recently estimated by the Administrative Agent as the then-
current net annual assessment rate that will be employed in
determining amounts payable by the Administrative Agent to the
Federal Deposit Insurance Corporation (or any successor) for
insurance by such Corporation (or such successor) of non-personal
time deposits made in dollars at the Administrative Agent's
domestic offices.
ASSIGNMENT AND ACCEPTANCE shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted
by the Administrative Agent, in the form of Exhibit B or such
other form as shall be approved by the Administrative Agent.
BANKRUPTCY PLAN shall mean the Parent's First Amended
Consolidated Plan of Reorganization approved by the United States
Bankruptcy Court for the Southern District of New York on
September 10, 1993.
BOARD shall mean the Board of Governors of the Federal
Reserve System of the United States.
BOOK VALUE shall mean at any time, as to any Inventory in
respect of which such amount is to be determined, the lower of
(a) cost (as reflected in the Borrower's stock ledger) at such
time or (b) market value at such time, each as determined in
accordance with GAAP on the basis of the retail method of
accounting, calculated on a first-in, first-out basis.
BORROWING shall mean a group of Loans of a single Type made
by the Lenders on a single date and as to which a single Interest
3
<PAGE> 5
Period is in effect.
BORROWING BASE shall mean on any day an amount equal to the
sum of, without duplication, (a) 55% of Eligible Inventory and
(b) the Effective Advance Rate multiplied by the value at cost of
Purchase Accrual Inventory.
BORROWING BASE CERTIFICATE shall mean a certificate
substantially in the form of Exhibit C, executed and certified by
a Financial Officer of the Borrower.
BUSINESS DAY shall mean any day (other than a Saturday,
Sunday or legal holiday in the State of New York) on which banks
are open for business in New York City; PROVIDED, HOWEVER, that,
when used in connection with a Eurodollar Loan, the term
Business Day shall also exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank
market.
CAPITAL EXPENDITURES shall mean, for any period, on a
consolidated basis for the Parent and its Subsidiaries the aggre-
gate of all expenditures (except interest capitalized during
construction) during such period that, in accordance with GAAP,
are required to be included in property, plant or equipment or a
similar fixed asset account but excluding in all events obli-
gations under leases that have been or should be, in accordance
with GAAP, recorded as capital leases, to the extent required to
be so recorded. For purposes of the foregoing definition, the
purchase price of equipment that is purchased simultaneously with
the trade-in or sale of existing equipment owned by the Parent or
any of its Subsidiaries or with insurance proceeds shall be
included in Capital Expenditures only to the extent of the gross
amount of such purchase price less (a) the credit granted by the
seller of such equipment for the equipment being traded in at
such time, (b) the sale price of the equipment being sold or
(c) the amount of such insurance proceeds, as applicable.
CAPITAL LEASE OBLIGATIONS of any person shall mean the
obligations of such person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real
or personal property, or a combination thereof, which obligations
are required to be classified and accounted for as capital leases
on a balance sheet of such person under GAAP and, for the
purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
A CHANGE IN CONTROL shall be deemed to have occurred as of
such time after the date hereof that (a) any person (other than,
in the case of clause (ii) below, Dickstein Partners Inc. and
investment funds that it Controls or otherwise has the sole power
to manage), together with its affiliates and associates (as
defined in Rule 12b-2 under the Securities Exchange Act of 1934
(the EXCHANGE ACT ) or any successor rule thereto),
(i) shall file with the Securities and Exchange Commission
and deliver to the Parent a report under or in response to
Schedule 13D or 14D-1 (or any successor schedule, form or
report) pursuant to the Exchange Act disclosing that such
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<PAGE> 6
person has become the beneficial owner (as defined in
Rule 13D-3 under the Exchange Act, or any successor provisions)
of more than 25% (or, in the case of Dickstein Partners Inc.
and investment funds that it Controls or otherwise has the sole
power to manage, 50%) of the total voting power of all classes
of voting stock of the Parent or
(ii) shall succeed in having a sufficient number of its
nominees elected to the board of directors of the Parent such
that such nominees so elected (whether new or continuing as
directors) shall constitute a majority of the board of
directors of the Parent;
(b) any person or group (within the meaning of such Rule 13d-5)
other than the Parent shall own directly, beneficially or of
record, any shares of the issued and outstanding capital stock of
the Borrower; or (c) any person or group other than the Parent or
any wholly owned subsidiary of the Parent shall otherwise
directly Control the Borrower.
Notwithstanding the foregoing, the election or re-election of
directors nominated by the board of directors of the Parent at
any annual or special meeting of stockholders, or the election or
appointment of directors to fill vacancies in the board of
directors, shall not constitute a Change of Control unless such
election or appointment is part of a plan to effect a change of
Control of the Parent. For purposes of this definition, the term
person shall have the meaning set forth in or for purposes of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provisions to either of the foregoing, including any
group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act.
1995 CHANGE IN CONTROL shall mean the election on July 5,
1995, to the board of directors of the Parent of John W. Burden,
III, David J. Brail, Mark D. Brodsky, Mark Dickstein, Chaim Y.
Edelstein, Samuel L. Katz and Mark L. Kaufman and the
transactions arising out of such election.
CLOSING DATE shall mean the date of the first Credit Event
hereunder.
CODE shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
COLLATERAL shall mean all the assets of the Parent, the
Borrower and the Subsidiary Guarantors, now owned or hereafter
acquired, upon which a Lien is purported to be created by any of
the Security Documents.
COLLATERAL AGENT shall mean Chemical Bank, as Collateral
Agent under the Security Documents.
COMMITMENT shall mean, with respect to each Lender, the
commitment of such Lender to make Loans hereunder as set forth in
Schedule 2.01, as the same may be reduced from time to time
pursuant to Section 2.09.
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<PAGE> 7
COMMITMENT FEE shall have the meaning assigned to such term
in Section 2.05(a).
COMMON STOCK shall have the meaning assigned such term in
Section 4.19.
CONFIDENTIAL INFORMATION MEMORANDUM shall mean the
Confidential Information Memorandum dated July 1995 (and any
updates or amendments thereto) distributed to the Lenders
regarding the Parent and the Borrower.
CONSOLIDATED FIXED CHARGE COVERAGE RATIO shall mean, with
respect to the Parent and its Subsidiaries on a consolidated
basis for any period, the ratio of (a)(i) EBITDA for such period
less (ii) the amount of Capital Expenditures for such period to
(b) Interest Expense for such period.
CONSOLIDATED FUNDED DEBT shall mean all Indebtedness of the
Parent and its Subsidiaries that matures more than one year from
the date of its creation or matures within one year from such
date but is renewable or extendible, at the option of any of the
Parent and its Subsidiaries, to a date more than one year from
such date or arises under a revolving credit or similar agreement
that obligates the lender or lenders to extend credit during a
period of more than one year from such date, but in any event
including at all times (a) all amounts of Consolidated Funded
Debt required to be paid or prepaid within one year from the date
of its creation, (b) in the case of the Borrower, Indebtedness in
respect of the Loans and the Deferred Tax Obligations, (c) in the
case of the Parent, Indebtedness in respect of the Senior Notes
or any Refinancing Notes, (d) Capital Lease Obligations and
(e) Indebtedness in respect of Sale and Lease-Back Transactions.
CONSOLIDATED NET INCOME shall mean, for any period, the net
income (or loss) of the Parent and its Subsidiaries for such
period, determined on a consolidated basis in accordance with
GAAP.
CONSOLIDATED NET WORTH shall mean, with respect to the Parent
and its Subsidiaries on a consolidated basis at any date, the sum
of (a) common stock and preferred stock taken at par or stated
value, (b) capital surplus relating to common stock and preferred
stock and (c) retained earnings (or deficit) at such date, all
determined in accordance with GAAP after giving effect to all
adjustments required thereby, but excluding any (i) adjustments
required by purchase (fresh-start) accounting and (ii) the after
tax effect of the items described in clauses (b) and (c) of the
definition of the term "EBITDA".
CONSOLIDATED RENTAL EXPENSE shall mean, for any period, the
aggregate rental expense of the Parent and its Subsidiaries for
such period, determined on a consolidated basis in accordance
with GAAP, in respect of all fixed rent obligations under
operating leases.
CONTINUATION FEE shall mean a fee not in excess of $7,500,000
to be paid to the holders of Senior Notes in connection with the
exercise of the Extension Election.
CONTROL shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
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<PAGE> 8
policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and the terms CONTROLLING
and CONTROLLED shall have meanings correlative thereto.
CONVERTIBLE PREFERRED STOCK shall have the meaning assigned
such term in Section 4.19.
CREDIT EVENT shall have the meaning assigned to such term in
Article V.
CRH shall mean C.R.H. International, Inc., an Ohio
corporation and a subsidiary of the Borrower.
DEFAULT shall mean any event or condition that upon notice,
lapse of time or both would constitute an Event of Default.
DEFERRED TAX OBLIGATIONS shall mean the obligations of the
Borrower to Federal, state and local taxing authorities in an
aggregate principal amount not in excess of $4,000,000 being paid
on an installment basis pursuant to the Bankruptcy Plan.
DOLLARS or $ shall mean lawful money of the United States
of America.
EBITDA shall mean, for any period, Consolidated Net Income
for such period plus, to the extent deducted in determining such
Consolidated Net Income, (a) interest expense, provisions for
taxes based on income, depreciation expense, amortization expense
and other noncash items reducing such Consolidated Net Income
(less the amount of any noncash items increasing such
Consolidated Net Income), all as determined in accordance with
GAAP on a consolidated basis for the Parent and its Subsidiaries
calculated on a first-in, first-out basis, (b) non-recurring
expenses not in excess of $43,800,000 incurred in the fiscal year
ending on February 3, 1996, and (c) the Continuation Fee.
EFFECTIVE ADVANCE RATE shall mean, at any time, (a) 55% of
Eligible Inventory at such time divided by (b) 100% of the Book
Value of Inventory at such time.
ELIGIBLE INVENTORY shall mean, at the time of any
determination, the sum of (a) the Book Value of Inventory of the
Borrower less (without duplication) (i) the Book Value of
merchandise to be returned to vendors, which Book Value shall be
computed by the Administrative Agent from time to time in the
exercise of its reasonable discretion (after consultation with
the Borrower) based upon periodic audits of the Inventory,
(ii) the Book Value of perishable Inventory (other than non-
seasonal candy Inventory), including snack bar Inventory,
seasonal candy and other items mutually agreed upon by the
Borrower and the Administrative Agent, (iii) the Book Value of
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<PAGE> 9
non-seasonal candy inventory to the extent that it exceeds 1% of
the Book Value of Inventory, (iv) an inventory performance
reserve that shall be determined by the Administrative Agent from
time to time in the exercise of its reasonable discretion (after
consultation with the Borrower) based upon periodic audits of the
Inventory, (v) Inventory reserves (as such reserves are set forth
in the general ledger of the Borrower and consented to by the
Administrative Agent from time to time based upon periodic audits
of the Inventory) for (A) markdowns, (B) shrinkage, (C) damaged
and defective merchandise (except for reserves already deducted
in the computation of Book Value) and (vi) Inventory that is not
(A) owned by Borrower free and clear of all Liens other than
Liens created pursuant to the Security Documents but if any other
Lien is permitted pursuant to Section 7.02, the Book Value of
Inventory subject to such Lien shall be excluded only to the
extent of the maximum amount of all obligations secured by such
Lien) and (B) subject to a first priority perfected security
interest in favor of the Collateral Agent (for the ratable
benefit of the Secured Parties) and (b) the cost of goods not in
the possession of the Borrower or CRH as to which a documentary
Letter of Credit has been issued and which, if in the possession
of the Borrower or CRH, would be treated as Inventory, but only
if (i) title to such goods shall have passed to the Borrower or
CRH and (ii) such goods are insured to the extent of cost and the
Collateral Agent is named as loss payee on all applicable
insurance policies with respect to any claims in excess of
$100,000.
ENVIRONMENTAL AND SAFETY LAWS shall mean any and all
applicable current and future treaties, laws, regulations,
enforceable requirements, binding determinations, orders,
decrees, judgments, injunctions, permits, approvals,
authorizations, licenses, permissions, notices or binding
agreements issued, promulgated or entered by any Governmental
Authority, relating to the environment, to employee health or
safety as it pertains to the use or handling of, or exposure to,
Hazardous Substances, to preservation or reclamation of natural
resources or to the management, release or threatened release of
contaminants or noxious odors, including the Hazardous Materials
Transportation Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986 ( CERCLA ),
the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 and the Hazardous and Solid
Waste Amendments of 1984, the Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977, the Clean Air Act
of 1970 (to the extent it pertains to the use or handling of, or
exposure to, Hazardous Substances), as amended, the Toxic
Substances Control Act of 1976, the Occupational Safety and
Health Act of 1970, as amended, the Emergency Planning and
Community Right-to-Know Act of 1986, the Safe Drinking Water Act
of 1974, as amended, and any similar or implementing state law
and all amendments or regulations promulgated thereunder.
ENVIRONMENTAL CLAIM shall mean any written notice of any
Governmental Authority alleging potential liability for damage to
the environment or by any person alleging potential liability for
personal injury (including sickness, disease or death), in either
case resulting from or based upon (a) the presence or release
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<PAGE> 10
(including intentional and unintentional, negligent and
nonnegligent, sudden or nonsudden, accidental or nonaccidental
leaks or spills) of any Hazardous Substance at, in or from the
property of any person, whether or not owned or leased by such
person, or (b) any other circumstances forming the basis of any
violation, or alleged violation, of any Environmental and Safety
Law.
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
ERISA AFFILIATE shall mean any trade or business (whether or
not incorporated) that is (a) a member of a group of which the
Borrower is a member and (b) treated as a single employer under
Section 414 of the Code.
EURODOLLAR BORROWING shall mean a Borrowing comprised of
Eurodollar Loans.
EURODOLLAR LOAN shall mean any Loan bearing interest at a
rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
EVENT OF DEFAULT shall have the meaning assigned to such term
in Article VIII.
EXISTING CREDIT AGREEMENT shall mean the Credit Agreement
dated as of October 4, 1993, as amended, among the Parent, the
Borrower, the banks referred to therein and Chemical Bank, as
Administrative Agent and as Fronting Bank.
EXISTING LETTER OF CREDIT shall mean each letter of credit
that (a) was issued by Chemical Bank for the account of the
Borrower or CRH, (b) is outstanding on the Closing Date and
(c) is listed on Schedule 1.01 hereto.
EXTENSION ELECTION shall mean the Parent's option pursuant
to Section 1103(d) of the Senior Note Indenture to extend the
redemption date contemplated by Section 1103 of the Senior Note
Indenture with respect to the 1995 Change in Control to May 5,
1997.
FEDERAL FUNDS EFFECTIVE RATE shall mean, for any day, the
weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the
average of the quotations for the day of such transactions
received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
FEE LETTER shall mean the Fee Letter dated July 14, 1995,
among the Parent, the Borrower, the Administrative Agent and
Chemical Securities Inc.
FEES shall mean the Commitment Fees and all other amounts
required to be paid to the Administrative Agent and/or the
Lenders pursuant to Section 2.05 and Section 3.03.
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FINANCIAL OFFICER of any corporation shall mean the chief
financial officer, principal accounting officer, treasurer or
controller of such corporation.
GAAP shall mean generally accepted accounting principles,
applied on a consistent basis.
GOVERNMENTAL AUTHORITY shall mean any Federal, state, local
or foreign court or governmental agency, authority,
instrumentality or regulatory body.
GUARANTEE of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having
the economic effect of guaranteeing any Indebtedness of any other
person (the primary obligor ) in any manner, whether directly or
indirectly, and including any obligation of such person, direct
or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (b) to purchase property,
securities or services for the purpose of assuring the owner of
such Indebtedness of the payment of such Indebtedness or (c) to
maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; PROVIDED,
HOWEVER, that the term Guarantee shall not include (i) endorse-
ments for collection or deposit, in either case in the ordinary
course of business, or (ii) obligations of the Parent to
indemnify its directors and officers.
GUARANTEE AGREEMENT shall mean the Guarantee Agreement,
substantially in the form of Exhibit D, among the Subsidiary
Guarantors and the Administrative Agent.
GUARANTEED OBLIGATIONS shall have the meaning assigned to
such term in Article IX.
HAZARDOUS SUBSTANCES shall mean any toxic, radioactive,
caustic or otherwise hazardous substance, material or waste,
including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics, including,
without limitation, polychlorinated biphenyls ( PCB'S ), asbestos
or asbestos-containing material, and any substance, waste or
material regulated under Environmental and Safety Laws.
INDEBTEDNESS of any person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with
respect to deposits or advances of any kind, (b) all obligations
of such person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such person upon which
interest charges are customarily paid, (d) all obligations of
such person under conditional sale or other title retention
agreements relating to property or assets purchased by such
person, (e) all obligations of such person issued or assumed as
the deferred purchase price of property or services, (f) all
Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise,
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to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been
assumed, (g) all Guarantees by such person of Indebtedness of
others, (h) all Capital Lease Obligations of such person, (i) all
obligations of such person in respect of Rate Protection
Agreements or foreign currency exchange agreements, other
exchange rate hedging agreements, interest rate or commodity
swaps and any similar derivative transactions (valued at its
marked-to-market value) and (j) all obligations of such person as
an account party in respect of letters of credit and bankers'
acceptances. The Indebtedness of any person shall include the
Indebtedness of any partnership in which such person is a general
partner. Notwithstanding the foregoing, the term Indebtedness
shall not include liabilities classified as trade payables or
other payables or accrued expenses in accordance with GAAP.
INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT shall mean
the Indemnity, Subrogation and Contribution Agreement,
substantially in the form of Exhibit E, among the Parent, the
Borrower, the Subsidiary Guarantors and the Collateral Agent.
INTEREST EXPENSE shall mean, for any period, the interest
expense of the Parent and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, plus
the interest component of Capital Lease Obligations to the extent
not included in interest expense under GAAP, excluding (i) any
fees and expenses in connection with the Transactions amortized
by the Parent and its Subsidiaries during such period and
(ii) any amortized portion of the Senior Note Consent Fee and the
Continuation Fee. For purposes of the foregoing definition, gross
interest expense shall be determined after giving effect to any
net payments made or received by the Borrower with respect to
Rate Protection Agreements.
INTEREST PAYMENT DATE shall mean, with respect to any Loan,
the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months'
duration, each day that would have been an Interest Payment Date
had successive Interest Periods of three months' duration been
applicable to such Borrowing, and, in addition, the date of any
refinancing or conversion of such Borrowing with or to a
Borrowing of a different Type.
INTEREST PERIOD shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing or
on the last day of the immediately preceding Interest Period
applicable to such Borrowing, as the case may be, and ending on
the numerically corresponding day (or, if there is no numerically
corresponding day, on the last day) in the calendar month that is
1, 2, 3 or 6 months thereafter, as the Borrower may elect, and
(b) as to any ABR Borrowing, the period commencing on the date of
such Borrowing or on the last day of the immediately preceding
Interest Period applicable to such Borrowing, as the case may be,
and ending on the earliest of (i) the next succeeding March 31,
June 30, September 30 or December 31, (ii) the Maturity Date and
(iii) the date such Borrowing is prepaid in accordance with
Section 2.10; PROVIDED, HOWEVER, that if any Interest Period
would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day
unless, in the case of a Eurodollar Borrowing only, such next
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succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding
Business Day.
INVENTORY shall mean, at the time of any determination, the
aggregate balance of inventory held by the Borrower or CRH for
sale in the normal course of the Borrower's business (and shall
in no event include goods title to which is held by a consignor,
concessionaire or licensee of a licensed department) as
determined in accordance with GAAP, calculated on a first-in,
first-out accounting basis.
LC COMMITMENT shall mean $100,000,000, as the same may be
reduced from time to time pursuant to Section 3.07. The LC
Commitment shall automatically and permanently terminate on the
LC Maturity Date.
LC DISBURSEMENT shall mean any payment or disbursement made
by the Fronting Bank under or pursuant to a Letter of Credit.
LC EXPOSURE shall mean, at any time of determination, the sum
of (a) the aggregate undrawn amount of all Letters of Credit
outstanding at such time and (b) the aggregate amount that has
been drawn under such Letters of Credit at such time but has been
neither (i) reimbursed by the Borrower to the Fronting Bank or
the Lenders, as the case may be, nor (ii) deemed to be an ABR
Loan pursuant to Section 3.04(c)(ii).
LC FEES shall have the meaning given such term in
Section 3.03.
LC MATURITY DATE shall mean the fifth Business Day prior to
the Maturity Date; provided that if the Maturity Date is May 1,
1996, the LC Maturity Date shall be May 1, 1996.
LETTER OF CREDIT shall mean (a) each letter of credit issued
by the Fronting Bank for the account of the Borrower pursuant to
Section 3.01 and (b) each Existing Letter of Credit.
LEVERAGE RATIO shall mean, as of any date of determination,
the ratio of (a) Consolidated Funded Debt on such date to (b) the
sum of (i) Consolidated Net Worth on such date and
(ii) Consolidated Funded Debt on such date.
LIBOR SPREAD shall mean 2-3/4% per annum.
LIEN shall mean, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security
interest in or on such asset, (b) the interest of a vendor or a
lessor under any conditional sale agreement, capital lease or
title retention agreement relating to such asset and (c) in the
case of securities, any purchase option, call or similar right of
a third party with respect to such securities. Notwithstanding
the foregoing, under no circumstance will the term Lien be
construed to include the interest that any retail buyer may have
in lay-away goods.
LOAN DOCUMENTS shall mean this Agreement, the Pledge
Agreement, the Guarantee Agreement, the Mortgages, the Security
Agreement, the Indemnity, Subrogation and Contribution Agreement
and the Fee Letter.
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LOANS shall mean the revolving loans made by the Lenders to
the Borrower pursuant to Section 2.01. Each Loan shall be a
Eurodollar Loan or an ABR Loan.
MANAGEMENT AGREEMENTS shall mean all agreements with members
of the senior management or members of the Boards of Directors of
the Parent, the Borrower and the Subsidiaries or any of their
Affiliates that provide for management advisory or consulting
services to be provided to the Parent, the Borrower and the
Subsidiaries, in each case as in effect on the Closing Date.
MARGIN STOCK shall have the meaning given such term under
Regulation U.
MATERIAL ADVERSE EFFECT shall mean (a) a materially adverse
effect on the business, assets, operations, prospects or
condition, financial or otherwise, of the Parent and its
Subsidiaries, taken as a whole, (b) a material impairment of the
ability of the Parent or any of its Subsidiaries to perform any
of its obligations under any Loan Document to which it is or will
be a party or (c) a material impairment of the rights of or
remedies available to the Administrative Agent, the Fronting Bank
or any of the other Lenders under any Loan Document.
MATURITY DATE shall mean May 1, 1997; PROVIDED, HOWEVER, that
the Maturity Date shall automatically become May 1, 1996, if the
Extension Election is not exercised on or prior to April 30,
1996; PROVIDED FURTHER, HOWEVER, that if either (a) subject to
the terms and conditions of this Agreement, the Senior Note
Consent is extended to a date later than April 30, 1998, or
(b) the Senior Notes are refinanced in full with the proceeds of
the Refinancing Notes, the Maturity Date shall automatically be
extended to April 30, 1998.
MOODY'S shall mean Moody's Investors Service, Inc.
MORTGAGED PROPERTIES shall mean the owned real properties of
the Borrower specified on Schedule 1.01(a).
MORTGAGES shall mean the mortgages and deeds of trust,
substantially in the form of Exhibits J-1 and J-2, as applicable,
to be filed or recorded by each person listed on Schedule 1.01(a)
with respect to the property listed on Schedule 1.01(a), and any
mortgage or deed of trust filed or recorded pursuant to
Section 6.09.
MULTIEMPLOYER PLAN shall mean a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
OUTSTANDING LETTERS OF CREDIT shall mean at any time the
Letters of Credit outstanding at such time.
PBGC shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
PERMITTED INVESTMENTS shall mean:
(a) direct obligations of, or obligations the principal of
and interest on which are unconditionally guaranteed by, the
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United States of America (or by any agency thereof to the
extent such obligations are backed by the full faith and credit
of the United States of America), in each case maturing within
three months from the date of acquisition thereof;
(b) without limiting the provisions of paragraph (d) below,
investments in commercial paper maturing within three months
from the date of acquisition thereof and having, at such date
of acquisition, a credit rating of at least A-1 or the
equivalent thereof from Standard & Poor's and at least P-1 or
the equivalent thereof from Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits (including Eurodollar time
deposits) maturing within three months from the date of
acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, (i) any
domestic office of the Administrative Agent or (ii) any
domestic office of any other commercial bank of recognized
standing organized under the laws of the United States of
America or any state thereof or Canada that has a combined
capital and surplus and undivided profits of not less than
$250,000,000 and is rated (or the senior debt securities of the
holding company of such commercial bank are rated) A or better
by Standard & Poor's or A2 by Moody's or carrying an equivalent
rating by another nationally recognized rating agency if
neither of the two named rating agencies shall rate such
commercial bank (or the holding company of such commercial
bank);
(d) investments in commercial paper maturing within three
months from the date of acquisition thereof and issued by
(i) the holding company of the Administrative Agent or (ii) the
holding company of any other commercial bank of recognized
standing organized under the laws of the United States of
America or any state thereof that has (A) a combined capital
and surplus in excess of $250,000,000 and (B) commercial paper
rated at least A-1 or the equivalent thereof by Standard &
Poor's or at least P-1 or the equivalent thereof by Moody's or
carrying an equivalent rating by another nationally recognized
rating agency, if both of the two named rating agencies cease
publishing ratings of investments;
(e) 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 90 days after the date of acquisition thereof and, at
the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's or Moody's or carrying
an equivalent rating by another nationally recognized rating
agency, if both of the two named rating agencies cease
publishing ratings of investments; and
(f) other investment instruments approved in writing by the
Required Lenders and offered by financial institutions that
have a combined capital and surplus and undivided profits of
not less than $250,000,000.
PERSON shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.
PLAN shall mean any pension plan that is subject to the
provisions of Title IV of ERISA or Section 412 of the Code and is
maintained for employees of the Borrower or any ERISA Affiliate.
PLEDGE AGREEMENT shall mean the Pledge Agreement,
substantially in the form of Exhibit F, among the Borrower, the
Parent, CRH and the Collateral Agent.
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PLEDGED SECURITIES shall have the meaning given such term in
the Pledge Agreement.
PREFERRED STOCK shall have the meaning assigned such term in
Section 4.19.
PURCHASE ACCRUAL INVENTORY shall mean, at any time,
merchandise located on the premises of the Borrower's
distribution center in Columbus, Ohio and the Borrower's retail
stores (a) title to which shall have passed to the Borrower,
(b) that is subject to a first priority perfected security
interest in favor of the Collateral Agent for the ratable benefit
of the Secured Parties and (c) that has not yet been recorded
into the Borrower's stock ledger due to the timing of processing
receiving documents.
RATE PROTECTION AGREEMENTS shall mean interest rate swap,
cap, collar or floor agreements or other similar agreements
entered into by the Borrower to provide protection against
fluctuations in interest rates. Each Rate Protection Agreement
shall be on terms satisfactory to the Administrative Agent with a
counterparty satisfactory to the Administrative Agent.
REFINANCING NOTE INDENTURE shall mean one or more indentures
pursuant to which the Refinancing Notes are issued.
REFINANCING NOTES shall mean one or more series of notes or
debentures issued by the Borrower or the Parent pursuant to a
public offering or an offering pursuant to Rule 144A under the
Securities Act of 1933 (or other similar type of fully
distributed private placement) the net proceeds of which (less
customary underwriting discounts and commissions and reasonable
fees and expenses incurred in connection therewith) are used,
among other things, to redeem the Senior Notes.
REGISTER shall have the meaning given such term in Section
11.04(d).
REGULATION G shall mean Regulation G of the Board as from
time to time in effect and all official rulings and
interpretations thereunder or thereof.
REGULATION U shall mean Regulation U of the Board as from
time to time in effect and all official rulings and
interpretations thereunder or thereof.
REGULATION X shall mean Regulation X of the Board as from
time to time in effect and all official rulings and
interpretations thereunder or thereof.
REPORTABLE EVENT shall mean any reportable event as defined
in Section 4043(b) of ERISA or the regulations issued thereunder
with respect to a Plan (other than a Plan maintained by an ERISA
Affiliate that is considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Section 414 of the Code).
REQUIRED LENDERS shall mean, at any time, Lenders holding
Loans representing more than 50% of the aggregate principal
amount of the Loans outstanding or, if no Loans are outstanding,
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Lenders having Commitments representing more than 50% of the
aggregate Commitments.
RESPONSIBLE OFFICER of any corporation shall mean any
executive officer or Financial Officer of such corporation and
any other officer or similar official thereof responsible for the
administration of the obligations of such corporation in respect
of this Agreement.
SALE AND LEASE-BACK DOCUMENTS shall mean all documents
executed by Borrower in connection with the lease of Retail
Stores Nos. 89, 93, 94 and 101 in Pennsylvania in September 1994,
Retail Stores Nos. 110 and 127 in New York in December 1994 and a
Distribution Center in Ohio in September 1994, as amended prior
to the date of this Agreement, and all documents executed by
Borrower in connection with the lease of multiple trailers in
December 1994, as amended prior to the date of this Agreement.
SALE AND LEASE-BACK TRANSACTIONS shall have the meaning
assigned to such term in Section 7.03.
SECURED PARTIES shall mean (a) the Lenders, (b) the Fronting
Bank, (c) the Administrative Agent, (d) the Collateral Agent and
(e) the successors and assigns of each of the foregoing.
SECURITY AGREEMENT shall mean the Security Agreement,
substantially in the form of Exhibit G, among the Borrower, the
Parent, the Subsidiary Guarantors and the Collateral Agent.
SECURITY DOCUMENTS shall mean the Pledge Agreement, the
Security Agreement, the Mortgages, the Guarantee Agreement and
each of the other instruments and documents delivered pursuant to
Section 6.09.
SENIOR NOTE CONSENT shall mean the consent of the required
number of holders of the Senior Notes to an extension of the
redemption date contemplated by Section 1103 of the Senior Note
Indenture with respect to the 1995 Change in Control to a date on
or after May 3, 1996.
SENIOR NOTE CONSENT FEE shall mean a fee not in excess of
$6,000,000 paid to the holders of the Senior Notes in connection
with the Senior Note Consent.
SENIOR NOTE INDENTURE shall mean the Indenture dated as of
October 1, 1993, as amended, among the Parent, the Borrower and
Fleet Bank of Massachusetts, N.A., as Trustee, with respect to
the Senior Notes.
SENIOR NOTES shall mean the Parent's $160,000,000 aggregate
principal amount of 10.25% Senior Notes due 2003.
STANDARD & POOR'S shall mean Standard and Poor's Corporation.
STANDBY LETTERS OF CREDIT shall have the meaning assigned to
such term in the introduction to this Agreement.
STATUTORY RESERVES shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the
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denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including any marginal, special,
emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which
the Administrative Agent is subject (a) with respect to the Base
CD Rate (as such term is used in the definition of the term
Alternate Base Rate ), for new negotiable nonpersonal time
deposits in dollars of over $100,000 with maturities
approximately equal to three months, and (b) with respect to the
Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in
Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar
Loans shall be deemed to constitute Eurocurrency Liabilities and
to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
SUBORDINATED GUARANTEES shall mean the guarantees by the
Borrower, as set forth in the Senior Notes and the Senior Note
Indenture, and the Refinancing Notes and the Refinancing Note
Indenture, of the Parent's obligations under the Senior Note or
any Refinancing Note.
SUBSIDIARY shall mean, with respect to any person (herein
referred to as the parent ), any corporation, partnership,
association or other business entity (a) of which securities or
other ownership interests representing more than 50% of the
equity or more than 50% of the ordinary voting power or more than
50% of the general partnership interests are, at the time any
determination is being made, owned, Controlled or held, or
(b) that is, at the time any determination is made, otherwise
Controlled, by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the
parent.
SUBSIDIARY shall mean, (a) with respect to the Borrower, any
subsidiary of the Borrower and (b) with respect to the Parent,
any direct or indirect subsidiary of the Parent, including the
Borrower and its Subsidiaries.
SUBSIDIARY GUARANTORS shall mean CRH, Canton Advertising,
Inc., a Massachusetts corporation, HDS Transport, Inc., an Ohio
corporation, Corporate Vision Inc., a Massachusetts corporation,
and Hills Distributing Company, a Delaware corporation.
TRADE LETTERS OF CREDIT shall have the meaning assigned to
such term in the introduction to this Agreement.
TRANSACTIONS shall have the meaning assigned to such term in
Section 4.02.
TRANSFEREE shall have the meaning assigned to such term in
Section 2.17(a).
TYPE , when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or
on the Loans comprising such Borrowing is determined. For
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purposes hereof, the term Rate shall include the Adjusted LIBO
Rate and the Alternate Base Rate.
SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter
forms. The words include , includes and including shall be
deemed to be followed by the phrase without limitation . All
references herein to Articles, Sections, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context
shall otherwise require. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to
time; PROVIDED, HOWEVER, that, for purposes of determining
compliance with any covenant set forth in Article VII, such terms
shall be construed in accordance with GAAP as in effect on the
date of this Agreement applied on a basis consistent with the
application used in preparing the audited financial statements
referred to in Section 4.05.
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS. Upon the terms and subject to the
conditions and relying upon the representations and warranties
herein set forth, each Lender agrees, severally and not jointly,
to make Loans to the Borrower, at any time and from time to time
on or after the Closing Date and until the earlier of the
Maturity Date and the termination of the Commitment of such
Lender in accordance with the terms hereof, in an aggregate
principal amount at any time outstanding not to exceed (after
giving effect to all Loans repaid, and all reimbursements of LC
Disbursements made concurrently with the making of any Loans) an
amount equal to the difference between (a) the lesser of (i) the
Commitment set forth opposite such Lender's name on
Schedule 2.01, as the same may be reduced from time to time
pursuant to Section 2.09, and (ii) such Lender's Applicable
Percentage of the Borrowing Base at such time and (b) such
Lender's Applicable Percentage of the LC Exposure at such time.
Within the limits set forth in the preceding sentence, the
Borrower may borrow, pay or prepay and reborrow Loans on or after
the Closing Date and prior to the Maturity Date, upon the terms
and subject to the conditions and limitations set forth herein.
SECTION 2.02. LOANS. (a) Each Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in
accordance with their respective Commitments; PROVIDED, HOWEVER,
that the failure of any Lender to make any Loan shall not in
itself relieve any other Lender of its obligation to lend
hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender). The Loans comprising
each Borrowing shall be in an aggregate principal amount that is
an integral multiple of $1,000,000 and not less than $5,000,000
(or an aggregate principal amount equal to the remaining balance
of the Commitments).
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(b) Each Borrowing shall be comprised entirely of ABR Loans or
Eurodollar Loans, as the Borrower may request pursuant to Section
2.03. Each Lender may at its option fulfill its Commitment with
respect to any Eurodollar Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan, PROVIDED
that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms
of this Agreement. Borrowings of more than one Type may be
outstanding at the same time; PROVIDED, HOWEVER, that the
Borrower shall not be entitled to request any Borrowing that, if
made, would result in an aggregate of more than ten separate
Eurodollar Loans from any Lender being outstanding hereunder at
any one time. For purposes of the foregoing, Loans having
different Interest Periods, regardless of whether they commence
on the same date, shall be considered separate Loans.
(c) Subject to paragraph (e) below, each Lender shall make a
Loan in the amount of its pro rata portion, as determined under
Section 2.14, of each Borrowing hereunder on the proposed date
thereof by wire transfer of immediately available funds to the
Administrative Agent in New York, New York, not later than 12:00
noon, New York City time, and the Administrative Agent shall by
3:00 p.m., New York City time, credit the amounts so received to
the general deposit account of the Borrower with the
Administrative Agent or, if a Borrowing shall not occur on such
date because any condition precedent herein specified shall not
have been met, return the amounts so received to the respective
Lenders. Unless the Administrative Agent shall have received
notice from a Lender prior to the date of any Borrowing that such
Lender will not make available to the Administrative Agent such
Lender's portion of such Borrowing, the Administrative Agent may
assume that such Lender has made such portion available to the
Administrative Agent on the date of such Borrowing in accordance
with this paragraph (c) and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such
Lender shall not have made such portion available to the
Administrative Agent, such Lender and the Borrower 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
Borrower until the date such amount is repaid to the
Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds
Effective Rate. If such Lender shall repay to the Administrative
Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this
Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Borrowing if the
Interest Period requested with respect thereto would end after
the Maturity Date.
(e) The Borrower may refinance all or any part of any Borrowing
with a Borrowing of the same or a different Type, subject to the
conditions and limitations set forth in this Agreement. Any
Borrowing or part thereof so refinanced shall be deemed to be
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repaid or prepaid in accordance with Section 2.04 or 2.10, as
applicable, with the proceeds of the new Borrowing; and the
proceeds of the new Borrowing, to the extent they do not exceed
the principal amount of the Borrowing being refinanced, shall not
be paid by the Lenders to the Administrative Agent or by the
Administrative Agent to the Borrower pursuant to paragraph (c)
above.
SECTION 2.03. NOTICE OF BORROWINGS. The Borrower shall give the
Administrative Agent written or telecopy notice (or telephone
notice promptly confirmed in writing or by telecopy) (a) in the
case of a Eurodollar Borrowing, not later than 12:00 noon, New
York City time, three Business Days before a proposed borrowing,
and (b) in the case of an ABR Borrowing, not later than 12:00
noon, New York City time, one Business Day before a proposed
borrowing. Such notice shall be irrevocable and shall in each
case refer to this Agreement and specify (a) whether such
Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing;
(b) the date of such Borrowing (which shall be a Business Day)
and the amount thereof; and (c) if such Borrowing is to be a
Eurodollar Borrowing, the Interest Period with respect thereto.
If no election as to the Type of Borrowing is specified in any
such notice, then the requested Borrowing shall be an
ABR Borrowing. If no Interest Period with respect to any
Eurodollar Borrowing is specified in any such notice, then the
Borrower shall be deemed to have selected an Interest Period of
one month's duration. If the Borrower shall not have given notice
in accordance with this Section 2.03 of its election to refinance
a Borrowing prior to the end of the Interest Period in effect for
such Borrowing, then the Borrower shall (unless such Borrowing is
repaid at the end of such Interest Period) be deemed to have
given notice of an election to refinance such Borrowing with an
ABR Borrowing. The Administrative Agent shall promptly advise the
Lenders of any notice given pursuant to this Section 2.03 and of
each Lender's portion of the requested Borrowing.
SECTION 2.04. EVIDENCE OF DEBT; REPAYMENT OF LOANS. (a) The
Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the principal
amount of each Loan of such Lender on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of
the Borrower to such Lender resulting from each Loan made by such
Lender from time to time, including the amounts of principal and
interest payable and paid such Lender from time to time under
this Agreement.
(c) The Administrative Agent shall maintain accounts in which
it will record (i) the amount of each Loan made hereunder, the
Type thereof and the Interest Period applicable thereto, (ii) the
amount of any principal or interest due and payable or to become
due and payable from the Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Administrative Agent
hereunder from the Borrower and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) above shall be prima facie evidence of the
existence and amounts of the obligations therein recorded;
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provided, however, that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligations of the
Borrower to repay the Loans in accordance with their terms.
(e) Upon the request of any Lender, the Borrower shall provide
to such Lender a promissory note or notes evidencing all Loans
owing to such Lender. Notwithstanding any other provision of
this Agreement, in the event any Lender shall request and receive
a promissory note payable to such Lender and its registered
assigns, the interests represented by such note or notes shall at
all times (including after any assignment of all or part of such
interests pursuant to Section 9.04) be represented by the one or
more promissory notes payable to the payee named therein or its
registered assigns.
SECTION 2.05. FEES. (a) The Borrower agrees to pay to each
Lender, through the Administrative Agent, on the date of this
Agreement, on the last day of March, June, September and December
in each year, and on the date on which the Commitment of such
Lender shall be terminated as provided herein, a commitment fee
(a COMMITMENT FEE ) at a rate of 1/2 of 1% per annum on the
average daily unused amount of the Commitment of such Lender
during the preceding quarter (or shorter period commencing with
the date of acceptance by the Borrower of such Lender's
Commitment or the date hereof or ending with the Maturity Date or
the date on which the Commitment of such Lender shall be
terminated). All Commitment Fees shall be computed on the basis
of the actual number of days elapsed in a year of 360 days. The
Commitment Fee due to each Lender shall commence to accrue upon
the acceptance by the Borrower of such Lender's Commitment and
shall cease to accrue on the date on which the Commitment of such
Lender shall be terminated as provided herein.
(b) The Borrower agrees to pay to the Fronting Bank, for its
own account, the fees specified in Section 3.08.
(c) The Borrower and the Parent agree, jointly and severally,
to pay to the Administrative Agent, for its own account, the fees
set forth in the Fee Letter at the times set forth in the Fee
Letter.
(d) The Borrower and the Parent agree, jointly and severally,
to pay to the Administrative Agent, for its own account and for
the account of the other Lenders, the additional fees described
in the Fee Letter at the times set forth in the Fee Letter.
(e) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if
and as appropriate, among the Lenders. Once paid, none of the
Fees shall be refundable under any circumstances.
SECTION 2.06. INTEREST ON LOANS. (a) Subject to the provisions
of Section 2.07, the Loans comprising each ABR Borrowing shall
bear interest (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be, when
determined by reference to the Prime Rate and over a year of
360 days at all other times) at a rate per annum equal to the
Alternate Base Rate plus the ABR Spread.
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(b) Subject to the provisions of Section 2.07, the Loans
comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over
a year of 360 days) at a rate per annum equal to the Adjusted
LIBO Rate for the Interest Period in effect for such Borrowing
plus the LIBOR Spread.
(c) Interest on each Loan shall be payable on the Interest
Payment Dates applicable to such Loan except as otherwise
provided in this Agreement. The applicable Alternate Base Rate,
Adjusted LIBO Rate, ABR Spread or LIBOR Spread for each Interest
Period or day within an Interest Period, as the case may be,
shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
(d) Interest shall accrue from and including the first day of
an Interest Period to but excluding the last day of such Interest
Period.
SECTION 2.07. DEFAULT INTEREST. If the Borrower shall default
in the payment of the principal of or interest on any Loan or any
other amount becoming due hereunder, by acceleration or
otherwise, the Borrower shall on demand from time to time pay
interest, to the extent permitted by law, on such defaulted
amount (in lieu of interest payable under Section 2.06) up to but
excluding the date of actual payment (after as well as before
judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to
the rate that would at the time be applicable to an ABR Loan
under Section 2.06 plus 2%.
SECTION 2.08. ALTERNATE RATE OF INTEREST. In the event, and on
each occasion, that on the day two Business Days prior to the
commencement of any Interest Period for a Eurodollar Borrowing
the Administrative Agent shall have determined (or shall have
been advised by the Required Lenders) that dollar deposits in the
principal amounts of the Loans comprising such Borrowing are not
generally available in the London interbank market, or that the
rates at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to any Lender of making or
maintaining its Eurodollar Loan during such Interest Period, or
that reasonable means do not exist for ascertaining the Adjusted
LIBO Rate, the Administrative Agent shall, as soon as practicable
thereafter, give written or telecopy notice of such determination
to the Borrower and the Lenders. In the event of any such
determination, any request by the Borrower for a Eurodollar
Borrowing pursuant to Section 2.03 shall, until the
Administrative Agent shall have advised the Borrower and the
Lenders that the circumstances giving rise to such notice no
longer exist, be deemed to be a request for an ABR Borrowing.
Each determination by the Administrative Agent hereunder shall be
conclusive absent manifest error.
SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The
Commitments and the LC Commitment shall be automatically termi-
nated on (i) the Maturity Date and the LC Maturity Date,
respectively, or (ii) August 31, 1995, if the Closing Date shall
not have occurred prior to such date.
(b) Upon at least three Business Days' prior irrevocable
written or telecopy notice to the Administrative Agent, the
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Borrower may at any time in whole permanently terminate, or from
time to time in part permanently reduce, the Commitments;
PROVIDED, HOWEVER, that (i) each partial reduction of the
Commitments shall be in an integral multiple of $1,000,000 and in
a minimum principal amount of $5,000,000, and (ii) the
Commitments may not be reduced to the extent that any such
reduction would reduce the Commitments to an amount that is less
than the LC Exposure at such time.
(c) Each reduction in the Commitments hereunder shall be made
ratably among the Lenders in accordance with their respective
Commitments. The Borrower shall pay to the Administrative Agent
for the account of the Lenders, on the date of each termination
or reduction, the Commitment Fees on the amount of the
Commitments so terminated or reduced accrued to the date of such
termination or reduction.
SECTION 2.10. PREPAYMENT. (a) The Borrower shall have the right
at any time and from time to time to prepay any Borrowing, in
whole or in part, upon at least one Business Day's prior written
or telecopy notice (or telephone notice promptly confirmed by
written or telecopy notice) to the Administrative Agent;
provided, however, that each partial prepayment shall be in an
amount that is an integral multiple of $1,000,000.
(b)(i) On the date of any termination or reduction of the
Commitments pursuant to Section 2.09, the Borrower shall pay or
prepay so much of the Borrowings as shall be necessary in order
that the aggregate principal amount of the Loans outstanding on
such date will not exceed (A) the aggregate Commitments on such
date after giving effect to such termination or reduction less
(B) the aggregate LC Exposure on such date and (ii) following the
receipt of any cash proceeds pursuant to Sections 7.03, 7.06 and
11.17, the Borrower shall apply such cash proceeds to prepay
Borrowings in the amounts and at the times set forth in such
Sections.
(c) On any date on which the sum of (i) the aggregate principal
amount of all Loans outstanding on such date and (ii) the
aggregate LC Exposure on such date exceeds the lesser of (A) the
aggregate Commitments of the Lenders and (B) then-current
Borrowing Base, the Borrower will pay or repay so much of the
Loans as shall be necessary so that, after giving effect to such
repayment, there shall be no such excess; PROVIDED, HOWEVER, that
if the aggregate principal amount of Loans then outstanding is
less than the amount of such excess (because of any LC Exposure),
the Borrower shall, to the extent of any remaining excess (after
the prepayment of Loans), replace Outstanding Letters of Credit
and/or deposit an amount in cash equal to such excess in a cash
collateral account with the Agent for the benefit of the Lenders.
(d) Each notice of prepayment shall specify the prepayment date
and the principal amount of each Borrowing (or portion thereof)
to be prepaid, shall be irrevocable and shall commit the Borrower
to prepay such Borrowing by the amount stated therein on the date
stated therein. All prepayments under this Section 2.10 shall be
subject to Section 2.13 but otherwise without premium or penalty.
All prepayments under this Section 2.10 shall be accompanied by
accrued interest on the principal amount being prepaid to the
date of payment.
(e) On a date (the CLEAN-UP DATE ) determined by the Borrower
in its sole discretion between December 1 of each year and the
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immediately following April 1, the Borrower shall pay or prepay
all of the outstanding Loans and, for a period of at least 30
consecutive days following the Clean-up Date, the Borrower shall
continue to have no Loans outstanding (other than any Loans
deemed to be made pursuant to Section 3.04(c)(ii), provided that
each such Loan shall have been repaid not later than the Business
Day following the making thereof).
SECTION 2.11. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision herein, if after the date
of this Agreement any change in applicable law or regulation or
in the interpretation or administration thereof by any
governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law)
shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Loan made by such
Lender or any Letter of Credit reimbursement obligations, Fees or
other amounts payable hereunder (other than changes in respect of
taxes imposed on the overall net income of such Lender by the
jurisdiction in which such Lender has its principal office or by
any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the
account of or credit extended by such Lender (except any such
reserve requirement that is reflected in the Adjusted LIBO Rate)
or shall impose on such Lender or the London interbank market any
other condition affecting this Agreement or Eurodollar Loans made
by such Lender or any Letter of Credit issued hereunder, and the
result of any of the foregoing shall be to increase the cost to
such Lender of making or maintaining any Eurodollar Loan or
increase the cost to any Lender of issuing or maintaining any
Letter of Credit or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal,
interest or otherwise) by an amount deemed by such Lender to be
material, then the Borrower will pay to such Lender upon demand
such additional amount or amounts as will compensate such Lender
for such additional costs incurred or reduction suffered.
(b) If any Lender or the Fronting Bank shall have determined
that the applicability of any law, rule, regulation, agreement or
guideline adopted pursuant to or arising out of the July 1988
report of the Basle Committee on Banking Regulations and
Supervisory Practices entitled International Convergence of
Capital Measurement and Capital Standards , or the adoption after
the date hereof of any other law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of
the foregoing by any governmental authority, central bank or
comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any
lending office of such Lender) or the Fronting Bank or any
Lender's or the Fronting Bank's holding company with any request
or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the
rate of return on such Lender's or the Fronting Bank's capital or
on the capital of such Lender's or the Fronting Bank's holding
company, if any, as a consequence of this Agreement or the Loans
made by such Lender or the Letters of Credit issued by the
Fronting Bank pursuant hereto to a level below that which such
Lender or the Fronting Bank or such Lender's or the Fronting
Bank's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into
consideration such Lender's or the Fronting Bank's policies and
the policies of such Lender's or the Fronting Bank's holding
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company with respect to capital adequacy) by an amount deemed by
such Lender or the Fronting Bank to be material, then from time
to time the Borrower shall pay to such Lender or the Fronting
Bank on demand such additional amount or amounts as will
compensate such Lender or the Fronting Bank or such Lender's or
the Fronting Bank's holding company for any such reduction
suffered.
(c) A certificate of each Lender or the Fronting Bank setting
forth such amount or amounts as shall be necessary to compensate
such Lender or the Fronting Bank or any of their holding
companies as specified in paragraph (a) or (b) above, as the case
may be, and providing reasonable supporting documentation with
respect to the circumstances giving rise to such demand for
compensation and the calculation of the amounts due, shall be
delivered to the Borrower and shall be conclusive absent manifest
error. The Borrower shall pay each Lender or the Fronting Bank
the amount shown as due on any such certificate delivered by it
within 10 days after its receipt of the same.
(d) Failure on the part of any Lender or the Fronting Bank to
demand compensation for any increased costs or reduction in
amounts received or receivable or reduction in return on capital
with respect to any period shall not constitute a waiver of such
Lender's or the Fronting Bank's right to demand compensation with
respect to such period or any other period, except that neither
any Lender nor the Fronting Bank shall be entitled to
compensation under this Section 2.11 for any costs incurred or
reduction suffered with respect to any date unless such Lender,
or the Fronting Bank, as applicable, shall have notified the
Borrower that it will demand compensation for such costs or
reduction under paragraph (c) above, not more than six months
after the later of (i) such date and (ii) the date on which such
Lender or the Fronting Bank, as applicable, shall have become
aware of such costs or reduction. The protection of this
Section 2.11 shall be available to each Lender and the Fronting
Bank regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other
change or condition that shall have occurred or been imposed.
SECTION 2.12. CHANGE IN LEGALITY. (a) Notwithstanding any other
provision herein, if any change in any law or regulation or in
the interpretation thereof by any governmental authority charged
with the administration or interpretation thereof shall make it
unlawful for any Lender to make or maintain any Eurodollar Loan
or to give effect to its obligations as contemplated hereby with
respect to any Eurodollar Loan, then, by written or telecopy
notice to the Borrower and to the Administrative Agent, such
Lender may:
(i) declare that Eurodollar Loans will not thereafter be
made by such Lender hereunder, whereupon any request by the
Borrower for a Eurodollar Borrowing shall, as to such Lender
only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by
it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans
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as of the effective date of such notice as provided in para-
graph (b) below.
In the event any Lender shall exercise its rights under (i) or
(ii) above, all payments and prepayments of principal that would
otherwise have been applied to repay the Eurodollar Loans that
would have been made by such Lender or the converted Eurodollar
Loans of such Lender shall instead be applied to repay the ABR
Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.12, a notice to the Borrower
by any Lender shall be effective as to each Eurodollar Loan, if
lawful, on the last day of the Interest Period currently
applicable to such Eurodollar Loan; in all other cases such
notice shall be effective on the date of receipt by the Borrower.
SECTION 2.13. INDEMNITY. The Borrower shall indemnify each
Lender against any loss or expense that such Lender may sustain
or incur as a consequence of (a) any failure by the Borrower to
fulfill on the date of any borrowing hereunder the applicable
conditions set forth in Article V, (b) any failure by the
Borrower to borrow or to refinance any Loan hereunder after
irrevocable notice of such borrowing or refinancing has been
given pursuant to Section 2.03, (c) any payment or prepayment of
a Eurodollar Loan required by any other provision of this
Agreement or otherwise made or deemed made on a date other than
the last day of the Interest Period applicable thereto, (d) any
default in payment or prepayment of the principal amount of any
Loan or any part thereof or interest accrued thereon, as and when
due and payable (at the due date thereof, whether by scheduled
maturity, acceleration, irrevocable notice of prepayment or
otherwise) or (e) the occurrence of any Event of Default,
including, in each such case, any loss or reasonable expense
sustained or incurred or to be sustained or incurred in
liquidating or employing deposits from third parties acquired to
effect or maintain such Loan or any part thereof as a Eurodollar
Loan. Such loss or reasonable expense shall include an amount
equal to the excess, if any, as reasonably determined by such
Lender, of (a) its cost of obtaining the funds for the Loan being
paid, prepaid or not borrowed (assumed to be the Adjusted LIBO
Rate applicable thereto) for the period from the date of such
payment, prepayment or failure to borrow to the last day of the
Interest Period for such Loan (or, in the case of a failure to
borrow, the Interest Period for such Loan that would have
commenced on the date of such failure) over (b) the amount of
interest (as reasonably determined by such Lender) that would be
realized by such Lender in reemploying the funds so paid, prepaid
or not borrowed for such period or Interest Period, as the case
may be. A certificate of any Lender setting forth any amount or
amounts that such Lender is entitled to receive and providing
reasonable supporting documentation with respect to the
circumstances giving rise to such demand and the calculation of
losses incurred pursuant to this Section shall be delivered to
the Borrower and shall be conclusive absent manifest error.
SECTION 2.14. PRO RATA TREATMENT. Except as required under
Section 2.12, each Borrowing, each payment or prepayment of
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principal of any Borrowing, each payment of interest on the
Loans, each payment of the Commitment Fees, each payment of the
LC Fees, each reduction of the Commitments and each refinancing
of any Borrowing with a Borrowing of any Type shall be allocated
pro rata among the Lenders in accordance with their respective
applicable Commitments (or, if such Commitments shall have
expired or been terminated, in accordance with the respective
principal amounts of their outstanding Loans). Each Lender agrees
that in computing such Lender's portion of any Borrowing to be
made hereunder, the Administrative Agent may, in its discretion,
round each Lender's percentage of such Borrowing, computed in
accordance with Section 2.01, to the next higher or lower whole
dollar amount.
SECTION 2.15. SHARING OF SETOFFS. Each Lender agrees that if it
shall, through the exercise of a right of banker's lien, setoff
or counterclaim against the Borrower, or pursuant to a secured
claim under Section 506 of Title 11 of the United States Code or
other security or interest arising from, or in lieu of, such
secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or involuntary) in
respect of any Loan or Loans or LC Exposure as a result of which
the unpaid principal portion of its Loans or LC Exposure shall be
proportionately less than the unpaid principal portion of the
Loans of any other Lender or any other Lender's LC Exposure, it
shall be deemed simultaneously to have purchased from such other
Lender at face value, and shall promptly pay to such other Lender
the purchase price for, a participation in the Loans of such
other Lender or the LC Exposure of such other Lender, so that the
aggregate unpaid principal amount of the Loans, LC Exposures and
participations in Loans and LC Exposures held by each Lender
shall be in the same proportion to the aggregate unpaid principal
amount of all Loans and LC Exposures then outstanding as the
principal amount of its Loans and LC Exposures prior to such
exercise of banker's lien, setoff or counterclaim or other event
was to the principal amount of all Loans and LC Exposures
outstanding prior to such exercise of banker's lien, setoff or
counterclaim or other event; provided, however, that, if any such
purchase or purchases or adjustments shall be made pursuant to
this Section 2.15 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or
adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without
interest. The Borrower expressly consents to the foregoing
arrangements and agrees that any Lender holding a participation
in a Loan or LC Exposure deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by the
Borrower to such Lender by reason thereof, to the fullest extent
permitted by law, as fully as if such Lender had made a Loan
directly to the Borrower in the amount of such participation.
SECTION 2.16. PAYMENTS. (a) Except as provided in
Section 2.05(b), the Borrower shall make each payment (including
principal of or interest on any Borrowing or any Fees or other
amounts) hereunder and under any other Loan Document not later
than 12:00 (noon), New York City time, on the date when due in
dollars to the Administrative Agent for the account of the
Administrative Agent, the Fronting Bank or the Lenders, as the
case may be, at its offices at 270 Park Avenue, New York, New
York, in immediately available funds. Promptly upon receipt of
any amounts pursuant to the preceding sentence, the
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<PAGE> 29
Administrative Agent shall remit such amounts (other than any
amounts for the account of the Administrative Agent) to the
Fronting Bank or the Lenders, as applicable.
(b) Whenever any payment (including principal of or interest on
any Borrowing or any Fees or other amounts) hereunder or under
any other Loan Document shall become due, or otherwise would
occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.17. TAXES. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.16, free
and clear of and without deduction for any and all current or
future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, EXCLUDING
(i) income taxes imposed on the net income of the Administrative
Agent, the Fronting Bank or any Lender (or any transferee or
assignee thereof, including a participation holder (any such
entity a TRANSFEREE )) and (ii) franchise taxes imposed on the
net income of the Administrative Agent, the Fronting Bank or any
Lender (or Transferee), in each case by the jurisdiction under
the laws of which the Administrative Agent, the Fronting Bank or
such Lender (or Transferee) is organized or any political sub-
division thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities, collectively
or individually, Taxes ). If the Borrower shall be required to
deduct any Taxes from or in respect of any sum payable hereunder
to any Lender (or any Transferee), the Fronting Bank or the
Administrative Agent, (i) the sum payable shall be increased by
the amount (an additional amount ) necessary so that after
making all required deductions (including deductions applicable
to additional sums payable under this Section 2.17) such Lender
(or Transferee), the Fronting Bank or the Administrative Agent
(as the case may be) shall receive an amount equal to the sum it
would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall
pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay to the relevant
Governmental Authority in accordance with applicable law any
current or future stamp or documentary taxes or any other excise
or property taxes, charges or similar levies that arise from any
payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or
any other Loan Document ( OTHER TAXES ).
(c) The Borrower will indemnify each Lender (or Transferee),
the Fronting Bank and the Administrative Agent for the full
amount of Taxes and Other Taxes paid by such Lender (or
Transferee), the Fronting Bank or the Administrative Agent, as
the case may be, and any liability (including penalties, interest
and expenses (including reasonable attorney's fees and expenses))
arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted by the
relevant Governmental Authority. A certificate as to the amount
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of such payment or liability prepared by a Lender, the Fronting
Bank or the Administrative Agent on its behalf, together with
reasonable supporting documentation with respect to the
circumstances giving rise to such payment or liability and the
calculation of the amount thereof, absent manifest error, shall
be final, conclusive and binding for all purposes. Such
indemnification shall be made within 30 days after the date any
Lender (or Transferee), the Fronting Bank or the Administrative
Agent, as the case may be, makes written demand therefor.
(d) If a Lender (or Transferee), the Fronting Bank or the
Administrative Agent shall become aware that it is entitled to
claim a refund from a Governmental Authority in respect of Taxes
or Other Taxes as to which it has been indemnified by the
Borrower, or with respect to which the Borrower has paid
additional amounts, pursuant to this Section 2.17, it shall
promptly notify the Borrower of the availability of such refund
claim and shall, within 30 days after receipt of a request by the
Borrower, make a claim to such Governmental Authority for such
refund at the Borrower's expense. If a Lender (or Transferee),
the Fronting Bank or the Administrative Agent receives a refund
(including pursuant to a claim for refund made pursuant to the
preceding sentence) in respect of any Taxes or Other Taxes as to
which it has been indemnified by the Borrower or with respect to
which the Borrower has paid additional amounts pursuant to this
Section 2.17, it shall within 30 days from the date of such
receipt pay over such refund to the Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by
the Borrower under this Section 2.17 with respect to the Taxes or
Other Taxes giving rise to such refund), net of all reasonable
out-of-pocket expenses of such Lender (or Transferee), the
Fronting Bank or the Administrative Agent and without interest
(other than interest paid by the relevant Governmental Authority
with respect to such refund); provided, however, that the
Borrower, upon the request of such Lender (or Transferee), the
Fronting Bank or the Administrative Agent, agrees to repay the
amount paid over to the Borrower (plus penalties, interest or
other charges) to such Lender (or Transferee), the Fronting Bank
or the Administrative Agent in the event such Lender (or
Transferee), the Fronting Bank or the Administrative Agent is
required to repay such refund to such Governmental Authority.
(e) As soon as practicable after the date of any payment of
Taxes or Other Taxes by the Borrower to the relevant Governmental
Authority, the Borrower will deliver to the Administrative Agent,
at its address referred to in Section 11.01, the original or a
certified copy of a receipt issued by such Governmental Authority
evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in
this Section 2.17 shall survive the payment in full of the
principal of and interest on all Loans made hereunder.
(g) The Fronting Bank, the Administrative Agent and each Lender
(or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or
the District of Columbia (a NON-U.S. LENDER ) shall deliver to
the Borrower and the Administrative Agent two copies of either
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United States Internal Revenue Service Form 1001 or Form 4224,
or, in the case of a Non-U.S. Lender claiming exemption from U.S.
Federal withholding tax under Section 871(h) or 881(c) of the
Code with respect to payments of portfolio interest , a
Form W-8, or any subsequent versions thereof or successors
thereto (and, if such Non-U.S. Lender delivers a Form W-8, a
certificate representing that such Non-U.S. Lender is not a bank
for purposes of Section 881(c) of the Code, is not a
10-percent shareholder (within the meaning of
Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within
the meaning of Section 864(d)(4) of the Code)), properly
completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or reduced rate of, U.S. Federal
withholding tax on payments by the Borrower under this Agreement
and the other Loan Documents. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to
this Agreement (or, in the case of a Transferee that is a
participation holder, on or before the date such participation
holder becomes a Transferee hereunder) and on or before the date,
if any, such Non-U.S. Lender changes its applicable lending
office by designating a different lending office (a NEW LENDING
OFFICE ). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form
previously delivered by such Non-U.S. Lender. Notwithstanding any
other provision of this Section 2.17(g), a Non-U.S. Lender shall
not be required to deliver any form pursuant to this
Section 2.17(g) that such Non-U.S. Lender is not legally able to
deliver.
(h) The Borrower shall not be required to indemnify any Non-
U.S. Lender, or to pay any additional amounts to any Non-U.S.
Lender, in respect of United States Federal withholding tax
pursuant to paragraph (a) or (c) above to the extent that (i) the
obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such Non-U.S. Lender
became a party to this Agreement (or, in the case of a Transferee
that is a participation holder, on the date such participation
holder became a Transferee hereunder) or, with respect to
payments to a New Lending Office, the date such Non-U.S. Lender
designated such New Lending Office with respect to a Loan;
PROVIDED, HOWEVER, that this clause (i) shall not apply to any
Transferee or New Lending Office that becomes a Transferee or New
Lending Office as a result of an assignment, participation,
transfer or designation made at the request of the Borrower; and
PROVIDED FURTHER, HOWEVER, that this clause (i) shall not apply
to the extent the indemnity payment or additional amounts any
Transferee, or Lender (or Transferee) through a New Lending
Office, would be entitled to receive (without regard to this
clause (i)) do not exceed the indemnity payment or additional
amounts that the person making the assignment, participation or
transfer to such Transferee, or Lender (or Transferee) making the
designation of such New Lending Office, would have been entitled
to receive in the absence of such assignment, participation,
transfer or designation or (ii) the obligation to pay such
additional amounts would not have arisen but for a failure by
such Non-U.S. Lender to comply with the provisions of
paragraph (g) above.
(i) Nothing contained in this Section 2.17 shall require any
Lender (or Transferee), the Fronting Bank or the Administrative
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Agent to make available any of its tax returns (or any other
information that it reasonably deems to be confidential or
proprietary).
SECTION 2.18. MITIGATION. The Fronting Bank or any Lender (or
Transferee) claiming any indemnity payment or additional amounts
payable pursuant to Section 2.11 or Section 2.17 shall use
reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document reasonably
requested in writing by the Borrower or to change the
jurisdiction of its applicable lending office if the making of
such a filing or change would avoid the need for or reduce the
amount of any such indemnity payment or additional amounts that
may thereafter accrue and would not, in the sole determination of
such Lender (or Transferee) or the Fronting Bank, be otherwise
disadvantageous to such Lender (or Transferee) or the Fronting
Bank, as the case may be.
ARTICLE III
LETTERS OF CREDIT
SECTION 3.01. ISSUANCE OF LETTERS OF CREDIT. (a) The Fronting
Bank agrees, on the terms and subject to the conditions
hereinafter set forth, to issue Letters of Credit, in a form
reasonably acceptable to the Administrative Agent and the
Fronting Bank, appropriately completed, for the account of the
Borrower or CRH, at any time and from time to time on and after
the Closing Date until the earlier of the LC Maturity Date and
the termination of the LC Commitment in accordance with the terms
hereof; PROVIDED, HOWEVER, that any Letter of Credit shall be
issued by the Fronting Bank only if, and each request by the
Borrower for the issuance of any Letter of Credit shall be deemed
a representation and warranty of the Borrower that, immediately
following the issuance of any such Letter of Credit, (i) the LC
Exposure shall not exceed the LC Commitment in effect at such
time and (ii) the sum of the aggregate principal amount of Loans
outstanding at such time plus the LC Exposure at such time shall
not exceed (A) the lesser of the aggregate Commitments at such
time and (B) the Borrowing Base at such time.
(b) Each Letter of Credit shall expire at the close of business
on the LC Maturity Date, unless such Letter of Credit expires by
its terms on an earlier date. Each Letter of Credit shall provide
for payments of drawings in dollars.
(c) Each issuance of any Letter of Credit shall be made on at
least two Business Days' prior written or facsimile notice from
the Borrower to the Fronting Bank and the Administrative Agent
specifying the date of issuance, the date on which such Letter of
Credit is to expire (which shall not be later than the earlier of
(i) the LC Maturity Date and (ii) the close of business on the
date that is (x) 270 days after the date of issuance of such
Letter of Credit, in the case of a Trade Letter of Credit, or
(y) 13 months after the date of issuance of such Letter of
Credit, in the case of a Standby Letter of Credit), the amount of
such Letter of Credit, the name and address of the beneficiary of
such Letter of Credit and such other information as may be
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necessary or desirable to complete such Letter of Credit. The
Fronting Bank will give the Administrative Agent and the
Administrative Agent will give to each Lender reasonably prompt
notice of the issuance and amount of each Letter of Credit and
the expiration of each Letter of Credit.
SECTION 3.02. PARTICIPATIONS; UNCONDITIONAL OBLIGATIONS. (a) By
the issuance of a Letter of Credit and without any further action
on the part of the Fronting Bank or the Lenders in respect
thereof, the Fronting Bank hereby grants to each Lender, and each
Lender hereby agrees to acquire from the Fronting Bank, a
participation in such Letter of Credit equal to such Lender's
Applicable Percentage of the face amount of such Letter of
Credit, effective upon the issuance of such Letter of Credit. In
addition, the Fronting Bank hereby grants to each Lender, and
each Lender hereby acquires from the Fronting Bank, a
participation in each Existing Letter of Credit equal to such
Lender's Applicable Percentage of the face amount of such
Existing Letter of Credit, effective on the Closing Date. In
consideration and in furtherance of the foregoing, each Lender
hereby absolutely and unconditionally agrees to pay to the
Administrative Agent, on behalf of the Fronting Bank, in
accordance with Section 3.04(c), such Lender's Applicable
Percentage of each LC Disbursement made by the Fronting Bank;
PROVIDED, HOWEVER, that the Lenders shall not be obligated to
make any such payment to the Fronting Bank with respect to any
wrongful payment or disbursement made under any outstanding
Letter of Credit as a result of the gross negligence or wilful
misconduct of the Fronting Bank.
(b) Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to paragraph (a) above in respect
of Letters of Credit is absolute and unconditional and shall not
be affected by any circumstance whatsoever, including the
occurrence and continuance of an Event of Default or Default
hereunder, and that each such payment shall be made without any
offset, abatement, withholding or reduction whatsoever.
SECTION 3.03. LC FEE. The Borrower agrees to pay to the
Administrative Agent for the account of the Lenders for each
calendar quarter (or shorter period commencing with the date
hereof or ending with the first date on which the LC Commitment
shall have expired or been terminated and there shall be no
outstanding Letters of Credit) fees (the LC FEES ) equal to
(a) in the case of Standby Letters of Credit, the LIBOR Spread in
effect at the beginning of such calendar quarter on the average
daily aggregate face amount of outstanding standby Letters of
Credit and (b) in the case of Trade Letters of Credit, 2.25% on
the average daily aggregate face amount of the outstanding trade
Letters of Credit. The LC Fees shall be computed on the basis of
the actual number of days elapsed over a year of 360 days. The LC
Fee shall be paid in arrears on the last day of March, June,
September and December of each year and on the Maturity Date (or,
if earlier, the first date on which the LC Commitment shall have
expired or been terminated and there shall be no outstanding
Letters of Credit), commencing on the first such date following
the Closing Date. Once paid, the LC Fees shall not be refundable
in any circumstances.
SECTION 3.04. AGREEMENT TO REPAY LC DISBURSEMENTS. (a) If the
Fronting Bank shall make any payment under a Letter of Credit,
the Borrower shall pay to the Administrative Agent, on behalf of
the Fronting Bank, an amount equal to the amount of such payment
by the Fronting Bank before 12:00 noon, New York City time, on
the Business Day on which the Fronting Bank shall have notified
the Borrower such payment will be or has been made (or such later
time as is not later than three hours after the Borrower shall
have received such notice or, if the Borrower shall have received
such notice later than 2:00 p.m., New York City time, on any
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Business Day, not later than 12:00 noon, New York City time, on
the immediately following Business Day). The Administrative Agent
will promptly pay any such amounts received by it to the Fronting
Bank. In the event that, after the payment of any such amount to
the Fronting Bank, the Fronting Bank shall not make such payment
in respect of such Letter of Credit, the Fronting Bank shall
return to the Administrative Agent, for the account of the
Borrower, any such unpaid amount, together with interest thereon
accrued at the Federal Funds Effective Rate then in effect from
and including the date such amount was paid by the Borrower to
the Administrative Agent to but excluding the date such amount
was repaid by the Fronting Bank to the Administrative Agent.
(b) The Borrower's obligation to repay the Fronting Bank for LC
Disbursements made by the Fronting Bank under the outstanding
Letters of Credit shall be absolute, unconditional and
irrevocable under any and all circumstances and irrespective of
the following:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, defense or other right that
the Borrower or CRH or any other person may at any time have
against the beneficiary under any Letter of Credit, the
Fronting Bank, the Administrative Agent or any other Lender
(other than the defense of payment in accordance with the terms
of this Agreement or a defense based on the gross negligence or
wilful misconduct of the Fronting Bank) or any other person in
connection with this Agreement or any other agreement or
transaction;
(iii) any draft or other document under a 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, provided that payment by the Fronting Bank
under such Letter of Credit against presentation of such draft
or document shall not have constituted gross negligence or
wilful misconduct of the Fronting Bank;
(iv) payment by the Fronting Bank under a Letter of Credit
against presentation of a draft or other document that does not
comply with the terms of such Letter of Credit, provided that
such payment shall not have constituted gross negligence or
wilful misconduct of the Fronting Bank; and
(v) any other circumstances or event whatsoever, whether or
not similar to any of the foregoing, PROVIDED that such other
circumstance or event shall not have been the result of gross
negligence or wilful misconduct of the Fronting Bank.
It is understood that in making any payment under a Letter of
Credit (A) the Fronting Bank's exclusive reliance on the
documents presented to it under such Letter of Credit as to any
and all matters set forth therein, including reliance on the
amount of any draft presented under such Letter of Credit,
whether or not the amount due to the beneficiary equals the
amount of such draft and whether or not any document presented
pursuant to such Letter of Credit proves to be insufficient in
any respect, if such document on its face appears to be in order,
and whether or not any other statement or any other document
presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or
untrue in any respect whatsoever, and (B) any noncompliance in
any immaterial respect of the documents presented under a Letter
of Credit with the terms thereof shall, in each case, not be
deemed wilful misconduct or gross negligence of the Fronting
Bank.
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(c) If the Administrative Agent has not received from the
Borrower the payment required by Section 3.04(a) by 12:00 noon,
New York City time, on the date on which the Fronting Bank has
notified the Borrower that payment under any Letter of Credit
will be or has been made (or such later time as is not later than
three hours after the Borrower shall have received such notice
or, if the Borrower shall have received such notice later than
2:00 p.m., New York City time, on such Business Day, not later
than 12:00 noon, New York City time, on the immediately following
Business Day), as provided in Section 3.04(a), (i) the
Administrative Agent will notify not later than 12:00 noon, New
York City time, the Fronting Bank and each Lender of the LC
Disbursement and, in the case of each Lender, its Applicable
Percentage of such LC Disbursement and (ii) such LC Disbursement
shall be deemed to be an ABR Loan. Each Lender will pay to the
Administrative Agent not later than 4:00 p.m., New York City
time, on such date an amount equal to such Lender's Applicable
Percentage of such LC Disbursement (it being understood that such
amount shall constitute a Borrowing), and the Administrative
Agent will promptly pay such amount to the Fronting Bank. The
Administrative Agent will promptly remit to each Lender its
Applicable Percentage of any amounts subsequently received by the
Administrative Agent from the Borrower in respect of such LC
Disbursement. If any Lender shall not have made its Applicable
Percentage of such LC Disbursement available to the Fronting Bank
as provided above, such Lender agrees to pay interest on such
amount, for each day from and including the date such amount is
required to be paid in accordance with this paragraph (c) to but
excluding the date an amount equal to such amount is paid to the
Administrative Agent for prompt payment to the Fronting Bank at,
for the first such day, the Federal Funds Effective Rate, and
thereafter, the Alternate Base Rate.
SECTION 3.05. LETTER OF CREDIT OPERATIONS. The Fronting Bank
shall, promptly following its receipt thereof, examine all
documents purporting to represent a demand for payment under an
Outstanding Letter of Credit to ascertain that the same appear on
their face to be in conformity with the terms and conditions of
such Outstanding Letter of Credit. The Fronting Bank shall as
promptly as possible, but in no event later than two hours after
such demand for payment, give oral notification, confirmed by
facsimile notice, to the Administrative Agent and the Borrower of
such demand for payment and shall as promptly as possible, but in
no event later than two hours prior to any payment in respect of
such demand, give oral notification, confirmed by facsimile
notice, to the Administrative Agent and the Borrower of the
determination by the Fronting Bank as to whether such demand for
payment was in accordance with the terms and conditions of such
Outstanding Letter of Credit and whether the Fronting Bank has
made or will make an LC Disbursement thereunder, provided that
the failure to give such notice shall not relieve the Borrower of
its obligation to reimburse the Fronting Bank with respect to any
such LC Disbursement, and the Administrative Agent shall promptly
give each Lender notice thereof.
SECTION 3.06. CASH COLLATERALIZATION. If any Event of Default
shall occur and be continuing, the Borrower shall on the Business
Day it receives notice from the Administrative Agent or the
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Required Lenders therefor, deposit in an account with the
Administrative Agent, for the benefit of the Lenders, an amount
in cash equal to the LC Exposure as of such date. The
Administrative Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal, over such account.
Other than any interest earned on the investment of such deposit
in Permitted Investments, which investments shall be made at the
option and sole discretion of the Administrative Agent, such
deposits shall not bear interest. Interest or profits, if any, on
such investments shall accumulate in such account. Moneys in such
account (including any interest earned thereon) shall
(a) automatically be applied by the Administrative Agent to
reimburse the Fronting Bank for LC Disbursements and (b) be held
for the satisfaction of the reimbursement obligations of the
Borrower for the then-outstanding LC Exposure. If the Borrower is
required to provide an amount of cash collateral hereunder as a
result of an Event of Default, such amount (to the extent not
applied as aforesaid) shall be returned (together with any
interest earned thereon) to the Borrower within three Business
Days after all Events of Default have been cured or waived.
SECTION 3.07. TERMINATION OR REDUCTION OF LC COMMITMENT. The
Borrower may permanently terminate, or from time to time in part
permanently reduce, the LC Commitment, in each case upon at least
three Business Days' prior written or facsimile notice to the
Administrative Agent and the Fronting Bank, PROVIDED that, after
giving effect to such termination or reduction, the LC Commitment
shall not be less than the LC Exposure at such time or greater
than the available Commitments at such time. The Borrower shall
pay to the Administrative Agent for the account of the Lenders,
on the date of such termination or reduction, the LC Fees on the
amount of the LC Commitment so terminated or reduced accrued to
but excluding the date of such termination or reduction.
SECTION 3.08. FRONTING BANK FEES. (a) The Borrower shall pay to
the Fronting Bank, for its own account, such commissions,
issuance fees, transfer fees and other fees and charges in
connection with the issuance or administration of each Letter of
Credit as shall be agreed upon between the Borrower and the
Fronting Bank.
(b) The Borrower shall pay to the Fronting Bank, for its own
account, a fronting fee on the average daily aggregate maximum
amount available to be drawn (assuming compliance with all
conditions to drawing) under all Outstanding Letters of Credit
equal to the Fronting Bank's spread (the amount of which shall be
subject to the approval of the Fronting Bank, the Borrower and
the Administrative Agent), payable in arrears on the last day of
each March, June, September and December of each year and on the
Maturity Date.
SECTION 3.09. RESIGNATION OR REMOVAL OF FRONTING BANK. (a) The
Fronting Bank may resign at any time by giving 180 days' prior
written notice to the Administrative Agent, the Lenders and the
Borrower, and may be removed at any time by the Borrower by
notice to the Fronting Bank, the Administrative Agent and the
Lenders. Upon any such resignation or removal, the Borrower shall
(within 180 days after such notice of resignation or removal)
either appoint a Lender (with the consent of such Lender) as
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successor, or terminate the unutilized LC Commitment. The
Borrower may at any time thereafter that the Commitments are in
effect reinstate by notice to the Administrative Agent and the
Lenders the LC Commitment in connection with the appointment of a
successor Fronting Bank. Subject to paragraph (b) below, upon the
acceptance of any appointment as Fronting Bank hereunder by a
successor Fronting Bank, such successor shall succeed to and
become vested with all the interests, rights and obligations of
the retiring Fronting Bank and the retiring Fronting Bank shall
be discharged from its obligations to issue additional Letters of
Credit hereunder. At the time such removal or resignation shall
become effective, the Borrower shall pay all accrued and unpaid
fees pursuant to Section 2.05(b). The acceptance of any
appointment as Fronting Bank hereunder by a successor issuing
bank shall be evidenced by an agreement entered into by such
successor, in a form satisfactory to the Borrower and the
Administrative Agent, and, from and after the effective date of
such agreement, (i) such successor shall be a party hereto and
have all rights and obligations of the Fronting Bank under this
Agreement and the other Loan Documents and (ii) references herein
and in the other Loan Documents to the Fronting Bank shall be
deemed to refer to such successor or to any previous Fronting
Bank, or to such successor and all previous Fronting Banks, as
the context shall require.
(b) After the resignation or removal of the Fronting Bank
hereunder, the retiring Fronting Bank shall remain a party hereto
and shall continue to have all the rights and obligations of the
Fronting Bank under this Agreement and the other Loan Documents
with respect to Letters of Credit issued by it prior to such
resignation or removal, but shall not be required to issue
additional Letters of Credit.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each of the Borrower and the Parent represents and warrants to
each of the Lenders that:
SECTION 4.01. ORGANIZATION; POWERS. Each of the Parent and its
Subsidiaries (a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its organization, (b) has all requisite power and authority to
own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do
business in every jurisdiction where the failure to so qualify
would have a Material Adverse Effect and (d) has the corporate
power and authority to execute, deliver and perform its
obligations under each of the Loan Documents and each other
agreement or instrument contemplated thereby to which it is or
will be a party and, in the case of the Borrower, to borrow
hereunder.
SECTION 4.02. AUTHORIZATION. The execution, delivery and
performance by the Parent and its Subsidiaries of each of the
Loan Documents to which it is a party, the creation of the
security interests contemplated by the Security Documents and, in
the case of the Borrower, the borrowings hereunder (collectively,
the TRANSACTIONS ) (a) have been duly authorized by all requi-
site corporate and, if required, stockholder action and (b) will
not (i) violate (A) any provision of law, statute, rule or
regulation, or of the certificate or articles of incorporation or
other constitutive documents or by-laws of the Parent or any of
its Subsidiaries, (B) any order of any Governmental Authority or
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(C) any provision of any indenture, agreement or other instrument
to which the Parent or any of its Subsidiaries is a party or by
which any of them or any of their property is or may be bound,
(ii) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under
any such indenture or any other material agreement or instrument
or (iii) except for the Liens created by the Security Documents,
result in the creation or imposition of any Lien upon or with
respect to any property or assets now owned or hereafter acquired
by the Parent or any of its Subsidiaries.
SECTION 4.03. ENFORCEABILITY. This Agreement has been duly
executed and delivered by the Borrower and the Parent and consti-
tutes, and each other Loan Document to which it is a party, when
executed and delivered by the Borrower and the Parent, as the
case may be, will constitute, a legal, valid and binding
obligation of the Borrower and the Parent, as the case may be,
enforceable against the Borrower and the Parent, as the case may
be, in accordance with its terms, subject to, or except as
enforceability may be limited by, applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought in a
proceeding in equity or at law). The Security Documents have been
duly executed and delivered by each of the Subsidiary Guarantors
party thereto, and each constitutes a legal, valid and binding
obligation of each of the Subsidiary Guarantors party thereto,
enforceable against each such Subsidiary Guarantor in accordance
with its terms, subject to, or except as enforceability may be
limited by, applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(whether enforcement is sought in a proceeding in equity or at
law).
SECTION 4.04. GOVERNMENTAL APPROVALS. No action, consent or
approval of, registration or filing with or any other action by
any Governmental Authority is or will be required in connection
with the Transactions, except such as have been made or obtained
and are in full force and effect.
SECTION 4.05. FINANCIAL STATEMENTS. (a) The Parent has
heretofore furnished to the Lenders the consolidated balance
sheets and statements of income and changes in financial
condition of the Parent (i) as of and for the fiscal year ended
January 28, 1995, audited by and accompanied by the opinion of
Coopers & Lybrand LLP, independent public accountants, and
(ii) as of and for the fiscal quarter and the portion of the
fiscal year ended April 29, 1995, certified by a Financial
Officer of the Parent. Such financial statements present fairly
the financial condition and results of operations of the Parent
and its consolidated Subsidiaries as of such dates and for such
periods subject, in the case of the April 29, 1995, financial
statements, to normal year-end audit adjustments and the addition
of notes and schedules at year-end. Such balance sheets and the
notes thereto disclose all material liabilities, direct or
contingent, of the Parent and its consolidated Subsidiaries as of
the dates thereof. Such financial statements were prepared in
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accordance with GAAP.
(b) The unaudited pro forma consolidated balance sheet of the
Parent and its subsidiaries as of July 31, 1995 (including the
notes thereto) (the "PRO FORMA BALANCE SHEET"), copies of which
have heretofore been furnished to each Lender, has been prepared
giving effect (as if such events had occurred on such date) to
(i) the 1995 Change in Control and the Borrowings under this
Agreement contemplated to be made on the Closing Date, and
(ii) the payment of fees and expenses in connection with the
foregoing. The Pro Forma Balance Sheet has been prepared in good
faith based upon assumptions believed by the Parent to be
reasonable at the time when such assumptions were made (which
assumptions the Parent continues to believe are reasonable as of
the Closing Date) and presents fairly on a pro forma basis the
estimated consolidated financial position of the Parent and its
Subsidiaries, assuming that the events specified in the preceding
sentence had actually occurred at July 31, 1995.
SECTION 4.06. NO MATERIAL ADVERSE CHANGE. There has been no
material adverse change in the business, assets, operations,
prospects or condition, financial or otherwise, of the Parent and
its Subsidiaries, taken as a whole, since January 28, 1995, (it
being understood that the circumstances described in the
Confidential Information Memorandum or in any Form 10-K, 10-Q, 8-
K or other filing made by the Parent under the Securities
Exchange Act of 1934 between January 28, 1995, and the Closing
Date (copies of which have been provided to the Lenders) or the
consequences of such circumstances shall not be taken into
consideration in the determination of whether any such material
adverse change has occurred).
SECTION 4.07. TITLE TO PROPERTIES; POSSESSION UNDER LEASES. (a)
Each of the Parent and its Subsidiaries has good (or, in the case
of the Mortgaged Properties, good and marketable) title to, or
valid leasehold interests in, all its material properties and
assets (including all Mortgaged Properties), except for minor
defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such
properties and assets for their intended purposes. All such
material properties and assets are free and clear of Liens, other
than Liens expressly permitted by Section 7.02.
(b) Each of the Parent and its Subsidiaries has complied with
all material obligations under all leases to which it is a party
and all such leases are in full force and effect. Each of the
Parent and its Subsidiaries enjoys peaceful and undisturbed
possession under all such material leases.
(c) Except as set forth on Schedule 4.07(c), neither the Parent
nor any of the Subsidiaries has received any notice of, or has
any knowledge of, any pending or contemplated condemnation
proceeding affecting the Mortgaged Properties or any sale or
disposition thereof in lieu of condemnation. Neither the Parent
nor any of the Subsidiaries is obligated under any right of first
refusal, option or other contractual right to sell, assign or
otherwise dispose of any Mortgaged Property or any interest
therein.
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(d) Schedule 1.01(a) lists all real property owned by the
Parent or any of the Subsidiaries.
SECTION 4.08. SUBSIDIARIES. Schedule 4.08 sets forth as of the
Closing Date a list of all direct and indirect Subsidiaries of
the Parent and the percentage ownership interest of the Parent
therein.
SECTION 4.09. LITIGATION; COMPLIANCE WITH LAWS. (a) Except as
set forth in Schedule 4.09, there are not any actions, suits or
proceedings at law or in equity or by or before any Governmental
Authority now pending or, to the knowledge of the Parent or the
Borrower, as the case may be, threatened against or affecting the
Parent or any of its Subsidiaries or any business, property or
rights of any such person (i) that involve any Loan Document or
the Transactions or (ii) as to which there is a reasonable
likelihood of an adverse determination and that, if adversely
determined, are reasonably likely, individually or in the
aggregate, to result in a Material Adverse Effect.
(b) Neither the Parent nor any of its Subsidiaries is in
violation of any law, rule or regulation, or in default with
respect to any judgment, writ, injunction or decree of any
Governmental Authority, where such violation or default is
reasonably likely to result in a Material Adverse Effect.
SECTION 4.10. AGREEMENTS. (a) Neither the Parent nor any of its
Subsidiaries is a party to any agreement or instrument or subject
to any corporate restriction that has resulted or is reasonably
likely to result in a Material Adverse Effect.
(b) Neither the Parent nor any of its Subsidiaries is in
default in any manner under any provision of any indenture or
other agreement or instrument evidencing Indebtedness, or any
other material agreement or instrument to which it is a party or
by which it or any of its properties or assets are or may be
bound, where such default is reasonably likely to result in a
Material Adverse Effect. Neither the Parent nor any of its
Subsidiaries is in material default under any indenture or other
agreement or instrument evidencing or governing the terms of any
Consolidated Funded Debt.
SECTION 4.11. FEDERAL RESERVE REGULATIONS. (a) Neither the
Parent nor any of its Subsidiaries is engaged principally, or as
one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan or Letter of Credit
will be used, whether directly or indirectly, and whether
immediately, incidentally or ultimately, (i) to purchase or carry
Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness
originally incurred for such purpose or (ii) for any purpose that
entails a violation of, or is inconsistent with, the provisions
of the Regulations of the Board, including Regulation G, U or X.
SECTION 4.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT. Neither the Parent nor any of its Subsidiaries is
(a) an investment company as defined in the Investment Company
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Act of 1940, as amended, or (b) a holding company as defined
in, or subject to regulation under, the Public Utility Holding
Company Act of 1935.
SECTION 4.13. USE OF PROCEEDS. The Borrower will use the
Letters of Credit and the proceeds of the Loans only for the
purposes specified in the preamble to this Agreement.
SECTION 4.14. TAX RETURNS. Each of the Parent and its
Subsidiaries has filed or caused to be filed all Federal, state
and local tax returns required to have been filed by it and has
paid or caused to be paid all taxes shown to be due and payable
on such returns or on any assessments received by it, except (i)
taxes that are being contested in good faith by appropriate
proceedings and for which the Parent shall have set aside on its
books adequate reserves and (ii) the Deferred Tax Obligations.
SECTION 4.15. NO MATERIAL MISSTATEMENTS. The information,
reports, financial statements, exhibits or schedules (other than
all financial projections concerning the Parent, the Borrower and
their subsidiaries (the Projections )) furnished by or on behalf
of the Parent or the Borrower to the Administrative Agent or any
Lender in connection with the negotiation of any Loan Document or
included therein or delivered pursuant thereto, taken as a whole,
do not contain any material misstatement of fact or omit to state
any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. The Projections have been prepared in good faith
based on assumptions believed by the Parent and the Borrower to
be reasonable at the time such assumptions were made (which
assumptions the Parent continues to believe are reasonable as of
the Closing Date).
SECTION 4.16. EMPLOYEE BENEFIT PLANS. (a) The Borrower and each
of its ERISA Affiliates is in compliance in all material respects
with the applicable provisions of ERISA and the Code and the
regulations and published interpretations thereunder. No
Reportable Event has occurred in respect of any Plan or Plans of
the Borrower or any ERISA Affiliate that reasonably could be
expected to result in liability of the Borrower to the PBGC or to
a Plan in an aggregate amount exceeding $1,000,000. The present
value of all benefit liabilities under each Plan (based on those
assumptions used to fund such Plan) did not, as of the last
annual valuation date applicable thereto, exceed the value of the
assets of such Plan.
(b) Neither the Borrower nor any ERISA Affiliate currently
contributes or is required to contribute to, or at any time
within the five calendar years preceding the date of this
Agreement has contributed or been required to contribute to, any
Multiemployer Plan.
SECTION 4.17. ENVIRONMENTAL AND SAFETY MATTERS. Except as set
forth in Schedule 4.17, the Parent and each of its Subsidiaries
has complied in all material respects with all material
Environmental and Safety Laws. Except as set forth in
Schedule 4.17, neither the Parent nor any of its Subsidiaries has
received notice of any material failure so to comply. Except as
set forth in Schedule 4.17, the Parent's and each of its
Subsidiaries' plants or facilities do not manage any Hazardous
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Substances in violation of any Environmental and Safety Laws,
which violations the Parent or the Borrower reasonably believes,
either individually or in the aggregate, will have a Material
Adverse Effect.
SECTION 4.18. SECURITY INTERESTS. (a) The security interests
created in favor of the Collateral Agent for the benefit of the
Lenders under the Pledge Agreement constitute first-priority,
perfected security interests in the Pledged Securities, and such
Pledged Securities are subject to no Liens or security interests
of any other person. No filings or recordings, other than those
that have been made, are or will be required in order to perfect
the security interests in the Pledged Securities created under
the Pledge Agreement.
(b) Upon the filing of Uniform Commercial Code financing
statements in the appropriate filing office in the jurisdictions
listed on Schedule 4.18, the security interests created in favor
of the Agent for the benefit of the Lenders under the Security
Agreement will, subject only to Liens permitted by Section 7.02,
constitute first-priority, perfected security interests in the
Collateral (as defined in the Security Agreement), to the extent
that such security interests can be perfected by filing of
Uniform Commercial Code financing statements.
(c) Upon the filing and recordation of the Mortgages, the Liens
created in favor of the Collateral Agent for the benefit of the
Lenders under the Mortgages will, subject only to Liens permitted
by Section 7.02, constitute first priority perfected interests
in the properties specified on Schedule 1.01(a), and such
properties are subject to no Liens or security interests of any
other person other than Liens permitted under Section 7.02.
SECTION 4.19. CAPITALIZATION. As of the Closing Date, the
authorized capital stock of the Parent consists of 50,000,000
shares of Common Stock, $0.01 par value (the COMMON STOCK ), and
15,000,000 shares of Preferred Stock, $0.10 par value (the
PREFERRED STOCK ), of which 5,000,000 shares are designated
Series A Convertible Preferred Stock, $0.10 par value (the
CONVERTIBLE PREFERRED STOCK ) and 55,000 shares are designated
Series B Participating Cumulative Preferred Stock, $0.10 par
value (the "Series B Preferred Stock"). As of July 31, 1995,
9,574,493 shares of Common Stock, 1,151,895 shares of Convertible
Preferred Stock and no shares of Series B Preferred Stock were
issued and outstanding. Each share of Common Stock has an
associated right of the holder, under certain circumstances, to
purchase a fractional unit of the Series B Preferred Stock
(collectively, the "RIGHTS"). All such shares of the Parent will
be duly and validly issued, fully paid and nonassessable. As of
July 31, 1995, other than (a) warrants to purchase up to 432,903
shares of Common Stock, (b) stock rights to purchase up to
700,000 shares of Common Stock, (c) options to purchase up to
1,037,484 shares of Common Stock, (d) the Convertible Preferred
Stock, (e) the Rights, (f) up to 151,083 shares of Common Stock
and 129,498 shares of Convertible Preferred Stock remaining to be
issued and distributed pursuant to the Bankruptcy Plan and (g) as
set forth on Schedule 4.19, neither the Parent nor any of its
Subsidiaries has outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to
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subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock, except for options to
purchase shares of Common Stock in connection with option and
other stock incentive or benefit plans for the benefit of
employees, officers, directors and consultants of the Parent or
any of its Subsidiaries.
ARTICLE V
CONDITIONS OF LENDING AND ISSUANCES
OF LETTERS OF CREDIT
The obligations of the Lenders to make Loans and the obligation
of the Fronting Bank to issue any Letter of Credit (each, a
CREDIT EVENT ) hereunder are subject to the satisfaction of the
following conditions:
SECTION 5.01. ALL CREDIT EVENTS. On the date of each Credit
Event (other than (i) Borrowings in which Loans are refinanced
with new Loans as contemplated by Section 2.02(e) without any
increase in the aggregate principal amount of loans outstanding
and (ii) Borrowings made pursuant to Section 3.04(c)):
(a) The Administrative Agent and, where applicable, the
Fronting Bank shall have received a notice of such Credit Event
as required by Section 2.03 and Section 3.01(c), respectively.
(b) The representations and warranties set forth in
Article IV hereof shall be true and correct in all material
respects on and as of the date of such Credit Event with the
same effect as though made on and as of such date, except to
the extent such representations and warranties expressly relate
to an earlier date.
(c) The Borrower, the Parent and each Subsidiary Guarantor
shall be in compliance with all the terms and provisions set
forth herein and in each other Loan Document on its part to be
observed or performed, and at the time of and immediately after
such Credit Event no Event of Default or Default shall have
occurred and be continuing.
(d) The Administrative Agent shall have received a Borrowing
Base Certificate in accordance with Section 6.04(e), and at the
date of such Borrowing Base Certificate, the sum of the
aggregate principal amount of Loans outstanding at such time
plus the LC Exposure at such time (after giving effect to such
Credit Event) shall not exceed the lesser of (i) the aggregate
Commitment of the Lenders and (ii) the then-current Borrowing
Base.
Each Credit Event shall be deemed to constitute a representation
and warranty by the Borrower on the date of such Credit Event as
to the matters specified in paragraphs (b) and (c) of this
Section 5.01.
SECTION 5.02. FIRST CREDIT EVENT. On the Closing Date:
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(a) The Administrative Agent shall have received a favorable
written opinion of Foley, Hoag & Eliot, counsel for the
Borrower and the Parent, dated the Closing Date and addressed
to the Administrative Agent, the Fronting Bank and the Lenders,
to the effect set forth in Exhibit H hereto and the Borrower
hereby consents to the delivery by such counsel of such opinion
to the Administrative Agent.
(b) All legal matters incident to this Agreement and the
Credit Events hereunder shall be satisfactory to the Lenders
and their counsel and to Cravath, Swaine & Moore, counsel for
the Administrative Agent.
(c) The Administrative Agent shall have received (i) a copy
of the certificate or articles of incorporation, including all
amendments thereto, of the Borrower, the Parent and each
Subsidiary Guarantor, certified as of a recent date by the
Secretary of State of the state of its incorporation, and a
certificate as to the good standing of the Borrower, the Parent
and each Subsidiary Guarantor as of a recent date, from such
Secretary of State; (ii) a certificate of the Secretary or
Assistant Secretary of each of the Borrower, the Parent and
each Subsidiary Guarantor dated the Closing Date and certifying
(A) that attached thereto is a true and complete copy of the
by-laws of the Borrower, the Parent or such Subsidiary
Guarantor, as the case may be, as in effect on the Closing Date
and at all times since a date prior to the date of the
resolutions described in clause (B) below, (B) that attached
thereto is a true and complete copy of resolutions duly adopted
by the Board of Directors of the Borrower, the Parent or such
Subsidiary Guarantor, as the case may be, authorizing the
execution, delivery and performance of the Loan Documents and
the borrowings hereunder, and that such resolutions have not
been modified, rescinded or amended and are in full force and
effect, (C) that the certificate or articles of incorporation
of the Borrower, the Parent or such Subsidiary Guarantor, as
the case may be, have not been amended since the date of the
last amendment thereto shown on the certificate of good
standing furnished pursuant to clause (i) above and (D) as to
the incumbency and specimen signature of each officer executing
any Loan Document or any other document delivered in connection
herewith on behalf of the Borrower, the Parent or such
Subsidiary Guarantor, as the case may be; (iii) a certificate
of another officer as to the incumbency and specimen signature
of the Secretary or Assistant Secretary executing the
certificate pursuant to (ii) above; and (iv) such other
documents as the Lenders or their counsel or Cravath, Swaine &
Moore, counsel for the Administrative Agent, may reasonably
request.
(d) The Administrative Agent shall have received a
certificate, dated the Closing Date and signed by a Financial
Officer of each of the Borrower and the Parent confirming
compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 5.01.
(e) The Administrative Agent shall have received all Fees
and other amounts due and payable on or prior to the Closing
Date or, with respect to Fees payable pursuant to the Fee
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Letter, such lesser amounts as shall have been agreed to by the
Administrative Agent.
(f) The Guarantee Agreement shall have been duly executed by
the parties thereto and delivered to the Collateral Agent and
shall be in full force and effect.
(g) The Indemnity, Subrogation and Contribution Agreement
shall have been duly executed by the parties thereto and
delivered to the Collateral Agent, and shall be in full force
and effect.
(h) The Pledge Agreement shall have been duly executed by
the parties thereto and delivered to the Collateral Agent and
shall be in full force and effect, and all the outstanding
capital stock of the Borrower and each of its Subsidiaries
shall have been duly and validly pledged thereunder to the
Collateral Agent for the ratable benefit of the Secured Parties
and certificates representing such shares, accompanied by
instruments of transfer and stock powers endorsed in blank,
shall be in the actual possession of the Collateral Agent.
(i) The Security Agreement shall have been duly executed by
the parties thereto and delivered to the Administrative Agent
and shall be in full force and effect, and each document
(including each Uniform Commercial Code financing statement)
required by law or reasonably requested by the Administrative
Agent to be filed, registered or recorded in order to create in
favor of the Collateral Agent for the benefit of the Lenders,
subject only to Liens permitted by Section 7.02, a valid, legal
and perfected first-priority security interest in or lien on
the Collateral described in such agreement shall have been
delivered to the Administrative Agent.
(j)(i) The Administrative Agent shall have received
satisfactory evidence of the preparation of all documents
(including the Mortgages), recordings and filings as in the
opinion of the Administrative Agent may be necessary or
desirable to create a valid, perfected, first-priority Lien in
favor of the Collateral Agent for the benefit of the Lenders,
subject only to Liens permitted by Section 7.02, against each
of the properties specified on Schedule 1.01(a), (ii) the
Administrative Agent shall be satisfied that the execution and
delivery of the Mortgages and all recordings and filings
referred to in clause (i) above shall be completed promptly
following the initial Borrowing hereunder and (iii) the
Administrative Agent shall have received (or shall be
reasonably satisfied that it shall receive promptly after the
Closing Date) such other documents, including certified rental
rolls and lists of leases (which leases shall generally be in a
standard form to be agreed upon by the Borrower and the
Collateral Agent) and a policy or policies of title insurance
issued by a nationally recognized title insurance company,
together with such endorsements, coinsurance and reinsurance as
may be requested by the Administrative Agent, the Fronting
Bank and the Lenders, insuring the Mortgages as valid first
liens on the Mortgaged Properties, free of Liens other than
those permitted under Section 7.02, together with such surveys,
abstracts, appraisals and legal opinions required to be
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furnished pursuant to the terms of the Mortgages or as
reasonably requested by the Administrative Agent, the Fronting
Bank or the Lenders.
(k) The Administrative Agent shall have received the results
of a search of the Uniform Commercial Code filings made with
respect to the Parent, the Borrower and the Subsidiaries in the
States in which the chief executive offices of such persons are
located in and in the other jurisdictions in which Uniform
Commercial Code filings are to be made pursuant to the
preceding subsection, together with copies of such financing
statements disclosed by such search, and accompanied by
evidence satisfactory to the Lenders that each lien indicated
in any such financing statement is permitted under Section 7.02
or has been released.
(l) The Parent and its Subsidiaries shall have no
indebtedness or other liabilities other than (a) in the case of
the Parent, the Senior Notes, (b) in the case of the Borrower,
(i) the Loans, (ii) the Deferred Tax Obligations, (iii) the
Subordinated Guarantees, (iv) Capital Lease Obligations in an
aggregate principal amount not in excess of $145,000,000,
(v) obligations to trade creditors and other payables and
accrued expenses incurred in the ordinary course of business,
(vi) obligations under the Sale and Lease-Back Documents and
(vii) accrued liabilities in respect of the Borrower's pension
plan obligations and (c) other indebtedness or liabilities
satisfactory in all respects to the Lenders.
(m) The Lenders shall be reasonably satisfied with the
nature and amount of the contingent liabilities (including
contingent environmental liabilities) of the Parent and its
Subsidiaries and with the amount of reserves established by
such corporations in connection therewith.
(n) The Lenders shall be satisfied with the results of a
field examination of the inventory, accounts receivable and
accounts payable of the Borrower and the Subsidiaries.
(o) The Lenders shall be satisfied with (i) the existing,
pro forma and projected liquidity of the Parent and each of its
Subsidiaries and the ability of each of them to fund its
ongoing working capital and other cash requirements and
(ii) the existing, pro forma and projected financial condition
of the Parent and each of its Subsidiaries.
(p) The Existing Credit Agreement and the commitments of the
lenders thereunder shall have been terminated and all
obligations thereunder discharged, and the Administrative Agent
shall have received satisfactory evidence of such termination
and discharge.
(q) The Lenders shall have received evidence reasonably
requested by the Administrative Agent with respect to the
Borrower's solvency on a consolidated basis after giving effect
to the transactions contemplated hereby.
(r) The Borrower shall have provided the Administrative
Agent with copies of all Management Agreements and all other
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agreements of the type described in Section 7.17(c), and the
terms thereof shall be satisfactory to the Lenders.
(s) The Administrative Agent shall have received (or shall
be reasonably satisfied that promptly after the Closing Date it
shall receive) for each Mortgaged Property a copy of the
original permanent or temporary certificate of occupancy, if
any, issued upon completion of each Mortgaged Property (or any
amendment issued upon completion of any alteration) by the
appropriate Governmental Authority or appropriate evidence that
the use and occupancy of each Mortgaged Property is authorized.
ARTICLE VI
AFFIRMATIVE COVENANTS
Each of the Borrower and the Parent covenants and agrees with
each Lender, the Administrative Agent and the Fronting Bank that
so long as this Agreement shall remain in effect or the principal
of or interest on any Loan or LC Disbursement, any Fees or any
other expenses or amounts payable under any Loan Document shall
be unpaid, unless the Required Lenders shall otherwise consent in
writing, the Parent and the Borrower will, and will cause each of
their respective Subsidiaries to:
SECTION 6.01. EXISTENCE; BUSINESSES AND PROPERTIES. (a) Do or
cause to be done all things necessary to preserve, renew and keep
in full force and effect its legal existence, except as otherwise
expressly permitted under Section 7.05.
(b) Use reasonable efforts to do or cause to be done all things
necessary to obtain, preserve, renew, extend and keep in full
force and effect the rights, licenses, permits, franchises,
authorizations, patents, copyrights, trademarks and trade names
reasonably deemed by the Parent or its Subsidiaries material to
the conduct of its business; maintain and operate such business
in substantially the manner in which it is presently conducted
and operated; comply in all material respects with all applicable
material laws, rules, regulations and orders of any Governmental
Authority, whether now in effect or hereafter enacted; and at all
times maintain and preserve all property material to the conduct
of such business and keep such property in good repair, working
order and condition (normal wear and tear excepted) and from time
to time make, or cause to be made, all needful and proper
repairs, renewals, additions, improvements and replacements
thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times.
SECTION 6.02. INSURANCE. (a)Keep its insurable properties
insured at all times by financially sound and reputable insurers;
maintain such other insurance or self-insurance, to such extent
and against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies in
the same or similar businesses, including public liability
insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of
any properties owned, occupied or controlled by it; and maintain
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such other insurance or self-insurance as may be required by law.
(b) Within 30 days of the Closing Date, all such insurance
policies that insure real or personal property shall include a
standard form lender's loss payee endorsement with respect to any
claims in excess of $1,000,000, naming the Collateral Agent as
loss payee for the benefit of the Lenders. All such insurance
policies that insure liability shall name the Administrative
Agent as an additional insured for the benefit of the
Administrative Agent and each Lender.
(c) If at any time the area in which the Premises (as
defined in the Mortgages) are located is designated (i) a "flood
hazard area" in any Flood Insurance Rate Map published by the
Federal Emergency Management Agency, obtain flood insurance in
such total amount as the Collateral Agent or the Administrative
Agent may from time to time require, and otherwise comply with
the National Flood Insurance Program as set forth in said Flood
Disaster Protection Act of 1973, as it may be amended from time
to time or (ii) a "Zone 1" area, obtain earthquake insurance in
such total amount as the Administrative Agent, the Collateral
Agent or the Required Lenders may from time to time require.
(d) Notify the Administrative Agent and the Collateral Agent
immediately whenever any separate insurance concurrent in form or
contributing in the event of loss with that required to be
maintained under this Section 6.02 is taken out by the Borrower;
and promptly deliver to the Administrative Agent and the
Collateral Agent evidence of such insurance if requested to do so
by the Administrative Agent or the Collateral Agent.
(e) In connection with the covenants set forth in this
Section 6.02, it is understood and agreed that:
(i) neither the Administrative Agent, the Lenders, the
Fronting Bank nor their agents or employees shall be liable for
any loss or damage insured by the insurance policies required
to be maintained under this Section 6.02, it being understood
that (A) the Borrower shall look solely to its insurance
company or any other parties other than the aforesaid parties
for the recovery of such loss or damage and (B) such insurance
company shall have no rights of subrogation against the
Administrative Agent, the Collateral Agent, the Lenders, the
Fronting Bank or their agents or employees. If, however, the
insurance policies do not provide waiver of subrogation rights
against such parties, as requested above, then the Borrower
hereby agrees, to the extent permitted by law, to waive its
right of recovery, if any, against the Administrative Agent,
the Collateral Agent, the Lenders, the Fronting Bank and their
agents and employees; and
(ii) the designation of any form, type or amount of
insurance coverage by the Administrative Agent or the
Collateral Agent under this Section 6.02, shall in no event be
deemed a representation, warranty or advice by the
Administrative Agent or the Collateral Agent that such
insurance is adequate for the purposes of the Borrower's
business or the protection of the Borrower's properties and the
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Administrative Agent and the Collateral Agent shall have the
right from time to time to require the Borrower to keep other
insurance in such form and amount as the Administrative Agent
or the Collateral Agent may reasonably request, provided that
such insurance shall be obtainable on commercially reasonable
terms.
SECTION 6.03. OBLIGATIONS AND TAXES. Pay its Indebtedness and
its other material obligations promptly and in accordance with
their terms or in accordance with customary trade practice and
pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon its income
or profits or in respect of its property, before the same shall
become delinquent or in default, as well as all lawful claims for
labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof;
provided, however, that such payment and discharge shall not be
required with respect to any such tax, assessment, charge, levy
or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the
Borrower or the Parent, as the case may be, shall have set aside
on its books adequate reserves with respect thereto.
SECTION 6.04. FINANCIAL STATEMENTS, REPORTS, ETC. In the case
of the Parent, furnish to the Administrative Agent, the Fronting
Bank and each Lender:
(a) as soon as reasonably practicable and in any event
within 95 days after the end of each fiscal year, its
consolidated balance sheets and related statements of income
and changes in financial position, showing the financial
condition of the Parent and its Subsidiaries as of the close of
such fiscal year and the results of their operations during
such year, all audited by Coopers & Lybrand LLP or other
independent public accountants of recognized national standing
acceptable to the Required Lenders and accompanied by an
opinion of such accountants (which shall not be qualified in
any material respect) to the effect that such consolidated
financial statements fairly present the financial condition and
results of operations of the Parent and its Subsidiaries on a
consolidated basis in accordance with GAAP;
(b) as soon as reasonably practicable and in any event
(i) within 50 days after the end of each of the first three
fiscal quarters of each fiscal year, and (ii) within 25 days of
the end of each fiscal month in each fiscal year, the
consolidated balance sheets and related statements of income
and changes in financial position, showing the financial
condition of the Parent and its Subsidiaries as of the close of
such fiscal quarter or fiscal month, as the case may be, and
the results of their operations during such fiscal quarter or
fiscal month, as the case may be, and the then elapsed portion
of the fiscal year, all certified by a Financial Officer of
each of the Parent and the Borrower as fairly presenting the
financial condition and results of operations of the Parent and
its Subsidiaries on a consolidated basis in accordance with
GAAP, subject to the addition of year-end notes and schedules
and normal year-end audit adjustments;
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(c) concurrently with any delivery of financial statements
under (a) or (b) above (other than the monthly statements), a
certificate of the accounting firm (in the case of (a) above)
and a certificate of a Financial Officer of each of the Parent
and the Borrower (in the case of (a) and (b) above) opining on
or certifying such statements (which certificate, when
furnished by an accounting firm, may be limited to accounting
matters and disclaim responsibility for legal interpretations)
(i) certifying that no Event of Default or Default has occurred
or, if such an Event of Default or Default has occurred,
specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto and
(ii) setting forth computations in reasonable detail satis-
factory to the Administrative Agent demonstrating compliance
with the covenants contained in Sections 7.12, 7.13, 7.14, 7.15
and 7.16;
(d) promptly after the same become publicly available,
copies of all periodic and other reports, proxy statements and
other materials filed by it with the Securities and Exchange
Commission, or any governmental authority succeeding to any of
or all the functions of said Commission, or with any national
securities exchange, or distributed to its shareholders, as the
case may be;
(e) a Borrowing Base Certificate (i) calculated as of the
end of each week during each fiscal year promptly after the end
of each such week (but in no event later than the third
Business Day of the following week) (ii) calculated as of the
end of each fiscal month during each fiscal year promptly after
the end of each such fiscal month (but in no event later than
the tenth Business Day of the following fiscal month) and
(iii) on the date of the first Borrowing or issuance of any
Letter of Credit, if such Credit Event shall occur prior to the
delivery of a Borrowing Base Certificate pursuant to
clause (i), which Borrowing Base Certificates in the case of
clauses (i), (ii) and (iii) above shall include the other
information described on Exhibit C hereto, together with such
supporting documents and other reports with respect to the
Borrowing Base as the Administrative Agent may reasonably
request.
(f) promptly following the preparation and delivery or
receipt thereof, copies of any final management letter prepared
by the Parent's auditors (together with any response thereto
prepared by the Parent);
(g) as soon as available, and in any event no later than 95
days after (i) February 3, 1996, and (ii) the end of each
fiscal year thereafter, forecasted financial projections and
summary data through the end of the then-current fiscal year,
prepared on a monthly basis, in substantially the same form and
format as set forth in Section 8 of the Confidential
Information Memorandum (including a specification of the
underlying assumptions), all certified by a Financial Officer
of each of the Parent and the Borrower to be a fair summary of
such entity's results and such entity's good faith estimate of
the forecasted financial projections and results of operations
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for the period through the then-current fiscal year based upon
assumptions believed to have been reasonable at the time when
made;
(h) promptly, a copy of any amendment or waiver of any
provision of the Senior Note Indenture, the Senior Notes or the
Deferred Tax Obligations;
(i) a copy of all notices (other than regarding any
scheduled or mandatory repayments), certificates, financial
statements and reports, as and when delivered by or on behalf
of the Parent or the Borrower to the holders of the Senior
Notes under the Senior Note Indenture;
(j) a copy of all solicitations or requests by the Parent or
its Subsidiaries for any proposed waiver or amendment of any of
the provisions of the Senior Note Indenture, the Refinancing
Note Indenture, the Senior Notes or the Refinancing Notes (but
only if the consent or approval of the Lenders is required in
connection therewith); and
(k) promptly, from time to time, such other information
regarding the operations, business affairs and financial
condition of the Parent or its Subsidiaries, or compliance with
the terms of any Loan Document, as the Administrative Agent,
the Fronting Bank or any Lender may reasonably request.
SECTION 6.05. LITIGATION AND OTHER NOTICES. Furnish to the
Administrative Agent, the Fronting Bank and each Lender prompt
written notice of the following:
(a) any Event of Default or Default, specifying the nature
and extent thereof and the corrective action (if any) proposed
to be taken with respect thereto;
(b) the filing or commencement of, or any notice of
intention of any person to file or commence, any action, suit
or proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Parent or any Affiliate
thereof as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, would
result in a Material Adverse Effect; and
(c) any development that has resulted in, or is reasonably
likely to result in, a Material Adverse Effect.
SECTION 6.06. EMPLOYEE BENEFITS. (a) Comply in all material
respects with the applicable provisions of ERISA and the Code and
(b) furnish to the Administrative Agent (i) as soon as possible
after, and in any event within 30 days after any Responsible
Officer of the Borrower or any ERISA Affiliate knows or has
reason to know that, any Reportable Event has occurred that alone
or together with any other Reportable Event could reasonably be
expected to result in liability of the Borrower to the PBGC in an
aggregate amount exceeding $5,000,000, a statement of a Financial
Officer setting forth details as to such Reportable Event and the
action that the Borrower proposes to take with respect thereto,
together with a copy of the notice, if any, of such Reportable
Event given to the PBGC, (ii) promptly after receipt thereof, a
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copy of any notice that the Borrower or any ERISA Affiliate may
receive from the PBGC relating to the intention of the PBGC to
terminate any Plan or Plans (other than a Plan maintained by an
ERISA Affiliate that is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Code Section 414) or to
appoint a trustee to administer any such Plan, (iii) within 10
days after the due date for filing with the PBGC pursuant to
Section 412(n) of the Code a notice of failure to make a required
installment or other payment with respect to a Plan, a statement
of a Financial Officer setting forth details as to such failure
and the action that the Borrower proposes to take with respect
thereto, together with a copy of any such notice given to the
PBGC.
SECTION 6.07. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND
INSPECTIONS. (a) Maintain all financial records in accordance
with GAAP and permit any representatives designated by any Lender
to visit and inspect the financial records and the properties of
the Parent or any of its wholly owned Subsidiaries at reasonable
times, upon reasonable notice and as often as requested and to
make extracts from and copies of such financial records, and
permit any representatives designated by any Lender to discuss
the affairs, finances and condition of the Parent or any of its
Subsidiaries with the officers thereof and independent accoun-
tants therefor.
(b) From time to time upon the reasonable request of the
Administrative Agent, permit the Administrative Agent or
professionals retained by the Administrative Agent to conduct
evaluations and appraisals of (i) the Borrower's practices in the
computation of the Borrowing Base and (ii) the assets included in
the Collateral, and in each case pay the reasonable fees and
expenses of such professionals in accordance with
Section 11.05(a).
(c) In connection with any evaluation and appraisal relating to
the computation of the Borrowing Base, make such other
adjustments to its parameters for calculating the Borrowing Base
as the Administrative Agent shall reasonably require based upon
the results of such evaluation and appraisal.
SECTION 6.08. USE OF PROCEEDS. Use the proceeds of the Loans
and the Letters of Credit only for the purposes set forth in the
preamble to this Agreement.
SECTION 6.09. FURTHER ASSURANCES. (a) Execute any and all
further documents, financing statements, agreements and
instruments, and take all further action that may be required
under applicable law, or which the Required Lenders, the
Administrative Agent or the Collateral Agent may reasonably
request, in order to effectuate the transactions contemplated by
the Loan Documents and in order to grant, preserve, protect and
perfect the validity and priority of the security interests
created or intended to be created by the Security Documents. Each
of the Parent and the Borrower agrees to provide such evidence as
the Required Lenders shall reasonably request as to the
perfection and priority status of such security interests and
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Lien.
(b) Cause each Subsidiary created or acquired by the Borrower
or by a Subsidiary from time to time to undertake the obligation
of and to become a Subsidiary Guarantor hereunder and under the
Guarantee Agreement and a party to the Pledge Agreement and the
Security Agreement pursuant to one or more instruments or
agreements satisfactory in form and substance to the Collateral
Agent and cause each such Subsidiary to execute, deliver, file or
record any Mortgage reasonably requested by the Lenders.
(c) Upon the acquisition after the Closing Date of any assets
not covered by clauses (a) or (b) above, (i) notify the
Collateral Agent (in the case of assets located in a jurisdiction
in which Uniform Commercial Code financing statements have not
previously been filed pursuant to this Agreement or the other
Loan Documents) by describing such assets in a notice in the form
of Exhibit K and furnish thereafter such documents and
instruments as may be necessary to grant or confirm to the
Collateral Agent a perfected Lien on or security interest in such
assets, subject only to Liens permitted by Section 7.02, all as
the Collateral Agent shall reasonably request and (ii) if at any
time the Borrower or any Subsidiary shall have owned for a period
of at least three months real property that is located in the
United States that has an aggregate fair market value (net of
deduction from such value of the principal amount of any
Indebtedness secured by any Liens on such real property) equal to
at least $2,500,000, promptly, but in any event within 30 days
after the end of such three-month period, enter into and deliver
to the Collateral Agent a Mortgage in respect of such property,
to the extent permitted by applicable law and any existing lender
holding a Lien thereon, in form and substance reasonably
satisfactory to the Collateral Agent. All such security
interests and Liens will be created under the Security Documents
and other instruments and documents in form and substance
reasonably satisfactory to the Collateral Agent, and the Borrower
and the Subsidiary Guarantors shall deliver or cause to be
delivered to the Administrative Agent all such instruments and
documents (including legal opinions and lien searches) as the
Required Lenders shall reasonably request to evidence compliance
with this Section. The Borrower agrees to provide such evidence
as the Collateral Agent shall reasonably request as to the
perfection and priority status of each such security interest and
Lien.
SECTION 6.10. ENVIRONMENTAL AND SAFETY LAWS. (a) Comply with,
and use its best efforts to ensure compliance by all tenants and
subtenants of the Parent or its Subsidiaries with, all
Environmental and Safety Laws and obtain and comply with and
maintain, and use its best efforts to ensure that all tenants and
subtenants obtain and comply with and maintain, any and all
licenses, approvals, registrations or permits required by
Environmental and Safety Laws, except to the extent that failure
to so comply with such laws or to obtain and comply with and
maintain such licenses, approvals, registrations and permits does
not have, and could not reasonably be expected to result in, a
Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling
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and testing, and all remedial, removal and other actions,
required under Environmental and Safety Laws and promptly comply
with all lawful orders and directives of all Governmental
Authorities in respect of Environmental and Safety Laws, except
to the extent that the same are being contested in good faith by
appropriate proceedings, the pendency of which would not have a
Material Adverse Effect.
(c) Notify the Administrative Agent, the Lenders and the
Fronting Bank of any of the following that is reasonably likely
to have a Material Adverse Effect:
(i) any Environmental Claim that the Parent or any of its
Subsidiaries receives, including one to take or pay for any
remedial, removal, response or cleanup or other action with
respect to any Hazardous Substance contained on any property
owned or leased by the Parent or any of its Subsidiaries;
(ii) any notice of any alleged violation of or knowledge by
the Parent or any of its Subsidiaries of a condition that might
reasonably result in a violation of any Environmental and
Safety Law; and
(iii) any commencement of or notice of an intention to
commence any judicial or administrative proceeding or
investigation alleging a violation or potential violation of
any requirement of any Environmental and Safety Law by the
Parent or any of its Subsidiaries.
SECTION 6.11. CASH MANAGEMENT. (a) From and after the Closing
Date, deposit on a timely basis all daily receipts (other than
cash required to operate the Borrower's stores in the ordinary
course of business) into individual store deposit accounts with
local depository banks.
(b) From and after the Closing Date, transfer, or cause to be
transferred, on each Business Day, all amounts on deposit in any
individual store deposit accounts (including daily receipts) with
local depository banks (other than amounts necessary (i) for the
payment of routine bank service fees and (ii) to reconcile
deposit balances) to a concentration account maintained by the
Borrower with the Administrative Agent or one of the other
Lenders.
ARTICLE VII
NEGATIVE COVENANTS
Each of the Borrower and the Parent covenants and agrees with
each Lender, the Administrative Agent and the Fronting Bank that,
so long as this Agreement shall remain in effect or the principal
of or interest on any Loan or LC Disbursement, any Fees or any
other expenses or amounts payable under any Loan Document shall
be unpaid, unless the Required Lenders shall otherwise consent in
writing, the Parent and the Borrower will not, and will not cause
or permit any of their respective Subsidiaries to:
SECTION 7.01. INDEBTEDNESS. Incur, create, issue, assume,
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guarantee or permit to exist any Indebtedness, except:
(a) Indebtedness for borrowed money outstanding on the
Closing Date and listed on Schedule 7.01, but not any
extensions, renewals or replacements of such Indebtedness;
(b) in the case of the Borrower, Indebtedness constituting
Loans or that is otherwise incurred by the Borrower under any
Loan Document;
(c) in the case of the Parent, the Senior Notes and
Indebtedness incurred by the Parent under any Loan Document;
(d) in the case of the Borrower or the Parent, Indebtedness
under any Refinancing Notes in an aggregate principal amount at
any time outstanding not in excess of $200,000,000;
(e) in the case of the Borrower, the Subordinated
Guarantees;
(f) in the case of the Borrower, the Deferred Tax
Obligations;
(g) intercompany Indebtedness between (i) the Borrower and
any of its wholly owned Subsidiaries and (ii) any Subsidiaries
of the Borrower;
(h) in the case of the Borrower, other Indebtedness (other
than Capital Lease Obligations) not to exceed (i) $25,000,000
minus (ii) 50% of the excess of the total Indebtedness incurred
pursuant to the issuance of the Refinancing Notes (less any
related fees, expenses, underwriting discounts and commissions
and any redemption premium payable with respect to the Senior
Notes) over the principal amount of Senior Notes repaid in
connection with such issuance;
(i) Capital Lease Obligations (including those permitted
under clause (a) above, but excluding those permitted under
Section 7.03 or incurred under the Sale and Lease Back
Documents) not to exceed $150,000,000 in the aggregate at any
one time outstanding;
(j) Indebtedness permitted to be incurred under Section 7.03
in connection with any Sale and Lease-Back Transaction;
(k) Indebtedness under Rate Protection Agreements;
(l) Indebtedness in connection with performance bonds
arising in the ordinary course of business;
(m) Guarantees by the Borrower of the obligations of any
Subsidiary or by any Subsidiary of the obligations of any other
Subsidiary or of the Borrower, to the extent such guaranteed
obligations are permitted under this Agreement; and
(n) Indebtedness of the Parent to the Borrower used for any
action permitted by Section 7.07(b).
Notwithstanding anything to the contrary in this Agreement or any
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other Loan Document, no Refinancing Notes shall be issued unless:
(i) concurrently with the issuance of any Refinancing Notes, all
outstanding Senior Notes (or such lesser amount of Senior Notes
as may be agreed upon in writing by the Required Lenders) shall
have been redeemed (or called for redemption, so long as the
redemption price has been indefeasibly deposited with the trustee
in respect of such Senior Notes (the "TRUSTEE")) and canceled
upon delivery to the Trustee, at a price per Senior Note not in
excess of the Redemption Price (as defined in the Senior Note
Indenture) at the time of such redemption (plus interest accrued
to the date of redemption and not previously paid in cash),
(ii) the terms of the Refinancing Notes, the Refinancing Note
Indenture and any related Subordinated Guarantees shall be
reasonably satisfactory to the Required Lenders based upon market
conditions at the time of issuance, (iii) the interest rate of
the Refinancing Notes shall be a fixed nonincreasing interest
rate per annum determined in good faith by the Board of Directors
of the Parent to be a market rate at the time of such
determination and (iv) the Refinancing Notes shall not require
any payments of principal with respect thereto prior to May 1,
1998.
SECTION 7.02. LIENS. Create, incur, assume or permit to exist
any Liens on Inventory or any other Lien on any property or
assets (including stock or other securities of any person,
including any subsidiary) now owned or hereafter acquired by it
or on any income or revenues or rights in respect of any thereof,
except:
(a) Liens on property or assets (other than Inventory) of
the Parent and any of its Subsidiaries existing on the Closing
Date and listed on Schedule 7.02, PROVIDED that such Liens
shall secure only those obligations that they secure on the
date hereof;
(b) any Lien existing on any property (other than Inventory)
prior to the acquisition thereof by the Parent or any of its
Subsidiaries, PROVIDED that (i) such Lien is not created in
contemplation of or in connection with such acquisition and
(ii) such Lien does not apply to any other property or assets
of the Parent or any of its Subsidiaries;
(c) Liens for taxes not yet due or that are being contested
in compliance with Section 6.03;
(d) carriers', warehousemen's, mechanics', materialmen's or
other like Liens arising in the ordinary course of business;
(e) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation,
unemployment insurance and other social security laws or
regulations other than in respect of employee benefit plans
subject to ERISA;
(f) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory
obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary
course of business;
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(g) (i) zoning restrictions, easements, restrictions on use
of real property (other than the Mortgaged Properties) and
other similar encumbrances incurred in the ordinary course of
business that, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property
subject thereto or the assets of the Parent and its
Subsidiaries taken as a whole, or impair the use of such
property in the operation of the businesses of the Parent and
its Subsidiaries taken as a whole or interfere with the
ordinary conduct of the business of the Parent or any of its
Subsidiaries and (ii) in the case of the Mortgaged Properties,
the Liens set forth in the title policies delivered pursuant to
Section 5.02(j);
(h) purchase money security interests in any property (other
than Inventory) acquired or held in the ordinary course of
business to secure the purchase price of such property or to
secure Indebtedness solely for the purpose of financing the
acquisition (or construction) of such property by the Parent or
any of its Subsidiaries, PROVIDED that (i) such security
interests secure Indebtedness permitted by Section 7.01, (ii)
such security interests are incurred, and the Indebtedness
secured thereby is created, within 90 days after such
acquisition (or construction), (iii) the Indebtedness secured
thereby does not exceed 85% of the lesser of the cost or the
fair market value of such property at the time of such
acquisition (or construction), (iv) such security interests do
not apply to any other property or assets of the Parent or any
of its Subsidiaries, (v) the purchase or construction costs for
such property or assets are or should be included in additions
to property, plant or equipment in accordance with GAAP and
(vi) the purchase or construction of such property or assets is
not part of any acquisition of a person or business unit;
(i) Liens created pursuant to the Security Documents;
(j) Liens arising under capital leases not otherwise
prohibited under this Agreement;
(k) leases, subleases and license agreements arising in the
ordinary course of business and not otherwise prohibited under
this Agreement;
(l) financing statements filed under any Uniform Commercial
Code or comparable law of any jurisdiction in respect of
operating leases and not otherwise prohibited under this
Agreement;
(m) Liens (other than on Inventory) in favor of the
Borrower's credit card processing company securing obligations
of the Borrower to such processing company incurred in the
ordinary course of business in connection with the Borrower's
credit card receivables collection process;
(n) extensions, renewals and replacements of Liens referred
to in clauses (a), (b), (h), (j) and (k) above, PROVIDED that
any such extension, renewal or replacement Lien is limited to
the property or assets covered by the Lien extended, renewed or
replaced and does not secure any Indebtedness in addition to
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that secured immediately prior to such extension, renewal or
replacement;
(o) warrants, stock rights and options described in
Section 4.19; and
(p) Liens created under agreements entered into in the
ordinary course of business with customs brokers.
SECTION 7.03. SALE AND LEASE-BACK TRANSACTIONS. Enter into any
arrangement, directly or indirectly, with any person whereby it
shall sell or transfer any property, real or personal, used or
useful in its business, whether now owned or hereafter acquired,
and thereafter rent or lease such property or other property that
it intends to use for substantially the same purpose or purposes
as the property being sold or transferred (each, a SALE AND
LEASE-BACK TRANSACTION ), PROVIDED that the Parent or any of its
Subsidiaries may enter into any Sale and Lease-Back Transaction
(a) contemplated by the Sale and Lease-Back Documents or (b) if
(i) after giving effect to such Sale and Lease-Back Transaction,
the aggregate amount of all Indebtedness incurred by the Parent
and its Subsidiaries in connection with all Sale and Lease-Back
Transactions (other than those contemplated by the Sale and
Lease-Back Documents) shall not exceed $15,000,000 and (ii) an
amount equal to 100% of the net cash proceeds of such Sale and
Lease-Back Transaction are applied to prepay the Loans in
accordance with Section 2.10(b).
SECTION 7.04. INVESTMENTS, LOANS AND ADVANCES. Purchase, hold
or acquire any capital stock, evidences of indebtedness or other
securities of, make or permit to exist any loans or advances to,
or make or permit to exist any investment or any other interest
in, any other person, except:
(a) in the case of the Parent, investments in the capital
stock of the Borrower;
(b) in the case of the Borrower, (i) investments by the
Borrower existing on the date hereof in the capital stock of
its Subsidiaries and (ii) loans permitted pursuant to
Section 7.01(n);
(c) in the case of the Borrower, Permitted Investments;
(d) in the case of the Borrower, pledges and deposits
permitted under paragraph (e) or (f) of Section 7.02;
(e) loans or advances in the ordinary course of business to
any wholly owned Subsidiary of the Borrower by (i) the Borrower
or (ii) any other Subsidiary of the Borrower;
(f) loans and advances to the Borrower by any Subsidiary of
the Borrower;
(g) loans to officers and employees of the Borrower in the
ordinary course of business not to exceed $1,000,000 in
aggregate outstanding principal amount;
(h) individual store deposit accounts with local depository
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banks required in the ordinary course of business that are
maintained in accordance with Section 6.11 of this Agreement
and the terms of the Security Agreement; and
(i) Rate Protection Agreements.
SECTION 7.05. MERGERS, CONSOLIDATIONS AND ACQUISITIONS. Merge
into or consolidate with any other person, or permit any other
person to merge into or consolidate with it, or purchase, lease
or otherwise acquire (in one transaction or a series of
transactions) all or any substantial part of the capital stock or
assets of any other person, except that if at the time thereof
and immediately after giving effect thereto no Event of Default
or Default shall have occurred and be continuing (a) any wholly
owned Subsidiary of the Borrower may merge into the Borrower in a
transaction in which the Borrower is the surviving corporation,
(b) any wholly owned Subsidiary of the Borrower may merge into or
consolidate with any other wholly owned Subsidiary of the
Borrower in a transaction in which the surviving entity is a
wholly owned Subsidiary of the Borrower and no person other than
the Borrower or a wholly owned Subsidiary of the Borrower
receives any consideration, (c) any Subsidiary of the Borrower or
CRH may be liquidated as long as pursuant to such liquidation all
the assets or proceeds therefrom of such Subsidiary are
transferred to the Borrower or any other wholly owned Subsidiary
of the Borrower, (d) the Borrower or CRH may acquire inventory or
equipment of any other person in the ordinary course of business
notwithstanding the fact that such inventory or equipment
constitutes all or a substantial part of the assets of such other
person and (e) to the extent not otherwise prohibited by this
Agreement, the Borrower may lease real estate from any other
person in the ordinary course of business notwithstanding the
fact that such real estate constitutes all or a substantial part
of the assets of the lessor.
SECTION 7.06. SALES, ETC., OF ASSETS. Sell, assign, lease or
otherwise dispose of (in one transaction or a series of
transactions) any of its assets, including (a) the capital stock
of the Borrower or any of its Subsidiaries (whether now in
existence or later formed or acquired), (b) Inventory (through
bulk sales or otherwise) or (c) store leases, EXCEPT for
(i) sales or other dispositions of Inventory and other assets in
the ordinary course of business, (ii) other sales of assets
(other than in connection with Sale and Lease-Back Transactions)
outside the ordinary course of business having an aggregate sales
price not in excess of $6,000,000, (iii) sales of assets
permitted to be made under Section 7.03 in connection with any
Sale and Lease-Back Transaction, (iv) leases, subleases and
license agreements in the ordinary course of business and (v) the
disposition of obsolete fixtures and equipment in the ordinary
course of business, provided that the Borrower shall apply an
amount equal to 100% of the net cash proceeds of any transfer
pursuant to clause (ii) above to prepay the Loans in accordance
with Section 2.10(b).
SECTION 7.07. DIVIDENDS AND DISTRIBUTIONS. Declare or pay,
directly or indirectly, any dividend (other than a dividend
payable solely in the Common Stock of the Parent) or make any
other distribution (by reduction of capital or otherwise),
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whether in cash, property, securities or a combination thereof,
with respect to any shares of its capital stock or directly or
indirectly redeem, purchase, retire or otherwise acquire for
value any shares of any class of its capital stock or set aside
any amount for any such purpose; provided, however, that (a) any
Subsidiary of the Borrower may declare and pay dividends or make
other distributions to the Borrower and (b) so long as no Default
or Event of Default shall have occurred and be continuing or
result therefrom, (i) the Borrower may pay dividends to the
Parent in any fiscal year to the extent required to enable the
Parent to (A) make payments of interest on the Senior Notes or
any Refinancing Notes, (B) pay all Federal and state income and
other taxes then due and owing, (C) pay the Continuation Fee,
(D) pay reasonable fees and expenses of directors of the Parent,
(E) pay reasonable legal fees and expenses of the Parent
(including without limitation reasonable legal fees of any
director of the Parent that are covered by the indemnification
obligations of the Parent to such director for actions taken in
such director's capacity as a director) incurred in connection
with any litigation relating to the 1995 Change of Control
(including the litigation described on Schedule 4.09 under the
caption "Shareholder Suits in Connection with the 1995 Change in
Control"), PROVIDED that the aggregate amount paid pursuant to
this clause (E) shall not exceed $1,000,000 (excluding any
amounts permitted to be paid pursuant to clause (F) below) ,
(F) pay the amounts specified in clause (a)(ii) of the second
sentence of the introductory statement to this Agreement and
(G) pay required listing fees, annual fees and registration fees
to the Securities and Exchange Commission, the New York Stock
Exchange or any other national stock exchange or the National
Association of Securities Dealers, Inc., in connection with
registering, listing and maintaining the listing of the capital
stock and Senior Notes of the Parent and (ii) the Parent may
effect the transactions described on Schedule 4.19.
SECTION 7.08. TRANSACTIONS WITH AFFILIATES. (a) Sell or
transfer any property, assets or services to, or purchase or
acquire any property, assets or services from, or otherwise
engage in any other transaction or series of transactions with,
any of its Affiliates, except that as long as no Default or Event
of Default shall have occurred and be continuing, the Parent or
any of its Subsidiaries may engage in any of the foregoing
transactions in the ordinary course of business at prices and on
terms and conditions not less favorable to the Parent or such
Subsidiary than could be obtained on an arm's-length basis from
unrelated third parties, PROVIDED that if any such transaction or
series of transactions involves aggregate payments in excess of
$1,000,000 (other than intercompany payments between the Borrower
and any of its Subsidiaries or between the Borrower's wholly
owned Subsidiaries), the Board of Directors of the Borrower, the
Parent or such Subsidiary, as the case may be, shall have
determined that such transaction or series of transactions
complies with the foregoing and such determination shall be
evidenced by a resolution of such Board of Directors.
(b) Make any payment to or for the benefit of (i) any
current or former director of the Parent or (ii) any other
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Affiliate of the Parent that is also an Affiliate of Dickstein
Partners Inc. for any amount owing in respect of the 1995 Change
of Control (including damage amounts, settlement costs or legal
fees) other than as expressly permitted by this Agreement.
SECTION 7.09. NATURE OF BUSINESS. Modify or alter in any
material manner the nature and type of the business of the Parent
and its Subsidiaries as conducted at or prior to the date of this
Agreement or the manner in which such business is conducted,
including, with respect to the Borrower, its consumer merchandise
return policies. Without limiting the generality of the
foregoing, the Parent will not engage in any business other than
owning all the capital stock of its Subsidiaries.
SECTION 7.10. LIMITATION ON DEBT PREPAYMENTS. (a) Optionally
prepay, repurchase or redeem or otherwise defease or segregate
funds with respect to any Indebtedness for borrowed money of the
Borrower or the Parent; PROVIDED, HOWEVER, that the foregoing
shall not prevent the Borrower from making any payment pursuant
to Section 2.10 or prevent the Parent from redeeming Senior Notes
with proceeds of the Refinancing Notes.
(b) Permit any amendment or modification to the terms of the
Deferred Tax Obligations if the effect of such amendment or
modification is to impose additional or increased scheduled
repayment obligations in respect of such Indebtedness or to
require any scheduled payment to be made in respect of the
Deferred Tax Obligations prior to the date that such payment
would otherwise be due.
SECTION 7.11. CAPITAL EXPENDITURES. Make or permit Capital
Expenditures to exceed (a) for the fiscal year ending February 3,
1996, $60,000,000, (b) for the fiscal year ending on February 1,
1997, $43,000,000 and (c) during each fiscal year thereafter,
$38,000,000, PROVIDED that to the extent Capital Expenditures in
any period are less then the amount set forth above for such
period, the amount of such difference, up to a maximum of
$10,000,000, may be carried forward and used to make Capital
Expenditures in the immediately succeeding fiscal year of the
Borrower.
SECTION 7.12. INTEREST EXPENSE AND CONSOLIDATED RENTAL EXPENSE
COVERAGE RATIO. Permit the ratio of (a) EBITDA plus Consolidated
Rental Expense to (b) Interest Expense plus Consolidated Rental
Expense for any period of four consecutive fiscal quarters ending
on the last day of each fiscal quarter ending during any period
indicated below to be less than the ratio set forth opposite such
period.
Period Ratio
------ -----
From July 29, 1995 through 1.6:1
and including October 28,
1995
October 29, 1995 through and 1.7:1
including November 1, 1997
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After November 1, 1997 1.8:1
SECTION 7.13. CONSOLIDATED FIXED CHARGE COVERAGE RATIO.
Permit the Consolidated Fixed Charge Coverage Ratio for any
period of four consecutive fiscal quarters ending on the last day
of each fiscal quarter ending during any period indicated below
to be less than the ratio set forth opposite such period.
Period Ratio
------ -----
On July 29, 1995 1.5:1
From July 30, 1995 through 1.15:1
and including October 28,
1995
From October 29, 1995, 1.35:1
through and including
February 3, 1996
From February 4, 1996, 1.45:1
through and including
May 4, 1996
From May 5, 1996, through 1.5:1
and including August 3,
1996
From August 4, 1996, through 1.75:1
and including May 3, 1997
From May 4, 1997, through 1.9:1
and including August 2,
1997
After August 2, 1997 2.0:1
SECTION 7.14. LEVERAGE RATIO. Permit the Leverage Ratio on
any date to be in excess of (a) in the case of any date during
the period from and including the Closing Date to and including
February 2, 1996, .70, (b) in the case of any date during the
period from and including February 3, 1996, to and including
January 30, 1998, .65 and (c) in the case of any date during the
period after January 30, 1998, .60.
SECTION 7.15. CONSOLIDATED NET WORTH. Permit the
Consolidated Net Worth on any date during any period indicated
below to be less than the amount set forth opposite such period:
Period Consolidated Net Worth
------ ----------------------
From the Closing Date to $260,000,000
and including February 2,
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1996
From February 3, 1996 to $275,000,000
and including November 1,
1996
From November 2, 1996, to $285,000,000
and including January 31,
1997
From February 1, 1997, to $300,000,000
and including January 30 ,
1998
After January 30 , 1998 $320,000,000
SECTION 7.16. LIMITATION ON CONSOLIDATED RENTAL EXPENSE. Permit
Consolidated Rental Expense to exceed (a) during the fiscal year
ending February 3, 1996, $50,000,000, (b) during the fiscal year
ending on February 1, 1997, $52,500,000, (c) during the fiscal
year ending on January 31, 1998, $55,000,000 and (d) during the
period from February 1, 1998, to April 30, 1998, $16,000,000.
SECTION 7.17. CERTAIN DOCUMENTS AND SENIOR NOTES. (a) Permit
any amendment or modification that is adverse in any respect to
the Lenders to (i) the Certificate of Incorporation of the
Borrower or the Parent, (ii) the certificate of designation or
any other documents establishing and setting forth the rights and
terms of the Convertible Preferred Stock, (iii) the By-laws of
the Borrower or the Parent (iv) the Deferred Tax Obligations,
(v) any provisions of the Management Agreements providing for
severance pay, termination pay or other similar supplemental
compensation that results in any material change of such
provisions and (vi) the Sale and Lease-Back Documents. Without
limiting the generality of the foregoing, with respect to the
Deferred Tax Obligations, it is understood that any increase in
the interest, fees or other amounts payable in connection
therewith, or any amendment that imposes additional covenants or
events of default or makes more restrictive the covenants or
events of default contained therein, shall require the consent of
the Required Lenders.
(b) (i) Permit any amendment or modification to the Senior Note
Indenture, the Refinancing Note Indenture, the Senior Notes, the
Refinancing Notes or the Subordinated Guarantees or (ii) deliver
any notice of redemption pursuant to Section 1103 of the Senior
Note Indenture.
(c) Enter into any agreement (or amend any existing agreement)
with any member of the senior management or Board of Directors of
the Parent, the Borrower or any Subsidiary (or any of their
Affiliates) (i) providing for severance, termination or other
similar supplemental compensation or (ii) providing for
management advisory, financial advisory or consulting services to
be provided to the Parent, the Borrower or the Subsidiaries, in
either case other than as provided in Section 7.08.
(d) Subject to Section 7.02, enter into any agreement (or
permit any modification of any existing agreement) that limits
the ability of the Borrower or any Subsidiary to grant the Liens
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contemplated hereby and the Security Documents other than
commercially reasonable negative pledge covenants contained in
leases entered into in the ordinary course of business.
SECTION 7.18. EMPLOYEE BENEFITS. Neither the Borrower nor any
ERISA Affiliate will contribute to, or assume any obligation or
liability with respect to, a Multiemployer Plan.
ARTICLE VIII
EVENTS OF DEFAULT
In case of the happening of any of the following events
( EVENTS OF DEFAULT ):
(a) any representation or warranty made or deemed made
in any Loan Document or the Borrowings hereunder, or any
representation, warranty, statement or information contained in
any report, certificate, financial statement or other
instrument furnished in connection with or pursuant to any Loan
Document, shall prove to have been false or misleading in any
material respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any
principal of any Loan when and as the same shall become due and
payable, whether at the due date thereof or at a date fixed for
prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of (i) any
interest on any Loan or any Fee or (ii) any other amount (other
than an amount referred to in (b) above) due under any Loan
Document, when and as the same shall become due and payable,
and such default shall continue unremedied for a period of five
Business Days or, in the case of amounts specified in
clause (ii) above, five Business Days after receipt of notice
of such default from the Administrative Agent or any Lender to
the Parent or the Borrower, as applicable;
(d) default shall be made in the due observance or
performance by the Parent or the Borrower of any covenant,
condition or agreement contained in Section 6.01(a), 6.04
(other than 6.04(e)), 6.05 or 6.08 or in Article VII;
(e) default shall be made in the delivery of a
Borrowing Base Certificate when due pursuant to Section 6.04(e)
and such default shall continue unremedied for a period of five
Business Days;
(f) default shall be made in the due observance or
performance by the Parent, the Borrower or any of their
respective subsidiaries of any covenant, condition or agreement
contained in any Loan Document (other than those specified in
(b), (c), (d) or (e) above) and such default shall continue
unremedied for a period of 30 days after the earlier to occur
of (i) notice thereof from the Administrative Agent or any
Lender to the Parent or the Borrower, as applicable and
(ii) the Parent's or the Borrower's receipt of actual knowledge
thereof;
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(g) the Parent or any of its Subsidiaries shall
(i) fail to pay any principal or interest, regardless of
amount, due in respect of any Indebtedness in a principal
amount in excess of $2,500,000, when and as the same shall
become due and payable (after giving effect to any grace
periods or notice requirements with respect to such payment),
or (ii) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument
evidencing or governing any such Indebtedness if the effect of
any failure referred to in this clause (ii) is to cause, or to
permit the holder or holders of such Indebtedness or a trustee
on its or their behalf (with or without the giving of notice,
the lapse of time or both) to cause, such Indebtedness to
become due prior to its stated maturity;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Parent or any
of its Subsidiaries, or of a substantial part of the property
or assets of the Parent or any of its Subsidiaries, under
Title 11 of the United States Bankruptcy Code, as now
constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Parent or any of its
Subsidiaries or for a substantial part of the property or
assets of the Parent or any of its Subsidiaries or (iii) the
winding-up or liquidation of the Parent or any of its
Subsidiaries; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(i) the Parent or any of its Subsidiaries shall
(i) voluntarily commence any proceeding or file any petition
seeking relief under Title 11 of the United States Bankruptcy
Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or
the filing of any petition described in (i) above, (iii) apply
for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for
the Parent or any of its Subsidiaries or for a substantial part
of the property or assets of the Parent or any of its
Subsidiaries, (iv) file an answer admitting the material
allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability
or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(j) one or more judgments for the payment of money in
an aggregate amount that is not covered by insurance in excess
of $2,500,000 shall be rendered against the Parent or any of
its Subsidiaries or any combination thereof and the same shall
remain undischarged for a period of 60 consecutive days during
which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to levy upon any
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material assets or properties of the Parent or any of its
Subsidiaries to enforce any such judgment;
(k) a Reportable Event or Reportable Events, or a
failure to make a required installment or other payment (within
the meaning of Section 412(n)(l) of the Code), shall have
occurred with respect to any Plan or Plans that reasonably
could be expected to result in liability of the Borrower to the
PBGC or to a Plan in an aggregate amount exceeding $5,000,000
and, within 30 days after the reporting of any such Reportable
Event to the Administrative Agent or after the receipt by the
Administrative Agent of the statement required pursuant to
Section 6.06, the Administrative Agent shall have notified the
Borrower in writing that (i) the Required Lenders have made a
determination that, on the basis of such Reportable Event or
Reportable Events or the failure to make a required payment,
there are reasonable grounds (A) for the termination of such
Plan or Plans by the PBGC, (B) for the appointment by the
appropriate United States district court of a trustee to
administer such Plan or Plans or (C) for the imposition of a
lien in favor of a Plan and (ii) as a result thereof an Event
of Default exists hereunder; or a trustee shall be appointed by
a United States district court to administer any such Plan or
Plans; or the PBGC shall institute proceedings to (including
giving notice of intent thereof) to terminate any Plan or
Plans;
(l) there shall have occurred a Change in Control;
(m) the security interests purported to be created by
the Security Documents shall cease to be, or shall be asserted
by the Parent or any of its Subsidiaries not to be, a valid,
perfected, first priority security interest in the collateral
covered thereby, subordinate to no other Lien except for Liens
permitted by Section 7.02, except to the extent that any such
loss of perfection or priority results from the failure of the
Collateral Agent to maintain possession of certificates
representing securities pledged under the Pledge Agreement;
(n) the Guarantee Agreement shall cease to be, or shall
be asserted by any Subsidiary Guarantor not to be, in full
force and effect and enforceable in accordance with its terms
or the Parent shall contest or deny in writing the validity or
enforceability of any of its obligations pursuant to Article IX
hereunder (in any case other than to the extent that
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought in
a proceeding in equity or at law));
(o) any other Loan Document shall cease to be, or shall
be asserted by the Parent or any of its Subsidiaries not to be,
in full force and effect and enforceable in accordance with its
terms (in any case other than to the extent that enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought in a
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proceeding in equity or at law)); or
(p) the obligations of the Borrower under this
Agreement shall cease to constitute, or shall be asserted by
the Parent or the Borrower not to constitute, senior
indebtedness under the subordination provisions of the
Subordinated Guarantees or such subordination provisions shall
be invalidated or otherwise cease to be a legal, valid and
binding obligation of the parties thereto, enforceable in
accordance with their terms (in any case other than to the
extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally
and by general equitable principles (whether enforcement is
sought in a proceeding in equity or at law));
then, and in every such event (other than an event with respect
to the Borrower or the Parent described in paragraph (h) or (i)
above), and at any time thereafter during the continuance of such
event, the Administrative Agent may, and at the request of the
Required Lenders shall, by notice to the Borrower and the Parent,
take any or all of the following actions, at the same or
different times: (i) terminate forthwith the Commitments and the
LC Commitment, (ii) declare the Loans then outstanding to be
forthwith due and payable in whole or in part, whereupon the
principal of the Loans so declared to be due and payable,
together with accrued interest thereon and any unpaid accrued
Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall become forthwith due and
payable, without presentment, demand, protest or any other notice
of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein or in any other Loan Document
to the contrary notwithstanding, (iii) require cash collateral as
contemplated by Section 3.06 and (iv) exercise any remedies
available under any Loan Document or otherwise; and in any event
with respect to the Borrower described in paragraph (h) or (i)
above, the Commitments and the LC Commitment shall automatically
terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and any unpaid accrued
Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall automatically become due
and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by
the Borrower, anything contained herein or in any other Loan
Document to the contrary notwithstanding.
ARTICLE IX
GUARANTEE
SECTION 9.01. GUARANTEE. The Parent unconditionally and
irrevocably guarantees, as a primary obligor and not merely as a
surety, (a) the due and punctual payment of (i) the principal of
and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership
or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Loans, when and as due,
whether at maturity, by acceleration, upon one or more dates set
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for prepayment or otherwise, (ii) each payment required to be
made by the Borrower under this Agreement in respect of any
Letter of Credit, when and as due, including payments in respect
of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other
monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent,
fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership
or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Borrower to the Lenders
under this Agreement and the other Loan Documents to which it is
or is to be a party, (b) the due and punctual performance of all
covenants, agreements, obligations and liabilities of the
Borrower under or pursuant to this Agreement and the other Loan
Documents and (c) unless otherwise agreed upon in writing by the
applicable Lender, all obligations of the Borrower, monetary or
otherwise, under each Rate Protection Agreement entered into with
any Lender (all the obligations referred to in this clause (c)
and in the preceding clauses (a) and (b) being collectively
called the GUARANTEED OBLIGATIONS ). The Parent further agrees
that the Guaranteed Obligations may be extended or renewed, in
whole or in part, without notice to or further assent from it,
and that it will remain bound upon its guarantee notwithstanding
any extension or renewal of any Guaranteed Obligation.
SECTION 9.02. OBLIGATIONS NOT WAIVED. To the fullest extent
permitted by law, the Parent waives presentment to, demand of
payment from and protest to the Borrower of any of the Guaranteed
Obligations, and also waives notice of acceptance of its
guarantee and notice of protest for nonpayment. To the fullest
extent permitted by law, the obligations of the Parent hereunder
shall not be affected by (a) the failure of any Lender or the
Fronting Bank to assert any claim or demand or to enforce any
right or remedy against the Borrower or any Subsidiary Guarantor
under the provisions of this Agreement, any Loan Document or
otherwise; (b) any rescission, waiver, amendment or modification
of, or any release from, any of the terms or provisions of this
Agreement, any Loan Document, any guarantee or any other
agreement; (c) the release of any security held by the Collateral
Agent or any Secured Party for the Guaranteed Obligations; or (d)
the failure of any Lender or the Fronting Bank to exercise any
right or remedy against any Subsidiary Guarantor or any other
guarantor of the Guaranteed Obligations.
SECTION 9.03. SECURITY. The Parent authorizes the
Administrative Agent, the Fronting Bank and each of the other
Lenders, in accordance with the terms and subject to the
conditions set forth in the Security Documents and any document
relating thereto to which the Parent is a party, to (a) take and
hold security granted by the Borrower, if any, for the payment of
this guarantee or the Guaranteed Obligations and exchange,
enforce, waive and release any such security, (b) apply such
security and direct the order or manner of sale thereof as they
in their sole discretion may determine and (c) release or
substitute any one or more endorsees, other guarantors or other
obligors.
SECTION 9.04. GUARANTEE OF PAYMENT. The Parent further agrees
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that its guarantee constitutes a guarantee of payment when due
and not of collection, and waives any right to require that any
resort be had by the Administrative Agent, the Fronting Bank or
any Lender to any security, if any, held for payment of the
Guaranteed Obligations or to any balance of any deposit account
or credit on its books, in favor of the Borrower or any other
person.
SECTION 9.05. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE. The
obligations of the Parent hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of
the invalidity, illegality or unenforceability of the Guaranteed
Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of the Parent hereunder shall not be
discharged or impaired or otherwise affected by the failure of
the Administrative Agent, the Fronting Bank or any Lender to
assert any claim or demand or to enforce any remedy under this
Agreement, any Loan Document, any other guarantee or any other
agreement, by any waiver or modification of any provision of any
thereof, by any default, failure or delay, wilful or otherwise,
in the performance of the Guaranteed Obligations, or by any other
act or omission that may or might in any manner or to any extent
vary the risk of the Parent or otherwise operate as a discharge
of the Parent as a matter of law or equity.
SECTION 9.06. OTHER DEFENSES OF THE PARENT WAIVED. To the
extent permitted by applicable law, the Parent waives any defense
based on or arising out of any defense of the Borrower, including
any defense based on or arising out of any disability of the
Borrower, or the unenforceability of the Guaranteed Obligations
or any part thereof from any cause, or the cessation from any
cause of the liability of the Borrower, other than to the extent
that final and indefeasible payment in cash of the Guaranteed
Obligations has been made. The Administrative Agent, the Fronting
Bank and the Lenders may, at their election, in accordance with
the terms and subject to the conditions of the Security
Documents, foreclose on any security held by one or more of them
by one or more judicial or nonjudicial sales, or exercise any
other right or remedy available to them against the Borrower, or
any security, without affecting or impairing in any way the
liability of the Borrower hereunder except to the extent the
Guaranteed Obligations have been fully, finally and indefeasibly
paid. The Parent waives any defense arising out of any such
election even though such election operates to impair or to
extinguish any right of reimbursement or subrogation or other
right or remedy of the Parent against the Borrower, as the case
may be, or any security.
SECTION 9.07. FURTHER EFFECTIVENESS. The Parent further agrees
that its guarantee hereunder shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Guaranteed
Obligation is rescinded or must otherwise be restored by any
Lender upon the bankruptcy or reorganization of the Borrower or
otherwise.
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SECTION 9.08. PAYMENT. In furtherance of the foregoing and not
in limitation of any other right that the Administrative Agent,
the Fronting Bank or any Lender has at law or in equity against
the Parent by virtue hereof, upon failure of the Borrower to pay
any Guaranteed Obligation when and as the same shall become due,
whether at maturity, by acceleration, after notice of prepayment
or otherwise, the Parent hereby promises to and will, upon
receipt of written demand by the Administrative Agent, the
Fronting Bank or any Lender, forthwith pay, or cause to be paid,
to the Administrative Agent, the Fronting Bank or such Lender in
cash the amount of such unpaid Guaranteed Obligation.
ARTICLE X
THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT AND THE FRONTING
BANK
In order to expedite the transactions contemplated by this
Agreement, Chemical Bank is hereby appointed to act as
Administrative Agent and Collateral Agent on behalf of the
Lenders and the Fronting Bank. Each of the Lenders, the Fronting
Bank and each subsequent holder of any Loan by its acceptance
thereof, hereby irrevocably authorizes the Administrative Agent
and the Collateral Agent to take such actions on their behalf and
to exercise such powers as are specifically delegated to the
Administrative Agent and the Collateral Agent by the terms and
provisions hereof and of the other Loan Documents, together with
such actions and powers as are reasonably incidental thereto. The
Administrative Agent is hereby expressly authorized by the
Fronting Bank and the Lenders, without hereby limiting any
implied authority, (a) to receive on behalf of the Fronting Bank
and the Lenders all payments of principal of and interest on the
Loans, all payments in respect of LC Disbursements and all other
amounts due to the Lenders hereunder, and promptly to distribute
to each Lender and the Fronting Bank its proper share of each
payment so received; (b) to give notice on behalf of each of the
Lenders to the Borrower of any Event of Default specified in this
Agreement of which the Administrative Agent has actual knowledge
acquired in connection with its agency hereunder; and (c) to
promptly distribute to each Lender and the Fronting Bank copies
of all notices, financial statements and other materials
delivered by the Borrower pursuant to this Agreement as received
by the Administrative Agent. Without limiting the generality of
the foregoing, the Administrative Agent and the Collateral Agent
are hereby expressly authorized to execute any and all documents
(including releases) with respect to the Collateral and the
rights of the Secured Parties with respect thereto, as
contemplated by and in accordance with the provisions of this
Agreement and the Security Documents.
Neither the Administrative Agent nor the Collateral Agent, nor
the Fronting Bank nor any of their respective directors,
officers, employees or agents shall be liable as such for any
action taken or omitted by any of them except for its, his or her
own gross negligence or wilful misconduct, or be responsible for
any statement, warranty or representation herein or the contents
of any document delivered in connection herewith, or be required
to ascertain or to make any inquiry concerning the performance or
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observance by the Borrower or the Parent of any of the terms,
conditions, covenants or agreements contained in any Loan
Document. Neither the Administrative Agent nor the Collateral
Agent shall be responsible to the Lenders or the holders of the
Loans or the Fronting Bank for the due execution, genuineness,
validity, enforceability or effectiveness of this Agreement, or
any other Loan Documents or other instruments or agreements. The
Administrative Agent and the Collateral Agent may deem and treat
the holders of any Loan as the owner thereof for all purposes
hereof until it shall have received from the holder of such Loan
notice, given as provided herein, of the transfer thereof in
compliance with Section 11.04. The Administrative Agent and the
Collateral Agent shall in all cases be fully protected in acting,
or refraining from acting, in accordance with written
instructions signed by the Required Lenders (and the Fronting
Bank, with respect to Letters of Credit) and, except as otherwise
specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders and
each subsequent holder of any Loan and the Fronting Bank. The
Administrative Agent and the Collateral Agent shall, in the
absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine
and correct and to have been signed or sent by the proper person
or persons. None of the Administrative Agent, the Collateral
Agent, the Fronting Bank or any of their respective directors,
officers, employees or agents shall have any responsibility to
the Borrower on account of the failure of or delay in performance
or breach by any Lender (or, in the case of the Administrative
Agent and the Collateral Agent, by the Fronting Bank) of any of
its obligations hereunder or to any Lender (or, in the case of
the Administrative Agent and the Collateral Agent, to the
Fronting Bank) on account of the failure of or delay in
performance or breach by any other Lender (or, in the case of the
Administrative Agent and the Collateral Agent by the Fronting
Bank) or the Borrower or the Parent of any of their respective
obligations hereunder or under any other Loan Document or in
connection herewith or therewith. The Administrative Agent and
the Collateral Agent may execute any and all duties hereunder by
or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all
matters arising hereunder and shall not be liable for any action
taken or suffered in good faith by it in accordance with the
advice of such counsel.
The Lenders and the Fronting Bank hereby acknowledge that the
neither Administrative Agent nor the Collateral Agent shall be
under any duty to take any discretionary action permitted to be
taken by it pursuant to the provisions of this Agreement unless
it shall be requested in writing to do so by the Required
Lenders.
Subject to the appointment and acceptance of a successor
Administrative Agent or Collateral Agent as provided below, the
Administrative Agent or the Collateral Agent, as the case may be,
may resign at any time by notifying the Lenders, the Fronting
Bank and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor. If no
successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the
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retiring Administrative Agent or Collateral Agent, as the case
may be, gives notice of its resignation, then the retiring
Administrative Agent or Collateral Agent may, on behalf of the
Lenders and the Fronting Bank, appoint a successor Administrative
Agent or Collateral Agent, as the case may be, which shall be a
bank with an office in New York, New York, having a combined
capital and surplus of at least $500,000,000 or an Affiliate of
any such bank. Upon the acceptance of any appointment as
Administrative Agent or Collateral Agent hereunder by a successor
bank, such successor shall succeed to and become vested with all
the rights, powers, privileges and duties of the retiring
Administrative Agent or Collateral Agent, as the case may be, and
the retiring Administrative Agent or Collateral Agent, as the
case may be, shall be discharged from its duties and obligations
hereunder. After the Administrative Agent's or the Collateral
Agent's resignation hereunder, the provisions of this Article and
Section 11.05 shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was
acting as Administrative Agent or the Collateral Agent, as
applicable.
With respect to the Loans made by it hereunder, the
Administrative Agent, the Collateral Agent and the Fronting Bank
each in its individual capacity and not as Administrative Agent,
Collateral Agent or Fronting Bank, as the case may be shall have
the same rights and powers as any other Lender and may exercise
the same as though it were not the Administrative Agent, the
Collateral Agent or the Fronting Bank, as the case may be, and
each of the Administrative Agent, the Collateral Agent and their
Affiliates and the Fronting Bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of
business with the Borrower or any of its Subsidiaries or other
Affiliates as if it were not the Administrative Agent or the
Fronting Bank, as the case may be.
Each Lender and the Fronting Bank recognizes that applicable
laws, rules, regulations or guidelines of Governmental
Authorities may require the Administrative Agent to determine
whether the transactions contemplated hereby should be classified
as highly leveraged or assigned any similar or successor
classification, and that such determination may be binding upon
the other Lenders and the Fronting Bank. Each Lender and the
Fronting Bank understands that any such determination shall be
made solely by the Administrative Agent based upon such factors
(which may include the Administrative Agent's internal policies
and prevailing market practices) as the Administrative Agent
shall deem relevant and agrees that the Administrative Agent
shall have no liability for the consequences of any such
determination.
Each Lender agrees (a) to reimburse the Administrative Agent,
the Collateral Agent and the Fronting Bank, on demand, in the
amount of its pro rata share (based on its Commitment hereunder)
of any expenses incurred for the benefit of the Lenders by the
Administrative Agent, the Collateral Agent or the Fronting Bank,
including counsel fees and compensation of agents and employees
paid for services rendered on behalf of the Lenders, that the
Borrower is required to reimburse but has not reimbursed and (b)
to indemnify and hold harmless the Administrative Agent, the
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Collateral Agent and the Fronting Bank and any of their
respective directors, officers, employees or agents, on demand,
in the amount of such pro rata share, from and against any and
all liabilities, taxes, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever that imposed on, incurred by or
asserted against it in its capacity as the Administrative Agent,
the Collateral Agent or the Fronting Bank, as the case may be,
any of them in any way relating to or arising out of this
Agreement or any other Loan Document or any action taken or
omitted by it or any of them under this Agreement or any other
Loan Document, to the extent the Borrower is required to
reimburse the same but has not done so; provided that no Lender
shall be liable to the Administrative Agent, the Collateral Agent
or the Fronting Bank for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross
negligence or wilful misconduct of the Administrative Agent, the
Collateral Agent or the Fronting Bank or any of their respective
directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent and the Collateral Agent,
any other Lender or the Fronting Bank and based on such documents
and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without
reliance upon the Administrative Agent or the Collateral Agent,
any other Lender or the Fronting Bank and based on such documents
and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document,
any related agreement or any document furnished hereunder or
thereunder.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. NOTICES. Notices and other communications
provided for herein (including notices of new address or other
delivery information as set forth in this Section 11.01) shall be
in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by
telecopy as follows:
(a) if to the Borrower, to it at 15 Dan Road, Canton,
Massachusetts 02021-2847, Attention of Vice President-Treasurer
(Telecopy No. (617) 821-6966);
(b) if to the Parent, to it at 15 Dan Road, Canton,
Massachusetts 02021-2847, Attention of Vice President,
Secretary and Corporate Counsel (Telecopy No. (617) 821-6966);
(c) if to the Administrative Agent, the Collateral
Agent or to Chemical Bank, as Fronting Bank, to Chemical Bank
Agency Services Corporation, Grand Central Tower, 140 East 45th
Street, New York, New York 10017, Attention of Sandra Miklave
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(Telecopy No. (212) 622-0002), with a copy to Chemical Bank, at
270 Park Avenue, 9th Floor, New York, New York 10017, Attention
of Neil Boylan, Vice President (Telecopy No. (212) 270-2625);
and
(d) if to a Lender, to it at its address (or telecopy
number) set forth in Schedule 2.01 or in the Assignment and
Acceptance pursuant to which such Lender shall have become a
party hereto.
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed
to have been given on the date of receipt if delivered by hand or
overnight courier service or, except in the case of (i) notice to
the Borrower of any Event of Default or (ii) service of process
pursuant to Section 11.15, sent by telecopy (receipt of which
shall have been confirmed by telephone) or on the date five
Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 11.01 or in
accordance with the latest unrevoked direction from such party
given in accordance with this Section 11.01.
SECTION 11.02. SURVIVAL OF AGREEMENT. All covenants,
agreements, representations and warranties made by the Borrower
or the Parent herein and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this
Agreement or any other Loan Document shall be considered to have
been relied upon by the Administrative Agent, the Lenders and the
Fronting Bank and shall survive the making by the Lenders of the
Loans and the issuance by the Fronting Bank of the Letters of
Credit, regardless of any investigation made by the Lenders or
the Fronting Bank or on any of their behalf, and shall continue
in full force and effect as long as the principal of or any
accrued interest on any Loan or any Fee or any other amount
payable under this Agreement or any other Loan Document is
outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments or the LC Commitment have not been
terminated.
SECTION 11.03. BINDING EFFECT. This Agreement shall become
effective when it shall have been executed by the Borrower, the
Parent, the Administrative Agent and the Fronting Bank and when
the Administrative Agent shall have received copies hereof that,
when taken together, bear the signatures of each Lender, and
thereafter shall be binding upon and inure to the benefit of the
Borrower, the Parent, the Administrative Agent, the Fronting Bank
and each Lender and their respective successors and assigns,
except that neither the Borrower nor the Parent shall have the
right to assign its rights hereunder or any interest herein
without the prior consent of all the Lenders.
SECTION 11.04. SUCCESSORS AND ASSIGNS. (a) Whenever in this
Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and permitted
assigns of such party; and all covenants, promises and agreements
by or on behalf of the Borrower, the Parent, the Administrative
Agent, the Fronting Bank or the Lenders that are contained in
this Agreement shall bind and inure to the benefit of their
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respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this
Agreement (including all or a portion of its Commitment and the
Loans at the time owing to it); PROVIDED, HOWEVER, that (i)
except in the case of (A) an assignment by a Lender to a Lender
or an Affiliate of such Lender or (B) an assignment at the
request of any Governmental Authority having jurisdiction over
such Lender, the Borrower, the Administrative Agent and the
Fronting Bank must each give their prior written consent to such
assignment (which consent shall not be unreasonably withheld, it
being understood that it would be reasonable for the Borrower to
withhold such consent in the case of any assignment that would
have the result of materially increasing the costs to the
Borrower), (ii) each such assignment shall be of a constant, and
not a varying, percentage of all the assigning Lender's rights
and obligations under this Agreement, (iii) the amount of the
Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 (or the
Commitment of the assigning Lender immediately prior to the
assignment, if such Commitment is less than $5,000,000), (iv) the
parties to each such assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, and a
processing and recordation fee of $3,000 and (v) the assignee, if
it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to paragraph (e) of this Section 11.04, from
and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business
Days after the execution thereof, (A) the assignee thereunder
shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and (B) the
assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.13, 2.15,
2.17 and 11.05, as well as to any Fees accrued for its account
and not yet paid); PROVIDED, HOWEVER, that such Lender shall not
be released from any action that the Parent or the Borrower may
have against such Lender for breach of such Lender's obligations
under this Agreement.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall
be deemed to confirm to and agree with each other and the other
parties hereto as follows: (i) such assigning Lender warrants
that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim and that its
Commitment and the outstanding balances of its Loans, in each
case without giving effect to assignments thereof that have not
become effective, are as set forth in such Assignment and
Acceptance, (ii) except as set forth in (i) above, such assigning
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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
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Loan Document
or any other instrument or document furnished pursuant hereto, or
the financial condition of the Parent, the Borrower or any of its
Subsidiaries or the performance or observance by the Parent, the
Borrower or any of its Subsidiaries of any of its obligations
under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such
assignee represents and warrants that it is legally authorized to
enter into such Assignment and Acceptance; (iv) such assignee
confirms that it has received a copy of this Agreement, together
with copies of the most recent financial statements delivered
pursuant to Section 6.04 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; (v) 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;
(vi) such assignee appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement 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
terms all the obligations that by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its
offices in The City of New York a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitment and
the LC Commitment of, and principal amount of the Loans owing to,
each Lender pursuant to the terms hereof from time to time (the
REGISTER ). The entries in the Register shall be conclusive in
the absence of manifest error and the Borrower, the Parent, the
Administrative Agent, the Fronting Bank and the Lenders may treat
each person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the
Borrower, the Parent, the Fronting Bank and any Lender, at any
reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, an
Administrative Questionnaire completed in respect of the assignee
(unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) above
and, if required, the written consent of the Borrower and the
Administrative Agent to such assignment, the Administrative Agent
shall (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give
prompt notice thereof to the Lenders and the Fronting Bank.
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(f) Each Lender may without the consent of the Borrower or the
Administrative Agent sell participations to one or more banks or
other entities in all or a portion of its rights and obligations
under this Agreement (including all or a portion of its
Commitment and the Loans owing to it; PROVIDED, HOWEVER, that (i)
such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations,
(iii) the participating banks or other entities shall be entitled
to the benefit of the cost protection provisions contained in
Sections 2.11, 2.13 and 2.17 to the same extent as if they were
Lenders; PROVIDED FURTHER, HOWEVER, that this clause (iii) shall
not apply to the extent that the cost protection any
participating bank would be entitled to receive (without regard
to this clause (iii)) exceeds the cost protection payments that
the person making the participation to such participating bank
would have been entitled to receive in the absence of such
participation and (iv) the Borrower, the Parent, the
Administrative Agent, the Fronting Bank 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 such Lender shall retain the sole right to enforce
the obligations of the Borrower and the Parent relating to the
Loans and the LC Disbursements and to approve any amendment,
modification or waiver of any provision of this Agreement (other
than amendments, modifications or waivers decreasing any fees
payable hereunder or the amount of principal of or the rate at
which interest is payable on the Loans, extending the final
maturity date or date fixed for the payment of interest on the
Loans or changing or extending the Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participa-
tion pursuant to this Section 11.04, disclose to the assignee or
participant or proposed assignee or participant any information
relating to the Borrower and the Parent furnished to such Lender
by or on behalf of the Borrower and the Parent, PROVIDED that any
such disclosure of information designated by the Borrower or the
Parent as confidential, each such assignee or participant or
proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (on terms
substantially similar to those contained in Section 11.16) to
preserve the confidentiality of such confidential information.
(h) Any Lender may at any time assign all or any portion of its
rights under this Agreement to a Federal Reserve Bank, PROVIDED
that no such assignment shall release a Lender from any of its
obligations hereunder.
SECTION 11.05. EXPENSES; INDEMNITY. (a) The Borrower agrees to
pay all reasonable out-of-pocket expenses incurred by the
Administrative Agent, the Fronting Bank and the Collateral Agent
in connection with the preparation of this Agreement and the
other Loan Documents or in connection with any amendments,
modifications or waivers of the provisions hereof or thereof
(whether or not the transactions hereby contemplated shall be
consummated) or incurred by the Administrative Agent, the
Fronting Bank, the Collateral Agent or any Lender in connection
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<PAGE> 78
with the enforcement or protection of their rights in connection
with this Agreement and the other Loan Documents or in connection
with the Loans made hereunder, including the fees, other charges
and disbursements of Cravath, Swaine & Moore, counsel for the
Administrative Agent, the Collateral Agent and the Fronting Bank,
and, in connection with any such enforcement or protection, the
fees, charges and disbursements of any other counsel for the
Administrative Agent, the Fronting Bank, the Collateral Agent or
any Lender. The Borrower further agrees that it shall
(i) indemnify the Lenders, the Fronting Bank and the Collateral
Agent from and hold them harmless against any documentary taxes,
assessments or charges made by any Governmental Authority by
reason of the execution and delivery of this Agreement or any of
the other Loan Documents and (ii) reimburse the Administrative
Agent for any reasonable out-of-pocket expenses incurred by it in
connection with, and on a fully allocated basis for its
reasonable internal costs in connection with, auditing any
Borrowing Base Certificate.
(b) Each of the Borrower and the Parent agrees to indemnify the
Administrative Agent, each Lender, the Fronting Bank and the
Collateral Agent and each of their respective directors,
officers, employees and agents (each such person being called an
INDEMNITEE ) against, and to hold each Indemnitee harmless from,
any and all losses, claims, demands, damages, penalties, fines,
liabilities, settlements, costs and related expenses, including
reasonable counsel fees, charges and disbursements, incurred by
or asserted against any Indemnitee arising out of, in any way
connected with, or as a result of (i) any claim, litigation,
investigation or proceeding relating to the execution or delivery
of this Agreement or any other Loan Document or any agreement or
instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder, the
consummation of the Transactions and the other transactions
contemplated thereby, or the use of the Letters of Credit or the
proceeds of the Loans, whether or not any Indemnitee is a party
thereto, or (ii) the violation of, noncompliance with or
liability under any Environmental and Safety Laws applicable to
the operations of the Parent and its Subsidiaries, or any orders,
requirements or demands of Governmental Authorities related
thereto (including, without limitation, attorneys' and
consultants' fees, investigation and laboratory fees, response
costs, court costs and litigation expenses relating thereto),
PROVIDED that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, demands,
damages, penalties, fines, liabilities, settlements, costs or
related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted
from the gross negligence or wilful misconduct of such
Indemnitee.
(c) The provisions of this Section 11.05 shall remain operative
and in full force and effect regardless of the expiration of the
term of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Loans, the
invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made
by or on behalf of the Administrative Agent, the Fronting Bank,
the Collateral Agent or any Lender. All amounts due under this
77
<PAGE> 79
Section 11.05 shall be payable on written demand therefor.
SECTION 11.06. RIGHT OF SETOFF. If an Event of Default shall
have occurred and be continuing, 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 the Borrower against any
of and all the obligations of the Borrower now or hereafter
existing under this Agreement and other Loan Documents held by
such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The
rights of each Lender under this Section 11.06 are in addition to
other rights and remedies (including other rights of setoff) that
such Lender may have.
SECTION 11.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 11.08. WAIVERS; AMENDMENT. (a) No failure or delay of
the Administrative Agent, the Fronting Bank, the Collateral Agent
or any Lender in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of
any other right or power. The rights and remedies of the
Administrative Agent, the Fronting Bank, the Collateral Agent and
the Lenders hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure
by the Borrower or the Parent therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No
notice or demand on the Borrower or the Parent in any case shall
entitle the Borrower or the Parent to any other or further notice
or demand in similar or other circumstances.
(b) Neither this Agreement nor any of the other Loan Documents
nor any provision hereof or thereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing
entered into by the Borrower, the Parent and the Required
Lenders, or in the case of the Pledge Agreement, the Security
Agreement or any Mortgage, pursuant to an agreement or agreements
in writing entered into by the Borrower, the Parent and the
Collateral Agent and consented to by the Required Lenders;
PROVIDED, HOWEVER, that no such agreement shall (i) decrease the
principal amount of, or extend the Maturity Date or date for the
payment of any interest on any Loan, or waive or excuse any such
payment or any part thereof, or decrease the rate of interest on
any Loan, without the prior written consent of each holder of a
Loan affected thereby, (ii) change or extend the Commitment or
decrease the rate of Commitment Fees or LC Fees of any Lender
without the prior written consent of such Lender, (iii) amend or
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<PAGE> 80
modify the provisions of Section 2.14, the provisions of
Section 11.03, the provisions of this Section 11.08 or the
definition of Required Lenders , without the prior written
consent of each Lender, (iv) release the Parent from its
guarantee hereunder without the prior written consent of each
Lender, (v) release any Collateral under the Pledge Agreement,
the Security Agreement or any Mortgage or release any Subsidiary
Guarantor from the Guarantee Agreement without the prior written
consent of each Lender other than as expressly permitted there-
under or (vi) amend or modify the definition of the term "Book
Value", "Borrowing Base", "Effective Advance Rate", "Eligible
Inventory", "Inventory" or "Purchase Accrual Inventory", in each
case without the prior written consent of Lenders holding Loans
representing more than 66-2/3% of the aggregate principal amount
of the Loans then outstanding or, if no Loans are outstanding,
Lenders having Commitments representing more than 66-2/3% of the
aggregate Commitments; PROVIDED FURTHER that no such agreement
shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent hereunder without the prior written
consent of the Administrative Agent. Each Lender shall be bound
by any waiver, amendment or modification authorized by this
Section 11.08, and any consent by any Lender pursuant to this
Section 11.08 shall bind any person subsequently acquiring a Loan
from it.
SECTION 11.09. INTEREST RATE LIMITATION. Notwithstanding
anything herein to the contrary, if at any time the applicable
interest rate, together with all fees and charges that are
treated as interest under applicable law (collectively the
CHARGES ), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Lender, shall exceed
the maximum lawful rate (the MAXIMUM RATE ) that may be
contracted for, charged, taken, received or reserved by such
Lender in accordance with applicable law, the rate of interest
payable to such Lender, together with all Charges payable to such
Lender, shall be limited to the Maximum Rate.
SECTION 11.10. ENTIRE AGREEMENT. This Agreement and the other
Loan Documents constitute the entire contract between the parties
relative to the subject matter hereof. Any previous agreement
among the parties with respect to the subject matter hereof is
superseded by this Agreement and the other Loan Documents.
Nothing in this Agreement or in the other Loan Documents,
expressed or implied, is intended to confer upon any party other
than the parties hereto and thereto any rights, remedies,
obligations or liabilities under or by reason of this Agreement
or the other Loan Documents.
SECTION 11.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
79
<PAGE> 81
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.11.
SECTION 11.12. SEVERABILITY. In the event any one or more of
the provisions contained in this Agreement or in any other Loan
Document should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in
any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the
economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 11.13. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall constitute an
original but all of which when taken together shall constitute
but one contract, and shall become effective as provided in
Section 11.03.
SECTION 11.14. HEADINGS. Article and Section headings and the
Table of Contents used herein are for convenience of reference
only, are not part of this Agreement and are not to affect the
construction of, or to be taken into consideration in
interpreting, this Agreement.
SECTION 11.15. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a)
Each of the Borrower, the Parent, the Administrative Agent, the
Fronting Bank and each Lender hereby irrevocably and
unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal
court of the United States of America sitting in New York City,
and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the
other Loan Documents, or for recognition or enforcement of any
judgment arising therefrom, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in
such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement
shall affect any right that any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or the
other Loan Documents against the Borrower, the Parent or their
respective properties in the courts of any jurisdiction.
(b) Each of the Borrower, the Parent, the Administrative Agent,
the Fronting Bank and each Lender hereby irrevocably and uncondi-
tionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents in any New York State court or Federal court of the
United States of America sitting in New York. Each of the parties
80
<PAGE> 82
hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in
Section 11.01. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner
permitted by law.
SECTION 11.16. CONFIDENTIALITY. Except as otherwise provided in
Section 11.04(g), each of the Agent, the Fronting Bank and each
of the Lenders agrees (a) to keep confidential, (b) to cause its
respective officers, directors and employees to keep confidential
and (c) to use its reasonable efforts to cause its respective
agents and representatives to keep confidential, the Information
and all copies thereof, extracts therefrom and analyses or other
materials based thereon, except that the Agent, the Fronting Bank
or any Lender shall be permitted to disclose Information (i) to
such of its respective officers, directors, employees, agents and
representatives as need to know such Information, (ii) to the
extent requested by any bank regulatory authority or rating
agency, (iii) to the extent otherwise required by applicable laws
and regulations or by any subpoena or similar legal process or
(iv) to the extent such Information (A) becomes publicly
available other than as a result of a breach of this Agreement or
(B) becomes available to the Agent, the Fronting Bank or any
Lender on a non-confidential basis from a source other than the
Borrower or the Parent. For the purposes of this Section 11.16,
INFORMATION shall mean all financial statements, certificates,
reports, agreements and information (including all analyses,
compilations and studies prepared by the Agent, the Fronting Bank
or any Lender based on any of the foregoing) that are received
from the Borrower or the Parent and relate to the Borrower or the
Parent, any shareholder of the Borrower or the Parent or any
employee, customer or supplier of the Borrower or the Parent,
other than any of the foregoing that were available to the Agent,
the Fronting Bank or any Lender on a nonconfidential basis prior
to its disclosure thereto by the Borrower or the Parent, and
which are, in the case of Information provided after the date
hereof, clearly identified at the time of delivery as
confidential. The provisions of this Section 11.16 shall remain
operative and in full force and effect regardless of the
expiration and term of this Agreement.
SECTION 11.17. MORTGAGED PROPERTY CASUALTY AND
CONDEMNATION. (a) Notwithstanding any other provision of this
Agreement or the Security Documents, the Collateral Agent is
authorized, at its option (for the benefit of the Secured
Parties), to collect and receive, to the extent payable to the
Borrower, all insurance proceeds, damages, claims and rights of
action and the right thereto under any insurance policies with
respect to any casualty or other insured damage ( CASUALTY ) to
any portion of any Mortgaged Property (collectively, INSURANCE
PROCEEDS ), unless the amount of the related Insurance Proceeds
is less than $1,000,000 and an Event of Default shall not have
occurred and be continuing. The Borrower agrees to notify the
Collateral Agent and the Administrative Agent, in writing,
promptly after the Borrower obtains notice or knowledge of any
81
<PAGE> 83
Casualty to a Mortgaged Property, which notice shall set forth a
description of such Casualty and the Borrower's good faith
estimate of the amount of related damages. If the Borrower shall
receive any Insurance Proceeds, the Borrower agrees, subject to
the foregoing limitations, to endorse and transfer any Insurance
Proceeds it receives to the Collateral Agent.
(b) The Borrower will notify the Collateral Agent and the
Administrative Agent immediately upon obtaining knowledge of the
institution of any action or proceeding for the taking of any
Mortgaged Property, or any part thereof or interest therein, for
public or quasi-public use under the power of eminent domain, by
reason of any public improvement or condemnation proceeding, or
in any other manner (a CONDEMNATION ). No settlement or
compromise of any claim in connection with any such action or
proceeding shall be made without the consent of the Collateral
Agent, which consent shall not be unreasonably withheld. The
Collateral Agent is authorized, at its option (for the benefit of
the Secured Parties), to collect and receive all proceeds of any
such Condemnation (in each case, the CONDEMNATION PROCEEDS ),
unless the amount of such Condemnation Proceeds is less than
$1.000,000 and an Event of Default shall not have occurred and be
continuing. The Borrower agrees to execute such further
assignments of any Condemnation Proceeds as the Collateral Agent
may reasonably require.
(c) In the event of a Condemnation of all or substantially
all of any Mortgaged Property (which determination shall be made
by the Collateral Agent in its reasonable discretion), unless the
Borrower shall have notified the Collateral Agent in writing
promptly after such Condemnation that it intends to replace the
related Mortgaged Property (and no Default or Event of Default
shall have occurred and be continuing at the time of such
election), the Collateral Agent may apply the Condemnation
Proceeds received as a result of such Condemnation (less the
reasonable costs, if any, incurred by the Collateral Agent or the
Borrower in the recovery of such Condemnation Proceeds, including
reasonable attorneys' fees, other charges and disbursements (the
Collateral Agent having agreed to reimburse the Borrower from
such Condemnation Proceeds such costs incurred by the Borrower))
to prepay obligations outstanding under this Agreement in
accordance with Section 2.10(b), with any remaining Condemnation
Proceeds being returned to the Borrower. If the Borrower shall
elect to replace a Mortgaged Property as contemplated above, (i)
the replacement property shall be of utility comparable to that
of the replaced Mortgaged Property and (ii) the insufficiency of
any Condemnation Proceeds to defray the entire expense of the
related location, acquisition and replacement of such replacement
property shall in no way relieve the Borrower of its obligation
to complete the construction of any replacement property if the
Borrower shall have made such election and shall have acquired
the related real property. Any condemnation of substantially all
of a Mortgaged Property is referred to herein as a
`substantially all Condemnation' .
(d) In the event of any Condemnation of the Mortgaged
Property, or any part thereof (other than a Condemnation
described in paragraph (c) above (unless the Borrower shall be
permitted and shall have elected to replace the related Mortgaged
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<PAGE> 84
Property as provided in paragraph (c) above) and subject to the
provisions of paragraph (f) below), the Collateral Agent or
Borrower, as applicable, shall apply the Condemnation Proceeds
(i) FIRST, in the case of a partial Condemnation, to the repair
or restoration of any integrated structure subject to such
Condemnation or, in the case of a total or substantially all
Condemnation, to the location of a replacement property,
acquisition of such replacement property and construction of the
replacement structures, in each case, under the conditions
specified in paragraph (f) below, and (ii) SECOND, shall apply
the remainder of such Condemnation Proceeds (less the reasonable
costs, if any, incurred by the Collateral Agent and the Borrower
in the recovery of such Condemnation Proceeds, including
reasonable attorneys' fees (the Collateral Agent having agreed to
reimburse the Borrower from such Condemnation Proceeds such costs
incurred by the Borrower)) to prepay obligations outstanding
under this Agreement in accordance with Section 2.10(b), with any
remaining Condemnation Proceeds being returned to or retained by
the Borrower, as applicable.
(e) In the event of any Casualty of the improvements of any
Mortgaged Property, and so long as no Default or Event of Default
has occurred and is continuing, the Borrower may restore the
Mortgaged Property to a condition substantially similar to its
condition immediately prior to such Casualty and to invest the
balance, if any, of any Insurance Proceeds, in assets used in the
Borrower's principal lines of business within 360 days after the
receipt thereof, PROVIDED that the Borrower, pending such
reinvestment, promptly deposits such excess Insurance Proceeds in
a cash collateral account established with the Collateral Agent
for the benefit of the Secured Parties. It is understood that
any excess Insurance Proceeds that are not used to restore the
Mortgaged Property or reinvested in the Borrower's principal
lines of business as contemplated above will be applied to prepay
obligations outstanding under this Agreement in accordance with
Section 2.10(b).
(f) Except as otherwise specifically provided in this
Section 11.17, all Insurance Proceeds and all Condemnation
Proceeds recovered by the Collateral Agent (A) are to be applied
to the restoration of the applicable Mortgaged Property (or, if
permitted in the event of a total or substantially all
Condemnation as contemplated in paragraph (c) above, to the
location, acquisition and construction of a replacement for the
applicable Mortgaged Property) (less the reasonable cost, if any,
to the Collateral Agent of such recovery and of paying out such
proceeds, including reasonable attorneys' fees, other charges and
disbursements and costs allocable to inspecting the Work (as
defined below)) and (B) shall be applied by the Collateral Agent
to the payment of the cost of restoring or replacing the
Mortgaged Property so damaged, destroyed or taken or of the
portion or portions of the Mortgaged Property not so taken (the
Work ) and (C) shall be paid out from time to time to the
Borrower as and to the extent the Work (or the location and
acquisition of any replacement of any Mortgaged Property) pro-
gresses for the payment thereof, subject to conditions to be
agreed upon by the Borrower and the Collateral Agent.
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<PAGE> 85
(g) Nothing in this Section 11.17 shall prevent the Collateral
Agent from applying at any time all or any part of the Insurance
Proceeds or Condemnation Proceeds to the curing of any Event of
Default under this Credit Agreement.
IN WITNESS WHEREOF, the Borrower, the Parent, the Fronting
Bank, the Administrative Agent and the Lenders have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
HILLS STORES COMPANY,
by
___________________________
Name:
Title:
HILLS DEPARTMENT STORE
COMPANY,
by
--------------------------
Name:
Title:
CHEMICAL BANK, individually,
as Administrative Agent and as
Fronting Bank,
by
--------------------------
Name:
Title:
NATWEST BANK N.A.,
individually and as Managing
Agent,
by
-------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK
BRANCH, individually and as
Co-Agent,
by
-------------------------
Name:
Title:
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<PAGE> 86
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH, individually and as
Co-Agent,
by
-------------------------
Name:
Title:
INTERNATIONAL NEDERLADEN
(U.S.) CAPITAL CORPORATION,
individually and as Co-Agent,
by
-------------------------
Name:
Title:
THE CIT GROUP/BUSINESS CREDIT,
INC., individually and as
Co-Agent,
by
-------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES,
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
FIRST SOURCE FINANCIAL LLP,
by FIRST SOURCE FINANCIAL,
INC., its agent and manager,
by
-------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION,
by
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<PAGE> 87
-------------------------
Name:
Title:
NATIONAL CITY BANK,
by
-------------------------
Name:
Title:
SANWA BUSINESS CREDIT
CORPORATION,
by
-------------------------
Name:
Title:
TRANSAMERICA BUSINESS CREDIT
CORPORATION,
by
-------------------------
Name:
Title:
86
<PAGE> 1
EXHIBIT 11
HILLS STORES COMPANY AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
Thirteen Thirteen
Weeks Ended Weeks Ended
July 29, July 30,
1995 1994
----------- -----------
Weighted average primary shares outstanding
-------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 9,699,128 9,920,354
Assumed conversion of preferred stock - -
Assumed exercise of stock options - -
Assumed exercise of stock rights - -
Assumed exercise of stock warrants - -
--------- ----------
9,699,128 9,920,354
========= ==========
Twenty-six Twenty-six
Weeks Ended Weeks Ended
July 29, July 30,
1995 1994
----------- ------------
Weighted average primary shares outstanding
-------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 9,682,708 9,739,327
Assumed conversion of preferred stock - -
Assumed exercise of stock options - -
Assumed exercise of stock rights - -
Assumed exercise of stock warrants - -
--------- ---------
9,682,708 9,739,327
========= =========
1
<PAGE> 2
EXHIBIT 11
HILLS STORES COMPANY AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
Thirteen Thirteen
Weeks Ended Weeks Ended
July 29, July 30,
1995 1994
---------- -----------
Weighted average fully-diluted shares outstanding
-------------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 9,730,370 9,920,354
Assumed conversion of preferred stock - -
Assumed exercise of stock options - -
Assumed exercise of stock rights - -
Assumed exercise of stock warrants - -
--------- ---------
9,730,370 9,920,354
========= =========
Twenty-six Twenty-six
Weeks Ended Weeks Ended
July 29, July 30,
1995 1994
---------- -----------
Weighted average fully-diluted shares outstanding
-------------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 10,108,912 10,116,464
Assumed conversion of preferred stock - -
Assumed exercise of stock options - -
Assumed exercise of stock rights - -
Assumed exercise of stock warrants - -
---------- ---------
10,108,912 10,116,464
========== ==========
2
<PAGE> 1
EXHIBIT 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Hills Stores Company
We have reviewed the accompanying consolidated balance sheet of
Hills Stores Company and Subsidiaries as of July 29, 1995 and the
related consolidated statements of operations and cash flows for
the thirteen and twenty-six week periods ended July 29, 1995 and
July 30, 1994. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of the Company
as of January 28, 1995 and the related consolidated statements of
operations, common shareholders' equity and cash flows for the year
ended January 28, 1995 (not presented herein); and our report
dated March 10, 1995 included an explanatory paragraph relating to
the Company's emergence from Chapter 11 proceedings.
Boston, Massachusetts
August 15, 1995
Coopers & Lybrand L.L.P.
1
<PAGE> 2
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
We are aware that our report dated August 15, 1995 on our review of
interim financial information of Hills Stores Company and
Subsidiaries for the period ended July 29, 1995 and included in the
Company's Quarterly Report on Form 10-Q for the Quarter then ended
is incorporated by reference in the registration statement of Hills
Stores Company on Form S-8 (File No. 33-56321). Pursuant to Rule
436(c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or
certified by us within the meaning of Sections 7 and 11 of that
Act.
Boston, Massachusetts
August 15, 1995
Coopers & Lybrand L.L.P.
2
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