<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION STATEMENT NO. 333-35923
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
J. BAKER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
MASSACHUSETTS 04-2866591
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
555 TURNPIKE STREET
CANTON, MASSACHUSETTS 02021
(781) 828-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
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NAME OF ADDITIONAL REGISTRANTS STATE OF INCORPORATION I.R.S. EMPLOYER IDENTIFICATION NUMBER
- ------------------------------------ ---------------------- -------------------------------------
<S> <C> <C>
WGS Corp. Massachusetts 04-3128706
JBI, Inc. Massachusetts 13-1722620
JBI Holding Co., Inc. Delaware 51-0304938
Morse Shoe, Inc. Delaware 04-1638796
Buckmin, Inc. Massachusetts 04-6046160
ELM Equipment Corp. Massachusetts 04-6046069
ISAB, Inc. Delaware 06-1047189
Jared Corporation Puerto Rico 66-0464826
Morse Shoe (Canada) Ltd. Canada 7318-9482
Morse Shoe International, Inc. Delaware 04-2484715
White Cap Footwear, Inc. Delaware 06-0983746
Spencer Companies, Inc. Massachusetts 04-1856115
The Casual Male, Inc. Massachusetts 04-3102315
TCM Holding Co., Inc. Delaware 51-0336334
TCMB&T, Inc. Massachusetts 04-3272368
</TABLE>
------------------------
PHILIP G. ROSENBERG
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
J. BAKER, INC.
555 TURNPIKE STREET, CANTON, MASSACHUSETTS 02021
(781) 828-9300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
With copies to:
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<S> <C> <C>
STEPHEN W. CARR, P.C. MARK T. BEAUDOUIN, ESQ. HOWARD A. SOBEL, ESQ.
RAYMOND C. ZEMLIN, P.C. FIRST SENIOR VICE PRESIDENT, THOMAS E. MOLNER, ESQ.
GOODWIN, PROCTER & HOAR LLP GENERAL COUNSEL AND SECRETARY KRAMER, LEVIN, NAFTALIS & FRANKEL
Exchange Place, Boston, Massachusetts J. BAKER, INC. 919 Third Avenue, New York, New York
02109 10022
(617) 570-1000 555 Turnpike Street, Canton, (212) 715-9100
Massachusetts 02021
(781) 828-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, please
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.[ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, as amended, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT AND THE ADDITIONAL REGISTRANTS (COLLECTIVELY, THE
"REGISTRANTS") HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997
PROSPECTUS
$100,000,000
J. BAKER, INC.
% SENIOR SUBORDINATED NOTES DUE 2007
The % Senior Subordinated Notes due 2007 (the "Notes") are being offered
(the "Offering") by J. Baker, Inc. (the "Company"). The Notes will mature on
November , 2007 and are non-investment grade securities of the Company.
Interest on the Notes will be payable semi-annually in arrears on May and
November of each year, commencing May , 1998. Except as set forth below, the
Notes will not be redeemable at the option of the Company, in whole or in part,
at any time prior to November , 2002. Thereafter, the Notes will be subject to
redemption at any time at the option of the Company at the redemption prices set
forth herein, plus accrued and unpaid interest thereon to the redemption date.
Notwithstanding the foregoing, on or prior to November , 2000, the Company may
redeem at its option up to 35% of the aggregate principal amount of the Notes
originally issued at a redemption price of % of the principal amount thereof,
plus accrued and unpaid interest thereon to the redemption date, with the net
cash proceeds of one or more Public Equity Offerings (as defined herein);
provided, however, that at least 65% of the aggregate principal amount of Notes
originally issued remains outstanding immediately after the occurrence of each
such redemption. In addition, at any time prior to November , 2002, the Company
may, at its option, redeem the Notes, in whole or in part, at a redemption price
equal to 100% of the principal amount thereof plus the applicable Make-Whole
Premium (as defined herein), plus accrued and unpaid interest thereon to the
redemption date. Upon the occurrence of a Change of Control (as defined herein),
the Company will be required to make an offer to repurchase all or any part of
the Notes at a price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon to the date of repurchase.
Certain events which would constitute a Change of Control would also constitute
an event of default under the Amended Credit Facility (as defined herein), which
could result in an acceleration of such indebtedness. In such event, the
subordination provisions of the Notes would require payment in full (or
provision therefor) of all Senior Debt (as defined herein) before the Company
may repurchase or make other payments in respect of the Notes. No assurance can
be given that the Company would have, or could have access to, sufficient
resources to pay such Senior Debt or to repurchase the Notes upon the occurrence
of a Change of Control. See "Description of Notes."
The Notes will be general unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Debt of the Company,
including all obligations of the Company under the Amended Credit Facility, and
senior to or pari passu with all existing and future subordinated indebtedness
of the Company. The Company's payment obligations under the Notes will jointly
and severally be fully and unconditionally guaranteed (as described herein), on
a senior subordinated basis, by the Guarantors (as defined herein). As of August
2, 1997, on a pro forma basis after giving effect to the Offering and the
application of proceeds therefrom, the Company and the Guarantors would have had
outstanding approximately $37.1 million of Senior Debt, including $21.8 million
of outstanding borrowings (excluding $11.6 million of obligations under undrawn
letters of credit) under the Amended Credit Facility. In addition, as of August
2, 1997, the Company and the Guarantors would have had $66.6 million of
additional availability under the Amended Credit Facility. See "Description of
Notes -- Subordination." The Indenture (as defined herein) pursuant to which the
Notes will be issued permits the Company and the Guarantors to incur additional
indebtedness, including Senior Debt, subject to certain limitations. See
"Description of Notes -- Certain Covenants."
The Notes will be evidenced by one global Note, in fully registered form,
without coupons (the "Global Note"), deposited with a custodian for and
registered in the name of a nominee of The Depository Trust Company (the
"Depositary"). Beneficial interests in the Global Note will be shown on, and
transfers thereof will be effective only through, records maintained by the
Depositary and its participants. Except as described herein, Notes in definitive
form will not be issued. Neither the Company nor the Trustee (as defined herein)
will have an obligation to pay principal or interest to the beneficial owners of
the Global Note. See "Description of Notes -- Book-Entry, Delivery and Form."
The Company does not intend to apply for listing of the Notes on any
securities exchange or inclusion of the Notes in any automated quotation system.
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT
IN THE NOTES.
------------------------------
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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============================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS(2) THE COMPANY(3)
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Per Note................................................. % % %
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Total.................................................... $ $ $
============================================================================================================================
</TABLE>
(1) Plus accrued and unpaid interest, if any, from the date of issuance.
(2) The Company and the Guarantors have agreed to indemnify the Underwriters (as
defined herein) against, and to provide contribution with respect to,
certain liabilities, including liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
------------------------------
The Notes are being offered by the Underwriters, subject to prior sale, when,
as and if issued by the Company and delivered to and accepted by the
Underwriters, and subject to various prior conditions, including the
Underwriters' right to reject orders in whole or in part. It is expected that
delivery of the Notes will be made on or about , 1997 in book-entry
form through the facilities of The Depository Trust Company.
BEAR, STEARNS & CO. INC.
LAZARD FRERES & CO. LLC
BANCBOSTON SECURITIES INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[INSERT ART WORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. SEE "UNDERWRITING."
<PAGE> 4
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
data, including the Company's consolidated financial statements, including the
notes thereto, appearing elsewhere in this Prospectus. Unless the context
otherwise requires, references in this Prospectus to the "Company" include the
Company and its subsidiaries. All references in this Prospectus to "fiscal" and
"fiscal year" refer to the Company's fiscal year which ends on the Saturday
closest to January 31. For example, fiscal 1997 refers to the fiscal year ended
February 1, 1997. During the past two fiscal years, the Company has restructured
its footwear operations (the "Footwear Restructuring") through (i) the
liquidation of its Fayva Shoes ("Fayva") footwear business during the second
half of fiscal 1996, (ii) the sale of its Shoe Corporation of America ("SCOA")
and Parade of Shoes businesses in March 1997 (together with the elimination of
certain results of operations relating thereto and losses on the dispositions
thereof, the "Footwear Business Dispositions") and (iii) a reduction of its
investment in the licensed shoe department business during the fourth quarter of
fiscal 1997. Unless otherwise specified, the pro forma financial information
included in this Prospectus gives effect to the Footwear Business Dispositions
and the Offering and the application of proceeds therefrom as if such events had
occurred on February 4, 1996. See "Use of Proceeds" and "Unaudited Pro Forma
Consolidated Financial Data."
THE COMPANY
The Company is a leading specialty retailer of apparel and footwear in
three niche markets through its chains of Casual Male Big & Tall and Work 'n
Gear stores and its licensed shoe departments. The Company's Casual Male Big &
Tall chain is the largest specialty retailer dedicated to the sale of apparel
for large-sized men in the United States. The Company believes that its Work 'n
Gear chain is one of the largest specialty retailers of utility workwear,
healthcare apparel and custom uniforms in the United States. In addition, the
Company is the largest independent operator of self-service licensed shoe
departments in discount department stores in the United States. As of August 2,
1997, the Company operated 1,384 stores and licensed shoe departments in 47
states and the District of Columbia. On a pro forma basis, after giving effect
to the Footwear Business Dispositions, the Company generated net sales and
EBITDA (as defined herein) of $596.8 million and $42.2 million, respectively, in
fiscal 1997.
Casual Male Big & Tall offers a wide range of high quality apparel and
accessories for big (waist sizes from 409 to 669) and tall (6829 or taller) men
at moderate prices. Casual Male Big & Tall sells its merchandise under private
labels as well as brand names such as Levi-Strauss, Dockers, Reebok, Geoffrey
Beene and Perry Ellis with a focus on classic styles in order to minimize
fashion risk. The Company believes that Casual Male Big & Tall satisfies the
clothing demands of big and tall men whose needs have generally not been met by
traditional men's apparel stores. Casual Male Big & Tall stores, which average
approximately 3,300 square feet, are located in 47 states throughout the United
States. Casual Male Big & Tall has more than doubled its store base from 214
stores at the end of fiscal 1993 to 456 stores at August 2, 1997 and grown its
net sales from $122.2 million in fiscal 1993 to $241.2 million in fiscal 1997.
Work 'n Gear offers a wide selection of high quality utility workwear,
healthcare apparel and custom uniforms. Work 'n Gear sells its merchandise under
private labels and brand names such as Herman Survivors, Carhartt and
Timberland. The Company believes that no other specialty store chain offers a
greater variety of workwear in a single-store format on a multi-state basis.
Work 'n Gear stores, which average approximately 4,500 square feet, are located
in 13 states in the northeastern and midwestern United States. Work 'n Gear has
increased its store base from 38 stores at the end of fiscal 1993 to 65 stores
at August 2, 1997 and grown its net sales from $29.8 million in fiscal 1993 to
$52.6 million in fiscal 1997.
The Company's licensed shoe departments are operated pursuant to license
agreements with discount department store chains under which the Company
typically has the exclusive right to operate shoe departments in host stores for
a specified number of years in exchange for a license fee, generally calculated
as a percentage of net sales. The Company's licensed shoe departments offer a
wide variety of family footwear at budget to moderate prices, primarily under
private labels. The number of licensed shoe departments operated by the Company
has declined in recent years reflecting consolidation of the discount department
store business and the Company's decision to terminate or not renew certain
license agreements. Further, in connection with
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the Footwear Restructuring, the Company reduced its investment in the licensed
shoe department business and decided to concentrate its efforts in this business
primarily on its five largest licensors, which accounted for approximately 92%
of the net sales of this business for the six months ended August 2, 1997. The
Company's increased focus on its core licensors is intended to improve the
results of its licensed shoe department business through better resource
management. As a result of the foregoing, the Company's licensed shoe department
base has declined from 1,446 departments at the end of fiscal 1993 to 863
departments at August 2, 1997 and net sales have declined from $457.6 million in
fiscal 1994 to $303.0 million in fiscal 1997.
KEY STRENGTHS
The Company believes that its leading market positions are attributable to
a number of competitive strengths:
Leader in Attractive Niche Apparel Markets. According to industry reports,
the big and tall men's apparel and workwear markets generate annual sales of
approximately $4 billion and $6 billion, respectively. The Company believes that
these markets are not only large but also fragmented, with sales being generated
through large discount and department store chains, independent retailers, "mom
and pop" stores and catalogs. As a leading specialty retailer dedicated to the
big and tall men's apparel and workwear markets, the Company believes that it is
well positioned to increase its market share in each of these markets.
Effective Apparel Merchandising Strategy with Low Fashion Risk. The
Company's apparel stores offer private label merchandise, which has historically
yielded attractive margins. The Company believes that its private labels such as
Casual Male Big & Tall's Harbor Bay and Work 'n Gear's Ultimate Workwear have
developed loyal customer followings due to their high quality, moderate pricing
and styling. The Company's apparel stores also offer selected brand name
merchandise. The Company believes that it distinguishes itself from many of its
competitors by offering its private label and brand name merchandise in a wider
variety of sizes and styles. While the Company's apparel stores feature a wide
selection of current styles, they generally avoid fashion-forward merchandise
that is subject to rapidly changing fashion trends.
Emphasis on Customer Service. The Company's stores are dedicated to
providing excellent customer service. In its apparel operations, store
associates are evaluated based upon achievement of specific customer service
goals and generally receive incentive compensation based on attaining sales
targets. The Company promotes ongoing relationships with its apparel customers
through direct mail programs, a frequent buyers' club, a birthday club, new
customer programs and customer reactivation programs. As a result of these
efforts, the Company believes that a substantial number of its apparel store
customers are repeat customers and, based on a 1996 independent survey of over
6,000 Casual Male Big & Tall customers, approximately 86% of such customers
report that the stores' customer service is excellent. In its licensed shoe
departments, the Company maintains attractive, well-organized displays with
clearly marked merchandise to create a pleasant and orderly self-service
shopping environment.
Sophisticated Information Systems. The Company supports its apparel and
footwear operations with highly automated and integrated information systems in
areas such as merchandising, distribution, warehousing, sales promotions, credit
verification, personnel management and accounting. The Company believes that
these systems enhance its ability to efficiently manage inventory levels,
improve sales productivity and reduce costs.
Focus on Cost Control. Through the centralization of the Company's
finance, management information, real estate, human resources and other
administrative functions, the Company's apparel and footwear operations benefit
from economies of scale. Moreover, as a leader in each of its niche markets, the
Company believes that it enjoys significant buying power which enables it to
negotiate favorable purchase terms, exclusive merchandise and expedited delivery
times. In addition, the Company continually seeks to reduce costs in all aspects
of its operations and to create an environment of cost-consciousness at all
employee levels.
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2
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BUSINESS STRATEGY
In order to enhance its market positions in the big and tall men's apparel,
workwear and licensed shoe department markets, the Company has identified the
following business strategies:
Increase Sales at Casual Male Big & Tall Stores. The Company has developed
several key initiatives designed to improve the sales productivity of its Casual
Male Big & Tall stores by increasing sales to existing customers and attracting
new customers. These initiatives include the introduction of new merchandise
categories, the expansion of its brand name offerings and the broadening of its
customer appeal. The Company is currently rolling out several new merchandise
categories which were test-launched in fiscal 1997, including shoes and trench
coats. The Company plans to expand its brand name offerings to increase its
customers' perception of quality as well as to attract new customers. To
continue to build its brand image with consumers, the Company recently signed
Bill Parcells, the professional football coach, as spokesperson for the Company
and commenced other marketing activities including a targeted direct mail
campaign and increased radio and billboard advertising. In addition, the Company
is currently testing a new format in one Casual Male Big & Tall store which it
plans to introduce in the course of opening new stores and remodeling existing
stores. The Company will evaluate accelerating such introduction depending on
the success of this format.
Open New Casual Male Big & Tall Stores. The Company intends to open new
Casual Male Big & Tall stores in underpenetrated markets as well as in
geographic markets where the Company does not currently have a presence. The
Company expects to open 35 new Casual Male Big & Tall stores in fiscal 1998, 20
of which have been opened through August 2, 1997.
Capitalize on Growth Potential of Work 'n Gear. The Company seeks to
capitalize on opportunities for growth in the $6 billion workwear market through
its Work 'n Gear concept. The Company intends to leverage its existing Work 'n
Gear store base by expanding its sales to corporate customers. In the current
fiscal year, the Company has entered into agreements to provide uniforms to a
national private security firm, a regional transit authority and a large
supermarket chain. The Company believes that its recent addition of a direct
corporate sales force will further enhance its corporate sales efforts. In
addition, based on the relatively high sales growth of healthcare apparel in its
existing stores, the Company has opened two retail stores under the name "R(X)
Uniforms" which exclusively sell healthcare apparel and is evaluating
opportunities to open additional stores.
Improve Profitability of Licensed Shoe Department Business. Although the
Company believes that its licensed shoe department business has limited growth
potential, this business serves as a source of cash flow for the Company to fund
the development and growth of its apparel businesses. By concentrating its
efforts in this business primarily on its five largest licensors (Ames
Department Stores, Inc. ("Ames"), Bradlees Stores, Inc. ("Bradlees"), Hills
Stores Company ("Hills"), Rose's Stores, Inc. ("Rose's") and ShopKo Stores, Inc.
("ShopKo")), as well as certain smaller, yet profitable, licensors, the Company
believes that it will be better able to manage its advertising and product mix
and use its resources more efficiently.
Pursue Strategic Acquisitions. From time to time, the Company evaluates
potential acquisition candidates in pursuit of strategic initiatives and growth
goals in its niche apparel markets. Acquisition opportunities are evaluated
based on strategic fit, expected return on capital invested and the ability of
the Company to improve the profitability of any acquired operations through cost
reductions and synergies. The Company has not entered into any commitments or
agreements for any acquisition and there is no assurance that any such
acquisition will occur.
HISTORY
The Company was incorporated in 1985 to acquire National Shoes, Inc. and
its subsidiary J. Baker, Inc. in a management-led leveraged buyout. Until the
acquisition of Casual Male Big & Tall and Work 'n Gear in 1991, the Company's
primary business was the retail sale of footwear. During the past two fiscal
years, the Company undertook the Footwear Restructuring and shifted its focus to
the development and growth of its Casual Male Big & Tall and Work 'n Gear
businesses. In connection with the Footwear Restructuring, in the second half of
fiscal 1996, the Company liquidated its chain of 357 Fayva stores. In March
1997, the Company
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3
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completed the sale of SCOA (which operated licensed shoe departments in
department and specialty stores) as well as its Parade of Shoes retail store
business (which operated a chain of women's shoe stores).
RECENT DEVELOPMENTS
During the third quarter of fiscal 1998, the Company's net sales totaled
$139.3 million compared to $222.8 million for the third quarter of fiscal 1997.
Sales in the Company's apparel operations increased by $3.8 million primarily
due to an increase in the number of Casual Male Big & Tall stores in operation
and a 0.9% increase in comparable apparel store sales in the third quarter of
fiscal 1998.
Excluding net sales of the Company's SCOA and Parade of Shoes businesses of
$75.7 million in the third quarter of fiscal 1997, net sales of the Company's
licensed shoe department business decreased by $11.6 million to $65.8 million in
the third quarter of fiscal 1998 as compared to the third quarter of fiscal
1997, reflecting a reduction in the number of departments in operation during
the fiscal 1998 period and an 8.6% decrease in comparable retail footwear store
sales in the third quarter of fiscal 1998.
Based on preliminary results, the Company expects to report lower operating
income, EBITDA and net earnings, excluding a charge to net earnings of
approximately $2 million, after-tax and net of reserves, on the settlement of
patent infringement litigation, for the three months ended November 1, 1997 from
the comparable period in the prior year. See "Business -- Legal Proceedings."
The Company's principal executive offices are located at 555 Turnpike
Street, Canton, Massachusetts 02021, and its telephone number at that location
is (781) 828-9300.
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4
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THE OFFERING
As used in this section of the Prospectus Summary and in "Description of
Notes," the Company means J. Baker, Inc.
ISSUER..................... The Company.
SECURITIES OFFERED......... $100.0 million aggregate principal amount of %
Senior Subordinated Notes due 2007.
MATURITY................... November , 2007.
INTEREST................... Interest on the Notes will accrue at the rate of
% per annum and will be payable semi-annually in
arrears on May and November of each year,
commencing May , 1998.
GUARANTEES................. The Company's payment obligations under the Notes
will jointly and severally be fully and
unconditionally guaranteed (as described herein)
(the "Subsidiary Guarantees"), on a senior
subordinated basis, by the Guarantors. The
Subsidiary Guarantee of each Guarantor will be
subordinated to the prior payment in full of all
Senior Debt of such Guarantor. See "Description of
Notes -- Subsidiary Guarantees."
RANKING.................... The Notes will be general unsecured obligations of
the Company, subordinated in right of payment to
all existing and future Senior Debt of the Company,
including all obligations of the Company under the
Amended Credit Facility, and senior to or pari
passu with all existing and future subordinated
indebtedness of the Company. As of August 2, 1997,
on a pro forma basis after giving effect to the
Offering and the application of proceeds therefrom,
the Company and the Guarantors would have had
outstanding approximately $37.1 million of Senior
Debt, including $21.8 million of outstanding
borrowings (excluding $11.6 million of obligations
under undrawn letters of credit) under the Amended
Credit Facility. In addition, as of August 2, 1997,
the Company and the Guarantors would have had $66.6
million of additional availability under the
Amended Credit Facility. See "Description of
Notes -- Subordination."
OPTIONAL REDEMPTION........ Except as set forth below, the Notes will not be
redeemable at the option of the Company, in whole
or in part, at any time prior to November , 2002.
Thereafter, the Notes will be subject to redemption
at any time at the option of the Company at the
redemption prices set forth herein, plus accrued
and unpaid interest thereon to the redemption date.
Notwithstanding the foregoing, on or prior to
November , 2000, the Company may redeem at its
option up to 35% of the aggregate principal amount
of the Notes originally issued at a redemption
price of % of the principal amount thereof, plus
accrued and unpaid interest thereon to the
redemption date, with the net cash proceeds of one
or more Public Equity Offerings; provided, however,
that at least 65% of the aggregate principal amount
of Notes originally issued remains outstanding
immediately after the occurrence of each such
redemption. In addition, at any time prior to
November , 2002, the Company may, at its option,
redeem the Notes, in whole or in part, at a
redemption price equal to 100% of the principal
amount thereof plus the applicable Make-Whole
Premium plus accrued and unpaid interest thereon to
the redemption date. See "Description of
Notes -- Optional Redemption."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase all or any part of the Notes at a
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5
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price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest thereon to the date of repurchase. See
"Description of Notes -- Repurchase at the Option
of Holders -- Change of Control."
CERTAIN COVENANTS.......... The Indenture pursuant to which the Notes will be
issued contains covenants, including covenants with
respect to the following matters: (i) limitations
on certain payments, including dividends,
repurchases of the Company's capital stock,
repurchases of subordinated obligations and the
making of certain investments; (ii) limitations on
the incurrence of indebtedness and the issuance of
preferred stock; (iii) limitations on liens; (iv)
limitations on dividend and other payment
restrictions affecting Restricted Subsidiaries; (v)
limitations on mergers, consolidations or the sale
of substantially all of the Company's assets; (vi)
limitations on transactions with affiliates; (vii)
limitations on issuances and sales of capital stock
of wholly-owned Restricted Subsidiaries; (viii)
limitations on layering debt; and (ix) limitations
on asset sales. See "Description of
Notes -- Certain Covenants."
USE OF PROCEEDS............ The net proceeds to the Company from the Offering
are estimated to be approximately $96.3 million,
after deducting the discount to the Underwriters
and estimated offering expenses. The Company
intends to use all of the net proceeds from the
Offering to refinance existing indebtedness. More
specifically, the net proceeds will be used to (i)
repay all amounts outstanding under and terminate
the Company's credit facility secured by
substantially all of the assets of the licensed
shoe department business (the "Footwear Credit
Facility") (approximately $41.4 million, together
with accrued interest, as of August 2, 1997), (ii)
repay the remaining $3.0 million principal amount,
together with accrued interest, of the 11.21%
Senior Subordinated Notes due 1999, (iii) repay the
remaining $353,000 principal amount, together with
an early redemption premium of $10,590 and accrued
interest, of the 8% Convertible Subordinated Notes
due 2002 and (iv) reduce the Company's borrowings
under its credit facility secured by all of the
stock of Casual Male Big & Tall and three other
subsidiaries of the Company (the "Apparel Credit
Facility" and, following the amendment thereof in
connection with the Offering, the "Amended Credit
Facility") (which reduction is estimated to be
approximately $51.3 million as of August 2, 1997).
See "Use of Proceeds."
RISK FACTORS
Prospective purchasers of the Notes should carefully consider the matters
set forth under "Risk Factors," as well as the other information and financial
statements and data included in this Prospectus, prior to making an investment
in the Notes including, without limitation, risks associated with the following
factors: the substantial leverage of the Company and its ability to service its
debt, the holding company structure of the Company and the limitations on the
Company's access to cash flow from its subsidiaries, the subordination of the
Notes and the Guarantees, restrictions imposed by certain indebtedness of the
Company, the Company's dependence on certain of its licensors, the
implementation of the Company's business and growth strategies, the Company's
recent losses and footwear business operating results, economic and market
conditions and seasonality, competition, the Company's reliance on key vendors,
risks of foreign manufacturing, the Company's dependence on key personnel,
repurchase of the Notes upon a change of control, fraudulent conveyance
concerns, the absence of a prior public market for the Notes and possible
volatility in prices for the Notes.
- --------------------------------------------------------------------------------
6
<PAGE> 10
- --------------------------------------------------------------------------------
SUMMARY HISTORICAL FINANCIAL AND PRO FORMA DATA
The following table sets forth (i) summary historical consolidated
financial data for the Company for the five fiscal years ended February 1, 1997
and for the six months ended August 3, 1996 and August 2, 1997, (ii) summary pro
forma consolidated financial data for the Company for the fiscal year ended
February 1, 1997 and the six months ended August 2, 1997, which gives effect to
the Footwear Business Dispositions and the Offering and the application of
proceeds therefrom as if such events had occurred at the beginning of the
relevant period, and (iii) summary historical consolidated balance sheet data at
August 2, 1997 and as adjusted to give effect to the Offering and the
application of proceeds therefrom, as if the Offering had occurred at August 2,
1997. The summary historical consolidated financial data for the five fiscal
years ended February 1, 1997 were derived from the audited financial statements
of the Company which have been audited by KPMG Peat Marwick LLP, independent
auditors. The summary pro forma consolidated financial data reflect adjustments
to the historical consolidated financial statements of the Company to give
effect to the Footwear Business Dispositions and the Offering and the
application of proceeds therefrom. The summary pro forma consolidated financial
data are not necessarily indicative of either future results of operations or
the results that might have occurred had the above-transactions actually taken
place on the dates indicated. Results for interim periods are not necessarily
indicative of results for the full year. This information should be read in
conjunction with the "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Consolidated Financial Data" and the Company's consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
UNAUDITED PRO
FORMA(2)
---------------------
SIX
SIX MONTHS ENDED MONTHS
FISCAL YEAR --------------------- FISCAL ENDED
--------------------------------------------------------- AUGUST 3, AUGUST 2, YEAR AUGUST 2,
1993 1994 1995 1996(1) 1997 1996 1997 1997(3) 1997
-------- -------- ---------- ---------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............. $532,256 $918,878 $1,042,979 $1,020,413 $ 897,492 $427,336 $281,280 $ 596,752 $263,573
Cost of sales......... 313,703 516,855 579,735 580,067 542,247 235,288 155,492 367,432 146,023
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit.......... 218,553 402,023 463,244 440,346 355,245 192,048 125,788 229,320 117,550
Selling,
administrative and
general expenses.... 174,658 336,283 389,362 392,586 347,977 167,595 109,622 228,908 101,384
Depreciation and
amortization........ 14,688 21,874 27,883 32,428 29,431 14,663 6,154 23,411 6,339
Restructuring and
other non-recurring
charges............. -- -- -- 69,300 122,309 -- -- 58,572 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).............. 29,207 43,866 45,999 (53,968) (144,472) 9,790 10,012 (81,571) 9,827
Interest income....... 80 704 635 526 254 149 62 254 62
Interest expense(4)... (8,211) (8,146) (9,735) (10,983) (13,056) (6,151) (6,512) (12,686) (7,007)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
taxes and
extraordinary
item................ 21,076 36,424 36,899 (64,425) (157,274) 3,788 3,562 (94,003) 2,882
Income tax expense
(benefit)........... 7,798 13,113 13,283 (25,823) (45,846) 1,477 1,389 (26,907) 1,124
-------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary
item................ 13,278 23,311 23,616 (38,602) (111,428) 2,311 2,173 (67,096) 1,758
Extraordinary item,
net of income tax
benefit............. (2,444) -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)... $ 10,834 $ 23,311 $ 23,616 $ (38,602) $(111,428) $ 2,311 $ 2,173 $ (67,096) $ 1,758
======== ======== ======== ======== ======== ======== ======== ======== ========
CASH FLOW DATA:
Net cash provided by
(used in) operating
activities.......... $ 30,139 $(27,941) $ 6,112 $ 22,391 $ 9,562 $(28,043) $(45,029) -- --
Net cash used in
investing
activities.......... (17,915) (29,295) (56,514) (26,542) (14,454) (8,028) (4,044) -- --
Net cash provided by
(used in) financing
activities.......... (8,378) 54,434 51,733 2,523 5,574 35,294 46,816 -- --
OTHER FINANCIAL DATA:
EBITDA(5)............. $ 45,480 $ 69,300 $ 78,287 $ 55,331 $ 52,061 $ 27,352 $ 16,228 $ 42,205 $ 16,228
Interest and related
expenses(6)......... 9,863 11,728 14,231 18,754 19,554 9,126 6,740 16,554 7,420
Capital
expenditures........ 11,198 24,115 44,514 28,062 16,421 10,450 4,181 10,555 4,181
Ratio of earnings to
fixed charges(7).... 2.3x 2.4x 2.2x -- -- 1.2x 1.3x -- 1.2x
Ratio of EBITDA to
interest and related
expenses............ -- -- -- -- -- -- -- 2.5x --
Ratio of total debt to
EBITDA.............. -- -- -- -- -- -- -- 4.4x --
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE> 11
<TABLE>
<CAPTION>
ACTUAL AS OF FISCAL YEAR END AS OF AUGUST 2, 1997
---------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(8)
-------- -------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $138,385 $187,095 $235,948 $205,080 $182,123 $164,460 $166,187
Total assets.................................. 431,798 502,496 578,618 526,082 382,521 341,480 345,180
Total debt (including current maturities and
convertible debt)........................... 98,394 157,301 206,018 209,266 216,104 203,086 207,052
Convertible subordinated debt................. 70,353 70,353 70,353 70,353 70,353 70,353 70,000
Stockholders' equity.......................... 172,610 200,086 223,317 184,037 71,989 73,929 73,889
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ------------------------
------------------------------------------------- AUGUST 3, AUGUST 2,
COMPARABLE STORE SALES PERCENTAGE CHANGE: 1993 1994 1995 1996(1) 1997 1996 1997
----- ----- ----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Casual Male Big & Tall...................... 16.3% 5.7% 3.2% (3.6)% 1.5% 1.1% 0.8%
Work 'n Gear................................ 5.2% (4.2)% 4.6% 1.6% 7.8% 7.9% 2.4%
Licensed shoe departments................... (0.7)% (0.1)% (4.3)% (6.7)% (2.6)% (3.9)% (3.0)%
NUMBER OF STORES (AT PERIOD END):
Casual Male Big & Tall...................... 214 254 319 400 440 422 456
Work 'n Gear................................ 38 52 61 69 66 66 65
----- ----- ----- ----- ----- ----- -----
Total apparel............................... 252 306 380 469 506 488 521
===== ===== ===== ===== ===== ===== =====
Licensed shoe departments................... 1,446 1,368 1,242 1,087 937 1,037 863
SCOA........................................ -- 162 448 505 454 448 --
Parade of Shoes............................. 136 162 191 168 188 200 --
Fayva....................................... 425 395 368 -- -- -- --
----- ----- ----- ----- ----- ----- -----
Total footwear.............................. 2,007 2,087 2,249 1,760 1,579 1,685 863
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ------------------------------
(1) Fiscal 1996 includes 53 weeks. Comparable store sales percentage change for
fiscal 1996 has been determined based on a comparable 52 week period.
(2) The pro forma statement of income data and other financial data of the
Company give effect to the Footwear Business Dispositions and the Offering
and the application of proceeds therefrom as if these transactions had
occurred at the beginning of the relevant period. See "Unaudited Pro Forma
Consolidated Financial Data."
(3) The pro forma fiscal 1997 net loss as adjusted would have been $5,300 in net
earnings had certain pre-tax non-recurring charges associated with the
Footwear Restructuring of $102,691 ($72,396 on an after-tax basis) been
eliminated. See "Unaudited Pro Forma Consolidated Financial Data," Note 9.
(4) Pro forma interest expense has been calculated based on an assumed 9 3/4%
rate on the Notes.
(5) EBITDA is defined, in accordance with the definition of Consolidated EBITDA
in the Indenture relating to the Notes, as net income before (i) interest
and related expenses, (ii) income taxes, (iii) depreciation and amortization
(excluding amortization of debt issuance costs, which are included in
interest and related expenses), (iv) extraordinary, non-recurring or unusual
losses, and (v) the $37.3 million charge related to a reduction in the
valuation of the Company's licensed shoe department business' inventory and
the $1.2 million charge to increase the Company's allowance for doubtful
accounts for certain licensors which the Company no longer serves, in each
case, recorded in fiscal 1997 in connection with the Footwear Restructuring.
For each of the periods set forth above, the calculation of EBITDA is as
follows:
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
---------------------
SIX
SIX MONTHS ENDED MONTHS
FISCAL YEAR --------------------- FISCAL ENDED
-------------------------------------------------- AUGUST 3, AUGUST 2, YEAR AUGUST 2,
1993 1994 1995 1996 1997 1996 1997 1997 1997
------- ------- ------- -------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings (loss).......... $10,834 $23,311 $23,616 $(38,602) $(111,428) $ 2,311 $ 2,173 $ (67,096) $ 1,758
Interest and related
expenses................... 9,863 11,728 14,231 18,754 19,554 9,126 6,740 16,554 7,420
Income tax expense
(benefit).................. 7,798 13,113 13,283 (25,823) (45,846) 1,477 1,389 (26,907) 1,124
Depreciation and
amortization............... 14,541 21,148 27,157 31,702 28,981 14,438 5,926 22,591 5,926
Extraordinary, non-recurring
or unusual losses.......... 2,444 -- -- 69,300 122,309 -- -- 58,572 --
Other Footwear Restructuring
charges.................... -- -- -- -- 38,491 -- -- 38,491 --
------- ------- ------- -------- --------- ------- ------- --------- -------
EBITDA..................... $45,480 $69,300 $78,287 $ 55,331 $ 52,061 $27,352 $16,228 $ 42,205 $16,228
======= ======= ======= ======== ========= ======= ======= ========= =======
</TABLE>
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to service and incur debt. EBITDA should not be considered
in isolation from or as a substitute for net earnings or cash flow measures
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
8
<PAGE> 12
- --------------------------------------------------------------------------------
(6) For each of the periods set forth above, the calculation of interest and
related expenses is as follows:
<TABLE>
<CAPTION>
UNAUDITED PRO
FORMA
---------------------
SIX
SIX MONTHS ENDED MONTHS
FISCAL YEAR --------------------- FISCAL ENDED
-------------------------------------------------- AUGUST 3, AUGUST 2, YEAR AUGUST 2,
1993 1994 1995 1996 1997 1996 1997 1997 1997
------- ------- ------- -------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash interest expense........ $ 8,211 $ 8,146 $ 9,735 $ 10,983 $ 13,056 $ 6,151 $ 6,512 $ 12,686 $ 7,007
Costs related to inventory
financing (included in cost
of sales).................. 1,505 2,856 3,770 7,045 6,048 2,750 -- 3,048 --
Amortization of debt issuance
costs...................... 147 726 726 726 450 225 228 820 413
------- ------- ------- -------- --------- ------- ------- --------- -------
Interest and related
expenses................. $ 9,863 $11,728 $14,231 $ 18,754 $ 19,554 $ 9,126 $ 6,740 $ 16,554 $ 7,420
======= ======= ======= ======== ========= ======= ======= ========= =======
</TABLE>
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest and related expenses and an estimated portion of rentals
representing interest costs. The estimated portion of rentals representing
interest costs excludes license fees which are calculated based on a
percentage of sales and are entirely variable in nature. For fiscal 1996,
1997 and pro forma fiscal 1997, earnings did not cover fixed charges by
$28.4 million, $121.4 million and $67.6 million, respectively. The pro forma
ratio of earnings to fixed charges for fiscal 1997 would have been 1.3x if
adjusted for certain non-recurring items referred to in footnote 3 above.
(8) The as adjusted balance sheet data have been prepared as if the Offering and
the application of proceeds therefrom had occurred on August 2, 1997. See
"Use of Proceeds."
- --------------------------------------------------------------------------------
9
<PAGE> 13
RISK FACTORS
In addition to the other information contained in this Prospectus and
incorporated by reference herein, prospective investors should carefully
consider the following information in evaluating the Company and its business
before making an investment in the Notes offered hereby.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and after giving effect to the Offering and the application
of proceeds therefrom will continue to be, highly leveraged. As of August 2,
1997, on a pro forma basis after giving effect to the Offering and the
application of proceeds therefrom, the Company would have had consolidated
long-term indebtedness (including current maturities, but excluding $11.6
million of obligations under undrawn letters of credit) of approximately $207.1
million, which would have represented 73.7% of its total capitalization, and
would have had approximately $66.6 million of additional availability under the
Amended Credit Facility. The degree to which the Company is leveraged could have
important consequences to holders of the Notes, including: (i) the impairment of
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes; (ii) the
reduction of funds available to the Company for its operations or for capital
expenditures as a result of the dedication of a substantial portion of the
Company's net cash flow from operations to the payment of principal of, and
interest on, the Company's indebtedness, including indebtedness under the Notes;
(iii) the possibility of an event of default under covenants contained in the
Company's debt instruments, including the Indenture and the Amended Credit
Facility, which, if not cured or waived, could have a material adverse effect on
the Company; (iv) a relative competitive disadvantage if the Company is
substantially more leveraged than its competitors; and (v) an inability to
adjust to rapidly changing market conditions and consequent vulnerability in the
event of a downturn in general economic conditions or its business because of
the Company's reduced financial flexibility. The Company's ability to make
scheduled payments of the principal of, or interest on, or to refinance its
indebtedness, including indebtedness under the Notes, depends on its future
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
There can be no assurance that the Company's operating results will be
sufficient for payment of the Company's indebtedness, including indebtedness
under the Notes. See "Capitalization" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES
J. Baker, Inc. is a holding company with no business operations or source
of income of its own and conducts and expects to conduct substantially all of
its operations through its subsidiaries. As a result, J. Baker, Inc. will depend
on the earnings and cash flow of, and dividends, distributions or advances from,
its subsidiaries to provide the funds necessary to meet its debt service
obligations, including the payment of principal and interest on the Notes. There
can be no assurance that subsidiaries of J. Baker, Inc. will generate sufficient
cash flow to dividend, distribute or advance funds to J. Baker, Inc. Should J.
Baker, Inc. fail to satisfy any payment obligation under the Notes, the holders
thereof would have a direct claim against the Guarantors pursuant to the
Subsidiary Guarantees. Such direct claim, however, may be subordinated (whether
expressly or effectively) to certain existing and future indebtedness of the
Guarantors, including borrowings under the Amended Credit Facility. The Amended
Credit Facility will prohibit all of the subsidiaries of J. Baker, Inc. (other
than JBAK Realty and JBAK Holding) from making any distributions to J. Baker,
Inc., except (i) to fund the payment of consolidated tax liabilities or such
subsidiary's allocated shares of any expense, (ii) so long as no event of
default has occurred under the Amended Credit Facility or would result
therefrom, to fund the payment of interest due and payable under the 7%
Convertible Subordinated Notes, (iii) so long as no default or event of default
has occurred under the Amended Credit Facility or would result therefrom, to
fund the payment of dividends on the Common Stock of J. Baker, Inc. at the
dividend rate per share in effect on the closing date of the Amended Credit
Facility, and (iv) so long as payments are then permitted in accordance with the
terms of subordination under the Indenture and no bankruptcy event of default
under the Amended Credit Facility has occurred and is continuing, to fund the
10
<PAGE> 14
payment of interest due and payable under the Notes. See "-- Subordination of
Notes," "-- Fraudulent Conveyance" and "Description of Credit Facilities and
Other Indebtedness -- Credit Facilities."
SUBORDINATION OF NOTES AND THE SUBSIDIARY GUARANTEES
The Notes will be general unsecured obligations of J. Baker, Inc.,
subordinated in right of payment to all existing and future Senior Debt of J.
Baker, Inc., including borrowings under the Company's Amended Credit Facility.
Similarly, the Subsidiary Guarantees will be subordinated in right of payment to
all Senior Debt of the respective Guarantors. As of August 2, 1997, on a pro
forma basis after giving effect to the Offering and the application of proceeds
therefrom, the Company and the Guarantors would have had outstanding
approximately $37.1 million of Senior Debt, including $21.8 million of
outstanding borrowings (excluding $11.6 million of obligations under undrawn
letters of credit) under the Amended Credit Facility. In addition, the Company
and the Guarantors would have had $66.6 million of additional availability under
the Amended Credit Facility. Subject to certain limitations, the Indenture will
permit the Company to incur additional indebtedness, including Senior Debt. See
"Description of Notes -- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
The obligations of J. Baker, Inc. with respect to the Notes will jointly
and severally be fully and unconditionally guaranteed (as described herein) by
the Guarantors. Any indebtedness that is incurred by J. Baker, Inc.'s
subsidiaries will be effectively senior to the claims of the holders of the
Notes with respect to the assets of such subsidiaries, except to the extent that
the holders of the Notes may be creditors of a subsidiary pursuant to a
Subsidiary Guarantee (although the payment of any amount in respect of such
Subsidiary Guarantee will be subordinate in right of payment to Senior Debt of
such subsidiary and to all secured indebtedness of such subsidiary to the extent
of the collateral). The rights of J. Baker, Inc. and its creditors, including
holders of the Notes, to realize upon the assets of any subsidiary upon such
subsidiary's liquidation or reorganization (and the consequent rights of holders
of the Notes to participate in those assets) will be subject to the prior claims
of such subsidiary's creditors, except to the extent that J. Baker, Inc. may
itself be a creditor with recognized claims against such subsidiary or to the
extent that the holders of the Notes may be creditors with recognized claims
against such subsidiary pursuant to the terms of a Subsidiary Guarantee, subject
to the seniority (whether express or effective) of such prior claims. See
"Description of Notes -- Subordination" and "Description of Credit Facilities
and Other Indebtedness."
RESTRICTIONS IMPOSED BY CERTAIN INDEBTEDNESS
The Amended Credit Facility requires the Company to maintain specified
financial ratios and to meet certain financial tests. In addition, the Amended
Credit Facility and the Indenture pursuant to which the Notes will be issued
restrict, among other things, the Company's ability to make asset sales, incur
additional indebtedness, issue preferred stock, make certain payments and
dividends, incur liens, merge, consolidate or sell substantially all of the
assets of the Company and enter into certain transactions with affiliates. A
failure to comply with the restrictions contained in the Amended Credit Facility
or the Indenture could lead to an event of default thereunder, which could
result in an acceleration of such indebtedness and indebtedness under other
instruments which contain cross-default or cross-acceleration provisions. There
can be no assurance that the Company would have sufficient resources or have
access to sufficient resources to pay its obligations under the Amended Credit
Facility or the Notes if such indebtedness is accelerated. See "Description of
Credit Facilities and Other Indebtedness" and "Description of Notes."
DEPENDENCE ON CERTAIN LICENSORS
The Company's licensed shoe department business depends, in large part,
upon its five largest licensors: Ames, Bradlees, Hills, Rose's and ShopKo, from
whom it derived on a pro forma basis approximately 44.8% and 44.9% of the
Company's net sales during fiscal 1997 and the first six months of fiscal 1998,
respectively, and who accounted for approximately 88% and 92% of the Company's
licensed shoe department business' net sales during fiscal 1997 and the first
six months of fiscal 1998, respectively. The loss of any one of these licensors
could have a material adverse effect on the Company. Furthermore, the success of
the licensed shoe department business depends on the success of these licensors
which is generally outside the control of the
11
<PAGE> 15
Company, including their ability to advertise, merchandise and attract customers
to their stores. A decline in the financial and other condition of any of these
licensors could have a material adverse effect on the Company's business,
financial condition and results of operations.
On June 23, 1995, Bradlees filed for protection under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11"). At the time of the bankruptcy
filing, the Company had outstanding accounts receivable of approximately $1.8
million due from Bradlees. Under bankruptcy law, Bradlees has the option of
assuming the existing license agreement with the Company or rejecting that
agreement. If the license agreement is assumed, Bradlees must cure all defaults
under the agreement and the Company will collect in full the outstanding past
due receivable. The Company has no assurance that the agreement will be assumed
or that Bradlees will continue in business. The Company's sales in the Bradlees
chain for fiscal 1997 were $57.7 million. In the past, other licensors of the
Company, including Ames and related entities, Hills and Rose's, have filed for
and emerged from protection under Chapter 11.
There can be no assurance that the financial condition of any licensor of
the Company will not deteriorate and/or result in a filing by any such licensor
for protection under Chapter 11 or for liquidation under Chapter 7 of the United
States Bankruptcy Code, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Licensed Shoe Department Business."
IMPLEMENTATION OF BUSINESS AND GROWTH STRATEGIES
The growth of the Company is dependent upon the Company's ability to
successfully execute its strategy and, in particular, to increase its sales at
existing stores, open new Casual Male Big & Tall and Work 'n Gear stores,
increase corporate sales to Work 'n Gear customers and improve margins. The
Company expects to open 35 new Casual Male Big & Tall stores, of which 20 Casual
Male Big & Tall stores have been opened through August 2, 1997. The Company has
recently opened two test stores expected to exclusively sell healthcare apparel.
The success of the Company's growth strategy will depend upon a number of
factors, including the identification of suitable markets and sites for new
stores, negotiation of leases on acceptable terms, construction or renovation of
sites in a timely manner at acceptable costs and maintenance of sales generated
by the existing store base. In addition, the Company must be able to hire, train
and retain competent managers and personnel and manage the systems and
operational components of its growth. The failure of the Company to identify,
consummate and successfully achieve its targets for opening new stores on a
timely basis, obtain acceptance in markets in which it currently has a limited
or no presence, attract qualified management and personnel, appropriately adjust
operational systems and procedures or integrate strategic acquisitions could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the opening of new
stores in existing markets will not have an adverse effect on sales at existing
stores in these markets. In addition, the Company seeks to improve the gross
margins of its apparel operations, which declined in fiscal 1996 and 1997 and
the first six months of fiscal 1998 from the comparable prior year periods, by
introducing the business strategies described above. There can also be no
assurance that the Company will be able to do so. The failure to successfully
implement these strategies could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Business Strategy."
RECENT LOSSES AND FOOTWEAR OPERATING RESULTS
Net sales of the Company's footwear operations declined in the first six
months of fiscal 1998 from the first six months of fiscal 1997 and in fiscal
1997 from fiscal 1996, both overall and excluding sales of the SCOA and Parade
of Shoes businesses which were sold in March 1997. Comparable store sales in the
Company's licensed shoe departments have declined in each of the last five years
and in the first six months of fiscal 1998 as compared to the first six months
of fiscal 1997. In connection with the Footwear Restructuring, the Company
recorded pre-tax charges of $166.6 million in fiscal 1997 and $69.3 million in
fiscal 1996, which resulted in net losses for the Company in each of those
years. Although the Company has restructured its footwear operations and has
developed a strategy to improve the results of its remaining footwear business,
12
<PAGE> 16
there can be no assurance that the Company's strategy will be successful or that
the Company will not incur sales declines or losses in the future. See "Summary
Historical Financial and Pro Forma Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- History."
ECONOMIC AND MARKET CONDITIONS; SEASONALITY
The retail apparel and footwear businesses are dependent upon the level of
consumer spending, which may be adversely affected by an economic downturn or a
decline in consumer confidence. An economic downturn, weakness in overall
consumer demand or increased inflation in the United States, the Northeast
region of the United States or any state from which the Company derives a
significant portion of its sales could have a material adverse effect on the
Company's business, financial condition and results of operations. As a result,
changes in governmental trade, monetary, fiscal or taxing policies may adversely
affect the Company's sales and earnings. In addition, as store payroll is one of
the Company's most significant expenses, any increase in the Federal (or state)
minimum wage could have an adverse impact on the Company's hourly pay rates,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's success depends in part upon its ability to anticipate and
respond to changing consumer preferences and merchandise trends in a timely
manner. Any failure by the Company to anticipate, identify and respond to such
trends could adversely affect consumer acceptance of the merchandise in the
Company's stores, which in turn could have a material adverse effect on the
Company's business, financial condition and results of operations and on its
image with its customers. If the Company miscalculates either the market for its
merchandise or its customers' purchasing habits, it may be required to sell a
significant amount of unsold inventory at lower gross margins, which would have
an adverse effect on the Company's business, financial condition and results of
operations.
Sales of the Company's products have historically reflected significant
seasonality. The Company has historically experienced substantially lower
earnings in the first two fiscal quarters of the year, reflecting the higher
sales volume generated by, among other things, the "back to school" and
Christmas selling seasons. Unseasonable weather may affect sales of seasonable
products, especially during the traditional high-volume periods. In addition,
the Company's quarterly results of operations may fluctuate materially depending
on, among other things, increases or decreases in comparable store sales,
adverse weather conditions, shifts in timing of certain holidays and changes in
the Company's merchandise mix. Such fluctuations may have a material adverse
effect on the Company's business, financial condition and results of operations.
COMPETITION
The retail apparel and footwear industries in which the Company operates
are highly competitive. The Company competes against national and regional
competitors, including department, specialty and discount stores and other
retailers. Sales of clothing through catalogs and home shopping networks or
other electronic media provide additional sources of competition. Certain of the
Company's competitors have substantially greater financial resources than the
Company. Competition is based on product selection, quality, availability,
price, store location, customer service and promotional activities. There can be
no assurance that the Company will be able to maintain or improve its sales,
profitability or market share in the face of such competition or that any such
inability will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competition."
RELIANCE ON KEY VENDORS
The Company is dependent to a significant degree upon its ability to
purchase merchandise at competitive prices. During fiscal 1997, approximately
16% of the Company's licensed shoe department merchandise was purchased from one
vendor. No other vendor accounted for greater than 10% of the licensed shoe
department purchases or the purchases of Casual Male Big & Tall or Work 'n Gear
during fiscal 1997. The loss of the Company's relationship with any key vendor
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company generally purchases
13
<PAGE> 17
merchandise from key vendors pursuant to purchase orders and is not presently a
party to merchandise supply contracts with any key vendors. There can be no
assurance that the Company will be able to acquire merchandise at competitive
prices or on competitive terms in the future. Due to the specialized nature of
some apparel sold by the Company and the lead time required for orders from
vendors, it is particularly important that the Company adequately anticipate its
inventory needs for each selling season. Since such apparel is often based on
particular specifications, it would be difficult or impossible to restock
merchandise or replace merchandise which is lost or damaged in time for the
appropriate selling season. See "Business -- Purchasing and Distribution."
RISKS OF FOREIGN MANUFACTURING
The Company contracts for the manufacture of merchandise with independent
third parties in the United States and abroad. Additionally, the Company's
vendors contract for the manufacture of a significant percentage of their
merchandise in foreign countries. Risks inherent in foreign manufacturing
include economic and political instability, transportation delays and
interruptions, restrictive actions by foreign governments, the laws and policies
of the United States affecting the importation of goods including duties, quotas
and taxes, trade and foreign tax laws, and fluctuations in currency exchange
rates. There can be no assurance that, in the future, these risks will not
result in increased costs and delays or disruption in product deliveries that
could cause loss of sales and damage to customer relationships and could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, there can be no assurance that foreign
manufacturers from which the Company purchases merchandise will abide by the
same labor standards (including restrictions on child labor, minimum wages and
working conditions) to which the Company and other United States companies are
subject. Foreign labor practices in the apparel and manufacturing industries
have recently attracted substantial attention from the media, interest groups,
public figures and government officials. The failure of foreign manufacturers to
meet appropriate manufacturing standards could generate negative publicity,
which in turn could have an adverse impact on the Company's image with its
customers and on the Company's business.
From time to time, the United States Congress has considered legislation
which could result in import restrictions, and various foreign countries in
which the Company and its primary competitors source footwear have considered
voluntary export restrictions. The Company benefits from "most favored nation"
provisions in trade treaties between the United States and certain countries in
which the footwear industry's main suppliers are located. From time to time, the
United States Congress has proposed legislation which could result in such
provisions being rescinded from particular trade treaties. This could, in turn,
result in higher product costs to the Company as well as to its competitors and
may have a material adverse effect on the Company's business, financial
condition or results of operations. In particular, there has been extensive
congressional debate with respect to the most favored nation provision of the
trade treaty between the United States and China. Currently, the Company
directly imports a significant percentage of the merchandise for its licensed
shoe department business (over 90% in dollar amount in fiscal 1997) from China.
In addition, the Company's other footwear vendors have a substantial portion of
their product manufactured in China. The most favored nation provision of the
trade treaty between the United States and China was renewed for one year in
June 1997. If the most favored nation provision of the trade treaty between the
United States and China were not renewed, the cost of importing merchandise from
China would increase and the Company could experience merchandise shortages,
delays in delivery or price increases. Such loss of most favored nation
treatment of China would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Purchasing and Distribution."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend, in large part, on the efforts, abilities
and experience of its executive officers and other key employees of the Company.
It is possible that members of executive management may leave the Company or be
unavailable from time to time, and such departures or absences could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not maintain key-person life insurance
on any of its executive officers. See "Management."
14
<PAGE> 18
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, J. Baker, Inc. will be required
to make an offer to repurchase all or any part of the Notes at a price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the date of repurchase. Certain events which would
constitute a Change of Control would also constitute an event of default under
the Amended Credit Facility and other indebtedness of the Company that may be
incurred in the future. An event of default under the Amended Credit Facility or
other future indebtedness could result in an acceleration of such indebtedness,
in which case the subordination provisions of the Notes would require payment in
full (or provision therefor) of all Senior Debt before J. Baker, Inc. may
repurchase or make other payments in respect of the Notes. See "Description of
Notes -- Repurchase at the Option of Holders -- Change of Control," "Description
of Notes -- Subordination" and "Description of Credit Facilities and Other
Indebtedness." There can be no assurance that J. Baker, Inc. would have, or
could have access to, sufficient resources to repurchase the Notes or pay its
obligations if the indebtedness under the Amended Credit Facility or other
future Senior Debt were accelerated upon the occurrence of a Change of Control.
J. Baker, Inc. will be required to obtain the consent of the lenders under the
Amended Credit Facility in order to repurchase the Notes. There can be no
assurance that such consent will be obtained. The inability to repurchase all of
the Notes tendered by the holders thereof would constitute an Event of Default
under the Indenture. These provisions may be deemed to have anti-takeover
effects and may delay, defer or prevent a merger, tender offer or other takeover
attempt. No assurance can be given that the terms of any future indebtedness
will not contain cross-default provisions based upon a Change of Control or
other such debt instruments.
FRAUDULENT CONVEYANCE
J. Baker, Inc.'s obligations under the Notes will jointly and severally be
fully and unconditionally guaranteed (as described herein) by the Guarantors. In
connection with the Offering, the Guarantors will incur Indebtedness under the
Subsidiary Guarantees. If, under relevant federal or state fraudulent conveyance
statutes in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of J. Baker, Inc. or
the Guarantors, a court were to find that, at the time the Subsidiary Guarantees
were issued, (i) the Guarantors issued the Subsidiary Guarantees with the intent
of hindering, delaying or defrauding current or future creditors or (ii) the
Guarantors received less than reasonably equivalent value or fair consideration
for issuing the Subsidiary Guarantees and a Guarantor (a) was insolvent or was
rendered insolvent by reason of incurring Indebtedness under the Subsidiary
Guarantees and/or transactions related thereto, (b) was engaged, or about to
engage, in a business or transaction for which its assets constituted
unreasonably small capital, (c) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured (as all of the
foregoing terms are defined in or interpreted under such fraudulent conveyance
statutes) or (d) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it (if, in either case, after final
judgment, the judgment is unsatisfied), such court could avoid or subordinate
the Subsidiary Guarantees to presently existing and future Indebtedness of the
Guarantors and take other action detrimental to the rights of the holders of the
Notes and the Subsidiary Guarantees, including, under certain circumstances,
invalidating the Subsidiary Guarantees. Among other things, a legal challenge of
a Subsidiary Guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by such Guarantor as a result of the issuance by J.
Baker, Inc. of the Notes. To the extent any Subsidiary Guarantee is voided as a
fraudulent conveyance, subordinated or held unenforceable for any other reason,
the holders of the Notes may cease to have any claim in respect of such
Guarantor and would be creditors solely of J. Baker, Inc. and any remaining
Guarantors. Each Guarantor's liability under the Indenture will be limited to
the maximum amount that would not result in such Guarantor's Subsidiary
Guarantee constituting a fraudulent conveyance or fraudulent transfer under
applicable law.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or state law that is being applied in any such
proceeding. Generally, however, J. Baker, Inc. or the Guarantors would be
considered insolvent if, at the time of, or as a result of, the incurrence of
the Indebtedness constituting the Notes or the Subsidiary Guarantees, either (i)
the fair market value (or fair saleable value) of its assets is less than the
amount required to pay its total existing debts and liabilities
15
<PAGE> 19
(including the probable liability on contingent liabilities) as they become
absolute and matured or (ii) it is incurring debts beyond its ability to pay as
such debts mature.
The Company believes that at the time of the issuance of the Notes and the
Subsidiary Guarantees, J. Baker, Inc. and the Guarantors (i) will (a) be neither
insolvent nor rendered insolvent thereby, (b) have sufficient capital to operate
their respective businesses effectively and (c) be incurring debts within their
respective abilities to pay as the same mature or become due and (ii) will have
sufficient resources to satisfy any probable money judgment against them in any
pending action. There can be no assurance, however, that such beliefs will prove
to be correct or that a court passing on such questions would reach the same
conclusions.
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF NOTE PRICE
Prior to the Offering, there has been no public market for the Notes and
there can be no assurance that such a market will develop. In addition, the
Notes will neither be listed on any national securities exchange nor included in
any automated quotation system. The Company has been advised by the Underwriters
that, following the completion of the Offering, they currently intend to make a
market in the Notes as permitted by applicable laws and regulations; however,
the Underwriters are not obligated to do so, and any such market-making
activities with respect to the Notes may be discontinued by any Underwriter at
any time without notice. Therefore, there can be no assurance that an active
trading market for the Notes will develop, or, if such a market develops, that
it will continue. If an active public market does not develop, the market prices
and liquidity of the Notes may be adversely affected. If such a market were to
develop, the Notes could trade at prices that may be higher or lower than their
initial offering price depending upon many factors, including prevailing
interest rates, the Company's financial condition and operating results,
conditions in the Company's industry and in the economy in general and the
market for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market for the Notes
will not be subject to similar disruptions. See "Underwriting."
16
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $96.3 million, after deducting the discount to the Underwriters
and estimated offering expenses. The Company intends to use all of the net
proceeds from the Offering to refinance existing indebtedness. More
specifically, the net proceeds will be used to (i) repay all amounts outstanding
under and terminate the Footwear Credit Facility (approximately $41.4 million,
together with accrued interest as of August 2, 1997), (ii) repay the remaining
$3.0 million principal amount, together with accrued interest, of the 11.21%
Senior Subordinated Notes due 1999, (iii) repay the remaining $353,000 principal
amount, together with an early redemption premium of $10,590 and accrued
interest, of the 8% Convertible Subordinated Notes due 2002 and (iv) reduce the
Company's borrowings under the Apparel Credit Facility (which reduction is
estimated to be approximately $51.3 million as of August 2, 1997). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Indebtedness under the Footwear Credit Facility currently bears interest at
a floating rate (weighted average rate of 8.05% per annum at August 2, 1997).
The final maturity date of the Footwear Credit Facility's revolving loan
facility is May 31, 2000. Upon consummation of the Offering, the Footwear Credit
Facility will be terminated.
The Company's 11.21% Senior Subordinated Notes due 1999 currently bear
interest at the rate of 11.71% per annum (which interest rate would by the terms
of the Senior Subordinated Notes increase over time to 13.21% per annum) and are
due in two installments in May 1998 and May 1999.
The 8% Convertible Subordinated Notes due 2002 were issued by Morse Shoe,
Inc. ("Morse Shoe") prior to the Company's acquisition of Morse Shoe. These
debentures are convertible into Common Stock of the Company and accrued no
interest until January 15, 1997, at which time interest began to accrue and be
payable at the rate of 8% per annum.
Indebtedness under the Apparel Credit Facility currently bears interest at
a floating rate (weighted average rate of 7.31% per annum at August 2, 1997) and
matures on May 31, 2000. Upon consummation of the Offering, the Apparel Credit
Facility will be amended and retained as the Amended Credit Facility. The
amendment will add as additional borrowers thereunder the subsidiaries of the
Company that conduct the licensed shoe department business, modify certain
covenants to permit the Offering and effect certain other changes. Obtaining
such amendment is a condition to the consummation of the Offering.
See "Capitalization," "Description of Credit Facilities and Other
Indebtedness" and "Underwriting."
17
<PAGE> 21
CAPITALIZATION
The following table sets forth the actual cash and cash equivalents and
capitalization of the Company at August 2, 1997 and as adjusted to give effect
to the Offering and the application of proceeds therefrom. This table should be
read in conjunction with "Summary Historical Financial Data," "Use of Proceeds,"
"Selected Historical Financial and Pro Forma Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Consolidated Financial Data" and the Company's consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 2, 1997
---------------------------
ACTUAL AS ADJUSTED
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................ $ 1,712 $ 1,712
======== ==========
Long-term debt, including current portion:
Apparel Credit Facility (1).................................... $ 73,100 $ 21,802
Footwear Credit Facility (1)................................... 41,412 --
9% Mortgage Loan due 2012...................................... 15,250 15,250
11.21% Senior Subordinated Notes due 1999...................... 2,971 --
% Senior Subordinated Notes due 2007.......................... -- 100,000
7% Convertible Subordinated Notes due 2002..................... 70,000 70,000
8% Convertible Subordinated Notes due 2002..................... 353 --
-------- ----------
Total long-term debt, including current portion............. 203,086 207,052
-------- ----------
Stockholders' equity:
Common Stock, $.50 par value; 40,000,000 shares authorized;
13,917,227 shares issued and outstanding.................... 6,959 6,959
Preferred Stock, $1 par value; 2,000,000 shares authorized;
none issued and outstanding................................. -- --
Series A Junior Participating Cumulative Preferred Stock, $1
par value; 100,000 shares authorized; none issued and
outstanding............................................... -- --
Additional paid-in capital..................................... 115,587 115,587
Retained earnings (deficit).................................... (48,617) (48,657)(2)
-------- ----------
Total stockholders' equity....................................... 73,929 73,889
-------- ----------
Total capitalization........................................ $277,015 $ 280,941
======== ==========
</TABLE>
- ------------------------------
(1) The Company intends to use a portion of the net proceeds of the Offering to
repay and terminate the Footwear Credit Facility and to reduce outstanding
borrowings under the Apparel Credit Facility, which it will amend and retain
as the Amended Credit Facility. See "Use of Proceeds" and "Description of
Credit Facilities and Other Indebtedness."
(2) The increase in retained earnings (deficit) reflects the recognition of the
$29,239 unamortized balance of the $1.7 million value originally assigned to
the detachable warrants issued in connection with the 11.21% Senior
Subordinated Notes due 1999, and the recognition of a $10,590 early
redemption premium on the 8% Convertible Subordinated Notes due 2002.
18
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth (i) selected historical consolidated
financial data for the Company for the five fiscal years ended February 1, 1997
and for the six months ended August 3, 1996 and August 2, 1997, and (ii)
selected historical consolidated balance sheet data at August 2, 1997 and as
adjusted to give effect to the Offering and the application of proceeds
therefrom, as if the Offering had occurred at August 2, 1997. The selected
historical consolidated financial data for the five fiscal years ended February
1, 1997 were derived from the audited financial statements of the Company which
have been audited by KPMG Peat Marwick LLP, independent auditors. Results for
interim periods are not necessarily indicative of results for the full year.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Consolidated Financial Data" and the Company's consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR -------------------------
--------------------------------------------------------- AUGUST 3, AUGUST 2,
1993 1994 1995 1996(1) 1997 1996 1997
-------- -------- ---------- ---------- --------- --------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $532,256 $918,878 $1,042,979 $1,020,413 $ 897,492 $427,336 $281,280
Cost of sales............................. 313,703 516,855 579,735 580,067 542,247 235,288 155,492
-------- -------- ---------- ---------- --------- -------- --------
Gross profit.............................. 218,553 402,023 463,244 440,346 355,245 192,048 125,788
Selling, administrative and general
expenses................................. 174,658 336,283 389,362 392,586 347,977 167,595 109,622
Depreciation and amortization............. 14,688 21,874 27,883 32,428 29,431 14,663 6,154
Restructuring and other non-recurring
charges.................................. -- -- -- 69,300 122,309 -- --
-------- -------- ---------- ---------- --------- -------- --------
Operating income (loss)................... 29,207 43,866 45,999 (53,968) (144,472) 9,790 10,012
Interest income........................... 80 704 635 526 254 149 62
Interest expense.......................... (8,211) (8,146) (9,735) (10,983) (13,056) (6,151) (6,512)
-------- -------- ---------- ---------- --------- -------- --------
Earnings (loss) before taxes and
extraordinary item....................... 21,076 36,424 36,899 (64,425) (157,274) 3,788 3,562
Income tax expense (benefit).............. 7,798 13,113 13,283 (25,823) (45,846) 1,477 1,389
-------- -------- ---------- ---------- --------- -------- --------
Earnings (loss) before extraordinary
item..................................... 13,278 23,311 23,616 (38,602) (111,428) 2,311 2,173
Extraordinary item, net of income tax
benefit.................................. (2,444) -- -- -- -- -- --
-------- -------- ---------- ---------- --------- -------- --------
Net earnings (loss)....................... $ 10,834 $ 23,311 $ 23,616 $ (38,602) $(111,428) $ 2,311 $ 2,173
======== ======== ========== ========== ========= ======== ========
Net earnings (loss) per common share:
Primary:
Earnings (loss) before extraordinary
item................................. $ 1.25 $ 1.70 $ 1.71 ($ 2.79) ($ 8.02) $ 0.17 $ 0.16
Extraordinary item..................... (0.23) -- -- -- -- -- --
-------- -------- ---------- ---------- --------- -------- --------
$ 1.02 $ 1.70 $ 1.71 ($ 2.79) ($ 8.02) $ 0.17 $ 0.16
======== ======== ========== ========== ========= ======== ========
Fully diluted:
Earning (loss) before extraordinary
item................................. $ 1.11 $ 1.45 $ 1.46 ($ 2.79) ($ 8.02) $ 0.17 $ 0.16
Extraordinary item..................... (0.18) -- -- -- -- -- --
-------- -------- ---------- ---------- --------- -------- --------
$ .93 $ 1.45 $ 1.46 ($ 2.79) ($ 8.02) $ 0.17 $ 0.16
======== ======== ========== ========== ========= ======== ========
CASH FLOW DATA:
Net cash provided by (used in) operating
activities............................... $ 30,139 $(27,941) $ 6,112 $ 22,391 $ 9,562 $(28,043) $(45,029)
Net cash used in investing activities..... (17,915) (29,295) (56,514) (26,542) (14,454) (8,028) (4,044)
Net cash provided by (used in) financing
activities............................... (8,378) 54,434 51,733 2,523 5,574 35,294 46,816
OTHER FINANCIAL DATA:
EBITDA(2)................................. $ 45,480 $ 69,300 $ 78,287 $ 55,331 $ 52,061 $ 27,352 $ 16,228
Interest and related expenses(3).......... 9,863 11,728 14,231 18,754 19,554 9,126 6,740
Capital expenditures...................... 11,198 24,115 44,514 28,062 16,421 10,450 4,181
Ratio of earnings to fixed charges(4)..... 2.3x 2.4x 2.2x -- -- 1.2x 1.3x
</TABLE>
<TABLE>
<CAPTION>
ACTUAL AS OF FISCAL YEAR END AS OF AUGUST 2, 1997
--------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(5)
-------- -------- ---------- ---------- --------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $138,385 $187,095 $ 235,948 $ 205,080 $ 182,123 $164,460 $166,187
Total assets.............................. 431,798 502,496 578,618 526,082 382,521 341,480 345,180
Total debt (including current maturities
and convertible debt)................... 98,394 157,301 206,018 209,266 216,104 203,086 207,052
Convertible subordinated debt............. 70,353 70,353 70,353 70,353 70,353 70,353 70,000
Stockholders' equity...................... 172,610 200,086 223,317 184,037 71,989 73,929 73,889
</TABLE>
19
<PAGE> 23
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ---------------------
----------------------------------------- AUGUST 3, AUGUST 2,
1993 1994 1995 1996(1) 1997 1996 1997
----- ----- ----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPARABLE STORE SALES PERCENTAGE CHANGE:
Casual Male Big & Tall.................................... 16.3% 5.7% 3.2% (3.6)% 1.5% 1.1% 0.8%
Work 'n Gear.............................................. 5.2% (4.2)% 4.6% 1.6% 7.8% 7.9% 2.4%
Licensed shoe departments................................. (0.7)% (0.1)% (4.3)% (6.7)% (2.6)% (3.9)% (3.0)%
NUMBER OF STORES (AT PERIOD END):
Casual Male Big & Tall.................................... 214 254 319 400 440 422 456
Work 'n Gear.............................................. 38 52 61 69 66 66 65
----- ----- ----- ----- ----- ----- -----
Total apparel............................................. 252 306 380 469 506 488 521
===== ===== ===== ===== ===== ===== =====
Licensed shoe departments................................. 1,446 1,368 1,242 1,087 937 1,037 863
SCOA...................................................... -- 162 448 505 454 448 --
Parade of Shoes........................................... 136 162 191 168 188 200 --
Fayva..................................................... 425 395 368 -- -- -- --
----- ----- ----- ----- ----- ----- -----
Total footwear............................................ 2,007 2,087 2,249 1,760 1,579 1,685 863
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ------------------------------
(1) Fiscal 1996 includes 53 weeks. Comparable store sales percentage change for
fiscal 1996 has been determined based on a comparable 52 week period.
(2) EBITDA is defined, in accordance with the definition of Consolidated EBITDA
in the Indenture relating to the Notes, as net income before (i) interest
and related expenses, (ii) income taxes, (iii) depreciation and amortization
(excluding amortization of debt issuance costs, which are included in
interest and related expenses), (iv) extraordinary, non-recurring or unusual
losses, and (v) the $37.3 million charge related to a reduction in the
valuation of the Company's licensed shoe department business' inventory and
the $1.2 million charge to increase the Company's allowance for doubtful
accounts for certain licensors which the Company no longer serves, in each
case, recorded in fiscal 1997 in connection with the Footwear Restructuring.
For each of the periods set forth above, the calculation of EBITDA is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ---------------------
-------------------------------------------------- AUGUST 3, AUGUST 2,
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- -------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings (loss)............................. $10,834 $23,311 $23,616 $(38,602) $(111,428) $ 2,311 $ 2,173
Interest and related expenses................... 9,863 11,728 14,231 18,754 19,554 9,126 6,740
Income tax expense (benefit).................... 7,798 13,113 13,283 (25,823) (45,846) 1,477 1,389
Depreciation and amortization................... 14,541 21,148 27,157 31,702 28,981 14,438 5,926
Extraordinary, non-recurring or unusual
losses........................................ 2,444 -- -- 69,300 122,309 -- --
Other Footwear Restructuring charges............ -- -- -- -- 38,491 -- --
------- ------- ------- -------- --------- ------- -------
EBITDA........................................ $45,480 $69,300 $78,287 $ 55,331 $ 52,061 $27,352 $16,228
======= ======= ======= ======== ========= ======= =======
</TABLE>
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to service and incur debt. EBITDA should not be considered
in isolation from or as a substitute for net earnings or cash flow measures
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(3) For each of the periods set forth above, the calculation of interest and
related expenses is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ---------------------
-------------------------------------------------- AUGUST 3, AUGUST 2,
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- -------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash interest expense........................... $ 8,211 $ 8,146 $ 9,735 $ 10,983 $ 13,056 $ 6,151 $ 6,512
Costs related to inventory financing (included
in cost of sales)............................. 1,505 2,856 3,770 7,045 6,048 2,750 --
Amortization of debt issuance costs............. 147 726 726 726 450 225 228
------- ------- ------- -------- --------- -------- -------
Interest and related expenses................. $ 9,863 $11,728 $14,231 $ 18,754 $ 19,554 $ 9,126 $ 6,740
======= ======= ======= ======== ========= ======== =======
</TABLE>
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest and related expenses and an estimated portion of rentals
representing interest costs. The estimated portion of rentals representing
interest costs excludes license fees which are calculated based on a
percentage of sales and are entirely variable in nature. For fiscal 1996 and
1997, earnings did not cover fixed charges by $28.4 million and $121.4
million, respectively.
(5) The as adjusted balance sheet data have been prepared as if the Offering and
the application of proceeds therefrom had occurred on August 2, 1997. See
"Use of Proceeds."
20
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data have been
derived by the application of pro forma adjustments to the historical
consolidated financial statements of the Company for its fiscal year ended
February 1, 1997 and for the six months ended August 2, 1997. The unaudited pro
forma consolidated financial data presented below give effect to the Footwear
Business Dispositions and the Offering and the application of proceeds therefrom
as if such events had occurred at the beginning of the relevant period. The
adjustments relating to the Footwear Business Dispositions and the Offering are
described in the accompanying notes. The unaudited pro forma consolidated
financial data presented below are not necessarily indicative of either future
results of operations or the results that might have occurred had the above
transactions actually taken place on the dates indicated. The unaudited pro
forma consolidated financial data presented below should be read in conjunction
with the Company's consolidated financial statements, including the notes
thereto, "Summary Historical Financial and Pro Forma Data," "Use of Proceeds,"
"Capitalization," "Selected Historical Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
information is included elsewhere in this Prospectus.
21
<PAGE> 25
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF EARNINGS
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR THE FOR THE OFFERING
FOR THE FOOTWEAR FOOTWEAR ADJUSTMENTS AND THE FOOTWEAR
BUSINESS BUSINESS FOR THE BUSINESS
HISTORICAL DISPOSITIONS DISPOSITIONS OFFERING DISPOSITIONS
---------- ------------------ ------------------ ----------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................ $ 897,492 $ (300,740)(1) $ 596,752 $ 596,752
Cost of sales............ 542,247 (174,815)(2) 367,432 367,432
---------- ---------- ----------
Gross profit............. 355,245 229,320 229,320
Selling, administrative
and general expenses... 347,977 (119,069)(3) 228,908 228,908
Depreciation and
amortization........... 29,431 (6,390)(4) 23,041 $ 370(8) 23,411
Restructuring and other
non-recurring
charges................ 122,309 (63,737)(5) 58,572 58,572
---------- ---------- ----------
Operating income
(loss)................. (144,472) (81,201) (81,571)
Interest income.......... 254 254 254
Interest expense......... (13,056) 1,920(6) (11,136) (1,550)(8) (12,686)
---------- ---------- ----------
Earnings (loss) before
taxes.................. (157,274) (92,083) (94,003)
Income tax expense
(benefit).............. (45,846) 19,688(7) (26,158) (749)(7) (26,907)
---------- ---------- ----------
Net earnings (loss)...... $ (111,428) $ (65,925) $ (67,096)(9)
========== ========== ==========
Net earnings (loss) per
common share:
Primary................ $ (8.02) $ (4.83)(9)
Fully diluted.......... $ (8.02) $ (4.83)(9)
OTHER FINANCIAL DATA:
EBITDA(10)............... $ 42,205
Interest and related
expenses(11)........... $ 16,554
Ratio of EBITDA to
interest and related
expenses............... 2.5x
Ratio of earnings to
fixed charges(12)...... --
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Statements of
Earnings.
22
<PAGE> 26
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED AUGUST 2, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR THE FOR THE OFFERING
FOR THE FOOTWEAR FOOTWEAR ADJUSTMENTS AND THE FOOTWEAR
BUSINESS BUSINESS FOR THE BUSINESS
HISTORICAL DISPOSITIONS DISPOSITIONS OFFERING DISPOSITIONS
---------- ---------------- ------------- ----------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $ 281,280 $(17,707)(1) $ 263,573 $263,573
Cost of sales................ 155,492 (9,469)(2) 146,023 146,023
--------- --------- --------
Gross profit................. 125,788 117,550 117,550
Selling, administrative and
general expenses........... 109,622 (8,238)(3) 101,384 101,384
Depreciation and
amortization............... 6,154 6,154 $ 185(8) 6,339
--------- --------- --------
Operating income............. 10,012 10,012 9,827
Interest income.............. 62 62 62
Interest expense............. (6,512) 386(6) (6,126) (881)(8) (7,007)
--------- --------- --------
Earnings before taxes........ 3,562 3,948 2,882
Income tax expense
(benefit).................. 1,389 151(7) 1,540 (416)(7) 1,124
--------- --------- --------
Net earnings................. $ 2,173 $ 2,408 $ 1,758(9)
========= ========= ========
Net earnings per common
share:
Primary.................... $ 0.16 $ 0.13(9)
Fully diluted.............. $ 0.16 $ 0.13(9)
OTHER FINANCIAL DATA:
EBITDA(10)................... $ 16,228
Interest and related
expenses(11)............... $ 7,420
Ratio of EBITDA to interest
and related expenses....... 2.2x
Ratio of earnings to fixed
charges(12)................ 1.2x
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Statements of
Earnings.
23
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
(1) Reflects the elimination of the net sales of both the SCOA and Parade of
Shoes businesses for fiscal 1997 and for the period prior to their sale
during the six months ended August 2, 1997.
(2) Reflects the elimination of the cost of sales of both the SCOA and Parade
of Shoes businesses for fiscal 1997 and for the period prior to their sale
during the six months ended August 2, 1997 of $174,815 and $9,469,
respectively.
(3) Reflects the elimination of the selling, administrative and general
expenses of both the SCOA and Parade of Shoes businesses for fiscal 1997
and for the period prior to their sale during the six months ended August
2, 1997 of $119,069 and $8,238, respectively.
(4) Reflects the elimination of depreciation and amortization expense of both
the SCOA and Parade of Shoes businesses of $6,390.
(5) Reflects the elimination of losses resulting from the sales of the SCOA and
Parade of Shoes businesses.
(6) Reflects the application of the proceeds from the sales of both the SCOA
and Parade of Shoes businesses to reduce interest expense on bank debt,
partially offset by borrowing costs associated with the financing of
inventory purchases of SCOA and Parade of Shoes, which were classified as
cost of sales and eliminated in the pro forma adjustments (see note 2), as
if the receipt of such proceeds had occurred at the beginning of the
periods presented.
(7) Reflects the income tax provision (benefit) related to the pro forma
adjustments at an effective tax rate of 39% applied to operating results,
excluding restructuring and other non-recurring charges, for which the
effective tax rate applied was 30%.
(8) Reflects adjustments to depreciation and amortization and interest expense
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR 1997 AUGUST 2, 1997
---------------- ----------------
<S> <C> <C>
Depreciation and Amortization:
Addition of amortization of debt issuance
costs related to the Offering............. $ 370 $ 185
======== ========
Interest Expense:
Addition of interest expense related to the
Offering.................................. $ 9,750 $ 4,875
Elimination of interest expense for the
11.21% Senior Subordinated Notes due
1999...................................... (585) (233)
Elimination of interest expense for the 8%
Convertible Subordinated Notes due 2002... -- (14)
Elimination of interest expense related to
the termination of the Footwear Credit
Facility and the reduction of the Apparel
Credit Facility........................... (7,615) (3,747)
-------- --------
$ 1,550 $ 881
======== ========
</TABLE>
(9) The pro forma fiscal 1997 net loss as adjusted would have reflected
earnings of $5,300 or $0.38 per share had certain non-recurring adjustments
associated with the Footwear Restructuring of $102,691 pre-tax ($72,396
after-tax) been eliminated. These non-recurring adjustments recorded in
connection with the Footwear Restructuring were as follows: (i) a charge of
$37,291 to cost of sales related to a reduction in the valuation of the
Company's licensed shoe department business inventory, (ii) a charge of
$1,200 to selling, administrative and general expenses to increase the
Company's allowance for doubtful accounts for certain licensors which the
Company no longer serves, (iii) depreciation and amortization expense of
$5,628 taken on certain assets of the Company, including certain licensed
shoe department business assets, which were written off, and (iv)
restructuring and other non-recurring charges of $58,572, representing the
write-down to realizable value of certain assets of the Company, including
certain licensed shoe department business assets, severance and related
costs, and lease obligations and consolidation costs related to the
downsizing of the Company's administrative areas and facilities. Costs
24
<PAGE> 28
related to the licensed shoe department business store closings have not
been separately eliminated from the Pro Forma Consolidated Statement of
Earnings.
(10) EBITDA is defined, in accordance with the definition of Consolidated EBITDA
in the Indenture relating to the Notes, as net income before (i) interest
and related expenses, (ii) income taxes, (iii) depreciation and
amortization (excluding amortization of debt issuance costs, which are
included in interest and related expenses), (iv) extraordinary,
non-recurring or unusual losses, and (v) the $37.3 million charge related
to a reduction in the valuation of the Company's licensed shoe department
business' inventory and the $1.2 million charge to increase the Company's
allowance for doubtful accounts for certain licensors which the Company no
longer serves, in each case, recorded in fiscal 1997 in connection with the
Footwear Restructuring. For each of the periods set forth above, the
calculation of EBITDA is as follows:
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
-----------------------------------
SIX MONTHS ENDED
FISCAL YEAR 1997 AUGUST 2, 1997
---------------- ----------------
<S> <C> <C>
Net earnings (loss)............................ $ (67,096) $ 1,758
Interest and related expenses.................. 16,554 7,420
Income tax expense (benefit)................... (26,907) 1,124
Depreciation and amortization.................. 22,591 5,926
Extraordinary, non-recurring or unusual
losses....................................... 58,572 --
Other Footwear Restructuring charges........... 38,491 --
---------- --------
EBITDA....................................... $ 42,205 $ 16,228
========== ========
</TABLE>
EBITDA is presented because it is a widely accepted financial indicator of
a company's ability to service and incur debt. EBITDA should not be
considered in isolation from or as a substitute for net earnings or cash
flow measures prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
(11) For each of the periods set forth above, the calculation of interest and
related expenses is as follows:
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
-----------------------------------
SIX MONTHS ENDED
FISCAL YEAR 1997 AUGUST 2, 1997
---------------- ----------------
<S> <C> <C>
Cash interest expense.......................... $ 12,686 $ 7,007
Costs related to inventory financing (included
in cost of sales)............................ 3,048 --
Amortization of debt issuance costs............ 820 413
-------- --------
Interest and related expenses................ $ 16,554 $ 7,420
======== ========
</TABLE>
(12) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest and related expenses and an estimated portion of
rentals representing interest costs. The estimated portion of rentals
representing interest costs excludes license fees which are calculated
based on a percentage of sales and are entirely variable in nature. For
fiscal 1997, earnings did not cover fixed charges by $67.6 million. The
ratio of earnings to fixed charges would be 1.3x if adjusted for certain
non-recurring items outlined in footnote 9 above.
25
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. This Prospectus, and specifically this
discussion, and the documents filed by the Company under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") include "Forward-Looking
Statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements other than statements of historical
facts included in this Prospectus, including, without limitation, certain
statements in the following discussion and under the "Prospectus Summary" and
"Business" sections, may constitute forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from the Company's expectations are disclosed in this Prospectus
("Cautionary Statements"), including, without limitation, under "Risk Factors"
and in conjunction with the forward-looking statements included in this
Prospectus. In addition, the actual number of store openings and closings will
depend on the availability of attractively priced sites for openings of apparel
stores, the ability of the Company to negotiate leases on favorable terms,
operating results of each site and the actions of the Company's licensors. The
following factors, among others, in some cases have affected and in the future
could affect the Company's financial performance and actual results for fiscal
1998 and beyond to differ materially from those expressed or implied in any such
forward-looking statements: changes in consumer spending patterns, consumer
preferences and overall economic conditions, availability of credit, interest
rates, the impact of competition and pricing, the weather, the financial
condition of the retailers in whose stores the Company operates licensed shoe
departments, changes in existing or potential duties, tariffs or quotas,
availability of suitable store locations and appropriate terms and ability to
hire and train associates. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements. See
"Available Information" and "Information Incorporated by Reference."
GENERAL
The Company is a leading specialty retailer of apparel and footwear in
three niche markets through its chains of Casual Male Big & Tall and Work 'n
Gear stores and its licensed shoe departments. The Company and its predecessors
have been engaged in the retail footwear business for over 40 years. In 1991,
the Company entered the retail apparel business with the acquisition of the
Casual Male Big & Tall and Work 'n Gear chains. Historically, the Company's
EBITDA margin for its apparel operations has been significantly higher than that
of its footwear business. Based on the growth prospects and higher margins
associated with the Company's apparel business compared to those of its footwear
business, the Company determined to undertake the Footwear Restructuring and
shift its focus to the development and growth of its apparel businesses. Sales
and results of operations for the Company's footwear operations in the last
several years had been declining. The Company determined that these businesses
were not generating an adequate return and that there was little potential to
improve upon past results based on the highly competitive nature of the retail
footwear industry. As a result of the Footwear Restructuring, the Company was
able to reduce debt and make capital and human resources available for the
growth and development of its apparel businesses.
In connection with the Footwear Restructuring, in March 1997, the Company
completed the sales of its SCOA and Parade of Shoes businesses. In addition, the
Company reduced its investment in its licensed shoe department business. The
Company decided to concentrate its efforts in the licensed shoe department
business primarily on its five largest licensors, while exploring future
strategic options for this business and continuing to close departments upon the
termination of licenses where the Company believes it is appropriate to do so.
In fiscal 1997, the Company recorded a pre-tax charge of $166.6 million related
to the sales of the SCOA and Parade of Shoes businesses, the write-down to
realizable value of certain assets related to its licensed shoe department
business, and severance and consolidation costs related to the downsizing of the
Company's administrative areas and facilities. Of the pre-tax charge, $122.3
million is included as a separate component of results of operations as
"Restructuring and other non-recurring charges." The Company also recorded a
charge to cost of sales of $37.3 million related to a reduction in the licensed
shoe department business' inventory to net realizable value. The remaining $7.0
million of the charge includes an increase in the allowance for doubtful
accounts for the licensed shoe department business' accounts receivable and
losses incurred from actions taken in order to maximize the cash proceeds
received for the assets sold in the Parade of Shoes and SCOA businesses
subsequent to the Company's decision to dispose of such businesses. In fiscal
1996, the Company recorded restructuring charges of $69.3 million related to the
liquidation of its Fayva
26
<PAGE> 30
footwear business. While the Company believes that the restructuring of its
footwear business will serve to improve operations in the future, the Company
recognizes that it is operating in a soft retail environment and has taken steps
intended to manage its remaining businesses in a manner consistent with such
economic environment. These steps include reducing estimates of future sales,
increasing the Company's focus on merchandise planning and distribution,
decreasing expenditures and prudently managing store openings. The Company also
has attempted to generate additional sales and manage inventory levels by
increasing promotional activities.
RESULTS OF OPERATIONS
First Six Months of Fiscal 1998 versus First Six Months of Fiscal 1997
The Company's net sales decreased by $146.0 million to $281.3 million in
the first six months of fiscal 1998 from $427.3 million in the first six months
of fiscal 1997 primarily due to the disposition of the Company's SCOA and Parade
of Shoes businesses in March 1997. Sales in the Company's apparel operations
increased by $8.0 million primarily due to an increase in the number of Casual
Male Big & Tall stores in operation during the first six months of fiscal 1998
as compared to the first six months of fiscal 1997 and a 1.0% increase in
comparable apparel store sales. (Comparable apparel store sales
increases/decreases are based upon comparisons of weekly sales volume in Casual
Male Big & Tall stores and Work 'n Gear stores which were open in corresponding
weeks of the relevant comparison periods.) Excluding net sales produced by the
Company's SCOA and Parade of Shoes businesses of $17.7 million in the first six
months of fiscal 1998 and $155.0 million in the first six months of fiscal 1997,
sales produced by the Company's ongoing licensed shoe department business
decreased by $16.8 million to $128.2 million in the first six months of fiscal
1998 from $145.0 million in the first six months of fiscal 1997. This decrease
was primarily due to a reduction in the number of licensed shoe departments in
operation during the first six months of fiscal 1998 as compared to the first
six months of fiscal 1997 and a 3.0% decrease in comparable retail footwear
store sales. (For the first six months of fiscal 1998 and fiscal 1997,
comparable retail footwear store sales increases/decreases are based upon
comparisons of weekly sales volume in licensed shoe departments which were open
in corresponding weeks of the relevant comparison periods.)
The Company's cost of sales constituted 55.3% of sales in the first six
months of fiscal 1998 as compared to 55.1% of sales in the first six months of
fiscal 1997. Cost of sales in the Company's apparel operations was 52.4% of
sales in the first six months of fiscal 1998 as compared to 50.8% of sales in
the first six months of fiscal 1997. The increase in such percentage was
primarily attributable to higher markdowns as a percentage of sales and a lower
initial markup on merchandise purchases. Cost of sales in the Company's footwear
operations was 57.9% of sales in the first six months of fiscal 1998 as compared
to 56.9% of sales in the first six months of fiscal 1997. The increase in such
percentage, which was partially offset by a change in the Company's method of
financing its foreign merchandise purchases with bank borrowings in the first
six months of fiscal 1998 versus the use of bankers' acceptances in the first
six months of fiscal 1997, was primarily due to the increased proportion of
licensed shoe department sales to total footwear sales in the first six months
of fiscal 1998 versus the first six months of fiscal 1997. As a percentage of
sales, licensed shoe department sales have a higher cost of sales than the
aggregate cost of sales in the divested SCOA and Parade of Shoes businesses.
Selling, administrative and general expenses decreased $58.0 million, or
34.6%, to $109.6 million in the first six months of fiscal 1998 from $167.6
million in the first six months of fiscal 1997 primarily due to the disposition
of the Company's SCOA and Parade of Shoes businesses in March 1997 and the
downsizing of the Company's licensed shoe department business and its
administrative areas and facilities, coupled with the benefit realized from the
curtailment of the Company's defined benefit pension plan in the first six
months of fiscal 1998. As a percentage of sales, selling, administrative and
general expenses were 39.0% of sales in the first six months of fiscal 1998 as
compared to 39.2% of sales in the first six months of fiscal 1997. Selling,
administrative and general expenses in the Company's apparel operations were
41.3% of sales in the first six months of fiscal 1998 as compared to 43.5% of
sales in the first six months of fiscal 1997. This decrease was primarily due to
a lower corporate overhead allocation, resulting from a portion of corporate
overhead costs for the first six months of fiscal 1998 being allocated to the
Company's divested SCOA and Parade of Shoes businesses. Selling, administrative
and general expenses in the Company's footwear operations were 36.8% of sales in
the first six months of fiscal 1998 as compared to 37.4% of sales in the first
six months of fiscal 1997. This decrease was primarily due to the increased
proportion of licensed shoe department sales to total footwear sales in the
first six months of fiscal 1998 versus the first six months of fiscal 1997. The
Company's licensed shoe department business had lower selling, administrative
and general expenses as a percentage of sales than
27
<PAGE> 31
the aggregate selling, administrative and general expenses as a percentage of
sales of the divested SCOA and Parade of Shoes businesses.
Depreciation and amortization expense decreased by $8.5 million in the
first six months of fiscal 1998 as compared to the first six months of fiscal
1997 primarily due to the write-off of certain fixed and intangible assets in
the fourth quarter of fiscal 1997 related to the overall restructuring of the
Company's footwear businesses. This decrease was partially offset by capital
expenditures for depreciable and amortizable assets.
As a result of the above described effects, the Company's operating income
increased by 2.3% to $10.0 million in the first six months of fiscal 1998 from
$9.8 million in the first six months of fiscal 1997. As a percentage of sales,
operating income was 3.6% in the first six months of fiscal 1998 as compared to
2.3% in the first six months of fiscal 1997.
Net interest expense increased $448,000 to $6.5 million in the first six
months of fiscal 1998 from $6.0 million in the first six months of fiscal 1997
primarily due to a change in the Company's method of financing foreign
merchandise purchases with bank borrowings in the first six months of fiscal
1998 versus the use of bankers' acceptances in the first six months of 1997,
partially offset by lower levels of bank borrowings in the first six months of
fiscal 1998.
Taxes on earnings for the first six months of fiscal 1998 were $1.4 million
as compared to taxes of $1.5 million in the first six months of fiscal 1997,
yielding an effective tax rate of 39.0% in each case.
Net earnings for the first six months of fiscal 1998 were $2.2 million as
compared to net earnings of $2.3 million in the first six months of fiscal 1997,
a decrease of 6.0%.
Fiscal 1997 versus Fiscal 1996
The Company's net sales decreased by $122.9 million or 12.0% to $897.5
million in fiscal 1997 from $1.02 billion in fiscal 1996. Sales in the Company's
apparel operations increased by $30.5 million due to an increase in the number
of Casual Male Big & Tall stores and Work 'n Gear stores in operation at the end
of fiscal 1997 over fiscal 1996 and a 2.7% increase in comparable apparel store
sales. Sales in the Company's footwear operations decreased by $153.4 million
due to a $106.0 million sales decrease in the Company's Fayva footwear business
(which was primarily the result of the closing of all 357 Fayva stores in the
third quarter of fiscal 1996), a 1.1% decrease in comparable retail footwear
store sales, and a decrease in the number of licensed shoe departments and SCOA
licensed shoe departments in operation during fiscal 1997 versus fiscal 1996.
(For fiscal 1997, fiscal 1996 and fiscal 1995, comparable retail footwear store
sales increases/decreases are based upon comparisons of weekly sales volume in
licensed shoe departments, SCOA and Parade of Shoes stores which were open in
corresponding weeks of the relevant comparison periods.) The decrease in the
number of licensed shoe departments was due in large part to Jamesway
Corporation ("Jamesway"), a licensor of the Company, ceasing operations in the
fourth quarter of fiscal 1996.
The Company's cost of sales constituted 60.4% of sales in fiscal 1997 as
compared to 56.8% in fiscal 1996. Cost of sales in the Company's apparel
operations was 52.1% of sales in fiscal 1997 as compared to 51.2% of sales in
fiscal 1996, primarily due to lower initial markups on merchandise purchases,
partially offset by lower markdowns as a percentage of sales. Cost of sales in
the Company's footwear operations was 64.4% of sales in fiscal 1997, which
includes the $37.3 million write-down of the licensed shoe department business'
inventory in connection with the Footwear Restructuring, as compared to 58.8% of
sales in fiscal 1996. Excluding the effect of this $37.3 million charge, cost of
sales in the Company's footwear operations was 58.3% of sales in fiscal 1997.
The decrease in such percentage, from 58.8% of sales in fiscal 1996, is
attributable to lower markdowns as a percentage of sales, partially offset by
lower initial markups on merchandise purchases.
Selling, administrative and general expenses decreased $44.6 million or
11.4% to $348.0 million in fiscal 1997 from $392.6 million in fiscal 1996
primarily due to the closing of the Company's Fayva footwear business in the
third quarter of fiscal 1996. As a percentage of sales, selling, administrative
and general expenses were 38.8% of sales in fiscal 1997 as compared to 38.5% of
sales in fiscal 1996. Selling, administrative and general expenses in the
Company's apparel operations were 39.4% of sales in fiscal 1997 as compared to
38.5% of sales in fiscal 1996. This increase was primarily the result of a
higher allocation of predominantly fixed overhead to the Company's apparel
operations as a result of the proportionate increase in apparel sales to total
Company sales. Selling, administrative and general expenses in the Company's
footwear operations were 38.5% of sales in fiscal 1997 which was comparable to
38.5% of sales in fiscal 1996.
Depreciation and amortization expense decreased by $3.0 million to $29.4
million in fiscal 1997 from $32.4 million in fiscal 1996 primarily due to the
write-off of certain fixed and intangible assets in the fourth quarter of fiscal
1997 related to the overall restructuring of the Company's footwear businesses
and the
28
<PAGE> 32
write-off of furniture, fixtures and leasehold improvements as a result of the
closing of the Company's Fayva footwear business in the third quarter of fiscal
1996. This decrease was partially offset by capital expenditures for depreciable
and amortizable assets.
Of the $166.6 million pre-tax charge recorded in fiscal 1997 for the
divestitures of the SCOA and Parade of Shoes businesses and the downsizing of
the Company's licensed shoe department business, the Company's administrative
areas and its facilities, $122.3 million has been classified as restructuring
and other non-recurring charges, the components of which are as follows:
<TABLE>
<CAPTION>
REMAINING
RESERVES AT
CHARGES FEBRUARY 1,
RECORDED 1997
-------- -------------
(DOLLARS IN THOUSANDS)
-------------------------
<S> <C> <C>
Loss on sales of SCOA and Parade of Shoes businesses.................. $ 63,737 $ 2,777
Asset write-offs and obligations related to the reduction of the
Company's investment in its licensed shoe department business....... 36,739 2,800
Severance and employee benefit costs.................................. 9,300 8,600
Lease obligations and asset write-offs for excess corporate
facilities.......................................................... 9,733 4,800
Other................................................................. 2,800 2,550
-------- -------
Total............................................................... $122,309 $21,527
======== =======
</TABLE>
Of the $63.7 million loss recorded on the sales of the Company's SCOA and
Parade of Shoes businesses, inventory, fixed asset and intangible asset
write-offs totaled $31.7 million, $14.2 million and $14.8 million, respectively,
while $3.0 million was recorded for transaction related costs and expenses.
Included in the $36.7 million of asset write-offs and obligations related
to the reduction of the Company's investment in its licensed shoe department
business are write-offs of intangible assets of $33.9 million, which the Company
deems to have no future value, and $2.8 million in accrued costs relating to the
repositioning and downsizing of this business.
Total asset write-offs and write-downs included in restructuring and other
non-recurring charges amounted to $99.6 million. Of the $22.7 million balance of
the charge requiring cash outlays, $1.2 million has been paid in fiscal 1997,
with the balance expected to be paid primarily in fiscal 1998.
For additional information, see Note 2 to the Company's consolidated
financial statements appearing elsewhere in this Prospectus.
During fiscal 1996, the Company recorded restructuring charges of $69.3
million related to the liquidation of its Fayva footwear business. Such charges
included actual costs for employee severance and other benefits of $3.5 million,
fixed asset write-offs of $18.5 million and a loss on the disposal of inventory
of $20.5 million. Also included in restructuring charges was a charge of $26.8
million for costs related to the disposition of the Fayva store leases. Accrued
at February 1, 1997 are lease termination costs of $2.0 million which are
expected to be paid by the end of fiscal 1998. For additional information, see
Note 2 to the Company's consolidated financial statements appearing elsewhere in
this Prospectus.
As a result of the above described effects, the Company's operating loss
increased to $144.5 million (operating income of $22.1 million excluding the
$166.6 million pre-tax charge) in fiscal 1997 from an operating loss of $54.0
million (operating income of $15.3 million excluding the $69.3 million of
restructuring charges) in fiscal 1996. As a percentage of sales, the operating
loss was 16.1% of sales (operating income of 2.5% of sales excluding the $166.6
million pre-tax charge) in fiscal 1997 as compared to an operating loss of 5.3%
of sales (operating income of 1.5% of sales excluding the $69.3 million of
restructuring charges) in fiscal 1996.
Net interest expense increased $2.3 million to $12.8 million in fiscal 1997
as compared to $10.5 million in fiscal 1996 due to higher average levels of
borrowings and higher interest rates.
For fiscal 1997, the Company reported an income tax benefit of $45.8
million, yielding an effective tax rate of 29.2%, as compared to an income tax
benefit of $25.8 million in fiscal 1996, yielding an effective tax rate of
40.1%. The difference in the effective tax rate primarily reflects the impact of
the additional valuation reserve applied against deferred tax accounts as of
February 1, 1997. See Note 7 to the Company's consolidated financial statements
appearing elsewhere in this Prospectus for further discussion of taxes on
earnings.
29
<PAGE> 33
The net loss for fiscal 1997 was $111.4 million as compared to a net loss
of $38.6 million in fiscal 1996.
Fiscal 1996 versus Fiscal 1995
The Company's net sales decreased by $22.6 million or 2.2% to $1.02 billion
in fiscal 1996 from $1.04 billion in fiscal 1995. Sales in the Company's apparel
operations increased by $38.6 million due to an increase in the number of Casual
Male Big & Tall stores and Work 'n Gear stores in operation at the end of fiscal
1996 compared to fiscal 1995, partially offset by a 2.7% decrease in comparable
apparel store sales. Sales in the Company's footwear operations decreased by
$61.1 million in fiscal 1997 compared to fiscal 1996. The decrease in net sales
in the Company's footwear operations was due to a sales decrease in the
Company's Fayva footwear business (which was primarily the result of the closing
of all 357 Fayva stores in the third quarter of fiscal 1996), the elimination of
wholesale footwear sales (which was a result of the closing of all wholesale
footwear departments serviced by the Company during the second quarter of fiscal
1995), a 7.0% decrease in comparable retail footwear store sales, and a decrease
in the number of discount licensed shoe departments in operation during fiscal
1996 versus fiscal 1995 (which was due in large part to Jamesway ceasing
operations in the fourth quarter of fiscal 1996). This decrease was partially
offset by a sales increase in the Company's SCOA licensed shoe business as a
result of SCOA's beginning business in new licensed departments since the first
quarter of fiscal 1995.
The Company's cost of sales constituted 56.8% of sales in fiscal 1996 as
compared to 55.6% in fiscal 1995. Cost of sales in the Company's apparel
operations was 51.2% of sales in fiscal 1996 as compared to 51.0% of sales in
fiscal 1995. The increase in such percentage was primarily attributable to
higher markdowns as a percentage of sales, partially offset by higher initial
markups on merchandise purchases. Cost of sales in the Company's footwear
operations was 58.8% of sales in fiscal 1996 as compared to 56.8% of sales in
fiscal 1995. The increase in such percentage was primarily attributable to
higher markdowns as a percentage of sales and a decrease in the initial markups
on merchandise purchases, partially offset by the elimination of wholesale
footwear sales, which have a higher cost of sales than retail footwear sales.
Selling, administrative and general expenses increased $3.2 million or 0.8%
to $392.6 million in fiscal 1996 from $389.4 million in fiscal 1995, primarily
due to a relative decrease in sales in the licensed shoe department business
which has lower selling, administrative and general expenses than the Company's
other businesses. As a percentage of sales, selling, administrative and general
expenses were 38.5% in fiscal 1996 as compared to 37.3% in fiscal 1995. Selling,
administrative and general expenses in the Company's apparel operations were
38.5% of sales in fiscal 1996 as compared to 37.9% of sales in fiscal 1995,
primarily due to an increase in store level expenses from new store openings,
coupled with comparable store sales declines. Selling, administrative and
general expenses in the Company's footwear operations were 38.5% in fiscal 1996
as compared to 37.2% of sales in fiscal 1995. This increase was primarily the
result of a change in the relative mix of footwear sales and a decline in
comparable retail footwear sales.
Depreciation and amortization expense increased by $4.5 million to $32.4
million in fiscal 1996 from $27.9 million in fiscal 1995 due to a net increase
in average depreciable and amortizable assets.
During fiscal 1996, the Company recorded restructuring charges of $69.3
million ($41.6 million on an after tax basis) related to the disposal of its
Fayva footwear business. Such charges included actual costs for employee
severance and other benefits of $3.5 million, fixed asset write-offs of $18.5
million and a loss on the disposal of inventory of $20.5 million. Also included
in restructuring charges was a charge of $26.8 million for costs related to the
disposition of the Fayva store leases. For additional information, see Note 2 to
the Company's consolidated financial statements appearing elsewhere in this
Prospectus.
As a result of the above described effects, the Company reported an
operating loss of $54.0 million (operating income of $15.3 million excluding the
restructuring charges) in fiscal 1996 versus operating income of $46.0 million
in fiscal 1995.
Net interest expense increased $1.4 million to $10.5 million in fiscal 1996
as compared to $9.1 million in fiscal 1995 primarily due to higher average
levels of borrowings and higher interest rates on borrowings in fiscal 1996 as
compared to fiscal 1995.
For fiscal 1996, the Company reported an income tax benefit of $25.8
million, yielding an effective tax rate of 40.1%, as compared to income tax
expense of $13.3 million in fiscal 1995, yielding an effective tax rate of
36.0%. See Note 7 to the Company's consolidated financial statements appearing
elsewhere in this Prospectus for further discussion of taxes on earnings.
Net loss for fiscal 1996 was $38.6 million as compared to net earnings of
$23.6 million in fiscal 1995.
30
<PAGE> 34
FINANCIAL CONDITION
August 2, 1997 versus February 1, 1997
The increase in merchandise inventories at August 2, 1997 from February 1,
1997 was primarily due to a seasonal increase in the average inventory level per
location.
The decrease in assets held for sale at August 2, 1997 from February 1,
1997 was due to the receipt of the cash proceeds from the divestitures of the
SCOA and Parade of Shoes businesses in March 1997.
The increase in other assets at August 2, 1997 from February 1, 1997 was
primarily the result of the establishment of escrow accounts related to the
divestitures of the SCOA and Parade of Shoes businesses.
The decrease in accounts payable at August 2, 1997 from February 1, 1997
was primarily due to an increase in direct import purchases, which are paid for
sooner than domestic purchases, coupled with the Company's decision to eliminate
bankers' acceptance financing of foreign merchandise purchases in its footwear
operations. The ratio of accounts payable to merchandise inventory was 29.7% at
August 2, 1997 as compared to 39.0% at February 1, 1997.
The decrease in accrued expenses at August 2, 1997 from February 1, 1997
was primarily due to payments of costs related to the restructuring of the
Company's footwear operations, including the sales of the Company's SCOA and
Parade of Shoes businesses, and the downsizing and restructuring of its licensed
shoe department business and the Company's administrative areas and facilities.
The decrease in other liabilities at August 2, 1997 from February 1, 1997
was due to payment of $3.0 million to former stockholders of SCOA in order to
satisfy a contractual contingent payment obligation, based on earnings, to such
former SCOA stockholders.
The decrease in long-term debt, net of current portion, at August 2, 1997
from February 1, 1997 was due to the repayment of the Company's bank debt with
the net cash proceeds from the sales of the SCOA and Parade of Shoes businesses.
The decrease was partially offset by additional borrowings to meet seasonal
working capital needs and to fund capital expenditures.
February 1, 1997 versus February 3, 1996
As a result of the sales of the Company's SCOA and Parade of Shoes
businesses in March 1997, the Company's balance sheet at February 1, 1997 has
classified certain assets and liabilities of these businesses as "Assets held
for Sale", primarily accounts receivable, merchandise inventories, net property,
plant, equipment and accounts payable. Also, as a result of the Footwear
Restructuring, the Company has written down the value of inventory and accounts
receivable in its licensed shoe department business, written down certain fixed
and intangible assets, and has recorded accruals related to the restructuring.
For additional information, see Note 2 to the Company's consolidated financial
statements appearing elsewhere in this Prospectus.
The decrease in accounts receivable at February 1, 1997 from February 3,
1996 was primarily due to the divestiture of the Company's SCOA business, the
reduction in the number of licensed shoe departments operated, and a net
increase of $2.1 million in the Company's allowance for doubtful accounts. The
increase in the allowance for doubtful accounts, which was recorded in
conjunction with the revaluation of the Company's investment in its licensed
shoe department business, is primarily due to the reduction in the Company's
estimate of the amounts expected to be realized from the settlement of Chapter
11 claims with various licensors.
The decrease in merchandise inventories at February 1, 1997 from February
3, 1996 was primarily due to the divestitures of the Company's SCOA and Parade
of Shoes businesses and to the write-down of the Company's licensed shoe
department business' inventory to net realizable value.
The decrease in income tax receivable at February 1, 1997 from February 3,
1996 was primarily due to the collection of the estimated federal tax refund
during fiscal 1997.
The decrease in net property, plant and equipment at February 1, 1997 from
February 3, 1996 was the result of the divestitures of the Company's SCOA and
Parade of Shoes businesses, coupled with the recording of $21.2 million in
depreciation expense during fiscal 1997, partially offset by the Company
incurring capital expenditures of $16.4 million in fiscal 1997, primarily for
the opening of new stores and the renovation of existing stores.
The decrease in other assets at February 1, 1997 from February 3, 1996 was
primarily due to the write-offs of certain intangible assets as a result of the
divestitures of the Company's SCOA and Parade of
31
<PAGE> 35
Shoes businesses and the revaluation and reduction of the Company's investment
in its licensed shoe department business, coupled with the recording of $8.2
million in amortization expense.
The decrease in accounts payable at February 1, 1997 from February 3, 1996
was primarily due to the divestiture of the Company's SCOA business. The ratio
of accounts payable to merchandise inventory was 39.0% at February 1, 1997 as
compared to 36.8% at February 3, 1996. Such increase was primarily the result of
the write-down of the Company's licensed shoe department business' inventory to
net realizable value.
The increase in accrued expenses at February 1, 1997 from February 3, 1996
was primarily due to accruals related to the Footwear Restructuring, including
the sales of the Company's SCOA and Parade of Shoes businesses, and the
downsizing and restructuring of its licensed shoe department business and the
Company's administrative areas and facilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs have historically been for operating
expenses, working capital, interest payments, capital expenditures for ongoing
operations and acquisitions. In fiscal 1997, the Company's primary sources of
capital to finance such needs included borrowings under bank credit facilities
and cash flow from operations. In the first six months of fiscal 1998, the
Company's primary sources of capital to finance its cash needs were the proceeds
received on the sales of the Company's SCOA and Parade of Shoes businesses, and
borrowings under the bank credit facilities. In May 1997, the Company replaced
its $145.0 million credit facility by obtaining the Footwear Credit Facility, a
$55.0 million revolving credit facility secured by substantially all of the
assets of the licensed shoe department business, to finance its licensed shoe
department business, and the Apparel Credit Facility, a $100.0 million revolving
credit facility secured by all of the capital stock of Casual Male Big & Tall
and three other subsidiaries of the Company (including the subsidiary which
conducts the Work 'n Gear business), to finance its apparel businesses. The
aggregate commitment under the Footwear Credit Facility was automatically
reduced by $5.0 million on June 30, 1997. The aggregate commitment under the
Apparel Credit Facility will be automatically reduced by $10.0 million, $12.5
million and $12.5 million on December 31, 1997, 1998 and 1999, respectively.
Aggregate borrowings under the Company's bank credit facilities totaled $41.4
million (excluding approximately $600,000 of obligations under undrawn letters
of credit) for the Footwear Credit Facility and $73.1 million (excluding $11.0
million of obligations under undrawn letters of credit) for the Apparel Credit
Facility as of August 2, 1997, respectively, consisting of loans and obligations
under letters of credit. The Company intends to use a portion from the net
proceeds of the Offering to repay all amounts outstanding under and terminate
the Footwear Credit Facility and to reduce outstanding borrowings under the
Apparel Credit Facility. Upon consummation of the Offering, the Apparel Credit
Facility will be amended and retained as the Amended Credit Facility. Obtaining
such amendment is a condition to the consummation of the Offering. See "Use of
Proceeds" and "Description of Credit Facilities and Other Indebtedness."
Net cash used in operating activities for the first six months of fiscal
1998 was $45.0 million compared to $28.0 million for the first six months of
fiscal 1997. The $17.0 million increase was due primarily to expenditures
related to the Footwear Restructuring and the receipt of an $8.3 million federal
income tax refund in the first six months of fiscal 1997. Net cash provided by
operating activities was $9.6 million in fiscal 1997 as compared to $22.4
million in fiscal 1996. The decrease of $12.8 million was due in part to payment
of costs associated with the liquidation of Fayva. Cash provided by operating
activities increased to $22.4 million in fiscal 1996 from $6.1 million in fiscal
1995 due primarily to working capital reductions relating to the liquidation of
Fayva in fiscal 1996.
Net cash provided by financing activities for the first six months of
fiscal 1998 was $46.8 million compared to $35.3 million for the first six months
of fiscal 1997. The $11.5 million increase was primarily attributable to the
receipt of $60.1 million in proceeds from the sales of the SCOA and Parade of
Shoes businesses offset by the repayment of indebtedness of $13.0 million in the
first six months of fiscal 1998, as compared to the receipt of $35.5 million in
net proceeds of indebtedness in the first six months of fiscal 1997. Net cash
provided by financing activities for fiscal 1997 was $5.6 million compared to
$2.5 million for fiscal 1996. The increase was attributable to the receipt of
$14.9 million in net proceeds from the Mortgage Loan in fiscal 1997 offset in
part by the repayment of indebtedness of $8.7 million in fiscal 1997, as
compared to the receipt of $3.2 million in net proceeds of indebtedness in
fiscal 1996. .
The Company invested $16.4 million, $28.1 million and $44.5 million in
capital expenditures during fiscal 1997, 1996, and 1995, respectively. The
Company's capital expenditures generally relate to new store and licensed shoe
department openings and remodeling of existing stores and departments, coupled
with expenditures for general corporate purposes. Approximately $8.0 million of
fiscal 1998's budgeted capital
32
<PAGE> 36
expenditures of $10.0 million (of which the Company had incurred expenditures of
$4.2 million through the end of the first six months of fiscal 1998) reflects
costs of new store openings and remodeling of existing stores. The remaining
$2.0 million is primarily for general corporate purposes. The Company expects
that its budgeted capital expenditures for fiscal 1999 will be approximately
$10.0 to $12.0 million.
Following is a table showing actual and planned store openings by business
for fiscal 1998:
<TABLE>
<CAPTION>
ACTUAL OPENINGS PLANNED OPENINGS TOTAL
FIRST-SECOND QUARTERS THIRD-FOURTH QUARTERS ACTUAL/PLANNED
BUSINESS OF FISCAL 1998 OF FISCAL 1998 OPENINGS
---------------------------- --------------------- --------------------- --------------
<S> <C> <C> <C>
Casual Male Big & Tall...... 20 15 35
Work 'n Gear*............... 0 2 2
Licensed shoe departments... 9 2 11
</TABLE>
- ------------------------------
* The stores planned to be opened by Work 'n Gear are test stores which sell
exclusively healthcare apparel under the name "R(x) Uniforms" and were opened
in the third quarter of fiscal 1998.
Offsetting the above actual and planned store openings, the Company closed
four Casual Male Big & Tall stores, one Work 'n Gear store and 83 licensed shoe
departments during the first six months of fiscal 1998. The Company has plans to
close an additional two Casual Male Big & Tall stores, one Work 'n Gear store
and four licensed shoe departments during the second half of fiscal 1998.
The information on store openings and closings reflects the Company's
current plans and should not be interpreted as an assurance of actual future
developments. The actual number of store openings and closings will depend on
the availability of attractively priced sites for openings of apparel stores,
the ability of the Company to negotiate leases on favorable terms, operating
results of each site and the actions of the Company's licensors. The Company
generally opens new licensed shoe departments when its licensors open new
stores.
The Company believes that the net proceeds from the Offering, anticipated
cash flows from operations and borrowings under the Company's Amended Credit
Facility will be adequate for the foreseeable future. From time to time, the
Company evaluates potential acquisition candidates in pursuit of strategic
initiatives and growth goals in its niche apparel markets. Financing of
potential acquisitions will be determined based on the financial condition of
the Company at the time of such acquisitions, and may include borrowings under
current or new commercial credit facilities or the issuance of publicly issued
or privately placed debt or equity securities. See "Business -- Business
Strategy."
Effect of Inflation
The impact of inflation on the Company's operations has not been
significant in recent years. To the extent that the Company may have incurred
increased costs from inflation, the Company believes that it has been able to
offset these costs through higher revenues. There can be no assurance, however,
that a high rate of inflation in the future will not have an adverse effect on
the Company's operating results.
Seasonality
Sales of the Company's products have historically reflected significant
seasonality. The Company has historically experienced substantially lower
earnings in the first two fiscal quarters of the year, reflecting the higher
sales volume generated by, among other things, the "back to school" and
Christmas selling seasons. Unseasonable weather may affect sales of seasonal
products, especially during the traditional high-volume periods. In addition,
the Company's quarterly results of operations may fluctuate materially depending
on, among other things, increases or decreases in comparable store sales,
adverse weather conditions, shifts in timing of certain holidays and changes in
the Company's merchandise mix. Such fluctuations may have a material adverse
effect on the Company's business, financial condition and results of operations.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 -- Earnings Per
Share, which is effective for the Company's fiscal year ending January 31, 1998.
The statement establishes standards for computing and presenting earnings per
share. Adoption of SFAS No. 128 is not expected to have a material impact on
earnings per share.
Also in February 1997, the FASB issued SFAS No. 129 -- Disclosure of
Information about Capital Structure, which is effective for the Company's fiscal
year ending January 31, 1998. The statement establishes standards for disclosing
information about a reporting company's capital structure. Adoption of SFAS No.
129
33
<PAGE> 37
relates to disclosure within the financial statements and is not expected to
have a material effect on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 130 -- Reporting Comprehensive
Income, which is effective for the Company's fiscal year ending January 30,
1999. The statement addresses the reporting and displaying of comprehensive
income and its components. Earnings per share will only be reported for net
income and not for comprehensive income. Adoption of SFAS No. 130 relates to
disclosure within the financial statements and is not expected to have a
material effect on the Company's financial statements.
In June 1997, the FASB also issued SFAS No. 131 -- Disclosures about
Segments of an Enterprise and Related Information, which is effective for the
Company's fiscal year ending January 30, 1999. The statement changes the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports. Adoption of SFAS No. 131 relates to
disclosure within the financial statements and is not expected to have a
material effect on the Company's financial statements.
RECENT DEVELOPMENTS
During the third quarter of fiscal 1998, the Company's net sales totaled
$139.3 million compared to $222.8 million for the third quarter of fiscal 1997.
Sales in the Company's apparel operations increased by $3.8 million primarily
due to an increase in the number of Casual Male Big & Tall stores in operation
and a 0.9% increase in comparable apparel store sales in the third quarter of
fiscal 1998.
Excluding net sales of the Company's SCOA and Parade of Shoes businesses of
$75.7 million in the third quarter of fiscal 1997, net sales of the Company's
licensed shoe department business decreased by $11.6 million to $65.8 million in
the third quarter of fiscal 1998 as compared to the third quarter of fiscal
1997, reflecting a reduction in the number of departments in operation during
the fiscal 1998 period and an 8.6% decrease in comparable retail footwear store
sales in the third quarter of fiscal 1998.
Based on preliminary results, the Company expects to report lower operating
income, EBITDA and net earnings, excluding a charge to net earnings of
approximately $2 million, after-tax and net of reserves, on the settlement of
patent infringement litigation, for the three months ended November 1, 1997 from
the comparable period in the prior year. See "Business -- Legal Proceedings."
34
<PAGE> 38
BUSINESS
GENERAL
The Company is a leading specialty retailer of apparel and footwear in
three niche markets through its chains of Casual Male Big & Tall and Work 'n
Gear stores and its licensed shoe departments. The Company's Casual Male Big &
Tall chain is the largest specialty retailer dedicated to the sale of apparel
for large-sized men in the United States. The Company believes that its Work 'n
Gear chain is one of the largest specialty retailers of utility workwear,
healthcare apparel and custom uniforms in the United States. In addition, the
Company is the largest independent operator of self-service licensed shoe
departments in discount department stores in the United States. As of August 2,
1997, the Company operated 1,384 stores and licensed shoe departments in 47
states and the District of Columbia. On a pro forma basis, after giving effect
to the Footwear Business Dispositions, the Company generated net sales and
EBITDA as defined herein of $596.8 million and $42.2 million, respectively, in
fiscal 1997.
Casual Male Big & Tall offers a wide range of high quality apparel and
accessories for big (waist sizes from 409 to 669) and tall (6829 or taller) men
at moderate prices. Casual Male Big & Tall sells its merchandise under private
labels as well as brand names such as Levi-Strauss, Dockers, Reebok, Geoffrey
Beene and Perry Ellis with a focus on classic styles in order to minimize
fashion risk. The Company believes that Casual Male Big & Tall satisfies the
clothing demands of big and tall men whose needs have generally not been met by
traditional men's apparel stores. Casual Male Big & Tall stores, which average
approximately 3,300 square feet, are located in 47 states throughout the United
States. Casual Male Big & Tall has more than doubled its store base from 214
stores at the end of fiscal 1993 to 456 stores at August 2, 1997 and grown its
net sales from $122.2 million in fiscal 1993 to $241.2 million in fiscal 1997.
Work 'n Gear offers a wide selection of high quality utility workwear,
healthcare apparel and custom uniforms. Work 'n Gear sells its merchandise under
private labels and brand names such as Herman Survivors, Carhartt and
Timberland. The Company believes that no other specialty store chain offers a
greater variety of workwear in a single-store format on a multi-state basis.
Work 'n Gear stores, which average approximately 4,500 square feet, are located
in 13 states in the northeastern and midwestern United States. Work 'n Gear has
increased its store base from 38 stores at the end of fiscal 1993 to 65 stores
at August 2, 1997 and grown its net sales from $29.8 million in fiscal 1993 to
$52.6 million in fiscal 1997.
The Company's licensed shoe departments are operated pursuant to license
agreements with discount department store chains under which the Company
typically has the exclusive right to operate shoe departments in host stores for
a specified number of years in exchange for a license fee, generally calculated
as a percentage of net sales. The Company's licensed shoe departments offer a
wide variety of family footwear at budget to moderate prices, primarily under
private labels. The number of licensed shoe departments operated by the Company
has declined in recent years reflecting consolidation of the discount department
store business and the Company's decision to terminate or not renew certain
license agreements. Further, in connection with the Footwear Restructuring, the
Company reduced its investment in the licensed shoe department business and
decided to concentrate its efforts in this business primarily on its five
largest licensors, which accounted for approximately 92% of the net sales of
this business for the six months ended August 2, 1997. The Company's increased
focus on its core licensors is intended to improve the results of its discount
shoe department business through better resource management. As a result of the
foregoing, the Company's licensed shoe department base has declined from 1,446
departments at the end of fiscal 1993 to 863 departments at August 2, 1997 and
net sales have declined from $457.6 million in fiscal 1994 to $303.0 million in
fiscal 1997.
KEY STRENGTHS
The Company believes that its leading market positions are attributable to
a number of competitive strengths:
Leader in Attractive Niche Apparel Markets. According to industry reports,
the big and tall men's apparel and workwear markets generate annual sales of
approximately $4 billion and $6 billion, respectively. The Company believes that
these markets are not only large but also fragmented, with sales being generated
35
<PAGE> 39
through large discount and department store chains, independent retailers, "mom
and pop" stores and catalogs. As a leading specialty retailer dedicated to the
big and tall men's apparel and workwear markets, the Company believes that it is
well positioned to increase its market share each of these markets.
Effective Apparel Merchandising Strategy with Low Fashion Risk. The
Company's apparel stores offer private label merchandise, which has historically
yielded attractive margins. The Company believes that its private labels such as
Casual Male Big & Tall's Harbor Bay and Work 'n Gear's Ultimate Workwear have
developed loyal customer followings due to their high quality, moderate pricing
and styling. The Company's apparel stores also offer selected brand name
merchandise. The Company believes that it distinguishes itself from many of its
competitors by offering its private label and brand name merchandise in a wider
variety of sizes and styles. While the Company's apparel stores feature a wide
selection of current styles, they generally avoid fashion-forward merchandise
that is subject to rapidly changing fashion trends.
Emphasis on Customer Service. The Company's stores are dedicated to
providing excellent customer service. In its apparel operations, store
associates are evaluated based upon achievement of specific customer service
goals and generally receive incentive compensation based on attaining sales
targets. The Company promotes ongoing relationships with its apparel customers
through direct mail programs, a frequent buyers' club, a birthday club, new
customer programs and customer reactivation programs. As a result of these
efforts, the Company believes that a substantial number of its apparel store
customers are repeat customers and, based on a 1996 independent survey of over
6,000 Casual Male Big & Tall customers, approximately 86% of such customers
report that the stores' customer service is excellent. In its licensed shoe
departments, the Company maintains attractive, well-organized displays with
clearly marked merchandise to create a pleasant and orderly self-service
shopping environment.
Sophisticated Information Systems. The Company supports its apparel and
footwear operations with highly automated and integrated information systems in
areas such as merchandising, distribution, warehousing, sales promotions, credit
verification, personnel management and accounting. The Company believes that
these systems enhance its ability to efficiently manage inventory levels,
improve sales productivity and reduce costs.
Focus on Cost Control. Through the centralization of the Company's
finance, management information, real estate, human resources and other
administrative functions, the Company's apparel and footwear operations benefit
from economies of scale. Moreover, as a leader in each of its niche markets, the
Company believes that it enjoys significant buying power which enables it to
negotiate favorable purchase terms, exclusive merchandise and expedited delivery
times. In addition, the Company continually seeks to reduce costs in all aspects
of its operations and to create an environment of cost-consciousness at all
employee levels.
BUSINESS STRATEGY
In order to enhance its market positions in the big and tall men's apparel,
workwear and licensed shoe department markets, the Company has identified the
following business strategies:
Increase Sales at Casual Male Big & Tall Stores. The Company has developed
several key initiatives designed to improve the sales productivity of its Casual
Male Big & Tall stores by increasing sales to existing customers and attracting
new customers. These initiatives include the introduction of new merchandise
categories, the expansion of its brand name offerings and the broadening of its
customer appeal. The Company is currently rolling out several new merchandise
categories which were test-launched in fiscal 1997, including shoes and trench
coats. The Company plans to expand its brand name offerings to increase its
customers' perception of quality as well as to attract new customers. To
continue to build its brand image with consumers, the Company recently signed
Bill Parcells, the professional football coach, as spokesperson for the Company
and commenced other marketing activities including a targeted direct mail
campaign and increased radio and billboard advertising. In addition, the Company
is currently testing a new format in one Casual Male Big & Tall store which it
plans to introduce in the course of opening new stores and remodeling existing
stores. The Company will evaluate accelerating such introduction depending on
the success of this format.
Open New Casual Male Big & Tall Stores. The Company intends to open new
Casual Male Big & Tall stores in underpenetrated markets as well as in
geographic markets where the Company does not currently
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have a presence. The Company expects to open 35 new Casual Male Big & Tall
stores in fiscal 1998, 20 of which have been opened through August 2, 1997.
Capitalize on Growth Potential of Work 'n Gear. The Company seeks to
capitalize on opportunities for growth in the $6 billion workwear market through
its Work 'n Gear concept. The Company intends to leverage its existing Work 'n
Gear store base by expanding its sales to corporate customers. In the current
fiscal year, the Company has entered into agreements to provide uniforms to a
national private security firm, a regional transit authority and a large
supermarket chain. The Company believes that its recent addition of a direct
corporate sales force will further enhance its corporate sales efforts. In
addition, based on the relatively high sales growth of healthcare apparel in its
existing stores, the Company has opened two retail stores under the name
"R(X)Uniforms" which exclusively sell healthcare apparel and is evaluating
opportunities to open additional stores.
Improve Profitability of Licensed Shoe Department Business. Although the
Company believes that its licensed shoe department business has limited growth
potential, this business serves as a source of cash flow for the Company to fund
the development and growth of its apparel businesses. By concentrating its
efforts in this business primarily on its five largest licensors (Ames,
Bradlees, Hills, Rose's and ShopKo), as well as certain smaller, yet profitable,
licensors, the Company believes that it will be better able to manage its
advertising and product mix and use its resources more efficiently.
Pursue Strategic Acquisitions. From time to time, the Company evaluates
potential acquisition candidates in pursuit of strategic initiatives and growth
goals in its niche apparel markets. Acquisition opportunities are evaluated
based on strategic fit, expected return on capital invested and the ability of
the Company to improve the profitability of any acquired operations through cost
reductions and synergies. The Company has not entered into any commitments or
agreements for any acquisition and there is no assurance that any such
acquisition will occur.
HISTORY
The Company was incorporated in 1985 to acquire National Shoes, Inc. and
its subsidiary J. Baker, Inc. in a management-led leveraged buyout. Following
the acquisition, the name of the holding company was changed to J. Baker, Inc.
Until the acquisition of Casual Male Big & Tall and Work 'n Gear in 1991, the
Company's primary business was the retail sale of footwear.
During the past two fiscal years, the Company undertook the Footwear
Restructuring and shifted its focus to the development and growth of its Casual
Male Big & Tall and Work 'n Gear businesses. In connection with the Footwear
Restructuring, in the second half of fiscal 1996, the Company liquidated its
Fayva footwear business. Fayva operated a chain of 357 self-service retail
stores which offered moderately-priced footwear for the entire family. In March
1997, the Company completed the sale of SCOA, which operated licensed shoe
departments in department and specialty stores, as well as its Parade of Shoes
retail store business, which operated a chain of women's shoe stores. At the
time of the sale, SCOA operated 454 licensed shoe departments and Parade of
Shoes operated 186 stores. SCOA was sold on March 5, 1997 to an entity formed by
CHB Capital Partners L.P. of Denver, Colorado along with Dennis B. Tishkoff,
President of SCOA, and certain members of SCOA management. Net cash proceeds
from the SCOA transaction were approximately $40.0 million, including a $1.7
million payment received during the second quarter of fiscal 1998. The Parade of
Shoes business was sold to Payless ShoeSource, Inc. of Topeka, Kansas on March
10, 1997. Net cash proceeds from the Parade of Shoes transaction were
approximately $20.0 million. The licensed shoe department business is currently
conducted by the Company primarily through JBI, Inc., a Massachusetts
corporation and a wholly-owned subsidiary of the Company, and Morse Shoe, which
is a Delaware corporation and a wholly-owned subsidiary of JBI, Inc.
The Company acquired The Casual Male, Inc., an off-price retailer of men's
sportswear, out of bankruptcy on February 1, 1991. At that time, The Casual
Male, Inc. had already liquidated its regular size men's apparel and "sweats"
business, retaining 170 Casual Male Big & Tall stores. Under the Company's
ownership, Casual Male Big & Tall has grown to 456 stores as of August 2, 1997.
The Casual Male Big & Tall business is conducted by the Company through The
Casual Male, Inc., a Massachusetts corporation and
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wholly-owned subsidiary of the Company, and TCMB&T, Inc., a Massachusetts
corporation and a wholly-owned subsidiary of The Casual Male, Inc.
In 1991, the Company purchased 29 retail stores from WearGuard Corporation,
which had decided to exit the retail workwear business to focus exclusively on
catalog workwear sales. In 1993, the Company changed the name of the chain to
"Work 'n Gear" from "WearGuard". The Work 'n Gear business is conducted by the
Company through WGS Corp., a Massachusetts corporation and wholly-owned
subsidiary of the Company.
CASUAL MALE BIG & TALL
Overview
Casual Male Big & Tall is the largest specialty retailer dedicated to the
sale of apparel for large-sized men in the United States. Casual Male Big & Tall
specializes in a wide range of high quality apparel and accessories for big
(waist sizes from 409 to 669) and tall (6829 or taller) men at moderate prices.
Casual Male Big & Tall sells its merchandise under private labels as well as
brand names with a focus on classic styles in order to minimize fashion risk.
The Company believes that Casual Male Big & Tall satisfies the clothing demands
of big and tall men whose needs have generally not been met by traditional men's
apparel stores.
Casual Male Big & Tall generated sales of $241.2 million, $214.3 million
and $181.2 million for fiscal 1997, 1996 and 1995, respectively.
Industry
According to the Big & Tall Buyers Association of America, the big and tall
men's apparel market generates annual retail sales of approximately $4 billion,
or approximately 8% of published estimates of the total retail sales of men's
apparel. The Company believes that the growth of this segment of the population
can be attributed to, among other things, the increase in the number of
overweight adults in the United States, which, according to the National Center
for Health Statistics, has increased from one-quarter of the population to
one-third from the early 1970s to the early 1990s.
Stores
As of August 2, 1997, Casual Male Big & Tall operated 456 stores in 47
states. The majority of Casual Male Big & Tall stores are located in
free-standing locations or strip shopping centers, where the preferred location
is an end cap that can accommodate a large canopy and signage to enhance
drive-by visibility. The remaining stores are located in downtown areas and
shopping malls. Casual Male Big & Tall stores range from approximately 1,700 to
6,100 square feet, with average space of approximately 3,300 square feet as of
August 2, 1997. All of the Casual Male Big & Tall stores are leased. Many of the
leases are for initial terms of five years and are often renewable at the option
of the Company for one or more five-year terms.
Casual Male Big & Tall has five store profiles based on the customer base
for each store: mainstream, urban, outlet, fashion and resort. A given profile
reflects a store's typical customer and certain stores may fall within more than
one profile. For example, a Casual Male Big & Tall store located in the downtown
area of a large city may have approximately 15% to 20% of its fashion items
described as being urban and fashion-oriented based on the buying preferences of
its particular customer base. Approximately 80% to 85% of the products carried
in each store are essentially the same across the chain; the remaining 15% to
20% of the products are specific to the store's customer profile.
To identify new locations for Casual Male Big & Tall stores, the Company
considers market demographics, drive-by visibility, store occupancy costs and
costs to build and stock each location. Key market factors generally include:
(i) a minimum number of people living within a 5-mile radius of the store
location, (ii) a minimum number of cars passing the location daily and (iii) a
minimum average household income. Based on these factors, among others, the
Company projects sales volumes and estimates operating costs for each location
to determine whether an acceptable return on its inventory and fixed asset
investment may be
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realized. The Company expects to open approximately 35 new Casual Male Big &
Tall stores during fiscal 1998, of which 20 stores have already been opened
during the first six months of fiscal 1998. In addition, the Company is
currently testing a new format in one Casual Male Big & Tall store which it
plans to introduce in the course of opening new stores and remodeling existing
stores. The Company will evaluate accelerating such introduction depending on
the success of this format.
Newly opened Casual Male Big & Tall stores require an initial average
inventory and fixed asset investment of approximately $170,000 to $200,000,
composed of approximately $85,000 to $100,000 for fixed assets and $85,000 to
$100,000 for inventory. The Company believes that new Casual Male Big & Tall
stores require two to three years to "mature"; therefore, new store margins are
on average lower than those of more mature stores. The Company regularly
evaluates the profitability of each Casual Male Big & Tall store and seeks to
close those which are not generating profit levels which meet the Company's
return on investment criteria. Most store closings occur at the expiration of a
lease, unless a lease buyout presents a more economical option. The costs to
close stores are expensed at the time of closing.
Merchandising
Casual Male Big & Tall's merchandising strategy concentrates on offering an
extensive selection of moderately-priced, quality casual wear, dress wear,
footwear and accessories with a focus on classic styles under both private
labels and brand names.
Approximately one-third of Casual Male Big & Tall's product mix and sales
are from basic, or "core" items. Basic items include underwear, socks, pajamas,
robes, dress shirts, fleece tops and bottoms, tee shirts, solid sport shirts,
casual and dress pants, sports coats and jeans. These items are regularly
replenished in the stores by size and color. The remaining two-thirds of product
mix and sales are from merchandise that, while basic in nature, includes enough
of a fashion element that it is replenished based on the Company's assessment of
consumer demand. Casual Male Big & Tall regularly tests items that are specific
to the big and tall market and which complement its existing merchandise
offerings. Such items include shoes, trench coats, sunglasses and fragrances.
Initial testing of items is typically performed in a representative sample of 50
to 100 stores. If successful, the test items are expanded to approximately 250
stores and may be expanded to additional stores or the chain as a whole.
Casual Male Big & Tall offers its merchandise primarily under private
labels including Harbor Bay, Himalaya Outfitters, Grade A Jeans, Natural
Exchange and Alexander Lloyd. By working directly with manufacturers to develop
new private label items, the Company seeks to enhance product design and
quality. Casual Male Big & Tall generally purchases private label merchandise at
a lower cost than brand name merchandise, typically resulting in higher initial
markups than those generated by brand name goods. Casual Male Big & Tall also
offers brand name merchandise which it believes contributes to its customers'
perception of quality and attracts new customers. Such brand names include
Levi-Strauss, Dockers, Reebok, Geoffrey Beene and Perry Ellis.
Casual Male Big & Tall recently began selling footwear as a complement to
its apparel offerings. Casual Male Big & Tall initially tested footwear in 10
stores, and expanded it to 270 stores by the end of fiscal 1997. The Company
intends to offer footwear in substantially all of its stores by the end of
fiscal 1998. Casual Male Big & Tall will offer primarily private label footwear,
complemented by brand name athletic footwear such as New Balance and Nike.
Marketing
Casual Male Big & Tall's marketing efforts include direct mailings,
outdoor, newspaper and radio advertising and an in-store newsletter. Direct
marketing currently accounts for approximately 75% of Casual Male Big & Tall's
advertising expenditures. Casual Male Big & Tall has also implemented programs
designed to promote ongoing customer relationships, including a direct mail
program, a frequent buyers' club, a birthday club, a new customer program and a
customer reactivation program. Casual Male Big & Tall maintains a database with
information on approximately 1.3 million active customers. Customers are
categorized by frequency of shopping visits and transaction size, which
determine the amount and type of mailings that will be sent to them. For
example, "preferred" customers receive mailings eight to 10 times per year,
often inviting them to preview special promotions prior to general launch. New
store grand openings involve a marketing awareness campaign for two to three
weeks before and after the opening and include pre-
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recruitment announcements in newspapers and on the website as well as radio,
outdoor and newspaper advertising.
The Company is pursuing a strategy of increasing the brand identification
of the Casual Male Big & Tall name. In January 1997, Casual Male Big & Tall
announced that Bill Parcells, the professional football coach, would be the
national spokesperson for its Casual Male Big & Tall chain. Bill Parcells will
participate in the Company's direct mail, radio and outdoor advertising to
portray the successful image of Casual Male Big & Tall. In addition, the Company
has focused on highlighting the "Casual Male Big & Tall" brand name on its
storefront signage to emphasize the brand as well as the segment of the men's
apparel market which it serves.
The Company believes that Casual Male Big & Tall's superior customer
service distinguishes it from its competitors. All store personnel must
successfully complete a multi-faceted training program dealing with numerous
aspects of selling and service. Recent customer surveys showed that Casual Male
Big & Tall customers considered the service they received as being equally
important to the merchandise or store location with regard to their shopping
experience. Furthermore, customers indicated that superior service is a major
factor in choosing Casual Male Big & Tall over competing retail stores.
WORK 'N GEAR
Overview
The Company believes that its Work 'n Gear chain is one of the largest
speciality retailers of utility workwear, healthcare apparel and custom uniforms
in the United States. Work 'n Gear derives its sales from consumer sales,
healthcare industry sales and corporate sales, which represented approximately
57%, 30% and 13% of Work 'n Gear's sales for fiscal 1997, respectively. Work 'n
Gear customers are serviced by a combination of retail stores and a corporate
sales force located in the areas where Work 'n Gear stores are located.
Work 'n Gear generated sales of $52.6 million, $49.0 million and $43.6
million for fiscal 1997, 1996 and 1995, respectively.
Industry
The National Association of Uniform Manufacturers and Distributors
("NAUMD") estimates that approximately 26 million people in the United States
work force wear workwear. In addition, the NAUMD estimates spending for workwear
at approximately $250 per person per year. Based on these estimates, the
workwear market generates annual sales of over $6 billion.
Based on U.S. Government Bureau of Labor Statistics data, employment is
projected to grow by 17.7 million jobs from 1994 to 2005. During this period,
employment growth in service industries is projected to grow by 12.0 million.
The healthcare services sector is expected to experience particularly strong
growth, adding 3.1 million jobs through 2005. Traditionally, service industries
have accounted for a large portion of uniform wearers in the United States and
the Company believes that the growth in service industries could add an
estimated $3 billion in industry sales, with healthcare services accounting for
approximately $800 million of the increase.
Stores
The Company's 65 Work 'n Gear stores are located in Connecticut, Delaware,
Illinois, Indiana, Maine, Massachusetts, Michigan, New Hampshire, New Jersey,
New York, Ohio, Pennsylvania and Rhode Island. The stores are generally located
in free-standing locations or strip shopping centers. Locations in active strip
shopping centers are generally preferable as the close proximity to other stores
increases traffic into the Work 'n Gear stores. Work 'n Gear stores range from
approximately 3,300 square feet to 6,200 square feet, with average space of
approximately 4,400 square feet as of August 2, 1997. All of the Work 'n Gear
stores are leased. Many of the leases are for initial terms of five years and
are often renewable at the option of the Company for one or more five-year
terms.
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To identify new locations for Work 'n Gear stores, the Company considers
proximity of major medical facilities, active retail environments, population
density, businesses present in the market and competition. Newly opened Work 'n
Gear stores require an initial average inventory and fixed asset investment of
approximately $170,000 to $200,000, composed of approximately $85,000 to
$100,000 for fixed assets and $85,000 to $100,000 for inventory. Work 'n Gear
stores take approximately two to three years to reach maturity.
The Company believes that there is potential for growth in store concepts
related to the Company's present store formats. For example, the Company
believes that the healthcare apparel market is underserved and that there is
demand for additional retail stores in this market segment. The Company has
opened two retail stores under the name "R(X) Uniforms" which exclusively sell
healthcare apparel and is evaluating opportunities to open additional stores.
The capital investment required for a new healthcare store is currently
anticipated to be approximately $60,000 to $80,000 for leasehold improvements
and fixtures and approximately $80,000 to $100,000 for inventory.
Merchandising
Work 'n Gear's merchandising strategy concentrates on offering an extensive
selection of moderately-priced, high quality workwear for consumer, healthcare
and corporate customers under both private labels and brand names.
Consumer merchandise includes industrial tops and bottoms, jeans, work
boots, rugged outerwear and other accessories. Consumer merchandise is offered
under brand names, such as Herman Survivors, Carhartt, Timberland, Bern
Manufacturing and Duofold, as well as private labels, such as Indiana Industrial
Clothing Co., Alaska Bay and Ultimate Workwear. Private label merchandise is
designed with special features such as triple needle stitching, bi-swing backs
and reinforced pockets.
Healthcare merchandise includes scrubs (tops and bottoms), lab coats,
warm-up jackets, dresses, accessories, footwear and hosiery. Healthcare
merchandise is offered under brand names, such as Barco, Crest, Nursemates,
Fashion Seal and Cherokee, as well as private labels such as Ultimate Healthcare
Apparel.
Corporate merchandise includes industrial, career and casual custom
uniforms for a variety of business environments. Corporate merchandise is
offered under brand names, such as Edwards Manufacturing Company, Red Kap,
Dickies Industrial, Liberty Uniform, Van Heusen and WearGuard, as well as
private labels such as Work 'n Gear Uniforms. Customers for corporate products
can be very sensitive to price points, particularly in bid situations. The
Company believes it has a competitive advantage over many of its competitors in
workwear corporate sales due to its ability to provide a delivery system through
its chain of Work 'n Gear stores.
Marketing
Work 'n Gear marketing efforts include direct mailings, outdoor advertising
and newspaper and radio advertising. In addition, Work 'n Gear participates in
industry trade shows where it displays merchandise to encourage customers to
visit its stores.
Work 'n Gear is seeking to expand its corporate sales through the recent
addition of a direct corporate sales force. The Company believes that corporate
sales are an efficient method of generating additional sales with a limited
capital investment. In addition, since corporate sales often require employees
to come to the retail stores, ancillary retail sales may be generated in the
process. In the current fiscal year, the Company entered into agreements to
provide uniforms to a national private security firm, a regional transit
authority and a large supermarket chain. The Company is currently bidding on and
presenting proposals to other large corporate accounts.
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LICENSED SHOE DEPARTMENT BUSINESS
Overview
The Company is the largest independent operator of self-service licensed
shoe departments in discount department stores in the United States. The Company
and its predecessors have operated licensed shoe departments in discount
department stores for more than 40 years.
In a licensed shoe department operation, a discount department chain and
the Company enter into a license agreement under which the Company typically has
the exclusive right to operate a shoe department in host stores for a specified
number of years. The department is operated under the store name in space
supplied by the store, and the store collects payments from customers and
credits the Company. The Company pays the discount department chain a license
fee, generally calculated as a percentage of net sales, for the right to operate
the department and for the use of the space. The license fee generally covers
utilities, janitorial service, cash collection and handling, packaging and
advertising. In some circumstances, the license fee also covers staffing costs.
Sales for fiscal 1997, 1996 and 1995 in the licensed shoe business were
$303.0 million, $352.0 million and $401.5 million, respectively. The number of
licensed shoe departments operated by the Company has declined in recent years
reflecting consolidation of the discount department store business and the
Company's decision to terminate certain license agreements or allow them to
lapse. During the fourth quarter of fiscal 1997, the Company completed its
Footwear Restructuring in order to focus its efforts on the management,
development and growth of its Casual Male Big & Tall and Work 'n Gear
businesses. Further, in connection with the Footwear Restructuring, the Company
reduced its investment in the licensed shoe department business and decided to
concentrate its efforts in this business primarily on its five largest licensors
(Ames, Bradlees, Hills, Rose's and ShopKo) which accounted for approximately 92%
of the net sales of the licensed shoe department business for the six months
ended August 2, 1997. The Company's increased focus on its core licensors is
intended to improve the results of its licensed shoe department business through
better resource management. As a result of the foregoing, the number of
licensors has declined from 25 at the end of fiscal 1996 to 21 at the end of
fiscal 1997 and the number of licensed shoe departments has also decreased from
1,087 at the end of fiscal 1996 to 937 at the end of fiscal 1997 and 863 at
August 2, 1997. The Company regularly reviews this business to promote cost
efficiency and maintain acceptable results in continuing accounts, and intends
to explore future strategic options for this business and to continue closing
departments upon termination of licenses where the Company believes it is
appropriate to do so.
Industry
The discount footwear market is characterized by consolidation and
competitive pressures. Competition is heavily concentrated among retailers such
as Payless ShoeSource, Inc. and discount department stores such as Wal-Mart
Stores, Inc. ("Wal-Mart"). According to Footwear Markets Insights ("FMI"), the
discount footwear market in the United States generated approximately $7 billion
of retail sales in 1996. In addition, FMI reports that the market share of the
discount footwear market has grown from 18.3% in 1992 to 20.8% in 1996 of the
total footwear industry.
Stores
The Company's licensed shoe departments are located in 39 states and the
District of Columbia. Of the 937 licensed shoe departments which the Company
operated as of February 1, 1997 with 21 different discount department store
operators, 635, or approximately 68%, were covered by agreements with terms
expiring in less than five years and 302, or approximately 32%, were covered by
agreements with terms expiring in more than five years. The Company generally
opens new departments when its licensors open new stores. During fiscal 1997,
the Company opened 38 departments and closed 188, representing a net decrease of
150 departments for the year. The Company expects to open 11 new licensed shoe
departments during fiscal 1998, of which 9 have already been opened during the
first half of fiscal 1998. Newly opened licensed shoe departments require an
initial investment of approximately $95,000 to $125,000, composed of
approximately $30,000 to
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$50,000 for fixed assets and approximately $65,000 to $75,000 for inventory. The
Company's licensed shoe departments have an average space of approximately 2,100
square feet as of August 2, 1997.
The Company's licensed shoe departments in discount department stores are
operated on a self-serve basis. The Company's personnel employed in particular
departments are responsible for stocking and layout of shelves, responding to
customer inquiries and related administrative tasks. Some of the Company's
licensed shoe departments are serviced in a similar manner by employees of the
licensor.
Merchandising
The Company's licensed shoe departments sell a wide variety of family
footwear, including men's, women's and children's dress, casual and athletic
footwear as well as work shoes, boots and slippers. Most of the shoes offered by
the Company's licensed shoe departments are sold under the Company's private
labels or on an unbranded basis. The Company also sells merchandise under brand
names or licensed brands at discounted prices. For example, the Company's
licensed shoe department business has entered into an exclusive licensing
arrangement with Binney & Smith, Inc. and BBC International to market shoes
under the Crayola brand. The Company intends to reduce its brand name shoe
offerings in favor of its private label merchandise. The shoes offered by the
Company are moderately priced, with prices generally ranging from $3 to $50. In
order to minimize the impact of the seasonal nature of weather related products
such as sandals, slippers and snow boots, the Company's licensed shoe
departments seek to offer more year-round products such as athletic shoes and
casual shoes.
Marketing
The Company's licensed shoe department business does not independently
advertise the footwear sold in its licensed shoe departments. Instead, the
Company's licensed shoe department business participates in merchandise
circulars distributed by its licensors and in their advertising campaigns. In
addition, the Company's licensed shoe department business sets up in-store
displays to promote particular products.
PURCHASING AND DISTRIBUTION
The Company purchases merchandise from a vendor base of over 100 suppliers.
The Company is dependent to a significant degree upon its ability to purchase
merchandise at competitive prices. Purchasing of merchandise for the Company's
licensed shoe department business is conducted primarily through two foreign
sales offices in Taipei, Taiwan and Hong Kong, China. Purchasing for Casual Male
Big & Tall and Work 'n Gear is conducted through their main offices in Canton,
Massachusetts. Approximately 95% of the Company's licensed shoe departments'
products are manufactured in foreign countries, while a significant portion of
the Casual Male Big & Tall and Work 'n Gear products are manufactured in the
United States. Typical lead times for the Company in making purchases from its
vendors range from approximately several days for items such as special catalog
orders for Work 'n Gear customers to approximately nine months for items such as
footwear manufactured in the Far East to the Company's specifications. The
Company believes that its purchasing volumes enable it to obtain product from
suppliers on favorable terms. During fiscal 1997, approximately 16% of the
Company's licensed shoe department merchandise was purchased from one vendor. No
other vendor accounted for greater than 10% of the licensed shoe department
purchases or the purchases of Casual Male Big & Tall or Work 'n Gear during
fiscal 1997.
The Company utilizes fully integrated information systems to facilitate the
receipt, processing and distribution of its merchandise through its two
distribution centers located in Canton, Massachusetts and Readville,
Massachusetts. The Casual Male Big & Tall processing and distribution operations
are located in Readville and the Work 'n Gear and licensed shoe department
operations are located in Canton. Merchandise received from vendors at these
distribution centers is allocated and shipped to the stores and licensed shoe
departments using the Company's established national network of independent
transportation companies. Turnaround time between the receipt of merchandise
from the vendor and shipment to the stores is usually five days or less and
shipments are made weekly to all stores, in order to maintain the freshness of
the
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Company's merchandise. Because of such frequent shipments, the stores do not
require significant storage space.
MANAGEMENT INFORMATION SYSTEMS
The Company relies primarily on proprietary management information systems
to maximize productivity and minimize costs in certain labor-intensive areas of
its businesses, including planning and distribution, inventory control,
warehousing, personnel management, credit verification and accounting. In each
Casual Male Big & Tall and Work 'n Gear store, the Company's point of sale
system uses bar code scanning and includes electronic credit and check
authorization. The Company has made substantial investments in its systems and
utilizes dual central mainframe computers to coordinate store level information
and to support almost every aspect of the businesses. By linking the main office
with each Casual Male Big & Tall and Work 'n Gear store, the Company's systems
allow management to track sales of all items at all stores on a daily basis. The
Company is in the process of upgrading its cash registers and adding personal
computers at each store, which will, among other features, allow for real time
transfer of sales data, and provide a private intranet with electronic mail
capabilities linking each store with the main office and each other. With regard
to the licensed shoe departments, daily sales data is sent directly from the
licensors into the Company's mainframe computers.
The Company operates a dual system of processors with a generator back-up
to prevent an unanticipated interruption of system support. The Company has also
contracted with a third-party disaster recovery company to serve as a back-up
system in the event that both systems fail simultaneously.
INTELLECTUAL PROPERTY
The Company relies on registration or common law rights to protect certain
trademarks under which the Company markets private label merchandise. As
necessary, the Company vigorously protects its trademarks. While these
trademarks are useful to the Company's business, the Company believes that the
loss of any particular trademark would not have a material adverse effect on the
Company's business, financial condition or results of operations.
COMPETITION
The retail apparel and footwear industries in which the Company operates
are highly competitive. The Company competes against national and regional
competitors, including department, specialty and discount stores and other
retailers. Sales of clothing through catalogs and home shopping networks or
other electronic media provide additional sources of competition. Specifically,
Casual Male Big & Tall faces competition from national chains such as Rochester
Big & Tall, and Repp. Ltd., a division of Edison Brothers Stores, Inc., and
discount retailers with significant buying power such as Wal-Mart and Kmart
Corporation ("Kmart"), off-price retailers, catalogs and other retailers who
have expanded their product offerings. The Work 'n Gear stores face competition
for consumer sales from traditional Army and Navy stores offering a large
assortment of workwear items, large specialty chains such as Bob's Stores and
full service department stores. Competition for healthcare industry sales comes
from Life Uniform, the largest retailer, catalog operations and several
independent operators. Competition for corporate sales comes from large
manufacturers such as WearGuard/ ARAMARK, Uniforms To You, Crest Uniform and
Fashion Seal, as well as small dealers. The Company's licensed shoe departments
face competition for sales to retail customers from national and regional
retailers, including Payless ShoeSource, Inc. and Wal-Mart. Other companies
which operate licensed shoe departments include Footstar, Inc.'s Meldisco
division which operates the Kmart shoe departments. Some of the Company's
competitors have substantially greater financial resources than the Company.
Competition is based on product selection, quality, availability, price, store
location, customer service and promotional activities. There can be no assurance
that the Company will be able to maintain or improve its sales, profitability or
market share in the face of such competition.
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EMPLOYEES
As of August 2, 1997, the Company employed approximately 3,126 persons
full-time and 3,306 persons part-time, of whom approximately 2,295 full-time and
3,297 part-time employees were engaged in retail operations at the store level.
Approximately 478 of the Company's full-time and part-time employees are covered
by collective bargaining agreements. On October 13, 1997, the Company reached an
agreement with union representatives to extend until October 14, 2000, subject
to union ratification, a collective bargaining agreement with certain employees
in one of the distribution centers of the Company which expired on October 14,
1997. The Company expects to receive union ratification of this agreement,
although there can be no assurance in this respect. The Company does not believe
that any of the collective bargaining agreements to which the Company is a party
have had a material impact on wages or financial performance. The Company
believes that its employee relations are good.
PROPERTIES
The executive and administrative offices of the Company, the licensed shoe
department business and Work 'n Gear and the warehouse and distribution centers
of the licensed shoe department business and Work 'n Gear are located in Canton,
Massachusetts. This facility is located on 37 acres of land and is owned by JBAK
Canton Realty, Inc. ("JBAK Realty"), a wholly-owned subsidiary of JBAK Holding,
Inc. ("JBAK Holding") and an indirect, wholly-owned subsidiary of the Company.
In December 1996, JBAK Realty obtained a $15.5 million mortgage loan from The
Chase Manhattan Bank (the "Mortgage Loan") secured by the real estate, buildings
and other improvements owned by JBAK Realty located at 555 Turnpike Street,
Canton, Massachusetts (the "Canton Property"). JBAK Realty leases the Canton
Property to JBI, Inc., a wholly-owned subsidiary of the Company. This facility
contains approximately 750,000 square feet of space, including approximately
150,000 square feet of office space. See "Description of Credit Facilities and
Other Indebtedness -- Mortgage Loan."
The Company leases a building in Readville, Massachusetts that serves as
the administrative offices and distribution center for Casual Male Big & Tall.
The building contains approximately 75,000 square feet of office space and
approximately 375,000 square feet of warehouse/distribution space. The lease on
the Readville facility expires on May 31, 1999. The Company has two consecutive
five year options to renew the lease.
On October 1, 1997, the Company leased a building located at 437 Turnpike
Street, Canton, Massachusetts that will serve as the administrative offices for
Casual Male Big & Tall. The building has approximately 53,000 square feet of
office space. The lease has a ten year term.
The following table indicates the combined number of Casual Male Big & Tall
and Work 'n Gear store leases expiring during the calendar indicated:
<TABLE>
<CAPTION>
CALENDAR YEAR NUMBER OF LEASES EXPIRING
----------------------------------------------- -------------------------
<S> <C>
1997........................................ 26
1998........................................ 90
1999........................................ 111
2000........................................ 77
2001........................................ 55
2002........................................ 68
</TABLE>
45
<PAGE> 49
The table below indicates the states in which the stores or licensed shoe
departments operating on August 2, 1997 were located, and the number of stores
in each state:
<TABLE>
<CAPTION>
CASUAL MALE LICENSED SHOE TOTAL
BIG & TALL WORK 'N GEAR DEPARTMENTS COMPANY
----------- ------------ ------------- -------
<S> <C> <C> <C> <C>
Alabama.................... 5 -- -- 5
Arizona.................... 5 -- -- 5
Arkansas................... 2 -- -- 2
California................. 38 -- 1 39
Colorado................... 4 -- 4 8
Connecticut................ 11 3 34 48
Delaware................... 2 1 7 10
District of Columbia....... -- -- 1 1
Florida.................... 31 -- -- 31
Georgia.................... 12 -- 8 20
Idaho...................... 1 -- 8 9
Illinois................... 27 7 15 49
Indiana.................... 12 1 11 24
Iowa....................... 1 -- 3 4
Kansas..................... 2 -- -- 2
Kentucky................... 4 -- 6 10
Louisiana.................. 5 -- -- 5
Maine...................... 2 1 24 27
Maryland................... 15 -- 29 44
Massachusetts.............. 14 11 76 101
Michigan................... 20 6 10 36
Minnesota.................. 9 -- 13 22
Mississippi................ 1 -- 4 5
Missouri................... 9 -- 11 20
Montana.................... 1 -- 5 6
Nebraska................... 3 -- 11 14
Nevada..................... 3 -- 3 6
New Hampshire.............. 4 3 26 33
New Jersey................. 22 11 39 72
New Mexico................. 2 -- -- 2
New York................... 42 13 105 160
North Carolina............. 12 -- 48 60
North Dakota............... 1 -- -- 1
Ohio....................... 19 1 71 91
Oklahoma................... 3 -- -- 3
Oregon..................... 3 -- 4 7
Pennsylvania............... 22 6 112 140
Rhode Island............... 3 1 9 13
South Carolina............. 9 -- 6 15
South Dakota............... 1 -- 6 7
Tennessee.................. 10 -- 5 15
Texas...................... 33 -- 1 34
Utah....................... 2 -- 15 17
Vermont.................... 1 -- 13 14
Virginia................... 14 -- 43 57
Washington................. 5 -- 10 15
West Virginia.............. 1 -- 26 27
Wisconsin.................. 8 -- 40 48
--
--- -- --- -----
Total............ 456 65 863 1,384
=== == === =====
</TABLE>
46
<PAGE> 50
LEGAL PROCEEDINGS
On November 10, 1993, the United States District Court for the District of
Minnesota returned a jury verdict assessing royalty damages of $1,550,000 and
additional damages of $1,500,000 against the Company in a patent infringement
suit brought by Susan Maxwell with respect to a patent for a system used to
connect pairs of shoes. The jury verdict was based on a finding that three
different shoe connection systems used by the Company infringed Ms. Maxwell's
patent. Post-trial motions for treble damages, attorney's fees and injunctive
relief were granted on March 10, 1995. The Company appealed the judgment. On
June 11, 1996, the United States Court of Appeals for the Federal Circuit
reversed in part and affirmed in part and vacated the award of treble damages,
attorney's fees and injunctive relief. The appellate court's ruling was based on
its holding that as a matter of law two of the three shoe connection systems
used by the Company did not infringe the patent. A request by Ms. Maxwell for a
rehearing en banc was denied by an order dated August 28, 1996. Ms. Maxwell
petitioned the United States Supreme Court for a writ of certiorari, which
petition was denied on March 17, 1997. The case was remanded to the trial court
for a redetermination of damages consistent with the opinion of the appellate
court.
A complaint was also filed by Ms. Maxwell against Morse Shoe, a subsidiary
of the Company, in November 1992, prior to consummation of the acquisition of
Morse Shoe by the Company alleging infringement of the patent referred to above.
On September 17, 1997, the parties agreed to settle the matters described
above. Pursuant to the proposed settlement agreement, the Company expects both
cases to be dismissed with prejudice with no admissions of liability and the
parties to execute a mutual release of all claims. Pursuant to the settlement,
the Company has agreed to make payments to Ms. Maxwell of $4,137,000 in the
aggregate, over a three year period. The Company expects to incur, net of
reserves, a one-time charge to earnings of approximately $2 million on an
after-tax basis during the third quarter of fiscal 1998 reflecting anticipated
costs of the settlement.
The Company is also involved in various claims and lawsuits incidental to
its business. The Company does not believe that these claims and lawsuits in the
aggregate will have a material adverse effect on the Company's business,
financial condition and results of operations.
47
<PAGE> 51
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the Company's
directors and executive officers as of September 15, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------
<S> <C> <C>
Sherman N. Baker................. 77 Chairman of the Board
Alan I. Weinstein................ 54 President and Chief Executive Officer,
Director
Stuart M. Glasser................ 50 Executive Vice President and President and
Chief Executive Officer of Casual Male Big &
Tall business
James D. Lee..................... 51 Executive Vice President and President of
licensed shoe department business
Roger J. Osborne................. 45 Executive Vice President and President of Work
'n Gear business
Philip G. Rosenberg.............. 48 Executive Vice President, Chief Financial
Officer and Treasurer
J. Christopher Clifford.......... 52 Director
Ervin D. Cruce................... 65 Director
Douglas J. Kahn.................. 41 Director
Harold Leppo..................... 60 Director
David Pulver..................... 56 Director
Melvin M. Rosenblatt............. 66 Director
Nancy Ryan....................... 48 Director
</TABLE>
SHERMAN N. BAKER has been the Chairman of the Board of the Company since
1990. From 1970 until 1990, Mr. Baker served as Chief Executive Officer of the
Company and its predecessors. Mr. Baker has been a Director of the Company since
1985.
ALAN I. WEINSTEIN has held the positions of President and Chief Executive
Officer of the Company since November 1996 and March 1997, respectively. From
September 1996 through March 1997, Mr. Weinstein served as Acting Chief
Executive Officer of the Company. From 1985 through September 1996, Mr.
Weinstein held the positions of Senior Executive Vice President, Chief Financial
Officer and Secretary of the Company. He was also appointed Chief Administrative
Officer in 1988. Mr. Weinstein joined the Company's predecessor in 1968 as
Assistant Controller and has held a variety of positions of increasing
responsibility in finance and administration since that time. Mr. Weinstein has
been a Director of the Company since September 1996.
STUART M. GLASSER has held the positions of Executive Vice President of the
Company and President and Chief Executive Officer of the Casual Male Big & Tall
business since September 15, 1997. From January 1991 until September 1997, Mr.
Glasser served as Executive Vice President and General Merchandise Manager of
men's, boy's, children's and cosmetics for Bloomingdale's, Inc. Prior to 1991,
Mr. Glasser served as President and Chief Executive of the department store
division of the Elder-Beerman Stores Corp. and prior to that he served as an
Executive Vice President of Lord & Taylor, a chain of department stores.
JAMES D. LEE has held the positions of Executive Vice President of the
Company and President of the Company's licensed shoe department business since
January 1995. From August 1994 through December 1994, Mr. Lee was Senior Vice
President and Director of Distribution for the Company's Fayva footwear
business. Mr. Lee was Senior Vice President and General Merchandise Manager of
the Caldor Stores division of The May Department Stores Company from 1987 to
July 1994.
ROGER J. OSBORNE has held the positions of Executive Vice President of the
Company and President of the Company's Work 'n Gear business since June 1997.
From November 1996 until June 1997, Mr. Osborne served as Senior Vice President
and Zone Director for Mid-West and East coast markets for Hollywood
48
<PAGE> 52
Entertainment Corp., a videocassette retailer. From January 1995 to November
1996, Mr. Osborne held the position of Senior Vice President and Director of
Operations of the Company's licensed shoe department business. Mr. Osborne was
employed as Senior Vice President and Director of Store Operations for Pic 'n
Pay Stores, Inc., a chain of discount footwear stores, from 1988 to January
1995.
PHILIP G. ROSENBERG has held the position of Executive Vice President of
the Company since September 1996 and was appointed Chief Financial Officer in
March 1997. From September 1996 to March 1997, Mr. Rosenberg served as Acting
Chief Financial Officer of the Company. In addition, Mr. Rosenberg has held the
positions of Treasurer and Chief Accounting Officer of the Company since 1992.
Mr. Rosenberg joined the Company's predecessor in 1970 and has held a variety of
positions of increasing responsibility in finance and administration since that
time.
J. CHRISTOPHER CLIFFORD has been a Director of the Company since 1985.
Since 1986, Mr. Clifford has been a general partner of Berkshire Partners, an
investment management company, and its affiliated partnerships. Prior to 1986,
Mr. Clifford was with the Thomas H. Lee Company, an investment management
company.
ERVIN D. CRUCE has been a Director of the Company since 1986. Since 1985,
Mr. Cruce has been involved in a variety of investment limited partnerships and,
during 1991, he served as general partner in the firm of Cruce & O'Brien. Prior
to 1985, Mr. Cruce was a partner in the accounting firm of KPMG Peat Marwick
LLP.
DOUGLAS J. KAHN has been a Director of the Company since January 1995.
Since 1993, Mr. Kahn has served as President and Chief Operating Officer of the
Royall Home Fashions Division of Croscill Home Fashions, Inc., a manufacturer
and distributor of home furnishings. Prior to 1993, Mr. Kahn served as Senior
Vice President -- Merchant Banking Group of Donaldson, Lufkin & Jenrette
Securities Corporation.
HAROLD LEPPO has been a Director of the Company since June 1997. Mr. Leppo
served as Interim President of the Casual Male Big & Tall business from March
1997 to September 1997. Since 1990, he has been a consultant to the retail
industry, and from 1990 to 1992, he served as a consultant to the Company's
Board of Directors. Prior to 1990, Mr. Leppo served as President of Lord &
Taylor for 11 years. Mr. Leppo has over 38 years experience in the retail
industry and currently serves on the Board of Directors of each of Filene's
Basement Corp., The Napier Co., Royce Hosiery Mills Inc. and Salant Corporation.
DAVID PULVER has been a Director of the Company since January 1993. He has
been the President of Cornerstone Capital, an investment company, and its
predecessors since 1983. He served as Chairman of the Board of Directors of
Morse Shoe from 1992 until the Company's acquisition of Morse Shoe in January
1993. From 1968 until 1984, Mr. Pulver served as Chairman of the Board and
Co-Chief Executive Officer of The Children's Place, a chain of children's
apparel stores. Mr. Pulver is a director of Costco Wholesale Corporation, a
subsidiary of Costco Companies, Inc., County Seat, Inc. and Hearst Argyle
Television, Inc.
MELVIN M. ROSENBLATT has been a Director of the Company since March 1993.
He is currently Chairman of the Board and Chief Executive Officer of Greenberg,
Rosenblatt, Kull & Bitsoli, P.C., a public accounting firm with which he has
held various positions since 1957. Mr. Rosenblatt was a Director of Ames from
1979 through 1992.
NANCY RYAN has been a Director of the Company since January 1995. She is
currently the President of Pro Media, Inc., a public relations firm, a position
she has held since 1980. Prior to 1980, Ms. Ryan was the Vice President and
Media Director of S&N Advertising Inc.
OTHER KEY EMPLOYEES
The Company believes that the following non-executive officers, who are
responsible for management of key administrative functions, are expected to make
significant contributions to the business of the Company.
Mark T. Beaudouin has been employed by the Company since 1992. Mr.
Beaudouin is currently serving as First Senior Vice President, General Counsel
and Secretary of the Company, a position he has held since March 1997. Prior to
March 1997, Mr. Beaudouin held the positions of Senior Vice President, General
49
<PAGE> 53
Counsel and Assistant Secretary. Prior to 1992, Mr. Beaudouin served as General
Counsel and Secretary of GenRad, Inc., where he was associated for seven years.
Mr. Beaudouin began his legal career at the Boston law firm of Nutter, McClennen
& Fish.
Joseph H. Cornely III has been employed by the Company since 1990. Mr.
Cornely is currently serving as First Senior Vice President and Director of Real
Estate, Store Planning and Construction of the Company, a position he has held
since 1990. Prior to 1990, Mr. Cornely served as Senior Vice President and
Director of Corporate Development of Casual Male Big & Tall's predecessor for 10
years. Upon the Company's acquisition of The Casual Male, Inc., Mr. Cornely
became an employee of the Company.
Virginia M. Pitts has been employed by the Company in various management
positions since 1980. Ms. Pitts is currently serving as First Senior Vice
President and Director of Human Resources of the Company, a position she has
held since 1993. Prior to 1993, Ms. Pitts served as Senior Vice President and
Director of Human Resources.
Jay M. Scheiner has been employed by the Company in various management
positions of increasing responsibility since 1974. Mr. Scheiner is currently
serving as First Senior Vice President and Chief Information Officer of the
Company, a position he has held since 1992. Prior to 1992, Mr. Scheiner served
as Senior Vice President and Director of Merchandise Control and Budgets for the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Berkshire Partners ("Berkshire") are parties to a
Management Agreement dated as of June 30, 1995 (the "Management Agreement"). J.
Christopher Clifford is a principal of Berkshire and a Director and stockholder
of the Company. The Management Agreement provides for an initial term of one
year with automatic extensions of one year unless otherwise terminated by either
party. Pursuant to the Management Agreement, Berkshire provides consulting and
management services to the Company in the areas of financial and strategic
corporate planning. In exchange for such services, the Company has agreed to pay
Berkshire a monthly fee of $5,000 plus expenses, subject to change by mutual
agreement for any extension of the Management Agreement. For the fiscal year
ended February 1, 1997, the Company paid Berkshire $55,000 for services under
the Management Agreement. In addition, through August 2, 1997, the Company paid
Berkshire $35,000 for consulting and management services. The Company believes
that the terms of the Management Agreement are as favorable as could be obtained
from an unaffiliated entity.
The Company pays Greenberg, Rosenblatt, Kull & Bitsoli, P.C. $60,000
annually for consulting and management services provided to the Company in the
areas of financial and strategic corporate planning. Melvin M. Rosenblatt is a
principal of such firm and a Director and stockholder of the Company. Through
August 2, 1997, the Company paid Greenberg, Rosenblatt, Kull & Bitsoli, P.C.
$30,000 for consulting and management services. The Company believes that the
terms of this arrangement are as favorable as could be obtained from an
unaffiliated entity.
Harold Leppo, who served as Interim President of Casual Male Big & Tall
from March 1997 to September 1997 and is a Director of the Company, had a
consulting arrangement with the Company which provided for payments of $30,000 a
month as compensation for services provided by him during his term as Interim
President. Through August 2, 1997, the Company paid Mr. Leppo $105,000 for
consulting services under this arrangement.
50
<PAGE> 54
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture"), to be
dated as of November , 1997, among the Company, as issuer, each of the
Guarantors, as guarantors, and The Chase Manhattan Bank, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such
terms and Holders of Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of the material provisions of
the Indenture does not purport to be complete and is qualified in its entirety
by reference to the Indenture, including the definitions therein of certain
terms used below. A copy of the Indenture substantially in the form in which it
is to be executed has been filed with the Commission as an exhibit in the
Registration Statement of which this Prospectus is a part. The definitions of
certain terms used in the following summary are set forth below under
"-- Certain Definitions." For purposes of this summary, the term "Company"
refers only to J. Baker, Inc. and not to any of its Subsidiaries.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Debt of the
Company. As of August 2, 1997, after giving pro forma effect to the Offering and
the application of proceeds therefrom, the Company and the Guarantors would have
had consolidated Senior Debt of approximately $37.1 million outstanding
(excluding $11.6 million of obligations under undrawn letters of credit). In
addition, as of August 2, 1997, the Company and the Guarantors would have had
$66.6 million of additional availability under the Amended Credit Facility. The
Indenture, subject to certain limitations, will permit the incurrence of
additional Senior Debt in the future. As of the date of the Indenture, all of
the Company's Subsidiaries will be Restricted Subsidiaries. However, under
certain circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
The obligations of the Company under the Notes will jointly and severally
be fully and unconditionally guaranteed on a subordinated basis, by the
Guarantors. The Subsidiary Guarantee of each Guarantor will be subordinated in
right of payment to all existing and future Senior Debt of such Guarantor. See
"-- Subsidiary Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $ million
and will mature on November , 2007. Interest on the Notes will accrue at the
rate of % per annum and will be payable semi-annually in arrears on May ,
and November , commencing on May , 1998, to Holders of record on the
immediately preceding and , respectively. Interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of original issuance;
provided that if there is no existing Default in the payment of interest, and
the Notes are authenticated between a record date referred to on the face of the
Notes and the next succeeding interest payment date, interest shall accrue from
the next succeeding interest payment date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
if any, and interest on the Notes will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or, at
the option of the Company, payment of interest may be made by check mailed to
the Holders of Notes at their respective addresses set forth in the register of
Holders of the Notes; provided that all payments on the Global Note and all
payments of interest on Notes in definitive form, the holders of which have
given wire transfer instructions to the Company, will be required to be made by
wire transfer in same day funds. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
51
<PAGE> 55
SUBORDINATION
The payment (by set-off or otherwise) of principal of, premium, if any, and
interest on the Notes (including with respect to any repurchases of the Notes)
will be subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full in cash, or, at the option of the holders of Senior Debt
of the Company, in Cash Equivalents, of all Obligations in respect of Senior
Debt of the Company, whether outstanding on the date of the Indenture or
thereafter incurred.
Upon any distribution to creditors of the Company upon any liquidation,
dissolution or winding up of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, whether voluntary or involuntary, an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities, the
holders of Senior Debt of the Company will be entitled to receive payment in
full in cash, or, at the option of the holders of Senior Debt of the Company, in
Cash Equivalents, of all Obligations due or to become due in respect of such
Senior Debt (including interest after the commencement of any such proceeding,
at the rate specified in the applicable Senior Debt) before the Holders of Notes
will be entitled to receive any payment of principal of, premium, if any, or
interest on the Notes, and until all Obligations with respect to Senior Debt of
the Company are paid in full in cash, or, at the option of the holders of Senior
Debt of the Company, in Cash Equivalents, any distribution of any kind or
character to which the Holders of Notes would be entitled shall be made to the
holders of Senior Debt of the Company (except that Holders of Notes may receive
Permitted Junior Securities and payments made from the trust described under
"-- Legal Defeasance and Covenant Defeasance").
The Company also shall not make, directly or indirectly, (x) any payment of
principal of, premium, if any, or interest on the Notes (except in Permitted
Junior Securities or from the trust described under "-- Legal Defeasance and
Covenant Defeasance") or (y) acquire any of the Notes for cash or property or
otherwise or make any other distribution with respect to the Notes if (i) any
default occurs and is continuing in the payment when due, whether at maturity,
upon any redemption, by declaration or otherwise, of any principal of, premium,
if any, or interest on, any Designated Senior Debt of the Company or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt of
the Company that permits holders of the Designated Senior Debt of the Company as
to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the holders
of such Designated Senior Debt of the Company. Payments on the Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived or otherwise has ceased to exist and (b) in the
case of a nonpayment default, upon the earlier of the date on which such
nonpayment default is cured or waived or otherwise has ceased to exist or 179
days after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt of the Company has been
accelerated and such acceleration remains in full force and effect. No new
period of payment blockage may be commenced unless and until 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such nonpayment default
shall have been waived for a period of not less than 90 days. Each Holder by his
acceptance of a Note irrevocably agrees that if any payment or payments shall be
made pursuant to the Indenture and the amount or total amount of such payment or
payments exceeds the amount, if any, that such Holder would be entitled to
receive upon the proper application of the subordination provisions of the
Indenture, the Holder agrees that it will be obliged to pay over the amount of
the excess payment to the holders of Senior Debt of the Person that made such
payment or payments or their representative or representatives, as instructed in
a written notice of such excess payment, within ten days of receiving such
notice.
The Indenture will further require that the Company promptly notify holders
of Senior Debt of the Company and the Guarantors if payment of the Notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
after giving effect to the Offering and the application of proceeds therefrom,
the principal
52
<PAGE> 56
amount of consolidated Senior Debt of the Company and the Guarantors outstanding
at August 2, 1997 would have been approximately $37.1 million (excluding $11.6
million of obligations under undrawn letters of credit). The Indenture will
limit, through certain financial tests, the amount of additional Indebtedness,
including Senior Debt, that the Company and its Restricted Subsidiaries can
incur. See "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Designated Senior Debt" of any Person means (i) any Indebtedness of such
Person outstanding under the Amended Credit Facility and (ii) any other Senior
Debt of such Person, the principal amount of which is $5.0 million or more and
that has been designated by the Company as "Designated Senior Debt" of such
Person.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt of the issuer of such debt
securities (and any debt securities issued in exchange for Senior Debt of the
issuer of such debt securities) to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt.
"Senior Debt" of any Person means (i) the Obligations of such Person under
the Amended Credit Facility, including, without limitation, Hedging Obligations
and reimbursement obligations in respect of letters of credit and bankers
acceptances, and (ii) any other Indebtedness of such Person permitted to be
incurred by such Person under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing, Senior Debt of a Person will not
include (v) any obligation to, in respect of or imposed by any environmental,
landfill, waste management or other regulatory governmental agency, statute, law
or court order, (w) any liability for federal, state, local or other taxes, (x)
any Indebtedness of such Person to any of its Subsidiaries or other Affiliates,
(y) any trade payables or (z) any Indebtedness that is incurred in violation of
the Indenture.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will jointly and
severally be fully and unconditionally guaranteed (as described herein)(the
"Subsidiary Guarantees"), by the Guarantors. The Subsidiary Guarantee of each
Guarantor will be subordinated in right of payment to the same extent as the
obligations of the Company in respect of the Notes, as set forth in the
Indenture, to the prior payment in full, in cash or, at the option of the
holders of Senior Debt of such Guarantor, in Cash Equivalents, of all Senior
Debt of such Guarantor, which would include any Guarantee issued by such
Guarantor that constitutes Senior Debt of such Guarantor, including Guarantees
of Indebtedness under the Amended Credit Facility. The obligations of each
Guarantor under its Subsidiary Guarantee will be limited to the maximum amount
that would not result in the obligations of such Guarantor under its Subsidiary
Guarantee constituting a fraudulent conveyance or fraudulent transfer under
applicable law.
The Indenture will provide that no Guarantor (including any existing or
future Restricted Subsidiary that becomes an additional Guarantor) may
consolidate with or merge with or into (whether or not such Guarantor is the
surviving Person) another Person whether or not affiliated with such Guarantor,
or sell, assign, transfer, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions to another
Person, unless (i) the Person formed by or surviving such consolidation or
merger (if other than such Guarantor) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is a
corporation organized and existing under the laws of the United States of
America, any state thereof, or the District of Columbia and expressly assumes
all the obligations of such Guarantor, pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the Trustee, under the Notes and
the Indenture and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. The provisions of clause (i) of the
preceding sentence shall not apply if the Person formed by or surviving the
relevant consolidation or merger or to which the relevant sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is the
Company, a Guarantor or a Person that is not, after giving effect to such
transaction, a Restricted Subsidiary of the Company.
53
<PAGE> 57
The Indenture will provide that in the event of (i) a merger or
consolidation to which a Guarantor is a party, then the Person formed by or
surviving such merger or consolidation (if, after giving effect to such
transaction, other than the Company or a Restricted Subsidiary of the Company)
shall be released and discharged from the obligations of such Guarantor under
its Subsidiary Guarantee or (ii) a sale or other disposition (whether by merger,
consolidation or otherwise) of all of the Equity Interests of a Guarantor at the
time owned by the Company and its Restricted Subsidiaries to any Person that,
after giving effect to such transaction, is neither the Company nor a Restricted
Subsidiary of the Company, then such Guarantor shall be released and discharged
from its obligations under its Subsidiary Guarantee; provided that, in the case
of each of clauses (i) and (ii), (A) the relevant transaction is in compliance
with the terms of the Indenture, (B) immediately after giving effect to such
transaction, no Default or Event of Default shall exist and (C) the Person being
released and discharged shall have been released and discharged from all
obligations it might otherwise have under Guarantees of Indebtedness of the
Company or any of its Restricted Subsidiaries.
"Guarantor" means (i) Buckmin, Inc., a Massachusetts corporation, The
Casual Male, Inc., a Massachusetts corporation, ELM Equipment Corp., a
Massachusetts corporation, ISAB, Inc., a Delaware corporation, Jared
Corporation, a Puerto Rico corporation, JBI Holding Co., Inc., a Delaware
corporation, JBI, Inc., a Massachusetts corporation, Morse Shoe (Canada) Ltd., a
Canadian corporation, Morse Shoe, Inc., a Delaware corporation, Morse Shoe
International, Inc., a Delaware corporation, Spencer Companies, Inc., a
Massachusetts corporation, TCMB&T, Inc., a Massachusetts corporation, TCM
Holding Co., Inc., a Delaware corporation, White Cap Footwear, Inc., a Delaware
corporation, and WGS Corp., a Massachusetts corporation and (ii) each other
Person that becomes a guarantor of the obligations of the Company under the
Notes and the Indenture from time to time in accordance with the provisions of
the Indenture described under the caption "-- Additional Subsidiary Guarantees,"
and their respective successors and assigns; provided, however, that "Guarantor"
shall not include any Person that is released from its Guarantee of the
obligations of the Company under the Notes and the Indenture as provided in the
Indenture.
Each of the Company's Subsidiaries existing on the date of the Indenture
(other than JBAK Realty and JBAK Holding; see "Description of Credit Facilities
and Other Indebtedness -- Mortgage Loan") will be a Guarantor. In addition, the
Indenture will require that each future Restricted Subsidiary of the Company
become a Guarantor at any time such Restricted Subsidiary has gross assets or
stockholders' equity in excess of $50,000. See "Certain Covenants -- Additional
Subsidiary Guarantees."
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at the
Company's option prior to November , 2002. Thereafter, the Notes will be
subject to redemption at any time at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on November of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2002.............................................. %
2003.............................................. %
2004.............................................. %
2005 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to November , 2000, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of the Notes originally issued at a redemption price of % of
the principal amount thereof, plus accrued and unpaid interest thereon, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that at least 65% of the aggregate principal amount of the
Notes originally issued remains outstanding immediately after the occurrence of
such redemption; and provided, further, that such redemption shall occur within
60 days of the date of the closing of any such Public Equity Offering.
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In addition, at any time prior to November , 2002, the Company may, at
its option, redeem the Notes, in whole or in part, at a redemption price equal
to 100% of the principal amount thereof plus the applicable Make-Whole Premium,
plus accrued and unpaid interest thereon to the redemption date.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided that
no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at such Holder's
registered address. Notices of redemption may not be conditional. If any Note is
to be redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note or Notes in the aggregate principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, unless the Company defaults in
making the redemption payment, interest ceases to accrue on the Notes or
portions thereof called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company will not be required to make any mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash (the
"Change of Control Payment") equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase (the
"Change of Control Payment Date"). Notice of a Change of Control Offer shall be
mailed by or on behalf of the Company, with a copy to the Trustee or, at the
option of the Company and at the expense of the Company, by the Trustee within
30 days following a Change of Control to each Holder of the Notes. Such Change
of Control Offer must remain open for at least 30 and not more than 40 days
(except as may be otherwise required by applicable law). In addition, the
Company will comply with any tender offer rules under the Exchange Act which may
then be applicable, including Rule 14e-1, in connection with the repurchase of
the Notes pursuant to a Change of Control Offer.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the aggregate Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver, or cause to be delivered, to
the Trustee for cancellation the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
properly tendered to the Company. The Paying Agent will promptly mail or deliver
to each Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any; provided that each
such new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
specific provisions that would permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction. However,
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<PAGE> 59
restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on
their respective properties, to make Restricted Payments and to make Asset Sales
may also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such repurchase. Such restrictions and
the restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of the Company or any of
its Subsidiaries by the management of the Company. While such restrictions cover
a wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
The Amended Credit Facility will prohibit the Company from repurchasing any
Notes and will also provide that certain change of control events with respect
to the Company would constitute a default thereunder. Any future credit
agreements or other agreements to which the Company becomes a party may contain
similar restrictions and provisions. In the event a Change of Control occurs at
a time when the Company is prohibited from repurchasing Notes, the Company could
seek the consent of its lenders to the repurchase of Notes or could attempt to
refinance or repay the borrowings that contain such prohibition. If the Company
does not obtain such a consent or repay such borrowings, the Company will remain
prohibited from repurchasing Notes. In such case, the Company's failure to
repurchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Amended Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, directly or indirectly, of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole to any
Person or "group" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any Person
or group becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a Person shall be deemed to
have "beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
35% of the Voting Stock of the Company (measured by voting power rather than
number of shares) or (iv) the first day on which a majority of the members of
the Board of Directors of the Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
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<PAGE> 60
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale unless (i) the Company (or such Restricted Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a resolution of the Board of Directors of
the Company and as set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary, as the case may be, from such Asset Sale is in
the form of cash; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that expressly releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) shall be deemed to be
cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently
reduce any Senior Debt of the Company (and to correspondingly reduce commitments
with respect thereto in the case of revolving borrowings), or (b) to the
acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in the same line of business as the Company was engaged in on the date of the
Indenture. Pending the final application of any such Net Proceeds, the Company
may invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0
million the Company will be required to make an offer to all Holders of Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, to the date of purchase, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero. The Asset Sale Offer must be
commenced within 30 days following the date on which the aggregate amount of
Excess Proceeds exceeds $5.0 million and remain open for at least 30 and not
more than 40 days (unless otherwise required by applicable law). The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes pursuant
to an Asset Sale Offer. The agreements governing the Amended Credit Facility
will not permit the Company and certain of its subsidiaries to become a party
to, or agree to, or effect certain asset sales without the prior written consent
of the Majority Lenders (as defined thereunder). See "Description of Credit
Facilities and Other Indebtedness."
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to any Wholly
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Owned Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Wholly Owned Restricted Subsidiary of the Company,
any Equity Interests then being issued by the Company or a Wholly Owned
Restricted Subsidiary of the Company or any Investment in a Person that, after
giving effect to such Investment, is a Wholly Owned Restricted Subsidiary of the
Company); (iii) make any payment on or with respect to, or purchase, redeem,
repay, defease or otherwise acquire or retire for value, any Indebtedness that
is subordinated in right of payment to the Notes (other than regularly scheduled
payments of interest); or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv), (vi) and (vii) of the next
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated
Net Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the date of
the Indenture to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company from the issue or sale
since the date of the Indenture of Equity Interests of the Company (other
than Disqualified Stock) or of Disqualified Stock or debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or Disqualified Stock or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock), plus (iii) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) (but only to the extent not included in subclause (i) of this
clause (c)), and (B) the initial amount of such Restricted Investment, plus
(iv) $5.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase
or other acquisition of subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
scheduled dividends on any Disqualified Stock issued after the date of the
Indenture in compliance with the provisions of the Indenture; (v) payments made
with respect to the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Subsidiary of the
Company held by any member of the Company's (or any of its Restricted
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the Indenture
(provided that the aggregate price paid for all such
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repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period); (vi) the purchase, redemption,
repayment, acquisition or retirement of the Company's 11.21% Senior Subordinated
Notes due 1999 and the Company's 8% Convertible Subordinated Notes due 2002 with
the proceeds of the Offering as described under "Use of Proceeds"; (vii) the
purchase, redemption, repayment, acquisition or retirement for value of the
Company's 7% Convertible Subordinated Notes due 2002 at any time during the six
month period ending June 1, 2002 and (viii) the payment of regular quarterly
dividends on shares of common stock of the Company in an aggregate amount not to
exceed $.10 per share per annum (as equitably adjusted by resolution of the
Board of Directors of the Company for stock splits, stock dividends and similar
events after the date of the Indenture); provided, however, that at the time of,
and after giving effect to, any Restricted Payment permitted under clauses (i)
through (v), (vii) and (viii) no Default or Event of Default shall have occurred
and be continuing.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greater of (x) the net book value of such Investments at the time
of such designation and (y) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment, to be determined in good faith
by the Board of Directors of the Company, whose determination shall be
conclusive and evidenced by a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate. Not later than the date of making
any Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this covenant were computed,
together with a copy of any fairness opinion required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock (other than to the Company or a Wholly Owned
Restricted Subsidiary of the Company); provided, however, that the Company and
the Guarantors may incur Indebtedness (including Acquired Debt but excluding
Hedging Obligations) or issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.25 to 1 if such Indebtedness is incurred or such
Disqualified Stock is issued on or prior to November , 1999 or 2.50 to 1
if such Indebtedness is incurred or such Disqualified Stock is issued
thereafter, determined on a pro forma basis in accordance with Article 11
of Regulation S-X under the Securities Act or any successor provision, as
if the additional Indebtedness had been incurred, or the Disqualified Stock
had been issued, as the case may be, at the beginning of such four-quarter
period; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro
forma basis to, such incurrence or issuance.
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The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness or issuances of
preferred stock or Disqualified Stock (collectively, "Permitted Debt"):
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness arising under or in connection with the Amended Credit
Facility; provided that the aggregate principal amount of all Indebtedness
(with letters of credit being deemed for all purposes of the Indenture to
have a principal amount equal to the maximum potential liability of the
Company and its Restricted Subsidiaries in respect thereof) outstanding
under the Amended Credit Facility after giving effect to such incurrence,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (i),
does not exceed an amount equal to the greater of $100.0 million or $10.0
million plus the Borrowing Base, in each case less the aggregate amount of
all Indebtedness permanently repaid with the Net Proceeds of any Asset
Sale;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (iii), not to exceed $5.0 million at any time outstanding;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than Hedging Obligations and other than Indebtedness permitted to be
incurred pursuant to clause (v) or clause (x) of this paragraph) that was
permitted by the Indenture to be incurred;
(v) the incurrence by the Company or any of its Wholly Owned
Restricted Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries; provided,
however, that (A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company and (B) any
sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary of the Company
(other than any pledge of such Indebtedness to the lenders under the
Amended Credit Facility) shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
hedging against fluctuations in currency values or for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness of the Company or any of its Restricted Subsidiaries that is
permitted by the terms of the Indenture to be outstanding, provided that
the notional principal amount of any Hedging Obligations does not
significantly exceed the principal amount of Indebtedness to which such
agreement relates;
(vii) the Guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Wholly Owned Restricted
Subsidiary of the Company that was permitted to be incurred by another
provision of this covenant;
(viii) the issuance by the Company's Unrestricted Subsidiaries of
preferred stock or the incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary,
such event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company;
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(ix) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the Notes and the Subsidiary Guarantees; and
(x) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness (other than Hedging Obligations) or
the issuance by the Company of Disqualified Stock; provided that the
aggregate principal amount of outstanding Indebtedness, together with the
aggregate liquidation preference of outstanding Disqualified Stock, issued
or incurred pursuant to this clause (x) does not at any time exceed $10.0
million.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien securing Indebtedness or trade payables on
any asset now owned or hereafter acquired, or on any income or profits therefrom
or assign or convey any right to receive income therefrom, except Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a)
pay dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness or other obligations owed to the Company or any of its Restricted
Subsidiaries, (ii) make loans or advances to the Company or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the Amended Credit Facility as in
effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive as a whole with respect to such dividend
and other payment restrictions than those contained in the Amended Credit
Facility as in effect on the date of the Indenture, (c) the Indenture and the
Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person (including any Subsidiary of the Person), so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) by reason of
customary non-assignment and net worth provisions in leases or other agreements
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (h) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced, (i) customary
restrictions in Capital Lease Obligations, security agreements or mortgages
securing Indebtedness of the Company or a Restricted Subsidiary to the extent
such restrictions restrict the transfer of the property subject to such Capital
Lease Obligations, security agreements or mortgages, (j) customary restrictions
with respect to an agreement that has been entered into for the sale or
disposition of assets or Capital Stock held by the Company or any Restricted
Subsidiary, and (k) customary restrictions contained in any agreements or
documentation governing Indebtedness incurred pursuant to clause (x) of the
covenant described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock".
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Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company shall not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, entity or other Person, unless (i) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after giving effect to such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Company with or into a Wholly Owned Subsidiary of the Company, the Company
or the Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-- Incurrence
of Indebtedness and Issuance of Preferred Stock."
Upon any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company in accordance with the provisions of the Indenture, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of the Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under the Indenture with the same
effect as if such successor corporation had been named as the Company herein.
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate payments or consideration in excess of $1.0 million, a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
independent members of the Board of Directors of the Company and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate payments or consideration in excess of $5.0 million, an
opinion as to the fairness to the Company or such Subsidiary of such Affiliate
Transaction from a financial point of view issued by an investment banking firm
of national standing; provided, however, that (i) any employment agreement,
compensation agreement or employee benefit arrangement paid or made available to
officers and employees of the Company or its Subsidiaries for services actually
rendered entered into by the Company or any of its Subsidiaries in the ordinary
course of business and consistent with the past practice of
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the Company or such Subsidiary (including reimbursement or advancement of
reasonable out-of-pocket expenses and directors' and officers' liability
insurance), (ii) compensation (in the form of reasonable director's fees and
reimbursement or advancement of reasonable out-of-pocket expenses) paid to any
director of the Company or its Subsidiaries for services rendered in such
person's capacity as a director and indemnification and directors' and officers'
liability insurance in connection therewith, (iii) transactions between or among
the Company and its Wholly Owned Restricted Subsidiaries, and (iv) Restricted
Payments that are permitted by the provisions of the Indenture described above
under the caption "-- Restricted Payments," in each case, shall not be deemed
Affiliate Transactions.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, issue,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests or
other ownership interests (including convertible debt securities) of any Wholly
Owned Restricted Subsidiary of the Company to any Person (other than the Company
or a Wholly Owned Restricted Subsidiary of the Company), unless (a) such
issuance, transfer, conveyance, sale, lease or other disposition is of all the
Equity Interests and other ownership interests of such Wholly Owned Restricted
Subsidiary and (b) the Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described above
under the caption "-- Asset Sales," and (ii) will not permit any Wholly Owned
Restricted Subsidiary of the Company to issue any of its Equity Interests or
other ownership interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary of the Company.
Limitation on Layering Debt
The Indenture will provide that (A) the Company will not, directly or
indirectly, incur, create, issue, assume, guarantee or otherwise become liable
for any Indebtedness that is by its terms subordinate or junior in right of
payment to any Senior Debt of the Company and senior in any respect in right of
payment to the Notes and (B) the Company will not permit any Guarantor, directly
or indirectly, to incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is by its terms subordinate or junior in right
of payment to any Senior Debt of such Guarantor and senior in any respect in
right of payment to the Subsidiary Guarantee of such Guarantor.
Additional Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture, then
the Company shall cause such newly acquired or created Subsidiary (at any time
such Subsidiary has gross assets or stockholders' equity in excess of $50,000)
to (i) become (by a supplemental indenture, executed and delivered to the
Trustee in form satisfactory to the Trustee) a Guarantor and (ii) deliver to the
Trustee an opinion of counsel reasonably satisfactory to the Trustee that such
supplemental indenture has been duly executed and delivered; provided, however,
that all Subsidiaries that have been properly designated as Unrestricted
Subsidiaries in accordance with the Indenture shall not be subject to the
preceding clause for so long as they continue to constitute Unrestricted
Subsidiaries. In addition, (i) each of JBAK Realty and JBAK Holding will be
required to become a Guarantor at such time, if any, as it is not prohibited
from doing so under the terms of the Existing Indebtedness described under
"Description of Credit Facilities and other Indebtedness -- Mortgage Loan" or of
any Permitted Refinancing Indebtedness, the net proceeds of which are used to
refund, refinance or replace such Existing Indebtedness, (ii) JBAK Realty will
be required to become a Guarantor at such time, if any, as it (A) engages in any
business activity other than the ownership, operation and maintenance of the
Canton Property and activities incidental thereto, (B) acquires or owns any
material assets other than the Canton Property and such incidental personal
property as may be necessary for the operation of the Canton Property or (C)
incurs any Indebtedness other than the Indebtedness referred to in the preceding
clause (i) and (iii) JBAK Holding will be required to become a Guarantor at such
time, if any, as it (A) engages in any business or activity other than the
ownership of the stock of JBAK Realty and activities incidental thereto,
including the management
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of the Canton Property, (B) acquires or owns any material asset other than the
stock of JBAK Realty, or (C) incurs any Indebtedness.
Payments for Consent
The Indenture will provide that neither the Company nor any of its
Subsidiaries will, 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 any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid and is paid to all Holders of Notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Reports
So long as any of the Notes remain outstanding, the Company shall cause
copies of all quarterly and annual reports and of the information, documents and
other reports which the Company is required to file with the SEC pursuant to
Section 13(a) or 15(d) of the Exchange Act ("SEC Reports") to be delivered to
the Trustee and mailed to the Holders of Notes at their addresses appearing in
the register of Notes maintained by the Registrar, in each case, within 5 days
of filing with the SEC. If the Company is not subject to the requirements of
Section 13(a) or 15(d) of the Exchange Act or shall cease to be required by the
SEC to file SEC Reports, the Company shall nevertheless continue to cause SEC
Reports, comparable to those which it would be required to file pursuant to
Section 13(a) or 15(d) of the Exchange Act if it were subject to the
requirements of either such Section, to be so filed with the SEC for public
availability (unless the SEC will not accept such a filing) and with the Trustee
and mailed to the Holders of Notes, in each case, within the same time periods
as would have applied (including under the preceding sentence) had the Company
been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act.
The Company shall make all such information available to prospective investors
who request it in writing. The Company shall also comply with the provisions of
Section 314(a) of the Trust Indenture Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due (whether payable at maturity, upon
redemption or otherwise) of the principal of or premium, if any, on the Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(iii) failure by the Company to comply with the provisions described under the
captions "-- Change of Control," "-- Asset Sales" or "-- Merger, Consolidation
or Sale of Assets"; (iv) failure by the Company or any Subsidiary of the Company
for 30 days after written notice from the Trustee or the Holders of at least 25%
in principal amount of the then outstanding Notes to the Company to comply with
any of its other agreements in the Indenture or the Notes other than those
referred to in clauses (i), (ii) and (iii) above; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final and non-appealable judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days after their entry; (vii) except as permitted
by the Indenture, any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid and such judgment has become final or
non-appealable or shall cease for any other reason to be in full
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force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to
the Company, any Restricted Subsidiary that is a Significant Subsidiary or any
group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes and all other Obligations thereunder to be due and payable
immediately by notice in writing to the Company and the Trustee. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Significant Subsidiary
that is a Restricted Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all then outstanding
Notes and all other Obligations thereunder will become immediately due and
payable without further action or notice. Holders of Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal, premium, if any, or interest) if it determines that withholding
notice is in their interest.
If any Event of Default occurs by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company or any Guarantor
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture, except a continuing Default or Event of Default in payment of the
principal of, premium, if any, or interest on any Note held by a non-consenting
Holder; provided, however, that the Holders of at least a majority in aggregate
principal amount of the Notes then outstanding may rescind an acceleration and
its consequences, including any related payment default that resulted from such
acceleration.
The Company is required to deliver to the Trustee annually an Officers'
Certificate regarding compliance with the Indenture, and the Company is required
so long as any of the Notes are outstanding, within five Business Days, upon
becoming aware of (i) any Default or Event of Default or (ii) any default under
any mortgage, document, indenture, instrument or agreement relating to
Indebtedness in excess of $5.0 million of the Company or any Guarantor, to
deliver to the Trustee an Officers' Certificate specifying such Default, Event
of Default or other default and what action the Company is taking or proposes to
take with respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATIONS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release shall be part of
the consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes
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and the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties, indemnities
and immunities of the Trustee under the Indenture and the Company's obligations
in connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit, or cause to be deposited, with the
Trustee, in trust, for the benefit of the Holders of Notes, cash in U.S.
dollars, Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge, and which will be applied
by the Trustee to pay and discharge, the principal of, premium, if any, and
interest due on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for United States federal income tax purposes as a result of such
Legal Defeasance and will be subject to United States federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for United States federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or, insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of such deposit (it being understood that this condition shall not be satisfied
until the expiration of such period); (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under, any material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Company must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and that the Trustee has a perfected security interest in such
trust funds for the ratable benefit of the Holders of Notes; (vii) the Company
must deliver to the Trustee an Officers' Certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders of Notes
over the other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also,
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the Company is not required to transfer or exchange any Note for a period of 15
days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture and
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and, subject to the provision in the
Indenture relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of, premium, if any, or interest on the Notes,
any existing default or compliance with any provision of the Indenture or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes (including consents obtained in connection
with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of the Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
or, if the Company has become obligated to make a Change of Control Offer or an
Asset Sale Offer, amend, change or modify the obligation of the Company to make
or consummate such Change of Control Offer or Asset Sale Offer; (iii) reduce the
rate of or change the time for payment of interest on any Note; (iv) waive a
Default or Event of Default in the payment of principal of, premium, if any, or
interest on the Notes (except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount of the Notes and a
waiver of the payment default that resulted from such acceleration); (v) make
any Note payable in money other than that stated in such Note; (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of, premium,
if any, or interest on the Notes; (vii) waive a redemption payment with respect
to any Note; (viii) make any change in the subordination provisions of the
Indenture that adversely affects the rights of any Holder of any Notes or any
change to any other provisions thereof that adversely affects the rights of any
Holder of Notes under the subordination provisions of the Indenture (it being
understood that amendments to the provisions of the Indenture described above
under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock" which may have the effect of increasing the amount of Senior Debt that
the Company and the Guarantors may incur shall not, for purposes of this clause
(viii), be deemed to be a change that adversely affects the rights of any Holder
of Notes under the subordination provisions of the Indenture); or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture or the Notes (i) to cure any ambiguity, defect or inconsistency; (ii)
to comply with the provisions described under "-- Merger, Consolidation or Sale
of Assets"; (iii) to provide for uncertificated Notes in addition to or in place
of certificated Notes; (iv) to provide for Security for the Notes; (v) to add a
Guarantor under the Indenture; (vi) to provide for the assumption of the
Company's or any Guarantor's obligations to Holders of Notes in the case of a
merger or consolidation; (vii) to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, (viii) to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; or (ix) to add
covenants for the benefit of the Holders or to surrender any right or power
conferred upon the Company.
CONCERNING THE TRUSTEE
The Trustee has been appointed by the Company as Registrar and Paying Agent
with respect to the Notes.
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The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as trustee or resign.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its right and power, to use the same degree of care and shall in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any Holder of Notes, unless such Holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The Notes to be sold as set forth herein will be issued in the form of a
fully registered Global Note. The Global Note will be deposited on the date of
the closing of the sale of the Notes offered hereby (the "Closing Date") with,
or on behalf of, the Depositary and registered in the name of Cede & Co., as
nominee of the Depositary (such nominee being referred to herein as the "Global
Note Holder").
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of the Depositary or to a successor of the
Depositary or its nominee.
The Depositary has advised the Company and the Underwriters as follows: It
is a limited-purpose trust company which was created to hold securities for its
participating organizations (the "Participants") and to facilitate the clearance
and settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("indirect participants"). Persons who are not Participants may beneficially own
securities held by the Depositary only through Participants or indirect
participants.
The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Company of the Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with the principal
amount of the Notes purchased by the Underwriters, and (ii) ownership of
beneficial interests in the Global Note will be shown on, and the transfer of
that ownership will be effected only through, records maintained by the
Depositary (with respect to Participants' interests), the Participants and the
indirect participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities which they own. Consequently,
the ability to transfer beneficial interests in the Global Note is limited to
such extent.
All payments on the Global Note registered in the name of the Depositary's
nominee will be made by the Company through the Paying Agent to the Depositary's
nominee as the registered owner of the Global Note. Under the terms of the
Indenture, the Company and the Trustee will treat the persons in whose names the
Notes are registered as the owners of such Notes for the purpose of receiving
payments or principal and interest on such Notes and for all other purposes
whatsoever. Therefore, neither the Company, the Trustee nor the Paying Agent has
any direct responsibility or liability for the payment of principal or interest
on the Notes to owners of beneficial interests in the Global Note. The
Depositary has advised the Company and the Trustee that its present practice is,
upon receipt of any payment of principal or interest, to credit immediately the
accounts of the Participants with payment in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the Global
Note as shown on the records of the Depositary. Payments by Participants and
indirect participants to owners of beneficial interest in the Global Note will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of
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customers in bearer form or registered in "street name" and will be the
responsibility of such Participants or indirect participants.
As long as the Notes are represented by a Global Note, the Depositary's
nominee will be the holder of the Notes and therefore will be the only entity
that can exercise a right to repurchase the Notes. Notice by Participants or
indirect participants or by owners of beneficial interests in a Global Note held
through such Participants or indirect participants of the exercise of the option
to elect repurchase of beneficial interests in Notes represented by a Global
Note must be transmitted to the Depositary in accordance with its procedures on
a form required by the Depositary and provided to Participants. In order to
ensure that the Depositary's nominee will timely exercise a right to repurchase
with respect to a particular Note, the beneficial owner of such Note must
instruct the broker or other Participant or indirect participant through which
it holds an interest in such Note to notify the Depositary of its desire to
exercise a right to repurchase. Different firms have different cut-off times for
accepting instructions from their customers and, accordingly, each beneficial
owner should consult the broker or other Participant or indirect participant
through which it holds an interest in a Note in order to ascertain the cut-off
time by which such an instruction must be given in order for timely notice to be
delivered to the Depositary. The Company will not be liable for any delay in
delivery to the Paying Agent of notices of the exercise of any option to elect
repurchase.
The Company will issue Notes in definitive form in exchange for the Global
Note if, and only if, either (i) the Depositary is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days, (ii) an Event of Default has occurred and is
continuing and the Registrar has received a request from the Depositary to issue
Notes in definitive form in lieu of all or a portion of the Global Note (in
which case the Company shall deliver Notes in definitive form within 30 days of
such request), or (iii) the Company determines not to have the Notes represented
by a Global Note. In any such instance, an owner of a beneficial interest in the
Global Note will be entitled to have Notes equal in principal amount to such
beneficial interest registered in its name and will be entitled to physical
delivery of such Notes in definitive form. Notes so issued in definitive form
will be issued in denominations of $1,000 and integral multiples thereof and
will be issued in registered form only, without coupons.
So long as the Global Note Holder is the registered owner of the Global
Note, the Global Note Holder will be considered the sole Holder under the
Indenture of any Notes evidenced by the Global Note. Beneficial owners of Notes
evidenced by the Global Note will not be considered the owners or Holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee thereunder.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records of the Depositary or for maintaining, supervising
or reviewing any records of the Depositary relating to the Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness or preferred stock of any other Person existing at the time such
other Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness or preferred stock incurred
in connection with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness
secured by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
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"Amended Credit Facility" means that certain Amended and Restated Credit
Agreement, dated as of , by and among The Casual Male, Inc., TCM
Holding Co., Inc., WGS Corp., TCMB&T, Inc., JBI, Inc., JBI Holding Company,
Inc., and Morse Shoe, Inc., as borrowers; J. Baker, Inc., as parent guarantor;
the lenders identified therein; Fleet National Bank, as administrative agent;
and BankBoston, N.A., as documentation agent, providing for up to $100.0 million
of revolving credit borrowings, including any related notes, guarantees
including, but not limited to, the guarantees of Spencer Companies, Inc., Elm
Equipment Corp., ISAB, Inc., Morse Shoe International, Inc., Morse Shoe (Canada)
Ltd., Jared Corporation and White Cap Footwear, Inc., as subsidiary guarantors,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified (including any agreement
extending the maturity of, increasing the total commitment under or otherwise
restructuring all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement), renewed, refunded, replaced, restated,
supplemented or refinanced from time to time.
"Asset Sale" means (i) the sale, lease, conveyance, transfer, exchange or
other disposition (collectively, "dispositions") of any assets or rights
(including, without limitation, by way of a sale and leaseback) other than
dispositions of inventory in the ordinary course of business consistent with
past practices and going out of business sales conducted in a manner consistent
with past practices (provided that the disposition of all or substantially all
of the assets of the Company and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"-- Change of Control" and/or the provisions described above under the caption
"-- Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant), and (ii) the issuance of Equity Interests by any
Restricted Subsidiary or the disposition by the Company or a Restricted
Subsidiary of Equity Interests in any of the Company's Restricted Subsidiaries,
in the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding
the foregoing: (i) a transfer of assets or Equity Interests by the Company to a
Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to
the Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance
of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to
another Wholly Owned Restricted Subsidiary, (iii) the disposal of obsolete
equipment and machinery in the ordinary course of business and (iv) a Restricted
Payment that is permitted to be made, and is made, under the covenant described
above under the caption "-- Restricted Payments" will not be deemed to be Asset
Sales.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any duly authorized committee of such Board of
Directors.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors of the Company and to be in full force and effect on the date of
such certification and delivered to the Trustee.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all trade receivables owned by the Company and its
Wholly Owned Restricted Subsidiaries as of such date that are not more than 90
days past due, less the allowance for doubtful accounts, each of the foregoing
determined in accordance with GAAP, and (b) 50% of the book value of all
inventory owned by the Company and its Wholly Owned Restricted Subsidiaries as
of such date, less any applicable reserves, each of the foregoing determined in
accordance with GAAP. To the extent that information is not available as to the
amount of trade receivables or inventory as of a specific date, the Company may
utilize the most recent available information for purposes of calculating the
Borrowing Base.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
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"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the Amended Credit Facility or
with any domestic commercial bank having capital and surplus in excess of $500.0
million, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper rated at least P-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition and (vi) investment
funds with total assets in excess of $500.0 million that invest at least 95% of
their assets in securities of the types described in clauses (i) through (v)
above.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued and whether or not capitalized (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (ii) provision for
taxes based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was deducted or
otherwise taken account of in computing such Consolidated Net Income, plus (iii)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted Subsidiaries for such
period to the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income, plus (iv) an
amount equal to any extraordinary, non-recurring or unusual loss plus any net
loss realized in connection with an Asset Sale (to the extent such losses were
deducted or otherwise taken account of in computing such Consolidated Net
Income), plus (v) the $37.3 million charge related to a reduction in the
Company's licensed shoe department business' inventory to net realizable value
and the $1.2 million charge to increase the Company's allowance for doubtful
accounts for certain licensors which the Company ceased serving, in each case
recorded in the Company's fiscal year ended February 1, 1997 to the extent that
any such charge was deducted in computing such Consolidated Net Income, plus
(vi) an amount equal to all premiums on prepayments of debt paid by the Company
and its Restricted Subsidiaries during such period to the extent that such
payments were deducted in computing such Consolidated Net Income, minus (vii)
non-cash items increasing such Consolidated Net Income for such period, in each
case, for such period without duplication on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
on the income or profits of, and the depreciation and amortization and other
non-cash charges of, a Restricted Subsidiary of the referent Person shall be
added to Consolidated Net Income to compute Consolidated EBITDA only to the
extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the net income (but not loss) of any Person that is not a
Restricted Subsidiary of such Person or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof that is a Guarantor and shall not exceed the
consolidated net income of such Person for such period, (ii) the net income (but
not loss) of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that net income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
all gains resulting from currency or hedging transactions shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the consolidated stockholders' equity of such Person and its consolidated
Subsidiaries as of such date, less, to the extent otherwise included, amounts
attributable to Disqualified Stock, in each case determined in accordance with
GAAP.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $ million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Amended Credit Facility) in existence on the date of the
Indenture and set forth on a schedule thereto, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person for such period to
the Fixed Charges of such Person for such period. In the event that the Company
or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated EBITDA for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed
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Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date. Calculations of pro forma amounts
in accordance with this definition shall be done in accordance with Article 11
of Regulation S-X under the Securities Act or any successor provision.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) any interest expense for such period
on Indebtedness of another Person that is Guaranteed by such Person or any of
its Restricted Subsidiaries or secured by a Lien on assets of such Person or any
of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (x) all dividend payments during such period
(including all dividend payments within 60 days of the last day of such period),
whether or not in cash, on any class or series of (A) Disqualified Stock of such
Person or (B) preferred stock of any Restricted Subsidiary of such Person, other
than dividend payments on Equity Interests payable solely in Equity Interests of
the Company and other than payments to such Person and its Wholly Owned
Restricted Subsidiaries, and (y) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, determined,
in each case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect in the United States from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, currency rate swap
agreements, interest rate cap agreements and interest rate collar agreements and
(ii) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency values.
"Holder" means a person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (but only to the extent of the
fair market value of the assets subject to such Lien) (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of
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Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided, however, that if the sole consideration for any
such investment is Capital Stock of the Company that is not Disqualified Stock,
then such investment shall not be deemed an Investment for purposes of the
Indenture. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Wholly
Owned Restricted Subsidiary of the Company such that, after giving effect to any
such sale or disposition, such Person is no longer a Wholly Owned Restricted
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Restricted Subsidiary not sold or disposed
of in an amount determined as provided in the final paragraph of the covenant
described above under the caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any conditional sale or other title retention agreement and any lease
in the nature thereof).
"Make-Whole Premium" means, with respect to a Note, an amount equal to the
greater of (i) % of the outstanding principal amount of such Note and (ii)
the excess of (a) the present value of the remaining interest, premium and
principal payments due on such Note as if such Note were redeemed on November
, 2002, computed using a discount rate equal to the Treasury Rate plus 75
basis points, over (b) the outstanding principal amount of such Note.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary, unusual or nonrecurring gain (but not loss), together
with any related provision for taxes on such extraordinary or nonrecurring gain
(but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale, but only as and when
received), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the repayment of Indebtedness secured by a Lien on the asset or
assets (including Equity Interests) that were the subject of such Asset Sale,
any provision for permitted minority interests in any Restricted Subsidiary as a
result of such Asset Sale and any reserve established in accordance with GAAP
against any liabilities associated with the assets sold or disposed of in such
Asset Sale, including, without limitation, sales price adjustments, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale or provision for minority
interest holders in any Restricted Subsidiary as a result of such Asset Sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries in excess of $5.0 million to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
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"Obligations" means any principal, premium, interest (including
post-petition interest), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed on behalf of such Person by the Chief Executive Officer or President and
by the Chief Financial Officer or chief accounting officer of such Person.
"Permitted Investment" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(ii) such Person is merged, consolidated or amalgamated with or into the Company
or into a Wholly Owned Restricted Subsidiary of the Company, or is liquidated
into the Company or a Wholly Owned Restricted Subsidiary of the Company; (d) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) reasonable and customary loans and advances consistent with past practices
made to employees in connection with their relocation (including related travel
expenses) not to exceed $1.0 million in the aggregate at any one time
outstanding; (g) any Investment existing on the date of the Indenture; (h) any
Investment acquired by the Company or any of its Restricted Subsidiaries (x) in
exchange for any other Investment or accounts receivable held by the Company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
Investment or accounts receivable or (y) as the result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; and (i) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (i) that are at the time outstanding,
not to exceed $2.0 million.
"Permitted Liens" means (i) Liens securing Senior Debt that was permitted
by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company
or any Restricted Subsidiary; (iii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company or such Restricted Subsidiary; (iv) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary of the
Company, provided that such Liens were in existence prior to the contemplation
of such acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; (v) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iii) of
the second paragraph of the covenant entitled "-- Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness; (vi) Liens existing on the date of the Indenture; (vii) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (viii) Liens imposed by law, such as landlords', carriers',
warehousemens', mechanics', suppliers' or similar Liens incurred in good faith
in the ordinary course of business of the Company or any Restricted Subsidiary
of the Company with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings if a reserve or other appropriate
provision, if any, shall have been made therefor as shall be required by GAAP;
(ix) easements, minor title defects, irregularities in title or other charges or
encumbrances on property that do not, in the aggregate, materially detract from
the value of the property or the assets of the Company and its Restricted
Subsidiaries or impair the use of such property by the Company or a Restricted
Subsidiary of the Company; (x) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
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unemployment insurance and other types of social security; (xi) Liens securing
industrial revenue bonds or other similar tax-favored financing; and (xii) other
Liens securing obligations incurred in the ordinary course of business which
obligations do not exceed $10.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Hedging Obligations and other than
Indebtedness permitted to be incurred pursuant to clause (v) or clause (x) of
the second paragraph under "-- Incurrence of Indebtedness and Issuance of
Preferred Stock") of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses and prepayment premiums incurred in connection therewith)
(except to the extent such increase is a result of a simultaneous incurrence of
additional Indebtedness permitted to be incurred under the Indenture); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded, and is subordinated in right of payment to the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, limited or general partnership, corporation,
limited liability company, association, unincorporated organization, trust,
joint stock company, joint venture or other entity, or a government or any
agency or political subdivision thereof.
"Public Equity Offering" means a bona fide underwritten sale to the public
of common stock of the Company pursuant to a registration statement (other than
on Form S-8 or any other form relating to securities issuable under any benefit
plan of the Company) that is declared effective by the Commission and results in
aggregate gross equity proceeds to the Company of at least $20.0 million.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof).
"Treasury Rate" means the yield to maturity at the time of the computation
of United States Treasury securities with a constant maturity (as compiled by
and published in the most recent Federal Reserve Statistical Release H.15(519)),
which has become publicly available at least two business days prior to the
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date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data) most nearly
equal to the then remaining average life to the first date on which the Notes
are subject to optional redemption by the Company; provided, however, that if
the average life of the Notes is not equal to the constant maturity of the
United States Treasury security for which weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the average
life of the Notes is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company; (c) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and (d)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors of the Company shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "-- Restricted Payments." If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing requirements
as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would be
in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of at least a
majority of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock and other Equity
Interests or other ownership interests (including convertible debt securities)
of which (other than directors' qualifying shares) shall at the time be owned by
such Person and/or by one or more Wholly Owned Restricted Subsidiaries of such
Person.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to J. Baker, Inc., 555 Turnpike Street, Canton,
Massachusetts 02021, Attn: Philip G. Rosenberg.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Goodwin, Procter & Hoar LLP ("Counsel"), the following
are the material anticipated Federal income tax consequences of the acquisition,
ownership and disposition of the Notes by a purchaser that is a "United States
Holder" or a "Foreign Holder" (as defined herein) and that acquires such Notes
at their original issue. Counsel's opinion is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary and
proposed regulations promulgated thereunder, and administrative rulings and
judicial decisions now in effect, all of which are subject to change, (possibly
with retroactive effect) or different interpretations. Federal income tax
consequences may differ from those described in Counsel's opinion, due to a
specific taxpayer's individual circumstances, and no opinion is expressed with
respect to the possible effects of any such differences. In addition, Counsel's
opinion is not intended to be applicable to all categories of investors, some of
which, such as insurance companies, tax-exempt organizations, financial
institutions, dealers in securities, and persons holding the Notes as a hedge
against currency risk, may be subject to special rules. In addition, Counsel's
opinion is limited to persons that will hold the Notes as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Code. Holders should note that Counsel's opinion is not binding on the
United States Internal Revenue Service (the "IRS") and there can be no assurance
that the IRS will take a similar view with respect to the tax consequences
described below. No ruling has been or will be requested by the Company from the
IRS on any tax matters relating to the Notes.
ALL HOLDERS AND PROSPECTIVE PURCHASERS OF NOTES ARE ADVISED THAT SUCH
HOLDER'S OR PURCHASER'S SPECIFIC CIRCUMSTANCES MAY RESULT IN TAX CONSEQUENCES
THAT DIFFER FROM THOSE DESCRIBED BELOW, AND THEY SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of a Note
who is (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate, the income
of which is subject to United States federal income taxation regardless of
source or (iv) a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust.
Payment of Interest on the Notes
Interest paid or payable on a Note will be taxable to a United States
Holder as ordinary interest income, generally at the time it is received or
accrued, in accordance with such Holder's regular method of accounting for
federal income tax purposes.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note, a United States Holder will generally recognize taxable
gain or loss equal to the difference between the sum of cash plus the fair
market value of all other property received on such disposition (except to the
extent such cash or property is attributable to accrued but unpaid interest,
which will be taxable as ordinary income) and such Holder's adjusted tax basis
in the Note. A United States Holder's adjusted tax basis in a Note generally
will be equal to the cost of the Note to such Holder, less any principal
payments received by such Holder.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss and will be a long-term capital gain or loss if the Note
has been held at the time of such disposition for more than one year and
otherwise as short-term gain or loss. However, in the case of individuals,
trusts and estates, any such long-term gain or loss will be characterized as a
mid-term gain or loss if the Note has been held, at the time of such
disposition, for 18 months or less.
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The Taxpayer Relief Act of 1997 (the "Relief Act") alters the taxation of
capital gain income. Under the Relief Act, individuals, trusts and estates that
hold certain investments for more than 18 months may be taxed at a maximum
long-term capital gain rate of 20% on the sale or exchange of those investments.
Individuals, trusts and estates that hold certain assets for more than one year
but not more than 18 months may be taxed at a maximum mid-term capital gain rate
of 28% on the sale or exchange of those investments.
FOREIGN HOLDERS
Payment of Interest on the Notes
Under present United States federal income tax law, and subject to
discussion of backup withholding below, payment of interest on the Notes to any
non-United States Holder ("Foreign Holder") will not be subject to United States
federal withholding tax, provided that (a) such Holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (b) such Holder is not a controlled
foreign corporation that is related to the Company through stock ownership, (c)
such Holder is not a bank with respect to which the holding of the Note is
treated as the extension of credit in the ordinary course of its trade or
business, (d) the payment is not treated as contingent interest, excluded from
the definition of portfolio interest, and (e) either (1) the beneficial owner of
the Note certifies to the Company or its agent, under penalties of perjury, that
it is a Foreign Holder and provides its name and address, and U.S. taxpayer
identification number, if any, or (2) a securities clearing organization, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and that holds the
Notes certifies to the Company or its agent under penalties of perjury that such
statement has been received from the beneficial owner by it or by a financial
institution between it and the beneficial owner and furnishes the payor with a
copy thereof. The certificate may be made on a United States Internal Revenue
Service Form W-8 or substantially similar form. A certificate described in this
paragraph is effective only with respect to interest payments made to the
certifying Foreign Holder after the issuance of the certificate in the calendar
year of its issuance and the two immediately succeeding calendar years. An
income tax treaty between the United States and the country of residence of a
Foreign Holder (a "treaty country") may reduce the rate of, or eliminate, any
United States federal withholding tax that would, notwithstanding the above,
otherwise be applicable to payments to such Foreign Holder.
If a Foreign Holder is engaged in a trade or business in the United States
and interest on the Note is effectively connected with the conduct of such trade
or business, or, if such Foreign Holder is resident in a treaty country and such
Foreign Holder has a permanent establishment or fixed base in the United States
to which such interest is attributable, the Foreign Holder, although exempt from
the withholding tax discussed above, may be subject to United States income tax
on such interest in the same manner as if it were a United States Holder. In
additional, if such a Holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% of its effectively connected earnings and
profits for the taxable year, as adjusted for certain items; for this purpose,
interest on a Note will be included in earnings and profits if the interest is
effectively connected with the conduct of the United States trade or business of
the Holder. If such foreign corporate Holder is resident in a treaty country,
the treaty may reduce the rate of, or eliminate, the branch profits tax that
would otherwise be applicable to such foreign corporate Holder.
Sale, Exchange or Retirement of the Notes
Any gain or income realized by a Foreign Holder upon retirement or
disposition of a Note (not including in such gain or income amounts representing
accrued but unpaid interest, the U.S. tax treatment of which is described above)
will not be subject to United States federal income tax if (i) such gain or
income is not effectively connected with a trade or business in the United
States of the Holder of such Note (or, if such Foreign Holder is resident in a
treaty country, the gain is not attributable to a permanent establishment or
fixed base of such Foreign Holder in the United States) and (ii) in the case of
an individual Holder, the Holder is not present in the United States for a
period or periods aggregating 183 days or more in the taxable year of the
retirement or disposition.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
A 31% "backup" withholding tax and information reporting requirements apply
to certain payments of interest on an obligation, and to proceeds of the sale of
an obligation before maturity, to certain non-corporate United States Holders.
The Company, and/or any paying and/or collection agent, including a broker, as
the case may be, will be required to withhold from any payment that is subject
to backup withholding a tax equal to 31% of such payment unless the Holder
furnishes its taxpayer identification number (i.e., social security number in
the case of an individual) in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies (with respect to
payments of interest) as to no loss of exemption for backup withholding, and
meets certain other conditions. Backup withholding, however, in any event,
generally does not apply to payments to certain "exempt recipients" such as
corporations. Its applicability to Foreign Holders is discussed more fully
below.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any payment agency
hereof (in its capacity as such) to a Holder of a Note with respect to which the
Holder has provided to the Company (and/or any paying and/or collection agent,
including a broker) required certification of its non-United States status under
penalties of perjury or has otherwise established an exemption (provided that
neither the Company nor such paying agency has actual knowledge that the Holder
is a United States Holder or the conditions of any other exemption are not in
fact satisfied). Such certificate may be made on a United States Internal
Revenue Service Form W-8 or substantially similar form. If such payment is made
to the beneficial owner of a Note by the non-United States office of a foreign
custodian, foreign nominee or other foreign agent of such beneficial owner, or
if the non-United States office of a foreign "broker" (as defined in applicable
Treasury Regulations) pays the proceeds of the sale of a Note to the seller
thereof, such nominee, custodian, agent or broker is not required to backup
withhold or file an information report with respect to such payment (provided
that such nominee, custodian, agent or broker derives less than 50% of its gross
income for certain specified periods from the conduct of a trade or business in
the United States and is not a controlled foreign corporation for United States
tax purposes). Payments made to the beneficial owner by the non-United States
office of other custodians, nominees or agents, or the payment by the foreign
office of other brokers, will not be subject to backup withholding, but will be
subject to information reporting unless the custodian, nominee, agent or broker
has documentary evidence in its records that the beneficial owner or seller is
not or was not, as the case may be, a United States Holder and certain
conditions are met or the beneficial owner or seller otherwise establishes an
exemption. Payments made to the beneficial owner by the United States office of
a custodian, nominee or agent, or a broker are subject to both backup
withholding and information reporting unless the beneficial owner or seller
certifies its non-United States status under penalties or perjury or otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Holder would be allowed as a refund or a credit against such Holder's United
States federal income tax, provided that the required information is furnished
to the IRS.
Proposed Regulations
The IRS has issued proposed regulations relating to withholding, backup
withholding and information reporting that, if adopted in their current form,
would, among other things, unify current certification procedures and forms and
clarify certain reliance standards. The regulations are proposed to be effective
for payments made after December 31, 1997 but provide that certificates issued
on or before the date that is 60 days after the proposed regulations are made
final will continue to be valid until they expire. The proposed regulations,
however, may be subject to change prior to their adoption in final form.
THE TAX CONSEQUENCES DESCRIBED IN THE FOREGOING OPINION MAY VARY AS A
RESULT OF A HOLDER'S SPECIFIC CIRCUMSTANCES. ACCORDINGLY, EACH PURCHASER OF
NOTES SHOULD CONSULT WITH ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO SUCH HOLDER OR PURCHASER OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF SUCH NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL
AND FOREIGN INCOME AND OTHER TAX LAWS.
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DESCRIPTION OF CREDIT FACILITIES AND OTHER INDEBTEDNESS
The following are summaries of certain terms of the Company's credit
facilities and other indebtedness. These summaries do not purport to be complete
and are subject to, and qualified in their entirety by, reference to all of the
provisions of their underlying documentation (including credit agreements,
indentures, notes and collateral documents), including all of the definitions
therein of terms not defined herein.
CREDIT FACILITIES
Footwear Credit Facility. In May 1997, the Company established a $55.0
million revolving credit facility to finance its licensed shoe department
business (the "Footwear Credit Facility"). The Footwear Credit Facility is
secured by substantially all of the assets of the licensed shoe department
business, bears interest at floating rates based on (at the election of the
Company) either the Eurodollar or base rate and matures on May 31, 2000. In
accordance with its terms, the aggregate commitment under the Footwear Credit
Facility was automatically reduced by $5.0 million on June 30, 1997. Aggregate
borrowings under the Footwear Credit Facility are limited to an amount
determined by a formula based on various percentages of eligible inventory and
accounts receivable. Upon consummation of the Offering, the Footwear Credit
Facility will be terminated and all borrowings thereunder will be repaid. See
"Use of Proceeds."
Apparel Credit Facility. In May 1997, the Company established a $100.0
million revolving credit facility to finance its apparel business (the "Apparel
Credit Facility"). The Apparel Credit Facility is secured by all of the capital
stock of Casual Male Big & Tall and three other subsidiaries of the Company
(including the subsidiary which conducts the Work 'n Gear business). The Apparel
Credit Facility bears interest at floating rates based on (at the election of
the Company) either the LIBOR or base rate and matures on May 31, 2000. In
accordance with its terms, the aggregate commitments under the Apparel Credit
Facility will be automatically reduced by $10.0 million, $12.5 million and $12.5
million on December 31, 1997, 1998 and 1999, respectively. Borrowings under the
Apparel Credit Facility are not subject to a borrowing base requirement. Upon
consummation of the Offering, the Apparel Credit Facility will be amended and
thereby become the Amended Credit Facility. See "-- Amended Credit Facility."
Amended Credit Facility. Upon consummation of the Offering, the Company's
Apparel Credit Facility will be amended to add as additional borrowers
thereunder the subsidiaries of the Company which conduct the licensed shoe
department business, modify certain covenants to permit the Offering and effect
certain other changes and will be retained as the Amended Credit Facility. The
Amended Credit Facility will be provided by a syndicate of lenders for which
Fleet National Bank and BankBoston, N.A. will serve as administrative and
documentation agents, respectively.
Borrowings. The Amended Credit Facility will provide for borrowings by
any of the principal subsidiaries of J. Baker, Inc. in a principal amount of up
to $100.0 million at any one time outstanding; provided, that the aggregate
amount of loans at any one time outstanding under the Amended Credit Facility to
the subsidiaries of J. Baker, Inc. which conduct the licensed shoe department
business (plus any intercompany loans to such subsidiaries) will not exceed
$15.0 million. In accordance with the terms of the Amended Credit Facility, the
aggregate commitment thereunder will automatically be reduced by $10.0 million,
$12.5 million and $12.5 million on December 31, 1997, 1998 and 1999,
respectively. Borrowings may be in the form of direct borrowings, bankers'
acceptances or letters of credit and may be used to fund working capital and
general corporate requirements.
Interest. Borrowings under the Amended Credit Facility will bear
interest at a floating rate equal to either LIBOR or base rate, as selected by
the Company, plus a margin which varies based on the Company's fixed charge
coverage ratio.
Repayment. Subject to the provisions of the Amended Credit Facility,
the Company will be entitled to borrow, repay and reborrow amounts under the
Amended Credit Facility. The entire unpaid balance under the Amended Credit
Facility will be payable on May 31, 2000.
Guarantees. All obligations under the Amended Credit Facility will be
jointly and severally guaranteed by J. Baker, Inc. and certain of its
subsidiaries such that J. Baker, Inc. and each of its subsidiaries
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on the date of issuance of the Notes (other than JBAK Realty or JBAK Holding)
will be either an obligor or guarantor of the Amended Credit Facility. Each such
subsidiary will also be a Guarantor of the Notes. See "-- Mortgage Loan."
Security. Borrowings under the Amended Credit Facility will be secured
by a first priority security interest in all of the issued and outstanding
capital stock of all of the subsidiaries of J. Baker, Inc., other than JBAK
Realty, JBAK Holding and Morse Shoe (Canada) Ltd., the Company's Canadian
subsidiary.
Covenants. The Amended Credit Facility will contain financial covenants
relating to the maintenance of minimum levels of consolidated tangible net
worth, the attainment of minimum amounts of positive cash flow from the
operations of the Company's licensed shoe department business and the
maintenance of certain fixed charge coverage ratios and leverage ratios. The
Amended Credit Facility will also contain covenants pertaining to the management
and operation of the Company and its business. These covenants will include,
among others, requirements that the Company comply with applicable laws and
maintain adequate insurance coverage with respect to its properties. The Amended
Credit Facility will also place significant limitations on the Company's ability
to incur indebtedness or liens, make guarantees, effect mergers or acquisitions,
incur capital expenditures, effect asset sales, enter into sale and lease-back
arrangements, make investments, loans or advances, pay dividends, make other
payments on account of its stock and modify certain debt instruments.
The Amended Credit Facility will prohibit all of the subsidiaries of J.
Baker, Inc. (other than JBAK Realty and JBAK Holding) from making any
distributions to J. Baker, Inc., except (i) to fund the payment of consolidated
tax liabilities or such subsidiary's allocated shares of any expense, (ii) so
long as no event of default has occurred under the Amended Credit Facility or
would result therefrom, to fund the payment of interest due and payable under
the 7% Convertible Subordinated Notes, (iii) so long as no default or event of
default has occurred under the Amended Credit Facility or would result
therefrom, to fund the payment of dividends on the Common Stock of J. Baker,
Inc. at the dividend rate per share in effect on the closing date of the Amended
Credit Facility and (iv) so long as payments are then permitted in accordance
with the terms of subordination under the Indenture and no bankruptcy event of
default under the Amended Credit Facility has occurred and is continuing, to
fund the payment of interest due and payable under the Notes.
Events of Default. The Amended Credit Facility will provide for events
of default customary in facilities of this type, including, but not limited to:
(i) failure to make payments thereunder when due; (ii) breach of covenants;
(iii) breach of representations or warranties in any material respect when
deemed made; (iv) default by the Company under any agreement relating to
indebtedness for borrowed money or for the lease of property where the
outstanding amount exceeds $1.0 million; (v) bankruptcy or insolvency events;
(vi) acceleration, prepayment, redemption or repurchasing of all or any part of
any subordinated indebtedness (including the Notes, but excluding any conversion
of the 7% Convertible Subordinated Notes into the Common Stock of J. Baker,
Inc.); (vii) certain ERISA events; and (viii) a change of control.
7% CONVERTIBLE SUBORDINATED NOTES
General. In 1992, J. Baker, Inc. issued $70.0 million of its 7%
Convertible Subordinated Notes due 2002. Payment of the principal of, and
interest on, the 7% Convertible Subordinated Notes is subordinate in right of
payment to the prior payment of all Senior Indebtedness (as defined therein),
which includes the Notes.
Interest. Interest is payable semi-annually in arrears on the 7%
Convertible Subordinate Notes.
Repayment. The entire principal amount of the 7% Convertible Subordinated
Notes is payable on June 1, 2002. J. Baker, Inc. may, at its election, redeem
the 7% Convertible Subordinated Notes at any time at a redemption price equal to
a percentage (currently 102.625%, and declining to 100% after June 1, 2000) of
the principal amount thereof plus accrued interest. The 7% Convertible
Subordinated Notes provide that upon the occurrence of a change of control (as
described therein) of J. Baker, Inc., the holders thereof will have the option
to require the redemption of the 7% Convertible Subordinated Notes at a
redemption price equal to 100% of the principal amount thereof plus accrued
interest.
82
<PAGE> 86
Conversion. The 7% Convertible Subordinated Notes are convertible at any
time into the Common Stock of J. Baker, Inc. at a conversion price of $16.125
per share, subject to adjustment.
Covenants. The 7% Convertible Subordinated Notes contain covenants
requiring J. Baker, Inc. to, among other things, pay all amounts due thereunder
and provide copies of reports required to be filed with the Securities and
Exchange Commission.
Events of Default. The 7% Convertible Subordinated Notes provide for
customary events of default including: (i) failure to make payments thereunder
beyond applicable grace periods; (ii) breach of covenants; (iii) default by J.
Baker, Inc. in the payment of, or acceleration of, any other indebtedness for
borrowed money in excess of $15.0 million; and (iv) bankruptcy defaults.
MORTGAGE LOAN
General. In December 1996, JBAK Realty, a wholly-owned subsidiary of JBAK
Holding and an indirect subsidiary of J. Baker, Inc., obtained the $15.5 million
Mortgage Loan from The Chase Manhattan Bank (the "Mortgagee") secured by the
Canton Property. JBAK Realty leases the Canton Property to JBI, Inc., a
wholly-owned subsidiary of the Company. The Canton Property is used as the
Company's corporate headquarters and one of its two warehouses and distribution
centers. Each of JBAK Realty and JBAK Holding has agreed not to pay or make its
assets available to pay creditors of J. Baker, Inc. or any of its other
subsidiaries. Accordingly, neither JBAK Realty nor JBAK Holding are Guarantors
of the Notes. See "Business -- Properties."
Interest. Interest on the Mortgage Loan is payable monthly in arrears at
the rate of 9% per annum.
Repayment. The Mortgage Loan is repayable in equal monthly installments of
principal and interest, maturing on January 1, 2012, on a schedule which will
fully amortize the principal amount of the Mortgage Loan over a 15 year period.
The Mortgage Loan may generally not be prepaid prior to 2003, and thereafter
only upon the payment of a make-whole premium (as determined thereunder).
Guarantees. J. Baker, Inc. has guaranteed the obligations of JBI, Inc.
under the lease of the Canton Property. Under the terms of the lease, JBI, Inc.
is required to pay rent sufficient to pay in full all amounts due under the
Mortgage Loan. Accordingly, J. Baker, Inc. has in effect guaranteed the Mortgage
Loan.
Security. The Mortgage Loan is secured by a mortgage on the Canton
Property and an assignment of the lease thereof and all rights under certain
contracts entered into in connection therewith.
Covenants. The Mortgage Loan contains financial covenants relating to the
management and operation of JBAK Realty and JBAK Holding. In addition, JBAK
Realty and JBAK Holding covenant to remain single purpose entities whose sole
purposes will be the ownership and leasing of the Canton Property and the
ownership of JBAK Realty, respectively. In connection therewith, JBAK Realty and
JBAK Holding covenant not to pay or become responsible for any debts of another
person.
Events of Default. The Mortgage Loan provides for events of default
customary for loans of this type, including: (i) failure to make payments
thereunder when due; (ii) breach of covenants; (iii) breach of representations
or warranties in any material respect when made; and (iv) bankruptcy defaults.
OTHER INDEBTEDNESS BEING REPAID WITH PROCEEDS OF OFFERING
11.21% Senior Subordinated Notes. In 1989, J. Baker, Inc. issued $35.0
million of its 11.21% Senior Subordinated Notes due 1999. All but $3.0 million
in principal amount of the 11.21% Senior Subordinated Notes has been prepaid.
The terms of the 11.21% Senior Subordinated Notes were amended in February 1997
to provide, among other things, for an increase in the interest rate thereunder
of 0.25% each quarter thereafter until the earlier of payment or maturity, and
the elimination of all prepayment premiums. Concurrently with the consummation
of the Offering, J. Baker, Inc. will prepay the remaining $3.0 million principal
amount, together with accrued interest, under the 11.21% Senior Subordinated
Notes. See "Use of Proceeds."
83
<PAGE> 87
8% Convertible Subordinated Notes. In 1992, Morse Shoe issued $50.0
million of its 8% Convertible Subordinated Notes due 2002. In connection with
the Company's acquisition of Morse Shoe in 1993, J. Baker, Inc. generally
assumed the obligations of Morse Shoe under the 8% Convertible Subordinated
Notes. Prior to and following such acquisition, all but $353,000 in principal
amount of the 8% Convertible Subordinated Notes were converted into Common Stock
of the Company. The 8% Convertible Subordinated Notes accrued no interest prior
to January 15, 1997, at which time interest began to accrue and became payable
semi-annually. The remaining $353,000 principal amount, together with accrued
interest, of the 8% Convertible Subordinated Notes is due January 15, 2002.
Concurrently with the consummation of the Offering, J. Baker, Inc. will deliver
to the trustee for the 8% Convertible Subordinated Notes the entire redemption
price (103% of the principal amount thereof plus accrued interest) thereof. See
"Use of Proceeds."
84
<PAGE> 88
UNDERWRITING
Subject to the terms and conditions in the underwriting agreement dated as
of , 1997 (the "Underwriting Agreement") among the Company, the
Guarantors and Bear, Stearns & Co. Inc., Lazard Freres & Co. LLC and BancBoston
Securities Inc. (the "Underwriters"), the Underwriters have agreed to purchase
from the Company, and the Company has agreed to sell to the Underwriters the
respective principal amounts of Notes in the amount set forth opposite their
names below:
<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL AMOUNT
----------------------------------------------------- ----------------
<S> <C>
Bear, Stearns & Co. Inc. ............................ $
Lazard Freres & Co. LLC..............................
BancBoston Securities Inc. ..........................
------------
Total........................................... $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent. The Underwriters are
obligated under the Underwriting Agreement to take and pay for all the Notes if
any are taken. The Company and the Guarantors have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities in
connection with the Offering, including liabilities under the Securities Act,
and to contribute to payments that the Underwriters may be required to make in
respect thereof.
The Company has been advised by the Underwriters that the Underwriters
propose initially to offer the Notes offered hereby directly to the public at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession of % of the principal
amount of the Notes. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of % of the amount of the Notes to other
Underwriters or to certain other dealers. After the offering, the public
offering price and such concessions may be changed by the Underwriters.
The Notes will constitute a new class of securities with no established
trading market. The Company does not intend to apply for listing of the Notes on
any securities exchange or to seek the admission thereof to trading in the
Nasdaq National Market. The Company has been advised by the Underwriters, that
following the completion of the Offering, the Underwriters currently intend to
make a market in the Notes as permitted by applicable laws and regulations;
however, the Underwriters are not obligated to do so, and any market-making
activities with respect to the Notes may be discontinued by any Underwriter at
any time without notice. Therefore, there can be no assurance that an active
trading market for the Notes will develop or, if such a market develops, that it
will continue.
In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Notes during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Notes
for their own accounts by selling more Notes than have been sold to them by the
Company. The Underwriters may elect to cover any such short position by
purchasing Notes in the open market. In addition, such persons may stabilize or
maintain the price of the Notes by bidding for or purchasing Notes in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in the Offering are
reclaimed if Notes previously distributed in the Offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Notes at a
level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the Notes to the extent
that it discourages resales thereof. No representation is made as to the
magnitude or effect of any such stabilization or other transactions. Such
transactions, if commenced, may be discontinued at any time.
Certain of the Underwriters have either directly or indirectly, from time
to time, provided investment banking and financial advisory services to the
Company for which they have received customary fees and commissions, and expect
in the future to provide such services to the Company for which they expect to
receive customary fees and commissions.
85
<PAGE> 89
BancBoston Securities Inc., one of the Underwriters, is an affiliate of
each of BankBoston Retail Finance Inc., which is an agent and a lender under the
Footwear Credit Facility, and BankBoston, N.A., which is the documentation agent
and a lender under the Apparel Credit Facility and will be the documentation
agent and a lender under the Amended Credit Facility. The net proceeds of the
Offering will be utilized in part to repay all amounts outstanding under and
terminate the Footwear Credit Facility and reduce the Company's borrowings under
the Apparel Credit Facility. See "Use of Proceeds." Under the Conduct Rules of
the National Association of Securities Dealers, Inc. ("NASD"), when more than
10% of the proceeds of a public offering of debt securities is to be paid to a
member of the NASD participating in the offering, or an affiliate thereof, the
yield at which the debt securities are distributed to the public must be no
lower than that recommended by a "qualified independent underwriter" as defined
in Rule 2720 of the NASD Conduct Rules, which qualified independent underwriter
must participate in the preparation of the Registration Statement and the
Prospectus and exercise the usual standards of "due diligence" in respect
thereto. GBFC, Inc. and BankBoston, N.A. will in the aggregate receive more than
10% of the net proceeds from the Offering of the Notes as a result of the use of
such proceeds to repay loans made under the Footwear Credit Facility and the
Apparel Credit Facility. Accordingly, the Offering is being made pursuant to the
provisions of Rule 2710(c)(8) of the NASD Conduct Rules and Bear, Stearns & Co.
Inc. has agreed to act as the qualified independent underwriter in connection
with the Offering.
LEGAL MATTERS
The legality of the Notes being offered hereby will be passed upon for the
Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Kramer, Levin,
Naftalis & Frankel, New York, New York has acted as counsel to the Underwriters
in connection with the Offering.
EXPERTS
The consolidated financial statements of the Company as of February 1, 1997
and for each of the three fiscal years ended February 1, 1997 included in this
Prospectus and the Registration Statement of which it is a part have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
report with respect thereto, and is included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or "Commission") a Registration Statement on Form S-3 under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Notes. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits
thereto on file with the Commission pursuant to the Securities Act and the rules
and regulations of the Commission thereunder. The Company is subject to the
informational requirements of the Exchange Act, and in accordance therewith
files reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located
at 7 World Trade Center, Suite 1300, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, certain
of the information regarding the Company is available on the World Wide Web by
accessing the Commission's website at http://www.sec.gov. The Company's Common
Stock is traded on the Nasdaq Stock Market National Market System under the
trading symbol "JBAK" and such reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is
86
<PAGE> 90
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Company will furnish periodic reports to the Trustee, which will make
them available upon request to the holders of the Notes.
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended February
1, 1997, its Current Report on Form 8-K dated March 20, 1997, as amended on May
16, 1997, its Proxy Statement dated May 6, 1997 and its Quarterly Reports on
Form 10-Q for the three months ended May 3, 1997 and the three months ended
August 2, 1997 are specifically incorporated herein by reference.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination or completion of this Offering shall be
deemed to be incorporated by reference in this Prospectus and to be part of this
Prospectus from the date of the filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any or all of the information filed by it that
has been incorporated by reference in this Prospectus (not including exhibits to
the information that is incorporated by reference herein unless such exhibits
are specifically incorporated by reference in such information). Requests for
such information should be directed to J. Baker, Inc., 555 Turnpike Street,
Canton, Massachusetts 02021, Attention: Investor Relations (telephone number:
(781) 828-9300).
87
<PAGE> 91
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 92
J. BAKER, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Report....................................................... F-2
Consolidated balance sheets as of February 1, 1997 and February 3, 1996............ F-3
Consolidated statements of earnings for the years ended February 1, 1997, February
3, 1996 and January 28, 1995.................................................... F-4
Consolidated statements of stockholders' equity for the years ended February 1,
1997, February 3, 1996 and January 28, 1995..................................... F-5
Consolidated statements of cash flows for the years ended February 1, 1997,
February 3, 1996 and January 28, 1995........................................... F-6
Notes to consolidated financial statements......................................... F-7
Six Months Information:
Consolidated balance sheets as of August 2, 1997 (unaudited) and February 1,
1997............................................................................ F-27
Consolidated statements of earnings (unaudited) for the six months ended August 2,
1997 and August 3, 1996......................................................... F-28
Consolidated statements of cash flows (unaudited) for the six months ended August
2, 1997 and August 3, 1996...................................................... F-29
Notes to consolidated financial statements......................................... F-30
</TABLE>
All schedules have been omitted as they are inapplicable or not required,
or the information has been included in the consolidated financial statements or
in the notes thereto.
F-1
<PAGE> 93
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
J. Baker, Inc.:
We have audited the accompanying consolidated balance sheets of J. Baker,
Inc. and subsidiaries as of February 1, 1997 and February 3, 1996, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended February 1, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of J. Baker,
Inc. and subsidiaries as of February 1, 1997 and February 3, 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended February 1, 1997 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 20, 1997
F-2
<PAGE> 94
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 1, 1997 AND FEBRUARY 3, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 3,969,116 $ 3,287,141
Accounts receivable:
Trade, net................................................. 14,771,734 19,514,985
Other...................................................... 1,737,786 3,219,862
------------ ------------
16,509,520 22,734,847
------------ ------------
Merchandise inventories....................................... 146,045,496 285,703,289
Prepaid expenses.............................................. 6,031,033 8,600,990
Income tax receivable......................................... -- 7,236,732
Deferred income taxes......................................... 37,548,000 9,198,000
Assets held for sale.......................................... 62,255,582 --
------------ ------------
Total current assets.................................. 272,358,747 336,760,999
------------ ------------
Property, plant and equipment, at cost:
Land and buildings............................................ 19,340,925 25,064,423
Furniture, fixtures and equipment............................. 54,695,398 115,099,770
Leasehold improvements........................................ 42,650,123 43,442,932
------------ ------------
116,686,446 183,607,125
Less accumulated depreciation and amortization................ 40,032,801 62,524,262
------------ ------------
Net property, plant and equipment..................... 76,653,645 121,082,863
------------ ------------
Deferred income taxes........................................... 26,199,000 6,939,000
Other assets, at cost, less accumulated amortization............ 7,309,411 61,298,880
------------ ------------
$382,520,803 $526,081,742
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 2,012,327 $ 1,500,000
Accounts payable.............................................. 57,006,085 105,113,721
Accrued expenses.............................................. 29,837,310 25,066,874
Income taxes payable.......................................... 1,380,664 --
------------ ------------
Total current liabilities............................. 90,236,386 131,680,595
------------ ------------
Other liabilities............................................... 6,203,073 2,598,026
Long-term debt, net of current portion.......................... 140,787,673 133,000,000
Senior subordinated debt........................................ 2,951,411 4,412,711
Convertible subordinated debt................................... 70,353,000 70,353,000
Stockholders' equity:
Common stock, par value $.50 per share, authorized 40,000,000
shares, 13,892,397 shares issued and outstanding in 1997
(13,872,647 in 1996)....................................... 6,946,199 6,936,324
Preferred stock, par value $1.00 per share, authorized
2,000,000 shares (none issued and outstanding)............. -- --
Series A junior participating cumulative preferred stock, par
value $1.00 per share, authorized 100,000 shares (none
issued and outstanding).................................... -- --
Additional paid-in capital.................................... 115,416,223 115,213,017
Retained earnings (deficit)................................... (50,373,162) 61,888,069
------------ ------------
Total stockholders' equity............................ 71,989,260 184,037,410
------------ ------------
$382,520,803 $526,081,742
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 95
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Net sales.................................... $ 897,491,941 $1,020,412,703 $1,042,978,875
Cost of sales................................ 542,246,938 580,067,086 579,734,911
------------- -------------- --------------
Gross profit............................ 355,245,003 440,345,617 463,243,964
Selling, administrative and general
expenses................................... 347,977,056 392,585,851 389,362,380
Depreciation and amortization................ 29,430,473 32,428,001 27,882,778
Restructuring and other non-recurring
charges.................................... 122,309,000 69,300,000 --
------------- -------------- --------------
Operating income (loss)................. (144,471,526) (53,968,235) 45,998,806
Interest income.............................. 253,750 526,188 635,574
Interest expense............................. (13,056,127) (10,983,067) (9,735,209)
------------- -------------- --------------
Earnings (loss) before taxes............ (157,273,903) (64,425,114) 36,899,171
Income tax expense (benefit)................. (45,846,000) (25,823,000) 13,283,000
------------- -------------- --------------
Net earnings (loss)..................... $(111,427,903) $ (38,602,114) $ 23,616,171
============= ============== ==============
Earnings (loss) per common share:
Primary................................. $ (8.02) $ (2.79) $ 1.71
============= ============== ==============
Fully diluted........................... $ (8.02) $ (2.79) $ 1.46
============= ============== ==============
Number of shares used to compute earnings
(loss) per common share:
Primary................................. 13,887,544 13,858,273 13,831,552
============= ============== ==============
Fully diluted........................... 13,900,633 13,905,545 18,363,042
============= ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 96
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
----------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
---------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 29, 1994.... 13,792,647 $6,896,324 $114,654,417 $ 78,535,733 $ 200,086,474
Net earnings for the year
ended January 28, 1995..... -- -- -- 23,616,171 23,616,171
Exercise of stock options.... 48,000 24,000 420,405 -- 444,405
Dividends paid
($.06 per share)........... -- -- -- (830,145) (830,145)
---------- ---------- ------------ ------------- -------------
Balance, January 28, 1995.... 13,840,647 6,920,324 115,074,822 101,321,759 223,316,905
---------- ---------- ------------ ------------- -------------
Net loss for the year ended
February 3, 1996........... -- -- -- (38,602,114) (38,602,114)
Exercise of stock options.... 32,000 16,000 138,195 -- 154,195
Dividends paid
($.06 per share)........... -- -- -- (831,576) (831,576)
---------- ---------- ------------ ------------- -------------
Balance, February 3, 1996.... 13,872,647 6,936,324 115,213,017 61,888,069 184,037,410
---------- ---------- ------------ ------------- -------------
Net loss for the year ended
February 1, 1997........... -- -- -- (111,427,903) (111,427,903)
Shares issued in connection
with the acquisition of
Shoe Corporation of
America.................... 6,001 3,001 104,942 -- 107,943
Exercise of stock options.... 13,749 6,874 98,264 -- 105,138
Dividends paid
($.06 per share)........... -- -- -- (833,328) (833,328)
---------- ---------- ------------ ------------- -------------
Balance, February 1, 1997.... 13,892,397 $6,946,199 $115,416,223 $ (50,373,162) $ 71,989,260
========== ========== ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 97
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................... $(111,427,903) $(38,602,114) $ 23,616,171
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation and amortization:
Fixed assets............................. 21,151,307 21,985,599 19,015,776
Deferred charges, intangible assets and
deferred financing costs.............. 8,317,866 10,490,278 8,922,497
Deferred income taxes...................... (47,610,000) (20,153,000) 7,955,364
Loss on disposals and revaluation of
assets................................... 97,815,906 29,900,000 --
Change in:
Accounts receivable...................... 2,002,092 3,088,464 8,466,255
Merchandise inventories.................. 52,566,128 36,583,661 (56,854,448)
Prepaid expenses......................... (1,758,077) (3,030,223) (1,449,914)
Accounts payable......................... (29,177,966) (15,678,736) 12,529,534
Accrued expenses......................... 5,340,437 9,561,924 (9,986,666)
Income taxes payable/receivable.......... 8,617,396 (7,709,089) 1,165,288
Other liabilities........................ 3,724,711 (4,045,342) (7,267,692)
------------- ------------ ------------
Net cash provided by operating
activities.......................... 9,561,897 22,391,422 6,112,165
------------- ------------ ------------
Cash flows from investing activities:
Capital expenditures for:
Property, plant and equipment.............. (16,420,644) (28,062,433) (44,513,548)
Other assets............................... (1,921,816) (1,379,958) (12,000,475)
Payments received on note receivable.......... 3,888,000 2,900,000 --
------------- ------------ ------------
Net cash used in investing
activities.......................... (14,454,460) (26,542,391) (56,514,023)
------------- ------------ ------------
Cash flows from financing activities:
Repayment of senior debt...................... (8,700,000) (1,500,000) (2,636,300)
Proceeds from other long term debt............ -- 4,700,000 51,300,000
Proceeds from mortgage payable................ 15,500,000 -- --
Payment of mortgage escrow.................... (605,215) -- --
Release of restricted cash.................... -- -- 3,455,357
Proceeds from issuance of common stock, net of
retirements................................ 213,081 154,195 444,405
Payment of dividends.......................... (833,328) (831,576) (830,145)
------------- ------------ ------------
Net cash provided by financing
activities.......................... 5,574,538 2,522,619 51,733,317
------------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents................................... 681,975 (1,628,350) 1,331,459
Cash and cash equivalents at beginning of
year.......................................... 3,287,141 4,915,491 3,584,032
------------- ------------ ------------
Cash and cash equivalents at end of year........ $ 3,969,116 $ 3,287,141 $ 4,915,491
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 98
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
J. Baker, Inc. and subsidiaries (the "Company") is engaged in the retail
sale of apparel and footwear. As of February 1, 1997, the Company's Casual Male
Big & Tall, Work 'n Gear and Licensed Discount footwear businesses operated
1,443 locations in 47 states and the District of Columbia. The Company operates
the 440 store chain of Casual Male Big & Tall men's stores which sell fashion,
casual and dress clothing and footwear to the big and tall man and the 66 store
chain of Work 'n Gear work clothing stores which sell a wide selection of
workwear as well as health care apparel and uniforms for industry and service
businesses, and sells footwear through 937 self-service licensed shoe
departments in mass merchandising department stores. In all of these operations,
the Company emphasizes the sale of quality products at comparatively low prices.
See Note 2 for information regarding the divestitures of the Company's Shoe
Corporation of America (SCOA) and Parade of Shoes divisions and the liquidation
of the Company's Fayva shoe division.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses. Actual results
could differ from these estimates.
Fiscal Year
The Company follows a 52-53 week fiscal year ending on the Saturday nearest
January 31. The fiscal year ended February 3, 1996 contained 53 weeks.
Fair Value of Financial Instruments
The carrying amount of cash, cash equivalents, trade receivables and trade
payables approximate fair value because of the short maturity of these financial
instruments. The fair value of the Company's long-term instruments is estimated
based on market values for similar instruments. At February 1, 1997, the
difference between the carrying value of long-term instruments and their
estimated fair value is not material.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid instruments with maturities of
three months or less and are stated at cost which approximates market.
Merchandise Inventories
Merchandise inventories, which consist entirely of finished goods, are
valued at the lower of cost or market, principally by the retail inventory
method.
F-7
<PAGE> 99
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and Amortization of Property, Plant and Equipment
Depreciation and amortization of the Company's property, plant and
equipment are provided on the straight-line method over the following periods:
<TABLE>
<S> <C>
Furniture and fixtures............................................. 7 years
Machinery and equipment............................................ 7 years
Leasehold improvements............................................. 10 years
Building, building improvements and land improvements.............. 40 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Major renewals
or replacements are capitalized. When properties are retired or otherwise
disposed of, the asset and related reserve account are relieved and the
resulting gain or loss, if any, is credited or charged to earnings.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", on
February 4, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations or liquidity. See Note 2 regarding
asset write-offs as a result of the Company's decision to downsize its footwear
operations.
Earnings Per Common Share
Earnings per common share of the Company is based on the weighted average
number of shares of common stock outstanding during the applicable period.
Primary earnings per share is based on the weighted average number of shares of
common stock outstanding during such period. Stock options and warrants are
excluded from the calculation since they have less than a 3% dilutive effect.
Fully diluted earnings per share is based on the weighted average number of
shares of common stock outstanding during the applicable period. Included in
this calculation is the dilutive effect of stock options and warrants. Included
in this calculation for the period ended January 28, 1995 is the dilutive effect
of common stock issuable under the 7% convertible subordinated notes due 2002.
The common stock issuable under the 7% convertible subordinated notes was not
included in the calculation for the periods ended February 1, 1997 and February
3, 1996 because its effect would be antidilutive.
Revenue Recognition
The Company recognizes revenue at the time of sale in its retail stores and
licensed departments.
Store Opening and Closing Costs
Direct incremental store opening costs are amortized to expense over a
twelve month period. All costs related to store closings are expensed at the
time the decision is reached to close the store.
F-8
<PAGE> 100
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Lease Acquisition Costs
Costs incurred in connection with the acquisition of license agreements
were classified as deferred lease acquisition costs and were being amortized
over the terms of the respective leases, which ranged from three to twenty
years.
Stock Options
Prior to February 4, 1996, the Company accounted for its stock options in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
February 4, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide proforma net income and proforma
earnings per share disclosures for employee stock option grants made in fiscal
1996 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the proforma disclosure provisions of SFAS No.
123.
Income Taxes
Deferred taxes are provided for using the asset and liability method for
temporary differences between financial and tax reporting.
(2) RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During the fourth quarter of fiscal 1997, the Company restructured its
footwear operations in order to focus its efforts on the management, development
and growth of its Casual Male Big & Tall and Work 'n Gear apparel businesses. In
connection with the restructuring, in March, 1997 the Company completed the
sales of its Shoe Corporation of America ("SCOA") and Parade of Shoes divisions,
and has begun to downsize its Licensed Discount footwear division. As part of
the restructuring, the Company made a determination that it would reduce its
investment in its Licensed Discount footwear business. The Company currently
intends to concentrate the Licensed Discount division's efforts on its major
licensors while exploring future strategic options for this business. The
Company recorded a pre-tax charge of $166.6 million ($117.1 million, or $8.42
per share, on an after-tax basis) related to the sales of the SCOA and Parade of
Shoes divisions, the write-down to realizable value of certain assets related to
its Licensed Discount shoe division, and severance and consolidation costs
related to the downsizing of the Company's administrative areas and facilities.
Of the pre-tax charge, $122.3 million is included as a separate component of
results of operations in the Company's Consolidated Statement of Earnings for
the year ended February 1, 1997. The Company has also recorded a charge to cost
of sales of $37.3 million related to a reduction in the Licensed Discount
division's inventory to net realizable value. The remaining components of the
charge include an increase in the allowance for doubtful accounts for the
Licensed Discount division's accounts receivable, and losses incurred from
actions taken in order to maximize the cash proceeds received for the assets
sold in the Parade of Shoes and SCOA divisions subsequent to the Company's
decision to dispose of each. In connection with the above events, the Company
reduced its work force during the first quarter of fiscal 1998 by approximately
3,481 employees of whom approximately 1,693 were full-time and 1,788 were
part-time.
Asset write-offs included in the restructuring and other non-recurring
charges totaled $99.6 million, while the balance of the charge will require cash
outlays, primarily in fiscal 1998. See Note 5 for information regarding the
write-off of certain assets of the Company's footwear operations.
F-9
<PAGE> 101
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the restructuring and other non-recurring
charges and the reserves remaining as of February 1, 1997 were as follows:
<TABLE>
<CAPTION>
CHARGES REMAINING
RECORDED RESERVES
------------ -----------
<S> <C> <C>
Loss on sales of divisions......................... $ 63,737,000 $ 2,777,000
Asset write-offs and obligations related to the
reduction of the Company's investment in its
Licensed Discount shoe division.................. 36,739,000 2,800,000
Severance and employee benefit costs............... 9,300,000 8,600,000
Lease obligations and asset write-offs for excess
corporate facilities............................. 9,733,000 4,800,000
Other.............................................. 2,800,000 2,550,000
------------ -----------
$122,309,000 $21,527,000
============ ===========
</TABLE>
Sale of Shoe Corporation of America Division
On March 5, 1997, the Company announced it had sold its SCOA division to an
entity formed by CHB Capital Partners of Denver Colorado, along with Dennis B.
Tishkoff, President of SCOA, and certain members of SCOA management. The
transaction involved the transfer to the buyer of the division's inventory,
fixed assets, intellectual property and license agreements for the various
department and specialty store chains serviced by SCOA as well as the assumption
by the buyer of certain liabilities of the SCOA division. In connection with the
sale of SCOA, the Company paid a total of $3.0 million to former stockholders of
SCOA in order to satisfy a contractual contingent payment obligation, based on
earnings, owed to such former SCOA stockholders. Net cash proceeds received from
the sale, reduced by the amount of the contingent payment, by a $1.4 million
two-year escrow account balance, and by transaction expenses of $1.3 million,
totaled approximately $40.0 million. The Company also remains as guarantor on
certain of SCOA's license agreements for periods not to exceed two years.
Sale of Parade of Shoes Division
On March 10, 1997, the Company completed the sale of its Parade of Shoes
division to Payless ShoeSource, Inc. ("Payless") of Topeka, Kansas. The
transaction involved the transfer to Payless of the division's inventory, fixed
assets, intellectual property and leases on the 186 Parade of Shoes stores. Net
cash proceeds from the sale, reduced by a $2.7 million two-year escrow account
balance and the retained accounts payable of the division, were approximately
$20.0 million. The Company remains contingently liable under certain of the
Parade of Shoes store leases assigned to Payless.
Revaluation and Downsizing of Licensed Discount Shoe Division
As part of the restructuring of its footwear business, the Company made a
determination that it would reduce its investment in its Licensed Discount
footwear business. The Company currently intends to concentrate the Licensed
Discount division's efforts on its major licensors while exploring future
strategic options for this business. As a result, the Company undertook an
evaluation of the value of the assets in the Licensed Discount business, and
wrote off certain assets which did not benefit future operations and wrote down
other assets to expected realizable value. Included in the restructuring and
other non-recurring charges for the year ended February 1, 1997, are write-offs
of intangible assets of $33.9 million, which the Company deems to have no future
value, and $2.8 million in accrued costs relating to the repositioning and
downsizing of the Licensed Discount business. In addition, the Company has
recorded a charge of $37.3 million to cost of sales, representing the write-down
of the Licensed Discount division's inventory to net realizable value and a
charge of $2.2 million to selling, administrative and general expenses,
representing an increase to the
F-10
<PAGE> 102
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's allowance for doubtful accounts related to amounts expected to be
realized from the settlement of Chapter 11 claims with various licensors.
Disposal of Fayva Division
In the year ended February 3, 1996, the Company recorded restructuring
charges of $69.3 million (which had an after-tax effect of $41.6 million or
$3.00 per share) as a result of the liquidation of the Company's Fayva footwear
division. Restructuring charges included actual costs for employee severance and
other benefits of $3.5 million (a total of 2,545 full and part-time employees
were terminated), fixed asset write-offs of $18.5 million and a loss on the
disposal of inventory of $20.5 million. Also included in restructuring charges
is a charge of $26.8 million for costs related to the disposition of the Fayva
store leases. Accrued at February 1, 1997 are lease termination costs of $2.0
million which are expected to be paid by the end of fiscal 1998.
(3) BANKRUPTCY FILINGS OF LICENSORS
On June 23, 1995, Bradlees Stores, Inc. ("Bradlees"), a licensor of the
Company, filed for protection under Chapter 11 of the United States Bankruptcy
Code. At the time of the bankruptcy filing, the Company had outstanding accounts
receivable of approximately $1.8 million due from Bradlees. Under bankruptcy
law, Bradlees has the option of continuing (assuming) the existing license
agreement with the Company or terminating (rejecting) that agreement. If the
license agreement is assumed, Bradlees must cure all defaults under the
agreement and the Company will collect in full the outstanding past due
receivable. The Company has no assurance that the agreement will be assumed or
that Bradlees will continue in business. Although the Company believes that the
rejection of the license agreement or the cessation of Bradlees' business is not
probable, in the event that the agreement is rejected or Bradlees does not
continue in business, the Company believes it will have a substantial claim for
damages. If such a claim is necessary, the amount realized by the Company,
relative to the carrying values of Bradlees-related assets, will be based on the
relevant facts and circumstances. The Company does not expect this filing under
the Bankruptcy Code to have a material adverse effect on future earnings. The
Company's sales in the Bradlees chain for the fiscal year ended February 1, 1997
were $57.7 million.
On October 18, 1995, Jamesway Corporation ("Jamesway"), then a licensor of
the Company, filed for protection under Chapter 11 of the United States
Bankruptcy Code. Jamesway liquidated its inventory, fixed assets and real estate
and ceased operation of its business in all of its 90 stores. The Company
participated in Jamesway's going out of business sales and liquidated
substantially all of its footwear inventory in the 90 Jamesway stores during the
going out of business sales. At the time of the bankruptcy filing, the Company
had outstanding accounts receivable of approximately $1.4 million due from
Jamesway. Because Jamesway ceased operation of its business, the Company's
license agreement was rejected. The Company has negotiated a settlement of the
amount of its claim with Jamesway which has been approved by the Bankruptcy
Court. It is anticipated that, if approved, a partial distribution of the amount
owed to the Company under the settlement will be made during the second half of
fiscal 1998.
On April 26, 1990, Ames Department Stores, Inc., and related entities
("Ames"), a significant licensor of the Company (see Notes 5 and 12), filed for
protection under Chapter 11 of the United States Bankruptcy Code. On December
18, 1992, the Company and Ames executed Amendment No. 2 to the Ames license
agreement and the Company and Ames executed a certain Stipulation which was
filed with the United States Bankruptcy Court for the Southern District of New
York and approved on January 6, 1993, the consummation date of Ames' Plan of
Reorganization. The Stipulation provided that the license agreement between Ames
and the Company shall be modified and amended and the license agreement assumed
by Ames. Further, pursuant to the Stipulation, the Company settled its $13.7
million pre-petition claim with Ames and, in return, the Company received $5
million in cash and a promissory note issued by Ames in the amount of $8.7
million bearing interest at the rate of 6.0% per annum and having a final
maturity on December 1, 1997. At
F-11
<PAGE> 103
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
February 1, 1997, the outstanding balance of the Ames promissory note is $2.9
million. The Stipulation further provided for a mortgage lien on and security
interest in the real property and buildings in Rocky Hill, Connecticut
comprising the executive offices of Ames, which mortgage lien and security
interest shall be used as security in repayment for the promissory note, and
which shall be senior to all other liens and security interests except those
granted in favor of certain banks under a credit agreement with such banks.
(4) ACCOUNTS RECEIVABLE
Trade accounts receivable are principally comprised of amounts due from
landlords of the Company's licensed shoe departments. The Company performs
regular credit evaluations of its licensors, and generally does not require
collateral from its licensors.
The following is a summary of the activity affecting the allowance for
doubtful accounts receivable for the years ended February 1, 1997, February 3,
1996 and January 28, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year................ $3,217,429 $1,972,723 $ 521,922
Additions charged to expense.............. 2,200,000 1,413,580 1,450,801
Write-offs, net of recoveries............. (130,812) (169,054) --
---------- ---------- ----------
Balance, end of year...................... $5,286,617 $3,217,249 $1,972,723
========== ========== ==========
</TABLE>
(5) OTHER ASSETS
Other assets, net of accumulated amortization, at February 1, 1997 and
February 3, 1996 were comprised of:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Systems development costs, net of accumulated
amortization of $4,529,842 and $9,566,062........ $4,529,811 $14,165,479
Deferred lease acquisition costs, net of
accumulated amortization of $18,628,527 at
February 3, 1996................................. -- 29,799,508
Excess of costs over net assets acquired, net of
accumulated amortization of $1,828,479 at
February 3, 1996................................. -- 10,131,228
Notes Receivable, net of current portion of
$2,900,000 at February 1, 1997 and February 3,
1996............................................. -- 3,888,000
Other intangible assets and deferred charges, net
of accumulated amortization of $1,157,036 and
$2,556,558....................................... 1,814,746 2,372,428
Cash surrender value of officers' life insurance,
net.............................................. 47,279 539,306
Deposits........................................... 917,575 402,931
---------- -----------
$7,309,411 $61,298,880
========== ===========
</TABLE>
As of February 1, 1997, the Company wrote off certain assets, primarily
systems development costs and excess of costs over net assets acquired, in
connection with the sales of the SCOA and Parade of Shoes divisions. In
conjunction with the restructuring of the Company's footwear operations, the
Company undertook an evaluation of the value of the assets in the Licensed
Discount footwear business. As a result, as of February 1, 1997, the Company
wrote off certain assets which did not benefit future operations and wrote down
other assets to expected realizable value, including deferred lease acquisition
costs, systems development costs and excess of costs over net assets acquired.
Remaining systems development costs are being amortized on a straight line
basis over eight years. Deferred lease acquisition costs consisted primarily of
payments made in connection with the acquisition of
F-12
<PAGE> 104
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
license agreements and were being amortized over the terms of the respective
license agreements. The excess of costs over net assets acquired was the result
of the acquisitions of various businesses and was being amortized over periods
of fifteen to twenty years. Notes receivable consist of a 6.0% note from Ames
maturing on December 1, 1997 (see Note 3) and a $988,000 (at February 3, 1996)
10.25% note from Hills Department Store Company. Other intangible assets and
deferred charges consist primarily of costs incurred for the issuance of debt
and are being amortized over periods of three to ten years.
(6) DEBT
Long-Term Debt
Long-term debt at February 1, 1997 and February 3, 1996 was comprised of:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Credit facility (weighted average interest rate
of 8.2% in fiscal 1997 and 7.9% in fiscal
1996)......................................... $125,800,000 $133,000,000
Mortgage note, net of current portion interest
rate of 9.0%)................................. 14,987,673 --
------------ ------------
$140,787,673 $133,000,000
============ ============
</TABLE>
The Company currently has a revolving credit facility on an unsecured basis
with Fleet National Bank, The First National Bank of Boston, The Yasuda Trust
and Banking Company, Ltd., Bank Hapoalim B.M., National City Bank of Columbus,
Standard Chartered Bank and Citizens Bank of Massachusetts (the "Banks"). The
aggregate commitment amount under this revolving credit facility was reduced
from $205 million to $145 million upon receipt of the proceeds of the sales of
the Company's SCOA and Parade of Shoes divisions. Borrowings under the revolving
credit facility can, at the discretion of the Company, be in the form of any
combination of loans, bankers' acceptances and letters of credit. Loans under
the revolving credit facility bear interest, at the Company's discretion, at
Fleet National Bank of Massachusetts' corporate base rate or at the London
Interbank Offered Rate (LIBOR) plus a margin. The margin amount, as well as a
commitment fee, is determined based on a financial ratio as defined in the
revolving credit facility.
This facility expires on May 30, 1998. At February 1, 1997, the Company had
$49.8 million available for borrowing under this facility.
On December 30, 1996, JBAK Canton Realty, Inc. ("Realty"), a subsidiary of
JBAK Holding, Inc. ("Holding") and an indirect, wholly-owned subsidiary of the
Company, obtained a $15.5 million mortgage loan from The Chase Manhattan Bank
secured by the real estate, buildings and other improvements owned by Realty
located at 555 Turnpike Street, Canton, Massachusetts. Realty leases the
property to JBI, Inc. ("JBI"), a wholly-owned subsidiary of the Company. The
property is used as the Company's corporate headquarters. Neither Holding nor
Realty has agreed to pay or make its assets available to pay creditors of the
Company or JBI. Neither the Company nor JBI have agreed to make their assets
available to pay creditors of Holding or Realty. Proceeds of the mortgage loan
were used to pay down loans under the Company's revolving credit facility.
Senior Subordinated Debt
In June 1989, the Company issued $35 million of senior subordinated notes
with detachable warrants which enable the holders to purchase 600,000 shares of
the Company's common stock at a price of $20 per share, subject to adjustments.
At February 1, 1997, the detachable warrants enable holders to purchase
approximately 640,000 shares at $18.80 per share. Subject to certain conditions,
the Company may repurchase all, but not less than all, of the outstanding
warrants to a price equal to the product of (a) the aggregate
F-13
<PAGE> 105
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
number, as of such time, of shares of common stock issuable upon exercise of the
warrant by (b) $18.80 and multiplying the product thereof by 50%. The senior
subordinated notes of $4,451,411 at February 1, 1997 ($5,912,711 at February 3,
1996) are presented net of $48,589 ($87,289 at February 3, 1996), which reflects
the unaccreted portion of the $1,710,000 value originally assigned to the
detachable warrants. The value of the warrants was recorded as additional
paid-in capital and is being accreted using the effective interest method.
The senior subordinated debt was reduced by $27.5 million in June, 1992
with proceeds from the $70 million 7% convertible subordinated notes referred to
below. The senior subordinated notes are due in installments of $1.5 million per
year beginning in May, 1995 with a final payment in May, 1999. Interest,
currently at 11.21%, is payable quarterly.
Convertible Subordinated Debt
Convertible subordinated debt at February 1, 1997 and February 3, 1996 was
comprised of:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
7% convertible subordinated notes................. $70,000,000 $70,000,000
Convertible debentures............................ 353,000 353,000
----------- -----------
$70,353,000 $70,353,000
=========== ===========
</TABLE>
In June 1992, the Company issued $70 million of 7% convertible subordinated
notes due 2002. The notes are convertible into common stock at a conversion
price of $16.125 per share, subject to adjustment in certain events. The Company
used the net proceeds to repay all of the $20 million outstanding principal
amount of its senior term notes, $27.5 million principal amount of its senior
subordinated notes, and a portion of outstanding bank indebtedness under its
unsecured revolving credit facility.
Prior to the Company's acquisition of Morse Shoe, Inc. ("Morse"), 94% of
the Morse convertible debentures converted into Morse common stock. Since the
acquisition of Morse on January 30, 1993, holders of $2.7 million of additional
Morse convertible debentures converted their debt into 49,820 shares of J. Baker
common stock. The remaining balance of $353,000 convertible debentures accrued
no interest until January 15, 1997, at which time the rate became 8%, and no
principal will be payable until January 15, 2002. The debt is subject, under
certain circumstances, to mandatory conversion. Approximately 6,500 shares of J.
Baker common stock are reserved for any future conversions of the remaining
Morse convertible debentures.
The Company's revolving credit facility and senior subordinated notes
contain various covenants and restrictive provisions, including restrictions on
the incurrence of additional indebtedness and liens, the payment of dividends
and the maintenance of specified financial ratios, minimum levels of working
capital and other financial criteria. At February 1, 1997, the Company was in
compliance with such covenants.
The Company is restricted, under various debt agreements, from paying cash
dividends unless tangible net worth exceeds certain required levels. As defined
by the most restrictive of those agreements, minimum tangible net worth, as so
defined, was $199 million at February 1, 1997. At February 1, 1997, the
Company's tangible net worth, as so defined, was approximately $258 million.
F-14
<PAGE> 106
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal repayments of long-term debt, senior subordinated notes
and convertible subordinated debt for the next five fiscal years and thereafter
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING JANUARY
-------------------------------------------------------
<S> <C>
1998................................................... $ 2,012,327
1999................................................... 127,860,387
2000................................................... 2,112,955
2001................................................... 670,455
2002................................................... 733,348
Thereafter............................................. $ 82,763,528
</TABLE>
(7) TAXES ON EARNINGS
Income tax expense (benefit) attributable to income (loss) from continuing
operations consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ------------ ------------
<S> <C> <C> <C>
Year ended February 1, 1997:
Federal......................... $ -- $(32,688,000) $(32,688,000)
State and city.................. 1,764,000 (14,922,000) (13,158,000)
----------- ------------ ------------
$ 1,764,000 $(47,610,000) $(45,846,000)
=========== ============ ============
Year ended February 3, 1996:
Federal......................... $(7,311,000) $(13,271,000) $(20,582,000)
State and city.................. 1,641,000 (6,882,000) (5,241,000)
----------- ------------ ------------
$(5,670,000) $(20,153,000) $(25,823,000)
=========== ============ ============
Year ended January 28, 1995:
Federal......................... $ 4,132,000 $ 5,308,000 $ 9,440,000
State and city.................. 2,100,000 1,743,000 3,843,000
----------- ------------ ------------
$ 6,232,000 $ 7,051,000 $ 13,283,000
=========== ============ ============
</TABLE>
The following is a reconciliation between the statutory federal income tax
rate and the Company's effective rate for the years ended February 1, 1997,
February 3, 1996 and January 28, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate................... (35.0)% (35.0)% 35.0%
State income taxes, net of federal income tax
benefit........................................... (5.4)% (5.3)% 6.8%
Jobs tax credits.................................... -- (0.6)% (1.6)%
Change in beginning of year balance in the valuation
allowance for deferred tax assets................. 7.4% -- (2.6)%
Other............................................... 3.8% 0.8% (1.6)%
------ ------
(29.2)% (40.1)% 36.0%
====== ======
</TABLE>
F-15
<PAGE> 107
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at February 1,
1997 and February 3, 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable........................... $ 550,000 $ 550,000
Inventory..................................... 32,692,000 1,500,000
Intangible assets............................. 11,506,000 (71,000)
Other assets.................................. 1,227,000 516,000
Nondeductible accruals and reserves........... 12,476,000 9,154,000
Operating loss and credit carryforwards....... 46,759,000 42,443,000
------------- ------------
Total gross deferred tax assets............ 105,210,000 54,092,000
Less valuation allowance................... (26,636,000) (14,969,000)
------------- ------------
Net deferred tax assets.................... 78,574,000 39,123,000
------------- ------------
Deferred tax liabilities:
Property, plant and equipment................. (5,811,000) (13,970,000)
Intangible assets............................. (6,426,000) (6,426,000)
Other liabilities............................. (2,590,000) (2,590,000)
------------- ------------
Total gross deferred tax liabilities....... (14,827,000) (22,986,000)
------------- ------------
Net deferred tax asset..................... $ 63,747,000 $ 16,137,000
============= ============
</TABLE>
At February 1, 1997 and February 3, 1996, the net deferred tax asset
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Deferred tax asset -- current.................. $ 37,548,000 $ 9,198,000
Deferred tax asset -- noncurrent............... 26,199,000 6,939,000
------------- ------------
$ 63,747,000 $ 16,137,000
============= ============
</TABLE>
The valuation allowance for deferred tax assets as of February 3, 1996 was
$14,969,000. The increase in valuation reserve of $11,667,000 is attributable to
an increase in temporary differences for which a reserve is required.
At February 1, 1997, the Company has net operating loss carryforwards
("NOLS") and general business credit carryforwards for federal income tax
purposes of approximately $97.0 million and $1.3 million, respectively, which
expire in years ended January, 2002 through January, 2012. Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), requires that the
tax benefit of such NOLS be recorded as an asset to the extent that the Company
assesses the utilization of such NOLS to be "more likely than not". The NOLS
available for future utilization were generated principally by restructuring and
other non-recurring charges which are not expected to continue. The Company has
determined, based upon the history of prior operating earnings in its ongoing
businesses and its expectations for the future, that operating income of the
Company will more likely than not be sufficient to utilize fully the $97.0
million of NOLS prior to their expiration in the year 2012.
The Company has minimum tax credit carryforwards of approximately $4.0
million available to reduce future regular federal income taxes, if any, over an
indefinite period.
F-16
<PAGE> 108
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PENSION AND PROFIT SHARING PLANS
The Company has a noncontributory pension plan (the "Pension Plan") which
covers substantially all nonunion employees and is administered by Trustees who
are officers of the Company.
The following table sets forth the Pension Plan's funded status at February
1, 1997 and February 3, 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................ $ 12,696,000 $ 11,420,000
Non-vested............................................ 1,170,000 1,053,000
------------ ------------
Total accumulated benefit obligations......... $ 13,866,000 $ 12,473,000
============ ============
Plan assets at fair value............................... $ 15,737,000 $ 12,137,000
Actuarial present value of projected benefit
obligations........................................... (18,832,000) (17,100,000)
------------ ------------
Deficiency of plan assets over projected benefit
obligations........................................... (3,095,000) (4,963,000)
Unrecognized prior service benefit...................... (449,000) (494,000)
Unrecognized net transitional liability................. 979,000 1,100,000
Unrecognized net actuarial loss......................... 520,000 2,612,000
------------ ------------
Accrued pension cost.................................... $ (2,045,000) $ (1,745,000)
============ ============
</TABLE>
In December 1993, the Board of Directors of the Company established a
Supplemental Retirement plan (the "Supplemental Plan") to provide benefits
attributable to compensation in excess of $150,000, but less than $254,064. The
following table sets forth the Supplemental Plan's funded status at February 1,
1997 and February 3, 1996:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested............................................... $ 251,000 $ 203,000
Non-vested........................................... 110,000 89,000
----------- ------------
Total accumulated benefit obligations........ $ 361,000 $ 292,000
=========== ============
Plan assets at fair value.............................. $ -- $ --
Actuarial present value of projected benefit
obligations.......................................... (700,000) (829,000)
----------- ------------
Deficiency of plan assets over projected benefit
obligations.......................................... (700,000) (829,000)
Unrecognized prior service cost........................ 400,000 433,000
Unrecognized net actuarial (gain) loss................. (149,000) 80,000
----------- ------------
Accrued pension cost................................... $ (449,000) $ (316,000)
=========== ===========
</TABLE>
Assumptions used to develop the plans' funded status were discount rate
(7.5% in 1997, 7.25% in 1996) and increase in compensation levels (4.5%).
Plan assets of both the Pension Plan and the Supplemental Plan consist
primarily of common stock, U.S. government obligations, mutual funds and
insurance contracts.
F-17
<PAGE> 109
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost for the years ended February 1, 1997, February 3, 1996 and
January 28, 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the
year...................................... $ 1,828,000 $ 1,260,000 $ 1,223,000
Interest cost on projected benefit
obligation................................ 1,420,000 1,199,000 1,056,000
Actual return on plan assets................ (2,657,000) (1,528,000) (66,000)
Net amortization and deferral............... 1,734,000 655,000 (565,000)
----------- ----------- -----------
Net pension cost....................... $ 2,325,000 $ 1,586,000 $ 1,648,000
=========== =========== ===========
</TABLE>
Assumptions used to develop the net periodic pension cost for fiscal 1997
were discount rate (7.25%), expected long-term return on assets (9.0%) and
increase in compensation levels (4.5%).
In January 1992, the Company implemented a qualified 401(k) profit sharing
plan available to full-time employees who meet the plan's eligibility
requirements. Under the 401(k) plan, the Company matches 25% (50% for the year
ended January 28, 1995) of the qualified employee's contribution up to 3% of the
employee's salary. The total cost of the matching contribution was $379,000,
$441,000 and $915,000 for the years ended February 1, 1997, February 3, 1996 and
January 28, 1995, respectively.
The Company has established incentive bonus plans for certain executives
and employees. The bonus calculations are based on the achievement of certain
profit levels, as defined in the plans. For the years ended February 1, 1997,
February 3, 1996 and January 28, 1995, $145,500, $50,000 and $940,000,
respectively, was provided for bonuses under the plans.
The Company does not provide post-retirement benefits other than pensions
as defined under SFAS No. 106.
(9) STOCK OPTIONS AND PERFORMANCE SHARE AWARDS
The Company has options outstanding under the Amended and Restated 1985
Stock Option Plan, the 1992 Directors' Stock Option Plan and the 1994 Equity
Incentive Plan (the "Stock Option Plans"). In addition, the Company has granted
options which are not part of any Stock Option Plan.
The Amended and Restated 1985 Stock Option Plan provided for the issuance
of incentive and non-qualified stock options to key employees at an option price
of not less than 100% of the fair market value of a share on the date of grant
of the option. Under this plan, there are no shares of common stock available
for grant at February 1, 1997 as no options could be granted thereunder after
June, 1995.
In fiscal 1995, the Company established the 1994 Equity Incentive Plan,
which provides for the issuance of one million shares of common stock to
officers and employees in the form of stock options (both incentive options and
non-qualified options), grants of restricted stock, grants of performance shares
and unrestricted grants of stock. At February 1, 1997, 26,500 shares of common
stock are reserved for grants of performance shares, and 368,091 shares of
common stock remain available for all other types of grants.
Options granted under the Amended and Restated 1985 Stock Option Plan and
the 1994 Equity Incentive Plan become exercisable either ratably over four or
more years or upon grant, at the discretion of the Board of Directors, and
expire ten years from the date of grant.
The 1992 Directors' Stock Option Plan provides for the automatic grant of
an option to purchase 2,500 shares of the Company's common stock upon a
director's initial election to the Board of Directors and, in addition, at the
close of business on the fifth business day following the Company's annual
meeting of stockholders. Options under the Directors' Plan are granted at a
price equal to the closing price of the Company's common stock on the date of
grant. They are exercisable in full as of the date of grant and expire
F-18
<PAGE> 110
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ten years from the date of grant. Under this plan, there are 15,000 shares of
common stock available for grant at February 1, 1997.
The Company applied Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for stock options in the Company's results
of operations. Had the Company recorded a charge for the fair value of options
granted consistent with SFAS No. 123, net loss and net loss per common share
would have been increased by $940,000 and $0.07 in fiscal 1997 and $300,000 and
$0.02 in fiscal 1996, respectively. There is no effect on fully diluted earnings
per share.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes options pricing model, with the following weighted
average assumptions used for grants in fiscal 1997 and fiscal 1996.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Risk-free interest rate................................ 5.9% 6.2%
Expected option lives.................................. 6.8 years 7.1 years
Expected volatility.................................... 59.0% 59.2%
Expected dividend yield................................ 0.8% 0.5%
</TABLE>
The effect of applying SFAS No. 123 is not representative of the proforma
effect on net earnings in future years because it does not take into
consideration proforma compensation expense related to grants made prior to
fiscal 1996.
Data with respect to stock options for fiscal years 1997, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 1,176,170 $15.30 1,091,395 $16.58 884,920 $15.42
Granted..................... 731,262 8.70 338,000 12.88 336,025 19.21
Exercised................... (13,749) 7.65 (32,000) 4.82 (48,000) 9.26
Cancelled................... (821,253) 16.55 (221,225) 19.43 (81,550) 19.36
--------- --------- ---------
Options outstanding at end
of year................... 1,072,430 9.58 1,176,170 15.30 1,091,395 16.58
========= ========= =========
Options exercisable at end
of year................... 516,027 589,102 453,945
Weighted average fair-value
of options granted during
the year.................. $ 4.94 $ 8.08
</TABLE>
Effective as of February 5, 1996, the Board of Directors offered all
employee participants in the Stock Option Plans the opportunity to reprice to
$9.00 per share any currently outstanding stock options with exercise prices in
excess of $9.00 per share. On February 5, 1996, the fair market value of the
Company's common stock was $5.25 per share. Pursuant to the repricing program,
any employee electing to reprice outstanding stock options was also required to
accept a reduced number of options shares commensurate with the reduction in
price to $9.00 from the price of the original grant. Each repriced option
retained the vesting schedule associated with the original grant. Holders of
original option grants totaling 646,376 shares elected to reprice such options
at $9.00 per share resulting in a reduction of such options held to 342,962
shares, which is contained in the number of options granted in fiscal 1997.
F-19
<PAGE> 111
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth a summary of the stock options outstanding
at February 1, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING ------------------------------
RANGE OF NUMBER YEARS OF WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 4.88-$ 8.63....... 347,920 7.3 $ 7.35 135,320 $ 6.65
$ 9.00-$ 9.88....... 583,985 7.3 $ 9.15 270,782 $ 9.18
$12.00-$16.63....... 72,000 6.9 $13.41 55,575 $13.46
$17.00-$22.38....... 68,525 6.8 $20.53 54,350 $20.64
--------- -------
$ 4.88-$22.38....... 1,072,430 7.3 $ 9.58 516,027 $10.18
========= =======
</TABLE>
During fiscal 1997, the Company granted Performance Share Awards that
entitle certain officers to shares of the Company's common stock in fiscal 1999
if the price of the common stock attains a "Target Price" (the average closing
price of the Company's common stock for the fifteen consecutive trading days
prior to April 30, 1998) between $10.00 and $14.00. If such Target Price is
attained, the Company will grant between 61,750 and 123,500 shares of the
Company's common stock, respectively, to the eligible officers.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
Leases
The Company operates mainly from leased premises under license agreements
generally requiring payment of annual rentals contingent upon sales. The Company
leases its computers, vehicles and certain of its offices and warehouse
facilities, in addition to its retail stores.
The Company remains liable under certain leases and lease guaranties for
premises previously leased by the Company for the operation of Parade of Shoes
and Fayva shoe stores (the "Excess Property Leases"). The total liability under
the Excess Property Leases is approximately $61.1 million as of February 1,
1997. The Company has reduced its actual liability by assigning or subleasing
substantially all of the Excess Property Leases to unaffiliated third parties.
At February 1, 1997, minimum rental commitments under operating leases are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR NET MINIMUM MINIMUM
ENDING JANUARY RENTALS SUB-RENTALS
--------------------------------------------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C>
1998............................................... $ 43,709 $ 661
1999............................................... 37,239 653
2000............................................... 28,100 648
2001............................................... 20,935 580
2002............................................... 16,014 409
Thereafter......................................... 36,504 --
--------- -------
$ 182,501 $ 2,951
========= =======
</TABLE>
F-20
<PAGE> 112
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense for the years ended February 1, 1997, February 3, 1996 and
January 28, 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals............................ $ 49,167 $ 52,284 $ 53,189
Contingent rentals......................... 83,084 93,289 90,275
-------- -------- --------
132,251 145,573 143,464
Less sublease rentals...................... 317 336 409
-------- -------- --------
Net rentals.............................. $131,934 $145,237 $143,055
======== ======== ========
</TABLE>
Other Commitments and Contingencies
The Company has employment agreements with certain of its officers under
which it is committed to pay an aggregate of approximately $1.1 million through
April, 1998.
During fiscal 1996, the Company's Board of Directors adopted executive
severance agreements which create certain liabilities in the event of the
termination of the covered executives within three years following either a
change of control of the Company or the termination of certain key executives of
the Company. The aggregate commitment amount under these executive severance
agreements, should all thirteen covered employees be terminated, is
approximately $2.2 million.
At February 1, 1997 and February 3, 1996, the Company was contingently
liable under letters of credit totaling $11.2 million and $18.8 million,
respectively. These letters of credit, which have terms of one month to one
year, are used primarily to collateralize the Company's obligations to third
parties for the purchase of inventory. The fair value of these letters of credit
is estimated to be the same as the contract values based on the nature of the
fee arrangements with the issuing banks. No material loss is anticipated due to
the non-performance by counterparties to these arrangements.
On November 10, 1993, a federal jury in Minneapolis, MN returned a verdict
assessing royalties of $1,550,000, and additional damages of $1,500,000, against
the Company in a patent infringement suit brought by Susan Maxwell with respect
to a device used to connect pairs of shoes. Certain post trial motions were
filed by Susan Maxwell seeking treble damages, attorney's fees and injunctive
relief, which motions were granted on March 10, 1995. Judgment was entered for
Maxwell. The Company appealed the judgment. On June 11, 1996, the United States
Court of Appeals for the Federal Circuit reversed the trial court's findings in
part, affirmed the trial court's findings in part and vacated the award to
Maxwell of treble damages, attorney's fees and injunctive relief. Maxwell
subsequently requested a rehearing in banc of the matter which request was
denied by order of the Court dated August 28, 1996. Maxwell petitioned the
United States Supreme Court for a writ of certiorari to hear the case which
petition was denied on March 17, 1997. The case has been remanded to the trial
court for a redetermination of damages consistent with the opinion of the
appellate court.
A complaint was also filed by Susan Maxwell in November, 1992 against Morse
Shoe, Inc. ("Morse"), a subsidiary of the Company, alleging infringement of the
patent referred to above. The Morse trial was stayed pending the outcome of the
J. Baker appeal. In light of the decision of the Supreme Court and the remand to
the trial court, it is not clear when a trial date will be set for the Morse
case.
Morse has filed a breach of contract lawsuit against a former wholesale
customer. There can be no assurance of what amount, if any, the Company will
realize as a result of this lawsuit.
F-21
<PAGE> 113
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) STOCKHOLDERS' EQUITY
The Board of Directors of the Company is authorized by vote or votes, from
time to time adopted, to provide for the issuance of Preferred Stock in one or
more series and to fix and state the voting powers, designations, preferences
and relative participating, optional or other special rights of the shares of
each series and the qualifications, limitations and restrictions thereof.
On December 15, 1994, the Board of Directors of the Company adopted a
Shareholder Rights Agreement (the "Rights Agreement") designed to enhance the
Company's ability to protect shareholder interests and to ensure that
shareholders receive fair treatment in the event any coercive takeover attempt
of the Company is made in the future. Pursuant to the Rights Agreement, the
Board of Directors declared a dividend distribution of one preferred stock
purchase right (the "Right") for each outstanding share of common stock of the
Company to shareholders of record as of the close of business on January 6,
1995. Each right entitles the holder to purchase from the Company a unit
consisting of one ten thousandth (1/10,000) of a share of Series A Junior
Participating Cumulative Preferred Stock, par value $1.00 per share, at a cash
exercise price of $70 per unit, subject to adjustment, upon the occurrence of
certain events as are set forth in the Rights Agreement. These events include
the earliest to occur of (i) the acquisition of 15% or more of the outstanding
shares of common stock of the Company by any person or group, (ii) the
commencement of a tender or exchange offer that would result upon its
consummation in a person or a group becoming the beneficial owner of 15% or more
of the outstanding common stock of the Company or (iii) the determination by the
Board of Directors that any person is an "Adverse Person", as defined in the
Rights Agreement. The Rights are not exercisable until or following the
occurrence of one of the above events and will expire on December 14, 2004,
unless previously redeemed or exchanged by the Company as provided in the Rights
Agreement.
(12) PRINCIPAL LICENSOR
Sales in licensed departments operated under the Ames license agreement
accounted for 10.5%, 9.4% and 9.5% of the Company's net sales in the years ended
February 1, 1997, February 3, 1996 and January 28, 1995, respectively. On a
proforma basis, excluding sales generated by the Company's SCOA and Parade of
Shoes divisions, sales in Ames accounted for 15.8% of the Company's sales for
the year ended February 1, 1997.
F-22
<PAGE> 114
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) SEGMENT INFORMATION
The Company is a specialty retailer conducting business through retail
stores in two business segments: apparel and footwear. Information about
operations for each of these segments is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
FEBRUARY 1, 1997 FEBRUARY 3, 1996 JANUARY 28, 1995
---------------- ---------------- ----------------
(53 WEEKS)
($ IN THOUSANDS)
<S> <C> <C> <C>
Apparel
Net sales........................................ $ 293,775 $ 263,322 $ 224,759
Operating profit................................. 24,123 24,814 26,974
Identifiable assets.............................. 113,117 104,923 89,111
Depreciation and amortization.................... 7,501 6,973 4,130
Additions to property, equipment and leasehold
improvements.................................. 6,665 10,461 11,570
Footwear
Net sales........................................ $ 603,717 $ 757,091 $ 818,220
Restructuring and other non-recurring charges.... (122,309) (69,300) --
Operating profit (loss).......................... (144,744) (51,768) 44,993
Identifiable assets.............................. 231,812 377,530 456,552
Depreciation and amortization.................... 18,094 20,524 20,363
Additions to property, equipment and leasehold
improvements.................................. 8,043 13,271 31,298
Consolidated
Net sales........................................ $ 897,492 $1,020,413 $1,042,979
Restructuring and other non-recurring charges.... (122,309) (69,300) --
Operating profit (loss) before general corporate
expense....................................... (120,621) (26,954) 71,967
General corporate expense........................ (23,851) (27,014) (25,968)
Interest expense, net............................ (12,802) (10,457) (9,100)
Earnings (loss) before income taxes................ $ (157,274) $ (64,425) $ 36,899
Identifiable assets................................ $ 344,929 $ 482,453 $ 545,663
Corporate assets................................... 37,592 43,629 32,955
Total assets.................................. $ 382,521 $ 526,082 $ 578,618
Depreciation and amortization...................... $ 29,430 $ 32,428 $ 27,883
Additions to property, equipment and leasehold
improvements..................................... $ 16,421 $ 28,062 $ 44,514
</TABLE>
F-23
<PAGE> 115
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Year ended February 1, 1997
Net sales....................... $195,530 $231,805 $222,764 $ 247,393 $ 897,492
Gross profit.................... 90,621 101,427 96,184 67,013 355,245
Net earnings (loss)............. $ 826 $ 1,486 $ 1,418 $(115,158) $ (111,428)
======== ======== ======== ========= ==========
Earnings (loss) per common
share:
Primary...................... $ .06 $ .11 $ .10 $ (8.29) $ (8.02)
======== ======== ======== ========= ==========
Fully diluted................ $ .06 $ .11 $ .10 $ (8.29) $ (8.02)
======== ======== ======== ========= ==========
Year ended February 3, 1996
Net sales....................... $231,385 $272,520 $245,255 $ 271,253 $1,020,413
Gross profit.................... 103,532 120,202 104,600 112,012 440,346
Net earnings (loss)............. $ 638 $ 1,397 $(41,328) $ 691 $ (38,602)
======== ======== ======== ========= ==========
Earnings (loss) per common
share:
Primary...................... $ .05 $ .10 $ (2.98) $ .05 $ (2.79)
======== ======== ======== ========= ==========
Fully diluted................ $ .05 $ .10 $ (2.98) $ .05 $ (2.79)
======== ======== ======== ========= ==========
</TABLE>
(15) ADVERTISING COSTS
Advertising costs are charged to expense as incurred. The Company incurred
advertising costs of $14.8 million, $20.5 million and $20.1 million in the years
ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively.
(16) SUPPLEMENTAL SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Cash paid for interest....................... $12,670,073 $11,069,341 $8,765,653
Cash paid for income taxes................... $ 1,168,901 $ 2,039,089 $4,162,348
Income taxes refunded........................ $(8,315,483) -- --
=========== =========== ==========
Non-cash investing activities:
Notes receivable (see Notes 3 and 5)......... $ 23,000 $ 47,000 $ 95,000
=========== =========== ==========
</TABLE>
(17) SUBSEQUENT EVENT
Subsequent to February 1, 1997, the Company began to undertake an offering
("Offering") of $100 million of Senior Subordinated Notes due 2007. Under the
terms of the Offering, repayment of the obligations of the Company will be fully
and unconditionally guaranteed (as described therein), on a joint and several
basis, by all of the Company's subsidiaries, which are wholly-owned
subsidiaries, except for one wholly-owned subsidiary, JBAK Holding, Inc.
("Holding"), and its wholly-owned subsidiary, JBAK Canton Realty, Inc.
("Realty"), which owns the Company's corporate headquarters. Both Realty and
Holding were incorporated in December 1996 (see note 6). The following condensed
consolidating financial data illustrate the composition of the Company, the
Guarantor Subsidiaries, and Holding and Realty as of and for the year ended
February 1, 1997. The Company has not presented separate financial statements
and other disclosures concerning the Guarantors because management has
determined that such information is not material to investors.
Investments in subsidiaries are accounted for by the Company on the equity
method for purposes of the supplemental consolidating presentation. Earnings of
subsidiaries are therefore reflected in the Company's investment accounts and
earnings. The principle elimination entries eliminate the Company's investment
in subsidiaries and intercompany balances and transactions.
F-24
<PAGE> 116
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 1, 1997
<TABLE>
<CAPTION>
THE GUARANTOR
COMPANY SUBSIDIARIES HOLDING ELIMINATIONS CONSOLIDATED
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.... $ -- $ 3,969,116 $ -- $ -- $ 3,969,116
Net accounts receivable...... -- 16,509,520 407,754 (407,754) 16,509,520
Merchandise inventories...... -- 146,045,496 -- -- 146,045,496
Prepaid expenses............. -- 6,031,033 -- -- 6,031,033
Deferred income taxes........ 37,548,000 -- -- -- 37,548,000
Assets held for sale......... -- 62,255,582 -- -- 62,255,582
------------ ------------ ----------- ------------ ------------
Total current assets.... 37,548,000 234,810,747 407,754 (407,754) 272,358,747
Net property, plant and
equipment.................. -- 58,932,739 17,720,906 -- 76,653,645
Deferred income taxes........ 26,199,000 -- -- -- 26,199,000
Other assets................. 79,411,927 4,072,779 1,052,420 (77,227,715) 7,309,411
------------ ------------ ----------- ------------ ------------
Total assets............ $143,158,927 $297,816,265 $19,181,080 $(77,635,469) $382,520,803
============ ============ =========== ============ ============
Current portion of long-term
debt....................... $ -- $ 1,500,000 $ 512,327 $ -- $ 2,012,327
Accounts payable............. -- 57,413,839 -- (407,754) 57,006,085
Accrued expenses............. 816,667 28,878,087 142,556 -- 29,837,310
Other current liabilities.... -- 1,295,488 85,176 -- 1,380,664
------------ ------------ ----------- ------------ ------------
Total current
liabilities...... 816,667 89,087,414 740,059 (407,754) 90,236,386
Other liabilities............ -- 6,203,073 -- -- 6,203,073
Long-term debt, net of
current maturities......... -- 125,800,000 14,987,673 -- 140,787,673
Senior subordinated debt..... -- 2,951,411 -- -- 2,951,411
Convertible subordinated
debt....................... 70,353,000 -- -- -- 70,353,000
Total stockholders'
equity................ 71,989,260 73,774,367 3,453,348 (77,227,715) 71,989,260
------------ ------------ ----------- ------------ ------------
Total liabilities and
stockholders'
equity................ $143,158,927 $297,816,265 $19,181,080 $(77,635,469) $382,520,803
============ ============ =========== ============ ============
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE YEAR ENDED FEBRUARY 1, 1997
<TABLE>
<CAPTION>
THE GUARANTOR
COMPANY SUBSIDIARIES HOLDING ELIMINATIONS CONSOLIDATED
------------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales................. $ -- $ 897,491,941 $ -- $ -- $ 897,491,941
Cost of sales............. -- 542,246,938 -- -- 542,246,938
------------- ------------- --------- ------------- -------------
Gross profit......... -- 355,245,003 -- -- 355,245,003
Selling, administrative
and general expenses.... -- 348,358,505 (381,449) -- 347,977,056
Depreciation and
amortization............ 252,456 29,138,967 39,050 -- 29,430,473
Restructuring and other
non-recurring charges... -- 122,309,000 -- -- 122,309,000
------------- ------------- --------- ------------- -------------
Operating income (loss)... (252,456) (144,561,469) 342,399 -- (144,471,526)
Interest expense, net..... (4,900,000) (7,778,377) (124,000) -- (12,802,377)
Equity (earnings) loss of
subsidiaries............ 106,275,447 -- -- (106,275,447) --
Income tax expense
(benefit)............... -- (45,931,176) 85,176 -- (45,846,000)
------------- ------------- --------- ------------- -------------
Net earnings
(loss)............. $(111,427,903) $(106,408,670) $ 133,223 $ 106,275,447 $(111,427,903)
============= ============= ========= ============= =============
</TABLE>
F-25
<PAGE> 117
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 1, 1997
<TABLE>
<CAPTION>
THE GUARANTOR
COMPANY SUBSIDIARIES HOLDING ELIMINATIONS CONSOLIDATED
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES.... $(4,900,000) $ 14,469,646 $ (7,749) $ -- $ 9,561,897
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................. -- (16,420,644) -- -- (16,420,644)
Other assets.......................... -- (1,474,611) (447,205) -- (1,921,816)
Payments received on note
receivable.......................... -- 3,888,000 -- -- 3,888,000
----------- ------------ ----------- --- ------------
Net cash used in investing activities... -- (14,007,255) (447,205) -- (14,454,460)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in intercompany advances....... 5,520,247 8,919,584 (14,439,831) -- --
Repayment of senior debt.............. -- (8,700,000) -- -- (8,700,000)
Proceeds from mortgage payable........ -- -- 15,500,000 -- 15,500,000
Payment of mortgage escrow............ -- -- (605,215) -- (605,215)
Proceeds from issuance of stock....... 213,081 -- -- -- 213,081
Payment of dividends.................. (833,328) -- -- -- (833,328)
----------- ------------ ----------- --- ------------
Net cash provided by financing
activities............................ 4,900,000 219,584 454,954 -- 5,574,538
----------- ------------ ----------- --- ------------
Net increase in cash and cash
equivalents........................... -- 681,975 -- -- 681,975
CASH AND CASH EQUIVALENTS at beginning
of period............................. -- 3,287,141 -- -- 3,287,141
----------- ------------ ----------- --- ------------
CASH AND CASH EQUIVALENTS at end of
period................................ $ -- $ 3,969,116 $ -- $ -- $ 3,969,116
=========== ============ =========== ==== ============
Supplemental Schedule to Condensed
Consolidating Statement of Cash Flows:
Non-cash investing activities:
Investment in subsidiary.............. 3,320,125
</TABLE>
F-26
<PAGE> 118
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 2, 1997 (UNAUDITED) AND FEBRUARY 1, 1997
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 1,711,896 $ 3,969,116
Accounts receivable:
Trade, net................................................. 14,459,203 14,771,734
Other...................................................... 1,532,264 1,737,786
------------ ------------
15,991,467 16,509,520
------------ ------------
Merchandise inventories....................................... 164,268,910 146,045,496
Prepaid expenses.............................................. 9,649,621 6,031,033
Deferred income taxes......................................... 36,159,000 37,548,000
Assets held for sale.......................................... -- 62,255,582
------------ ------------
Total current assets.................................. 227,780,894 272,358,747
------------ ------------
Property, plant and equipment, at cost:
Land and buildings............................................ 19,340,925 19,340,925
Furniture, fixtures and equipment............................. 77,245,839 74,244,548
Leasehold improvements........................................ 24,280,284 23,100,973
------------ ------------
120,867,048 116,686,446
Less accumulated depreciation and amortization................ 45,734,247 40,032,801
------------ ------------
Net property, plant and equipment..................... 75,132,801 76,653,645
------------ ------------
Deferred income taxes........................................... 26,199,000 26,199,000
Other assets, at cost, less accumulated amortization............ 12,367,151 7,309,411
------------ ------------
$341,479,846 $382,520,803
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 2,035,817 $ 2,012,327
Accounts payable.............................................. 48,720,653 57,006,085
Accrued expenses.............................................. 11,365,859 29,837,310
Income taxes payable.......................................... 1,198,881 1,380,664
------------ ------------
Total current liabilities............................. 63,321,210 90,236,386
------------ ------------
Other liabilities............................................... 3,180,149 6,203,073
Long-term debt, net of current portion.......................... 129,225,814 140,787,673
Senior subordinated debt........................................ 1,470,761 2,951,411
Convertible subordinated debt................................... 70,353,000 70,353,000
Stockholders' equity............................................ 73,928,912 71,989,260
------------ ------------
$341,479,846 $382,520,803
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 119
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 2, 1997 AUGUST 3, 1996
-------------- --------------
<S> <C> <C>
Sales........................................................... $ 281,279,618 $ 427,335,600
Cost of sales................................................... 155,491,836 235,287,939
------------- -------------
Gross profit............................................... 125,787,782 192,047,661
Selling, administrative and general expenses.................... 109,621,742 167,595,023
Depreciation and amortization................................... 6,153,844 14,662,623
------------- -------------
Operating income........................................... 10,012,196 9,790,015
Net interest expense............................................ 6,450,077 6,001,733
------------- -------------
Earnings before income taxes............................... 3,562,119 3,788,282
Income tax expense.............................................. 1,389,000 1,477,000
------------- -------------
Net earnings............................................... $ 2,173,119 $ 2,311,282
============= =============
Net earnings per common share:
Primary.................................................... $ 0.16 $ 0.17
============= =============
Fully diluted.............................................. $ 0.16 $ 0.17
============= =============
Number of shares used to compute net earnings per common share:
Primary.................................................... 13,902,952 13,882,729
============= =============
Fully diluted.............................................. 13,959,598 13,903,376
============= =============
Dividends declared per share.................................... $ 0.030 $ 0.030
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 120
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 2, 1997 AUGUST 3, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................. $ 2,173,119 $ 2,311,282
Adjustments to reconcile net earnings to cash used in
operating activities:
Depreciation and amortization:
Fixed assets............................................. 5,701,470 10,054,455
Deferred charges, intangible assets and deferred
financing costs....................................... 471,724 4,627,518
Deferred income taxes...................................... 1,389,000 1,520,370
Change in:
Accounts receivable...................................... (931,947) (5,443,623)
Merchandise inventories.................................. (25,112,428) (24,276,016)
Prepaid expenses......................................... (3,618,588) (4,035,130)
Accounts payable......................................... (8,285,432) (9,293,968)
Accrued expenses......................................... (16,671,451) (10,856,406)
Income taxes payable/receivable.......................... (181,783) 7,236,732
Other liabilities........................................ 36,908 111,558
------------- -------------
Net cash used in operating activities................. (45,029,408) (28,043,228)
------------- -------------
Cash flows from investing activities:
Capital expenditures for:
Property, plant and equipment.............................. (4,180,626) (10,450,045)
Other assets............................................... (1,313,109) (15,660)
Payments received on notes receivable......................... 1,450,000 2,438,000
------------- -------------
Net cash used in investing activities................. (4,043,735) (8,027,705)
------------- -------------
Cash flows from financing activities:
Repayment of senior debt...................................... (1,500,000) (1,500,000)
Proceeds (repayment) of other long-term debt.................. (11,287,947) 37,000,000
Repayment of mortgage payable................................. (250,422) --
Payment of mortgage escrow, net............................... (47,076) --
Proceeds from sales of footwear businesses.................... 60,134,835 --
Proceeds from issuance of common stock........................ 183,646 210,887
Payment of dividends.......................................... (417,113) (416,566)
------------- -------------
Net cash provided by financing activities............. 46,815,923 35,294,321
------------- -------------
Net decrease in cash.................................. (2,257,220) (776,612)
Cash and cash equivalents at beginning of year.................. 3,969,116 3,287,141
------------- -------------
Cash and cash equivalents at end of period...................... $ 1,711,896 $ 2,510,529
============= =============
Supplemental disclosure of cash flow information
Cash paid (received) for:
Interest................................................... $ 3,342,945 $ 5,888,750
Income taxes............................................... 181,783 2,997,370
Income taxes refunded...................................... -- (8,315,483)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-29
<PAGE> 121
J. BAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) The accompanying unaudited consolidated financial statements, in the
opinion of management, include all adjustments necessary for a fair presentation
of the Company's financial position and results of operations. The results for
the interim periods are not necessarily indicative of results that may be
expected for the entire fiscal year.
2) Primary earnings per share is based on the weighted average number of
shares of Common Stock outstanding during such period. Stock options and
warrants are excluded from the calculation since they have less than a 3%
dilutive effect.
Fully diluted earnings per share is based on the weighted average number of
shares of Common Stock outstanding during such period. Included in this
calculation is the dilutive effect of stock options and warrants. The Common
Stock issuable under the 7% convertible subordinated notes was not included in
the calculation for the quarters and six months ended August 2, 1997 and August
3, 1996 because its effect would be antidilutive.
3) During the fourth quarter of fiscal 1997, the Company recorded a
restructuring charge related to its footwear operations. In connection with the
restructuring, the Company has reduced its investment in its Licensed Discount
footwear division, and, in March, 1997, the Company completed the sales of its
Shoe Corporation of America ("SCOA") and Parade of Shoes businesses.
On March 5, 1997, the Company announced that it had sold its SCOA division
to an entity formed by CHB Capital Partners of Denver, Colorado along with
Dennis B. Tishkoff, President of SCOA, and certain members of SCOA management.
Net cash proceeds from the transaction of approximately $40.1 million were used
to pay down the Company's bank debt. Sales in the Company's SCOA division
totaled $0 and $44.5 million for the quarters ended August 2, 1997 and August 3,
1996, respectively, and $9.5 million and $89.2 million for the six months ended
August 2, 1997 and August 3, 1996, respectively.
On March 10, 1997, the Company completed the sale of its Parade of Shoes
division to Payless ShoeSource, Inc. of Topeka, Kansas. Net cash proceeds from
the transaction of approximately $20 million were used to pay down the Company's
bank debt. Sales in the Company's Parade of Shoes division totaled $0 and $38.1
million for the quarters ended August 2, 1997 and August 3, 1996, respectively,
and $8.2 million and $65.8 million for the six months ended August 2, 1997 and
August 3, 1996, respectively.
4) On May 30, 1997, the Company replaced its $145 million credit facility
by obtaining two separate revolving credit facilities, both of which are
guaranteed by J. Baker, Inc. One facility, which finances the Company's apparel
businesses, is a $100 million revolving credit facility with Fleet National
Bank, BankBoston, N.A., The Chase Manhattan Bank, Imperial Bank, USTrust,
Wainwright Bank & Trust Company and Bank Polska Kasa Opieki S.A. (the "Apparel
Credit Facility"). The Apparel Credit Facility is secured by all of the capital
stock of The Casual Male, Inc. and three other subsidiaries of the Company. The
aggregate commitment under the Apparel Credit Facility will be automatically
reduced by $10 million, $12.5 million and $12.5 million on December 31, 1997,
December 31, 1998 and December 31, 1999, respectively. Borrowings under the
Apparel Credit Facility bear interest at variable rates and can be in the form
of loans, bankers' acceptances and letters of credit. This facility expires on
May 31, 2000.
To finance its Licensed Discount footwear business, the Company obtained a
$55 million revolving credit facility, secured by substantially all of the
assets of the Licensed Discount division, with GBFC, Inc. and Fleet National
Bank (the "Footwear Credit Facility"). The aggregate commitment under the
Footwear Credit Facility was reduced by $5 million on June 30, 1997. Aggregate
borrowings under the Footwear Credit Facility are limited to an amount
determined by a formula based on various percentages of eligible inventory and
accounts receivable. Borrowings under the Footwear Credit Facility bear interest
at variable rates and can be in the form of loans or letters of credit. This
facility expires on May 31, 2000.
5) On June 23, 1995, Bradlees Stores, Inc. ("Bradlees"), a licensor of the
Company, filed for protection under Chapter 11 of the United States Bankruptcy
Code. At the time of the bankruptcy filing, the Company
F-30
<PAGE> 122
had outstanding accounts receivable of approximately $1.8 million due from
Bradlees. Under bankruptcy law, Bradlees has the option of assuming the existing
license agreement with the Company or rejecting that agreement. If the license
agreement is assumed, Bradlees must cure all defaults under the agreement and
the Company will collect in full the outstanding past due receivable. The
Company has no assurance that the agreement will be assumed or that Bradlees
will continue in business. Although the Company believes that the rejection of
the license agreement or the cessation of Bradlees' business is not probable, in
the event that the agreement is rejected or Bradlees does not continue in
business, the Company believes it will have a substantial claim for damages. If
such a claim is necessary, the amount realized by the Company, relative to the
carrying values of the Company's Bradlees-related assets, will be based on the
relevant facts and circumstances. The Company does not expect this filing under
the Bankruptcy Code to have a material adverse effect on future earnings. The
Company's sales in the Bradlees chain for the quarter and six months ended
August 2, 1997 were $14.1 million and $23.5 million, respectively.
6) On October 18, 1995, Jamesway Corporation ("Jamesway"), then a licensor
of the Company, filed for protection under Chapter 11 of the United States
Bankruptcy Code. Jamesway liquidated its inventory, fixed assets and real estate
and ceased operation of its business in all of its 90 stores. The Company
participated in Jamesway's going out of business sales and liquidated
substantially all of its footwear inventory in the 90 Jamesway stores during the
going out of business sales. At the time of the bankruptcy filing, the Company
had outstanding accounts receivable of approximately $1.4 million due from
Jamesway. Because Jamesway ceased operation of its business, the Company's
license agreement was rejected. The Company has negotiated a settlement of the
amount of its claim with Jamesway, which has been approved by the Bankruptcy
Court. The Jamesway plan of liquidation was confirmed on June 6, 1997, and the
Company received a partial distribution of the amount owed to the Company under
the settlement during the second quarter of fiscal 1998. In August, 1997, the
Company received a fee from a third party by assigning its rights to any future
distributions from Jamesway.
7) On November 10, 1993, the United States District Court for the District
of Minnesota returned a jury verdict assessing royalty damages of $1,550,000 and
additional damages of $1,500,000 against the Company in a patent infringement
suit brought by Susan Maxwell with respect to a patent for a system used to
connect pairs of shoes. The jury verdict was based on a finding that three
different shoe connection systems used by the Company infringed Ms. Maxwell's
patent. Post trial motions for treble damages, attorney's fees and injunctive
relief were granted on March 10, 1995. The Company appealed the judgment. On
June 11, 1996, the United States Court of Appeals for the Federal Circuit
reversed in part and affirmed in part and vacated the award of treble damages,
attorney's fees and injunctive relief. The appellate court's ruling was based on
its holding that as a matter of law two of the three shoe connection systems
used by the Company did not infringe the patent. A request by Ms. Maxwell for a
rehearing en banc was denied by an order dated August 28, 1996. Ms. Maxwell
petitioned the United States Supreme Court for a writ of certiorari, which
petition was denied on March 17, 1997. The case has been remanded to the trial
court for a redetermination of damages consistent with the opinion of the
appellate court. The issues for trial on remand include a determination of what,
if anything, is a reasonable royalty for the one shoe connection system that was
not subject to the reversal by the Court of Appeals, how many pairs of shoes
having the patented system did the Company sell, and whether the Company's sale
of shoes having the patented system, after actual notice of the patent and while
the Company was changing to the two systems found to be non-infringing,
constitutes willful infringement in which event damages payable by the Company
may at the discretion of the Court be doubled or trebled. The trial on remand
commenced on September 8, 1997 and is expected to conclude by the end of
September, 1997.
A complaint was also filed by Ms. Maxwell in November, 1992 against Morse
Shoe, Inc. ("Morse"), a subsidiary of the Company, alleging infringement of the
patent referred to above. The trial has been stayed pending the outcome of the
aforementioned trial.
F-31
<PAGE> 123
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 124
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE NOTES
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE NOTES TO ANYONE OR BY ANYONE IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 10
Use of Proceeds...................... 17
Capitalization....................... 18
Selected Historical Financial Data... 19
Unaudited Pro Forma Consolidated
Financial Data..................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................. 35
Management........................... 48
Description of Notes................. 51
Certain Federal Income Tax
Considerations..................... 78
Description of Credit Facilities and
Other Indebtedness................. 81
Underwriting......................... 85
Legal Matters........................ 86
Experts.............................. 86
Available Information................ 86
Information Incorporated by
Reference.......................... 87
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
===============================================================================
===============================================================================
$100,000,000
J. BAKER, INC.
% SENIOR SUBORDINATED
NOTES DUE 2007
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
LAZARD FRERES & CO. LLC
BANCBOSTON SECURITIES INC.
, 1997
===============================================================================
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered will be borne by the Company and are set forth in
the following table (all amounts except the registration fee are estimated):
<TABLE>
<S> <C>
Registration fee................................................. $30,303.03
Legal fees and expenses..........................................
Blue Sky fees and expenses.......................................
NASD filing fee.................................................. 10,500.00
Accounting fees and expenses.....................................
Trustee fees and expenses........................................
Rating agency fees...............................................
Printing fees and expenses.......................................
Miscellaneous....................................................
----------
Total.................................................. $
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by applicable Massachusetts law, Article 6A of the J. Baker,
Inc.'s Restated Articles of Organization, as amended, provides that J. Baker,
Inc. shall indemnify, except as limited by law or as otherwise provided in the
J. Baker, Inc.'s Articles of Organization, each person who serves or has served
as a director or in any other office filled by election or appointment by the
stockholders or the Board of Directors of J. Baker, Inc. against all liability
fixed by a judgment, order, decree, or award in any action, suit or proceeding,
civil or criminal, brought or threatened in or before any court, tribunal,
administrative or legislative body or agency incurred by such person in
connection with each such action, suit or proceeding in which such person is
involved as a result of serving or having served J. Baker, Inc. in such capacity
or, at the request of J. Baker, Inc., as a director, officer, employer or other
agent of any other organization. No indemnification will be provided under
Article 6A to such a person with respect to a matter as to which it shall have
been adjudicated in any such action, suit or proceeding that such person did not
act in good faith in the reasonable belief that such person's action was in the
best interests of J. Baker, Inc. Also, in the event that any such action, suit
or proceeding is compromised or settled so as to impose any liability or
obligation upon such person or upon J. Baker, Inc., no indemnification shall be
provided to such person with respect to a matter if J. Baker, Inc. has obtained
an opinion of counsel that with respect to such matter such person did not act
in good faith in the reasonable belief that such person's action was in the best
interests of J. Baker, Inc.
Article 6F of the J. Baker, Inc. Articles of Organization provides that no
director of J. Baker, Inc. shall be personally liable to J. Baker, Inc. or to
its stockholders for monetary damages for breach of the director's duty as a
director notwithstanding any provision of law imposing such liability; provided,
however, that Article 6F also states that that Article shall not eliminate or
limit any liability of a director (i) for any breach of the director's duty of
loyalty to J. Baker, Inc. or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Sections 61 or 62 of the Massachusetts Business Corporation
Law, or (iv) with respect to any transaction from which the director derived an
improper personal benefit.
Article 6F also provides that if the Massachusetts Business Corporation Law
is subsequently amended to further eliminate or limit the personal liability of
directors or to authorize corporate action to further eliminate or limit such
liability, then the liability of the directors of J. Baker, Inc. shall be
eliminated or limited to the fullest extent permitted by the Massachusetts
Business Corporation Law as so amended.
II-1
<PAGE> 126
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement among the Underwriters named therein and the
Company
4.1 Form of Indenture among the Company, the Guarantors named therein and the Trustee
4.2 Form of Note (included in Exhibit No. 4.1)
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the Notes being
registered
*5.2 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters
+12.1 Statement re computation of ratios
+23.1 Consent of KPMG Peat Marwick LLP, Independent Accountants
*23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto)
*23.3 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.2 hereto)
+24.1 Powers of Attorney (included in Part II of this Registration Statement)
+25.1 Form T-1 Statement of Eligibility of Trustee under the Trust Indenture Act of 1939
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, J. Baker, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
J. BAKER, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer and
Philip G. Rosenberg Treasurer (Principal Financial
Officer)
* Chairman of the Board of November 10, 1997
- ---------------------------------------- Directors
Sherman N. Baker
* Director November 10, 1997
- ----------------------------------------
J. Christopher Clifford
* Director November 10, 1997
- ----------------------------------------
Ervin D. Cruce
* Director November 10, 1997
- ----------------------------------------
Douglas J. Kahn
* Director November 10, 1997
- ----------------------------------------
Harold Leppo
* Director November 10, 1997
- ----------------------------------------
David Pulver
* Director November 10, 1997
- ----------------------------------------
Melvin M. Rosenblatt
* Director November 10, 1997
- ----------------------------------------
Nancy Ryan
* /s/ PHILIP G. ROSENBERG
- ----------------------------------------
Philip G. Rosenberg
Attorney-In-Fact
</TABLE>
II-3
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, WGS Corp.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
WGS CORP.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of WGS Corp. hereby severally constitute and appoint Philip G.
Rosenberg, our true and lawful attorney with full power to sign for us and in
our names in the capacities indicated below, the Registration Statement, as
amended, filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable WGS Corp. to
comply with the provisions of the Securities Act of 1933 and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney, to said Registration
Statement and any and all amendments (including any post-effective amendments)
thereto (or any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN Senior Executive Vice November 10, 1997
- ---------------------------------------- President, Chief Executive
Alan I. Weinstein Officer and Director
(Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer and
Philip G. Rosenberg Treasurer (Principal Financial
Officer)
/s/ SHERMAN N. BAKER Director November 10, 1997
- ----------------------------------------
Sherman N. Baker
/s/ J. CHRISTOPHER CLIFFORD Director November 10, 1997
- ----------------------------------------
J. Christopher Clifford
/s/ ERVIN D. CRUCE Director November 10, 1997
- ----------------------------------------
Ervin D. Cruce
/s/ DOUGLAS J. KAHN Director November 10, 1997
- ----------------------------------------
Douglas J. Kahn
/s/ HAROLD LEPPO Director November 10, 1997
- ----------------------------------------
Harold Leppo
</TABLE>
II-4
<PAGE> 129
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ DAVID PULVER Director November 10, 1997
- ----------------------------------------
David Pulver
/s/ MELVIN M. ROSENBLATT Director November 10, 1997
- ----------------------------------------
Melvin M. Rosenblatt
/s/ NANCY RYAN Director November 10, 1997
- ----------------------------------------
Nancy Ryan
</TABLE>
II-5
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, JBI, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
JBI, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of JBI, Inc. hereby severally constitute and appoint Philip G.
Rosenberg, our true and lawful attorney with full power to sign for us and in
our names in the capacities indicated below, the Registration Statement, as
amended, filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable JBI, Inc. to
comply with the provisions of the Securities Act of 1933 and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney, to said Registration
Statement and any and all amendments (including any post-effective amendments)
thereto (or any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer and
Philip G. Rosenberg Treasurer (Principal Financial
Officer)
/s/ SHERMAN N. BAKER Director November 10, 1997
- ----------------------------------------
Sherman N. Baker
/s/ J. CHRISTOPHER CLIFFORD Director November 10, 1997
- ----------------------------------------
J. Christopher Clifford
/s/ ERVIN D. CRUCE Director November 10, 1997
- ----------------------------------------
Ervin D. Cruce
/s/ DOUGLAS J. KAHN Director November 10, 1997
- ----------------------------------------
Douglas J. Kahn
/s/ HAROLD LEPPO Director November 10, 1997
- ----------------------------------------
Harold Leppo
</TABLE>
II-6
<PAGE> 131
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ DAVID PULVER Director November 10, 1997
- ----------------------------------------
David Pulver
/s/ MELVIN M. ROSENBLATT Director November 10, 1997
- ----------------------------------------
Melvin M. Rosenblatt
/s/ NANCY RYAN Director November 10, 1997
- ----------------------------------------
Nancy Ryan
</TABLE>
II-7
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, JBI Holding
Co., Inc. certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
JBI HOLDING CO., INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Chairman of the Board of Directors,
Executive Vice President, Chief
Financial Officer and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of JBI Holding Co., Inc. hereby severally constitute and appoint
Philip G. Rosenberg, our true and lawful attorney with full power to sign for us
and in our names in the capacities indicated below, the Registration Statement,
as amended, filed herewith and any and all amendments (including any
post-effective amendments) to said Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and generally to do all such
things in our names and in our capacities as officers and directors to enable
JBI Holding Co., Inc. to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President and Chief Executive November 10, 1997
- ---------------------------------------- Officer (Principal Executive
Alan I. Weinstein Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Chairman of the
Board of Directors (Principal
Financial Officer)
/s/ J. CHRISTOPHER CLIFFORD Director November 10, 1997
- ----------------------------------------
J. Christopher Clifford
/s/ LISA BIRES Director November 10, 1997
- ----------------------------------------
Lisa Bires
/s/ MARK T. BEAUDOUIN Director November 10, 1997
- ----------------------------------------
Mark T. Beaudouin
/s/ PHYLLIS KUCHARCZUK Director November 10, 1997
- ----------------------------------------
Phyllis Kucharczuk
</TABLE>
II-8
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Morse Shoe,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
MORSE SHOE, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Morse Shoe, Inc. hereby severally constitute and appoint Philip G.
Rosenberg, our true and lawful attorney with full power to sign for us and in
our names in the capacities indicated below, the Registration Statement, as
amended, filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable Morse Shoe, Inc.
to comply with the provisions of the Securities Act of 1933 and all requirements
of the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney, to said Registration
Statement and any and all amendments (including any post-effective amendments)
thereto (or any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer and
Philip G. Rosenberg Treasurer (Principal Financial
Officer)
/s/ SHERMAN N. BAKER Director November 10, 1997
- ----------------------------------------
Sherman N. Baker
/s/ J. CHRISTOPHER CLIFFORD Director November 10, 1997
- ----------------------------------------
J. Christopher Clifford
/s/ ERVIN D. CRUCE Director November 10, 1997
- ----------------------------------------
Ervin D. Cruce
/s/ DOUGLAS J. KAHN Director November 10, 1997
- ----------------------------------------
Douglas J. Kahn
/s/ HAROLD LEPPO Director November 10, 1997
- ----------------------------------------
Harold Leppo
</TABLE>
II-9
<PAGE> 134
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ DAVID PULVER Director November 10, 1997
- ----------------------------------------
David Pulver
/s/ MELVIN M. ROSENBLATT Director November 10, 1997
- ----------------------------------------
Melvin M. Rosenblatt
/s/ NANCY RYAN Director November 10, 1997
- ----------------------------------------
Nancy Ryan
</TABLE>
II-10
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Buckmin, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
BUCKMIN, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer, Treasurer and
Director
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Buckmin, Inc. hereby severally constitute and appoint Philip G.
Rosenberg, our true and lawful attorney with full power to sign for us and in
our names in the capacities indicated below, the Registration Statement, as
amended, filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable Buckmin, Inc. to
comply with the provisions of the Securities Act of 1933 and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney, to said Registration
Statement and any and all amendments (including any post-effective amendments)
thereto (or any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Director
(Principal Financial Officer)
</TABLE>
II-11
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Elm Equipment
Corp. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
ELM EQUIPMENT CORP.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer, Treasurer and
Director
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Elm Equipment Corp. hereby severally constitute and appoint Philip
G. Rosenberg, our true and lawful attorney with full power to sign for us and in
our names in the capacities indicated below, the Registration Statement, as
amended, filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable Elm Equipment
Corp. to comply with the provisions of the Securities Act of 1933 and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney, to said
Registration Statement and any and all amendments (including any post-effective
amendments) thereto (or any other registration statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Director
(Principal Financial Officer)
</TABLE>
II-12
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ISAB, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
ISAB, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer, Treasurer and
Director
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of ISAB, Inc. hereby severally constitute and appoint Philip G.
Rosenberg, our true and lawful attorney with full power to sign for us and in
our names in the capacities indicated below, the Registration Statement, as
amended, filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable ISAB, Inc. to
comply with the provisions of the Securities Act of 1933 and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney, to said Registration
Statement and any and all amendments (including any post-effective amendments)
thereto (or any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Director
(Principal Financial Officer)
</TABLE>
II-13
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Jared
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement, as amended, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Canton, Commonwealth of
Massachusetts, on the 10th day of November, 1997.
JARED CORPORATION
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer, Treasurer and
Director
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Jared Corporation hereby severally constitute and appoint Philip G.
Rosenberg, our true and lawful attorney with full power to sign for us and in
our names in the capacities indicated below, the Registration Statement, as
amended, filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable Jared
Corporation to comply with the provisions of the Securities Act of 1933 and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney, to said
Registration Statement and any and all amendments (including any post-effective
amendments) thereto (or any other registration statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Director
(Principal Financial Officer)
</TABLE>
II-14
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Morse Shoe
(Canada) Ltd. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement, as amended, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Canton, Commonwealth of
Massachusetts, on the 10th day of November, 1997.
MORSE SHOE (CANADA) LTD.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President and
Treasurer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Morse Shoe (Canada) Ltd. hereby severally constitute and appoint
Philip G. Rosenberg, our true and lawful attorney with full power to sign for us
and in our names in the capacities indicated below, the Registration Statement,
as amended, filed herewith and any and all amendments (including any
post-effective amendments) to said Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and generally to do all such
things in our names and in our capacities as officers and directors to enable
Morse Shoe (Canada) Ltd. to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President and Senior Executive November 10, 1997
- ---------------------------------------- Vice President (Principal
Alan I. Weinstein Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President and November 10, 1997
- ---------------------------------------- Treasurer (Principal Financial
Philip G. Rosenberg Officer)
/s/ PAUL A. MINGAY Director November 10, 1997
- ----------------------------------------
Paul A. Mingay
</TABLE>
II-15
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Morse Shoe
International, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement, as amended, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Canton, Commonwealth of
Massachusetts, on the 10th day of November, 1997.
MORSE SHOE INTERNATIONAL, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer, Treasurer and
Director
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Morse Shoe International, Inc. hereby severally constitute and
appoint Philip G. Rosenberg, our true and lawful attorney with full power to
sign for us and in our names in the capacities indicated below, the Registration
Statement, as amended, filed herewith and any and all amendments (including any
post-effective amendments) to said Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and generally to do all such
things in our names and in our capacities as officers and directors to enable
Morse Shoe International, Inc. to comply with the provisions of the Securities
Act of 1933 and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Director
(Principal Financial Officer)
</TABLE>
II-16
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, White Cap
Footwear, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement, as amended, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Canton, Commonwealth of
Massachusetts, on the 10th day of November, 1997.
WHITE CAP FOOTWEAR, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer, Treasurer and
Director
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of White Cap Footwear, Inc. hereby severally constitute and appoint
Philip G. Rosenberg, our true and lawful attorney with full power to sign for us
and in our names in the capacities indicated below, the Registration Statement,
as amended, filed herewith and any and all amendments (including any
post-effective amendments) to said Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and generally to do all such
things in our names and in our capacities as officers and directors to enable
White Cap Footwear, Inc. to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Director
(Principal Financial Officer)
</TABLE>
II-17
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Spencer
Companies, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement, as amended, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Canton, Commonwealth of
Massachusetts, on the 10th day of November, 1997.
SPENCER COMPANIES, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Spencer Companies, Inc. hereby severally constitute and appoint
Philip G. Rosenberg, our true and lawful attorney with full power to sign for us
and in our names in the capacities indicated below, the Registration Statement,
as amended, filed herewith and any and all amendments (including any
post-effective amendments) to said Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and generally to do all such
things in our names and in our capacities as officers and directors to enable
Spencer Companies, Inc. to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President, Chief Executive November 10, 1997
- ---------------------------------------- Officer and Director
Alan I. Weinstein (Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer and
Philip G. Rosenberg Treasurer (Principal Financial
Officer)
/s/ SHERMAN N. BAKER Chairman of the Board of November 10, 1997
- ---------------------------------------- Directors
Sherman N. Baker
</TABLE>
II-18
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, The Casual
Male, Inc. certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
THE CASUAL MALE, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of The Casual Male, Inc. hereby severally constitute and appoint
Philip G. Rosenberg, our true and lawful attorney with full power to sign for us
and in our names in the capacities indicated below, the Registration Statement,
as amended, filed herewith and any and all amendments (including any
post-effective amendments) to said Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and generally to do all such
things in our names and in our capacities as officers and directors to enable
The Casual Male, Inc. to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN Senior Executive Vice November 10, 1997
- ---------------------------------------- President, Chief Executive
Alan I. Weinstein Officer and Director
(Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer and
Philip G. Rosenberg Treasurer (Principal Financial
Officer)
/s/ SHERMAN N. BAKER Director November 10, 1997
- ----------------------------------------
Sherman N. Baker
/s/ J. CHRISTOPHER CLIFFORD Director November 10, 1997
- ----------------------------------------
J. Christopher Clifford
/s/ ERVIN D. CRUCE Director November 10, 1997
- ----------------------------------------
Ervin D. Cruce
/s/ DOUGLAS J. KAHN Director November 10, 1997
- ----------------------------------------
Douglas J. Kahn
/s/ HAROLD LEPPO Director November 10, 1997
- ----------------------------------------
Harold Leppo
</TABLE>
II-19
<PAGE> 144
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ DAVID PULVER Director November 10, 1997
- ----------------------------------------
David Pulver
/s/ MELVIN M. ROSENBLATT Director November 10, 1997
- ----------------------------------------
Melvin M. Rosenblatt
/s/ NANCY RYAN Director November 10, 1997
- ----------------------------------------
Nancy Ryan
</TABLE>
II-20
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TCM Holding
Co., Inc. certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
TCM HOLDING CO., INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Chairman of the Board of Directors,
Executive Vice President, Chief
Financial Officer and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of TCM Holding Co., Inc. hereby severally constitute and appoint
Philip G. Rosenberg, our true and lawful attorney with full power to sign for us
and in our names in the capacities indicated below, the Registration Statement,
as amended, filed herewith and any and all amendments (including any
post-effective amendments) to said Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and generally to do all such
things in our names and in our capacities as officers and directors to enable
TCM Holding Co., Inc. to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN President and Chief Executive November 10, 1997
- ---------------------------------------- Officer(Principal Executive
Alan I. Weinstein Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Chairman of the
Board of Directors (Principal
Financial Officer)
/s/ J. CHRISTOPHER CLIFFORD Director November 10, 1997
- ----------------------------------------
J. Christopher Clifford
/s/ LISA BIRES Director November 10, 1997
- ----------------------------------------
Lisa Bires
/s/ MARK T. BEAUDOUIN Director November 10, 1997
- ----------------------------------------
Mark T. Beaudouin
/s/ PHYLLIS KUCHARCZUK Director November 10, 1997
- ----------------------------------------
Phyllis Kucharczuk
</TABLE>
II-21
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TCMB&T, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement, as amended, to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Canton, Commonwealth of Massachusetts, on the
10th day of November, 1997.
TCMB&T, INC.
By: /s/ PHILIP G. ROSENBERG
------------------------------------
Philip G. Rosenberg
Executive Vice President, Chief
Financial Officer, Treasurer and
Director
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of TCMB&T, Inc. hereby severally constitute and appoint Philip G.
Rosenberg, our true and lawful attorney with full power to sign for us and in
our names in the capacities indicated below, the Registration Statement, as
amended, filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable TCMB&T, Inc. to
comply with the provisions of the Securities Act of 1933 and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney, to said Registration
Statement and any and all amendments (including any post-effective amendments)
thereto (or any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, as amended, has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ---------------------------------------- ------------------------------ -------------------
<C> <S> <C>
/s/ ALAN I. WEINSTEIN Senior Executive Vice November 10, 1997
- ---------------------------------------- President, Chief Executive
Alan I. Weinstein Officer and Director
(Principal Executive Officer)
/s/ PHILIP G. ROSENBERG Executive Vice President, November 10, 1997
- ---------------------------------------- Chief Financial Officer,
Philip G. Rosenberg Treasurer and Director
(Principal Financial Officer)
/s/ MARK T. BEAUDOUIN Secretary and Director November 10, 1997
- ----------------------------------------
Mark T. Beaudouin
</TABLE>
II-22
<PAGE> 147
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement among the Underwriters named therein and the
Company
4.1 Form of Indenture among the Company, the Guarantors named therein and the
Trustee
4.2 Form of Note (included in Exhibit No. 4.1)
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the Notes being
registered
*5.2 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters
+12.1 Statement re computation of ratios
+23.1 Consent of KPMG Peat Marwick LLP, Independent Accountants
*23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto)
*23.3 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.2 hereto)
+24.1 Powers of Attorney (included in Part II of this Registration Statement)
+25.1 Form T-1 Statement of Eligibility of Trustee under the Trust Indenture Act of
1939
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
================================================================================
J. BAKER, INC.,
as Issuer
THE GUARANTORS NAMED HEREIN,
as Guarantors
THE CHASE MANHATTAN BANK,
as Trustee
------------------
INDENTURE
Dated as of _________ __, 1997
------------------
$100,000,000
__% SENIOR SUBORDINATED NOTES DUE 2007
------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE................... 1
SECTION 1.01 Definitions.................................................. 1
SECTION 1.02 Other Definitions............................................ 17
SECTION 1.03 Incorporation by Reference of Trust Indenture Act............ 18
SECTION 1.04 Rules of Construction........................................ 18
SECTION 1.05 Compliance Certificates and Opinions......................... 19
SECTION 1.06 Form of Documents Delivered to Trustee....................... 19
SECTION 1.07 Acts of Holders.............................................. 20
ARTICLE 2. THE NOTES ................................................... 21
SECTION 2.01 Form and Dating.............................................. 21
SECTION 2.02 Execution and Authentication................................. 22
SECTION 2.03 Registrar and Paying Agent................................... 22
SECTION 2.04 Paying Agent to Hold Assets in Trust......................... 23
SECTION 2.05 Holder Lists................................................. 23
SECTION 2.06 Transfer and Exchange........................................ 23
SECTION 2.07 Replacement Notes............................................ 28
SECTION 2.08 Outstanding Notes............................................ 29
SECTION 2.09 Treasury Notes............................................... 29
SECTION 2.10 Temporary Notes.............................................. 29
SECTION 2.11 Cancellation................................................. 30
SECTION 2.12 Defaulted Interest........................................... 30
SECTION 2.13 CUSIP Number................................................. 31
SECTION 2.14 Deposit of Moneys............................................ 31
ARTICLE 3. REDEMPTION AND OFFERS TO PURCHASE............................ 31
SECTION 3.01 Applicability of Article..................................... 31
SECTION 3.02 Election to Redeem; Notice to Trustee........................ 31
SECTION 3.03 Selection of Notes to Be Redeemed............................ 32
SECTION 3.04 Notice of Redemption......................................... 32
SECTION 3.05 Deposit of Redemption Price.................................. 33
SECTION 3.06 Notes Payable on Redemption Date............................. 33
SECTION 3.07 Notes Redeemed in Part....................................... 34
SECTION 3.08 Optional Redemption.......................................... 34
SECTION 3.09 Mandatory Redemption......................................... 35
SECTION 3.10 Offer to Purchase by Application of Excess Proceeds.......... 35
ARTICLE 4. COVENANTS.................................................... 37
SECTION 4.01 Payment of Notes............................................. 37
SECTION 4.02 Maintenance of Office or Agency.............................. 37
SECTION 4.03 Money for Security Payments to be Held in Trust.............. 38
SECTION 4.04 Reports...................................................... 39
SECTION 4.05 Compliance Certificate....................................... 40
-i-
<PAGE> 3
SECTION 4.06 Taxes........................................................ 41
SECTION 4.07 Stay, Extension and Usury Laws............................... 41
SECTION 4.08 Corporate Existence; Maintenance
of Properties and Insurance............................... 41
SECTION 4.09 Limitation on the Incurrence of Indebtedness and
Issuance of Preferred Stock............................... 42
SECTION 4.10 Limitation on Restricted Payments............................ 44
SECTION 4.11 Limitation on Liens.......................................... 46
SECTION 4.12 Limitation on Transactions with Affiliates................... 47
SECTION 4.13 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.................................... 47
SECTION 4.14 Limitation on Issuances and Sales of Capital Stock of
Wholly Owned Restricted Subsidiaries...................... 48
SECTION 4.15 Limitation on Layering Debt.................................. 49
SECTION 4.16 Asset Sales.................................................. 49
SECTION 4.17 Offer to Repurchase Upon Change of Control................... 50
SECTION 4.18 Additional Subsidiary Guarantees............................. 52
SECTION 4.19 Payments for Consent......................................... 52
ARTICLE 5. SUCCESSORS................................................... 53
SECTION 5.01 Limitation on Merger, Consolidation or Sale of Assets........ 53
SECTION 5.02 Successor Corporation Substituted............................ 53
ARTICLE 6. DEFAULTS AND REMEDIES........................................ 54
SECTION 6.01 Events of Default............................................ 54
SECTION 6.02 Acceleration................................................. 56
SECTION 6.03 Other Remedies............................................... 56
SECTION 6.04 Waiver of Past Defaults...................................... 56
SECTION 6.05 Control by Majority.......................................... 57
SECTION 6.06 Limitation on Suits.......................................... 57
SECTION 6.07 Rights of Holders to Receive Payment......................... 57
SECTION 6.08 Collection Suit by Trustee................................... 58
SECTION 6.09 Trustee May File Proofs of Claim............................. 58
SECTION 6.10 Priorities................................................... 58
SECTION 6.11 Undertaking for Costs........................................ 59
ARTICLE 7. TRUSTEE...................................................... 59
SECTION 7.01 Duties of Trustee............................................ 59
SECTION 7.02 Rights of Trustee............................................ 61
SECTION 7.03 Individual Rights of Trustee................................. 62
SECTION 7.04 Trustee's Disclaimer......................................... 62
SECTION 7.05 Notice of Defaults........................................... 62
SECTION 7.06 Reports by Trustee to Holders of Notes....................... 62
SECTION 7.07 Compensation and Indemnity................................... 63
SECTION 7.08 Replacement of Trustee....................................... 64
SECTION 7.09 Successor Trustee by Merger, etc............................. 65
-ii-
<PAGE> 4
SECTION 7.10 Eligibility; Disqualification................................ 65
SECTION 7.11 Preferential Collection of Claims Against Company............ 66
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE..................... 66
SECTION 8.01 Option to Effect Legal Defeasance or Covenant Defeasance..... 66
SECTION 8.02 Legal Defeasance and Discharge............................... 66
SECTION 8.03 Covenant Defeasance.......................................... 67
SECTION 8.04 Conditions to Legal Defeasance or Covenant Defeasance........ 67
SECTION 8.05 Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions..................... 69
SECTION 8.06 Repayment to Company......................................... 69
SECTION 8.07 Reinstatement................................................ 69
ARTICLE 9. AMENDMENTS................................................... 70
SECTION 9.01 Without Consent of Holders................................... 70
SECTION 9.02 With Consent of Holders...................................... 71
SECTION 9.03 Compliance with Trust Indenture Act.......................... 73
SECTION 9.04 Revocation and Effect of Consents............................ 73
SECTION 9.05 Notation on or Exchange of Notes............................. 73
SECTION 9.06 Trustee to Sign Amendments, etc.............................. 74
ARTICLE 10. SUBORDINATION............................................... 74
SECTION 10.01 Agreement to Subordinate.................................... 74
SECTION 10.02 Liquidation; Dissolution; Bankruptcy........................ 74
SECTION 10.03 Default on Designated Senior Debt........................... 75
SECTION 10.04 Acceleration of Notes....................................... 76
SECTION 10.05 When Distribution Must be Paid Over......................... 76
SECTION 10.06 Notice by Company........................................... 76
SECTION 10.07 Subrogation................................................. 77
SECTION 10.08 Relative Rights............................................. 77
SECTION 10.09 Subordination May Not be Impaired by Company................ 78
SECTION 10.10 Distribution or Notice to Representative.................... 78
SECTION 10.11 Rights of Trustee and Paying Agent.......................... 78
SECTION 10.12 Authorization to Effect Subordination....................... 78
ARTICLE 11. SATISFACTION AND DISCHARGE.................................. 79
SECTION 11.01 Satisfaction and Discharge of Indenture..................... 79
SECTION 11.02 Application of Trust Money.................................. 80
ARTICLE 12. SUBSIDIARY GUARANTEES....................................... 81
SECTION 12.01 Subsidiary Guarantee........................................ 81
SECTION 12.02 Obligation of the Guarantors Unconditional ................. 82
SECTION 12.03 Waiver Relating to Subsidiary Guarantees
SECTION 12.04 Subordination of Subsidiary Guarantees
SECTION 12.05 Guarantors May Consolidate, etc., on Certain Terms.......... 82
SECTION 12.06 Release of Subsidiary Guarantee............................. 83
-iii-
<PAGE> 5
SECTION 12.07 Contribution of Guarantors.................................. 84
SECTION 12.08 Reinstatement of Subsidiary Guarantees...................... 84
ARTICLE 13. MISCELLANEOUS............................................... 85
SECTION 13.01 Trust Indenture Act Controls................................ 85
SECTION 13.02 Notices..................................................... 85
SECTION 13.03 Communication by Holders with Other Holders................. 86
SECTION 13.04 Certificate and Opinion as to Conditions Precedent.......... 86
SECTION 13.05 Rules by Trustee and Agents................................. 86
SECTION 13.06 Legal Holidays.............................................. 86
SECTION 13.07 No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders........................... 87
SECTION 13.08 Governing Law; Submission to Jurisdiction................... 87
SECTION 13.09 No Adverse Interpretation of Other Agreements............... 87
SECTION 13.10 Successors and Assigns...................................... 87
SECTION 13.11 Severability................................................ 87
SECTION 13.12 Counterpart Originals....................................... 88
SECTION 13.13 Table of Contents, Headings, etc............................ 88
-iv-
<PAGE> 6
CROSS-REFERENCE TABLE*
Trust Indenture Indenture Section
Act Section
310(a)(1)..........................................................7.10
(a)(2)........................................................7.10
(a)(3)........................................................N.A.
(a)(4)........................................................N.A.
(a)(5)........................................................7.10
(b)...........................................................7.10
(c)...........................................................N.A.
311(a).............................................................7.11
(b)...........................................................7.11
(c)...........................................................N.A.
312(a)............................................................11.03
(b)..........................................................11.03
(c)..........................................................11.03
313(a).............................................................7.06
(b)(1)........................................................N.A.
(b)(2)........................................................7.06; 7.07
(c)...........................................................7.06; 10.02
(d)...........................................................7.06
314(a).............................................................4.04; 11.02
(b)...........................................................N.A.
(c)(1).......................................................11.04
(c)(2).......................................................11.04
(c)(3)........................................................N.A.
(d)...........................................................N.A.
(f)...........................................................N.A.
315(a).............................................................7.01
(b)...........................................................7.05; 11.02
(c)...........................................................7.01
(d)...........................................................7.01
(e)...........................................................6.11
316(a)(last sentence)..............................................2.09
(a)(1)(A).....................................................6.05
(a)(1)(B).....................................................6.04
(a)(2)........................................................N.A.
(b)...........................................................6.07
317(a)(1)..........................................................6.08
(a)(2)........................................................6.09
(b)...........................................................2.04
318(a)............................................................11.01
(b)...........................................................N.A.
(c)..........................................................11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
-v-
<PAGE> 7
INDENTURE, dated as of _________ ___, 1997, among J. BAKER,
INC., a Massachusetts corporation (the "Company"), as Issuer, Buckmin, Inc., a
Massachusetts corporation, The Casual Male, Inc., a Massachusetts corporation,
ELM Equipment Corp., a Massachusetts corporation, ISAB, Inc., a Delaware
corporation, Jared Corporation, a Puerto Rico corporation, JBI Holding Co.,
Inc., a Delaware corporation, JBI, Inc., a Massachusetts corporation, Morse Shoe
(Canada) Ltd., a Canadian corporation, Morse Shoe, Inc., a Delaware corporation,
Morse Shoe International, Inc., a Delaware corporation, Spencer Companies,
Inc., a Massachusetts corporation, Spencer No. 301 Corp., a New York
corporation, TCMB&T, Inc., a Massachusetts corporation, TCM Holding Co., Inc.,
a Delaware corporation, White Cap Footwear, Inc., a Delaware corporation, and
WGS Corp., a Massachusetts corporation, as Guarantors, and The Chase Manhattan
Bank, a New York banking corporation, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the _____% Senior Subordinated Notes due 2007 of the Company (the
"Notes").
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness or preferred stock of any other Person existing at the time
such other Person is merged with or into or became a Subsidiary of such
specified Person, including, without limitation, Indebtedness or preferred stock
incurred in connection with, or in contemplation of, such other Person merging
with or into or becoming a Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Agent" means any Registrar or Paying Agent.
"Agent Members" means members of, or participants in, the
Depositary.
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"Amended Credit Facility" means that certain Amended and
Restated Credit Agreement, dated as of ______________, by and among The Casual
Male, Inc., TCM Holding Co., Inc., WGS Corp., TCMB&T, Inc., JBI, Inc., JBI
Holding Company, Inc., and Morse Shoe, Inc. as borrowers; J. Baker, Inc., as
parent guarantor; the lenders identified therein; Fleet National Bank, as
administrative agent; and BankBoston, N.A., as documentation agent, providing
for up to $100.0 million of revolving credit borrowings, including any related
notes, guarantees (including, but not limited to, the guarantees of Spencer
Companies, Inc., Buckmin, Inc., Elm Equipment Corp., ISAB, Inc., Morse Shoe
International, Inc., Morse Shoe (Canada) Ltd., Jared Corporation and White Cap
Footware, Inc., as subsidiary guarantors), collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified (including any agreement extending the maturity of, increasing the
total commitment under or otherwise restructuring all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement),
renewed, refunded, replaced, restated, supplemented or refinanced from time
to time.
"Applicable Procedures" means applicable procedures of the
Depositary.
"Asset Sale" means (i) the sale, lease, conveyance, transfer,
exchange or other disposition (collectively, "dispositions") of any assets or
rights (including, without limitation, by way of a sale and leaseback) other
than dispositions of inventory in the ordinary course of business consistent
with past practices and going out of business sales conducted in a manner
consistent with past practices (provided that the disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of Section 4.17 hereof and/or the
provisions of Section 5.01 hereof and not by the provisions of Section 4.16
hereof), and (ii) the issuance of Equity Interests by any Restricted Subsidiary
or the disposition by the Company or a Restricted Subsidiary of Equity Interests
in any of the Company's Restricted Subsidiaries, in the case of either clause
(i) or (ii), whether in a single transaction or a series of related transactions
(a) that have a fair market value in excess of $1.0 million or (b) for net
proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a
transfer of assets or Equity Interests by the Company to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company
or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary, (iii) the disposal of obsolete equipment and
machinery in the ordinary course of business and (iv) a Restricted Payment that
is permitted to be made, and is made, under Section 4.10 hereof will not be
deemed to be Asset Sales.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
foreign, federal or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person or any duly authorized committee of such Board
of Directors.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors
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of the Company and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Borrowing Base" means, as of any date, an amount equal to the
sum of (a) 85% of the face amount of all trade receivables owned by the Company
and its Wholly Owned Restricted Subsidiaries as of such date that are not more
than 90 days past due, less the allowance for doubtful accounts, each of the
foregoing determined in accordance with GAAP, and (b) 50% of the book value of
all inventory owned by the Company and its Wholly Owned Restricted Subsidiaries
as of such date, less any applicable reserves, each of the foregoing determined
in accordance with GAAP. To the extent that information is not available as to
the amount of trade receivables or inventory as of a specific date, the Company
may utilize the most recent available information for purposes of calculating
the Borrowing Base.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday that is not a day on which banking institutions in The City of New
York are authorized or obligated by law, regulation or executive order to close.
"Canton Property" means the property described under
"Description of Credit Facilities and Other Indebtedness - Mortgage Loan" in
the Prospectus.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than one year from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any lender party to the
Amended Credit Facility or with any domestic commercial bank having capital and
surplus in excess of $500.0 million, (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution meeting
the qualifications specified in clause (iii) above, (v) commercial paper rated
at least P-1 by Moody's or A-1 by S&P and in each case maturing within six
months after the date of acquisition and (vi) investment funds with total assets
in excess of $500.0 million that invest at least 95% of their assets in
securities of the types described in clauses (i) through (v) above.
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"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition, in
one or a series of related transactions, directly or indirectly, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any Person or "group" (as such term is used in Section
13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any Person or group becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 35% of the Voting Stock of the
Company (measured by voting power rather than number of shares) or (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor thereto.
"Company" means J. Baker, Inc., a Massachusetts corporation,
and any successor thereto pursuant to Section 5.01 hereof.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company (i) by its Chairman, a Vice Chairman,
its President or a Vice President and (ii) by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee;
provided, however, that such written request or order may be signed by any two
of the officers or directors listed in clause (i) above in lieu of being signed
by one of such officers or directors listed in such clause (i) and one of the
officers listed in clause (ii) above.
"Consolidated EBITDA" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus (i)
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, less
consolidated interest income of such person and its Restricted Subsidiaries for
such period, plus (ii) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted or otherwise taken account of in computing such
Consolidated Net Income, plus (iii) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to
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the extent that it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus (iv) an amount equal to
any extraordinary, non-recurring or unusual loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted or
otherwise taken account of in computing such Consolidated Net Income), plus (v)
the $37.3 million charge related to a reduction in the Company's licensed shoe
department business' inventory to net realizable value and the $1.2 million
charge to increase the Company's allowance for doubtful accounts for certain
licensors which the Company ceased serving, in each case recorded in the
Company's fiscal year ended February 1, 1997 to the extent that any such charge
was deducted in computing such Consolidated Net Income, plus (vi) an amount
equal to all premiums on prepayments of debt paid by the Company and its
Restricted Subsidiaries during such period to the extent that such payments were
deducted in computing such Consolidated Net Income, minus (vii) non-cash items
increasing such Consolidated Net Income for such period, in each case, for such
period without duplication on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes on the income
or profits of, and the depreciation and amortization and other non-cash charges
of, a Restricted Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the net income (but not loss) of any
Person that is not a Restricted Subsidiary of such Person or that is accounted
for by the equity method of accounting shall be included only to the extent of
the amount of dividends or distributions paid in cash to the referent Person or
a Wholly Owned Restricted Subsidiary thereof that is a Guarantor and shall not
exceed the consolidated net income of such Person for such period, (ii) the net
income (but not loss) of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that net income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) all gains resulting from currency or hedging
transactions shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the consolidated stockholders' equity of such Person and its
consolidated Subsidiaries as of
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such date, less, to the extent otherwise included, amounts attributable to
Disqualified Stock, in each case determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the affirmative vote of a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"Corporate Trust Office of the Trustee" means the principal
corporate trust office of the Trustee at which at any particular time its
corporate trust business shall be administered, which office at the date of
execution of this Indenture is located at The Chase Manhattan Bank, Global
Trust Services, 450 West 33rd Street, 15th Floor, New York, New York 10001-2697.
"Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
"Default" means any event that is, or with the passage of time
or the giving of notice or both would be, an Event of Default.
"Definitive Notes" means Notes that are substantially in the
form of the Notes attached hereto as Exhibit A that do not contain the Global
Note Legend.
"Depositary" means, with respect to any Global Note, the
Person specified in Section 2.03 hereof as the Depositary with respect to such
Note, until a successor shall have been appointed and become such pursuant to
the applicable provision of this Indenture, and, thereafter, "Depositary" shall
mean or include such successor.
"Designated Senior Debt" of any Person means (i) any
Indebtedness of such Person outstanding under the Amended Credit Facility and
(ii) any other Senior Debt of such Person, the principal amount of which is $5.0
million or more and that has been designated by the Company as "Designated
Senior Debt" of such Person.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the date that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Event of Default" has the meaning set forth in Section 6.01
hereof.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Existing Indebtedness" means up to $____ million in aggregate
principal amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Amended Credit Facility) in existence on the date of this
Indenture and set forth on Schedule I hereto, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means, with respect to any
Person for any period, the ratio of the Consolidated EBITDA of such Person for
such period to the Fixed Charges of such Person for such period. In the event
that the Company or any of its Restricted Subsidiaries incurs, assumes,
guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
EBITDA for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated EBITDA attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
Calculations of pro forma amounts in accordance with this definition shall be
done in accordance with Article 11 of Regulation S-X under the Securities Act or
any successor provision.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and (ii)
the consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, and (iii) any interest expense for such
period on Indebtedness of another Person that is
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Guaranteed by such Person or any of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or any of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (x) all
dividend payments during such period (including all dividend payments within 60
days of the last day of such period), whether or not in cash, on any class or
series of (A) Disqualified Stock of such Person or (B) preferred stock of any
Restricted Subsidiary of such Person, other than dividend payments on Equity
Interests payable solely in Equity Interests of the Company and other than
payments to such Person and its Wholly Owned Restricted Subsidiaries, and (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, determined, in each case, on a consolidated
basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect in the United States from time
to time.
"Global Note" means a permanent global Note that contains the
Global Note Legend, and that is deposited with the Note Custodian and registered
in the name of the Depositary.
"Global Note Legend" means the legend set forth in Section
2.06(e) hereof.
"Government Securities" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such Government
Securities or a specific payment of principal of or interest on any such
Government Securities held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the Government Securities or the specific payment of principal of or
interest on the Government Securities evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
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"Guarantor" means (i) each of the Guarantors named herein and
(ii) each other Person that becomes a guarantor of the obligations of the
Company under the Notes and this Indenture from time to time in accordance with
the provisions of this Indenture, and their respective successors and assigns;
provided, however, that "Guarantor" shall not include any Person that is
released from its Guarantee of the obligations of the Company under the Notes
and this Indenture as provided in Article 12 hereof.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, currency
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or currency values.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person (but only
to the extent of the fair market value of the assets subject to such Lien)
(whether or not such Indebtedness is assumed by such Person) and, to the extent
not otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Interest Payment Date" means each May __ and November __.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP; provided, however, that if the sole consideration for any such investment
is Capital Stock of the Company that is not Disqualified Stock, then such
investment shall not be deemed an Investment for purposes of this Indenture. If
the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect
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<PAGE> 16
Wholly Owned Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a Wholly Owned
Restricted Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of
Section 4.10 hereof.
"Issuance Date" means the closing date for the sale and
original issuance of the Notes under this Indenture.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset (including any conditional sale or other title retention agreement and any
lease in the nature thereof).
"Make-Whole Premium" means, with respect to a Note, an amount
equal to the greater of (i) _____% of the outstanding principal amount of such
Note and (ii) the excess of (a) the present value of the remaining interest,
premium and principal payments due on such Note as if such Note were redeemed on
November __, 2002, computed using a discount rate equal to the Treasury Rate
plus 75 basis points, over (b) the outstanding principal amount of such Note.
"Maturity" when used in respect to any Note means the date on
which the principal of (and premium, if any) and interest on such Note becomes
due and payable as therein or herein provided, whether at Stated Maturity or the
applicable Redemption Date and whether by declaration of acceleration, call for
redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc., or its
successors.
"Net Income" means, with respect to any Person for any period,
the net income (loss) of such Person, determined in accordance with GAAP and
before any reduction in respect of preferred stock dividends, excluding,
however, (i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (a) any Asset
Sale or (b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Subsidiaries and (ii) any extraordinary, unusual or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale, but only
as and when received), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
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and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness secured by a Lien on the
asset or assets (including Equity Interests) that were the subject of such Asset
Sale, any provision for permitted minority interests in any Restricted
Subsidiary as a result of such Asset Sale and any reserve established in
accordance with GAAP against any liabilities associated with the assets sold or
disposed of in such Asset Sale, including, without limitation, sales price
adjustments, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such Asset Sale or
provision for minority interest holders in any Restricted Subsidiary as a result
of such Asset Sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise) or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries in excess of $5.0 million to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Note Custodian" means the custodian for the Depositary of the
Global Note or any successor entity thereto.
"Notes" means $100,000,000 aggregate principal amount of the
Company's ____% Senior Subordinated Notes due 2007 issued pursuant to this
Indenture.
"Obligations" means any principal, premium, interest
(including post-petition interest), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Secretary or any Assistant Secretary of such
Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed on behalf of such Person by the Chief Executive Officer or
President and by the Chief Financial Officer or chief accounting officer of such
Person.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee, that meets the requirements of Section
1.05 hereof and, to the extent required by the TIA, complies with TIA Section
314.
- 11 -
<PAGE> 18
"Permitted Investment" means (a) any Investment in the Company
or in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in
Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(ii) such Person is merged, consolidated or amalgamated with or into the Company
or into a Wholly Owned Restricted Subsidiary of the Company, or is liquidated
into the Company or a Wholly Owned Restricted Subsidiary of the Company; (d) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.16 hereof;
(e) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company; (f) reasonable and
customary loans and advances consistent with past practices made to employees in
connection with their relocation (including related travel expenses) not to
exceed $1.0 million in the aggregate at any one time outstanding; (g) any
Investment existing on the date of this Indenture; (h) any Investment acquired
by the Company or any of its Restricted Subsidiaries (x) in exchange for any
other Investment or accounts receivable held by the Company or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such Investment or
accounts receivable or (y) as the result of a foreclosure by the Company or any
of its Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default; and (i)
other Investments in any Person having an aggregate fair market value (measured
on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (i) that are at the time outstanding, not to exceed
$2.0 million.
"Permitted Junior Securities" means Equity Interests in the
Company or debt securities that are subordinated to all Senior Debt of the
issuer of such debt securities (and any debt securities issued in exchange for
Senior Debt of the issuer of such debt securities) to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Debt.
"Permitted Liens" means (i) Liens securing Senior Debt that
was permitted by the terms of this Indenture to be incurred; (ii) Liens in favor
of the Company or any Restricted Subsidiary; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Restricted Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company or such Restricted Subsidiary; (iv) Liens on property existing
at the time of acquisition thereof by the Company or any Restricted Subsidiary
of the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (v)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by
clause (iii) of the second paragraph of Section 4.09 hereof covering only the
assets acquired with such Indebtedness; (vi) Liens existing on the date of this
Indenture; (vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or
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<PAGE> 19
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (viii) Liens imposed by law, such as landlords', carriers',
warehousemens', mechanics', suppliers' or similar Liens incurred in good faith
in the ordinary course of business of the Company or any Restricted Subsidiary
of the Company with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings if a reserve or other appropriate
provision, if any, shall have been made therefor as shall be required by GAAP;
(ix) easements, minor title defects, irregularities in title or other charges or
encumbrances on property that do not, in the aggregate, materially detract from
the value of the property or the assets of the Company and its Restricted
Subsidiaries or impair the use of such property by the Company or a Restricted
Subsidiary of the Company; (x) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (xi) Liens securing industrial
revenue bonds or other similar tax-favored financing; and (xii) other Liens
securing obligations incurred in the ordinary course of business which
obligations do not exceed $10.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Hedging Obligations and other than
Indebtedness permitted to be incurred pursuant to clause (v) or clause (x) of
the second paragraph of Section 4.09 hereof) of the Company or any of its
Restricted Subsidiaries; provided that: (i) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Indebtedness does not exceed
the principal amount of (or accreted value, if applicable), plus accrued
interest on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses and prepayment
premiums incurred in connection therewith) (except to the extent such increase
is a result of a simultaneous incurrence of additional Indebtedness permitted to
be incurred under this Indenture); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded, and is
subordinated in right of payment to the Notes on terms at least as favorable to
the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, limited or general partnership,
corporation, limited liability company, association, unincorporated
organization, trust, joint stock
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<PAGE> 20
company, joint venture or other entity, or a government or any agency or
political subdivision thereof.
"preferred stock" means any Equity Interest with preferential
right of payment of dividends or upon liquidation, dissolution, or winding up.
"Prospectus" means the prospectus relating to the offering of
the Notes, dated ________ __, 1997.
"Public Equity Offering" means a bona fide underwritten sale
to the public of common stock of the Company pursuant to a registration
statement (other than on Form S-8 or any other form relating to securities
issuable under any benefit plan of the Company) that is declared effective by
the SEC and results in aggregate gross equity proceeds to the Company of at
least $20.0 million.
"Redemption Date," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"Redemption Price," when used with respect to any Note to be
redeemed, means the price (exclusive of any accrued and unpaid interest
thereon) at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the ___________ __ or _____________ __ (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
"Responsible Officer," when used with respect to the Trustee,
shall mean any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and having direct responsibility for the administration of this
Indenture, and also, with respect to a particular matter, any other officer, to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Senior Debt" of any Person means (i) the Obligations of such
Person under the Amended Credit Facility, including, without limitation, Hedging
Obligations and reimbursement obligations in respect of letters of credit and
bankers acceptances, and (ii) any
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<PAGE> 21
other Indebtedness of such Person permitted to be incurred by such Person under
the terms of this Indenture, unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Debt of a Person shall not include (v) any obligation to, in
respect of or imposed by any environmental, landfill, waste management or other
regulatory or governmental agency, statute, law or court order, (w) any
liability for federal, state, local or other taxes, (x) any Indebtedness of such
Person to any of its Subsidiaries or other Affiliates, (y) any trade payables or
(z) any Indebtedness that is incurred in violation of this Indenture.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"S&P" means Standard & Poor's Rating Group, or its successors.
"Special Record Date" means a date fixed by the Trustee for
the payment of any Defaulted Interest pursuant to Section 2.12 hereof.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof).
"Subsidiary Guarantee" means any guarantee of the obligations
of the Company pursuant to this Indenture and the Notes by any Person in
accordance with the provisions of this Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA; provided, however, that in the event the Trust
Indenture Act of 1939 is amended after such date, then "TIA" means, to the
extent required by such amendment, the Trust Indenture Act of 1939 as so
amended.
"Treasury Rate" means the yield to maturity at the time of the
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15(519)), which has become publicly
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<PAGE> 22
available at least two Business Days prior to the date fixed for prepayment (or,
if such Statistical Release is no longer published, any publicly available
source of similar market data) most nearly equal to the then remaining average
life to the first date on which the Notes are subject to optional redemption by
the Company; provided, however, that if the average life of the Notes is not
equal to the constant maturity of the United States Treasury security for which
weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the average life of the Notes is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such above until a
successor replaces it in accordance with applicable provisions of this Indenture
and thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company
that is designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company; (c) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and (d)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors of the Company shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by
Section 4.10 hereof. If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under Section 4.09 hereof, the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.09 hereof,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (ii) no Default or Event of
Default would be in existence following such designation.
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<PAGE> 23
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of at
least a majority of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock and
other Equity Interests or other ownership interests (including convertible debt
securities) of which (other than directors' qualifying shares) shall at the time
be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
SECTION 1.02 Other Definitions
<TABLE>
<CAPTION>
DEFINED
TERM IN SECTION
---- ----------
<S> <C>
"Act" 1.07
"Affiliate Transaction" 4.12
"Asset Sale Offer" 3.10
"Change of Control Offer" 4.17
"Change of Control Payment" 4.17
"Change of Control Payment Date" 4.17
"Contributor" 12.07
"Covenant Defeasance" 8.03
"Defaulted Interest" 2.12
"DTC" 2.03
"Excess Proceeds" 4.16
"Expiration Date" 4.17
"Funding Party" 12.07
"Guaranteed Obligations" 12.01
"incur" 4.09
"JBAK Holding" 4.18
"JBAK Realty" 4.18
"Legal Defeasance" 8.02
"Offer Amount" 3.10
"Offer Period" 3.10
"Paying Agent" 2.03
"Payment Blockage Notice" 10.03
</TABLE>
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<PAGE> 24
<TABLE>
<S> <C>
"Payment Default" 6.01
"Permitted Debt" 4.09
"Purchase Date" 3.10
"Registrar" 2.03
"Restricted Payments" 4.10
"SEC Reports" 4.04
</TABLE>
SECTION 1.03 Incorporation by Reference of Trust Indenture Act
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes and the Subsidiary
Guarantees;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Notes means the Company, each Guarantor and
any successor obligors upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04 Rules of Construction
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
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<PAGE> 25
(6) references to sections of or rules under the Securities
Act or the Exchange Act shall be deemed to include substitute, replacement or
successor sections or rules adopted by the SEC from time to time.
SECTION 1.05 Compliance Certificates and Opinions
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion (other than the certificates
required by Section 4.05(a) hereof) with respect to compliance with a condition
or covenant provided for in this Indenture shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
he or she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.06 Form of Documents Delivered to Trustee
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel,
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<PAGE> 26
unless such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representation with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel, may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 1.07 Acts of Holders
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to TIA Section 315) conclusive in favor of the Trustee
and the Company, if made in the manner provided in this Section 1.07.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any reasonable manner that the
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by a register kept
by the Registrar.
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act
or to revoke any consent previously given, but the Company shall have no
obligation to do so. Notwithstanding TIA Section 316(c), any such record date
shall be the record date specified in or pursuant to such Board Resolution,
which shall be a date not more than 30 days prior to the first solicitation of
Holders generally in connection therewith and no later than the date such
solicitation is completed.
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<PAGE> 27
If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act or revocation of
any consent previously given may be given before or after such record date, but
only the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of Notes then outstanding have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for this purpose the Notes then outstanding shall be
computed as of such record date; provided that no such request, demand,
authorization, direction, notice, consent, waiver or other Act by the Holders on
such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holder of any Note shall bind every future
Holder of the same Note or the Holder of every Note issued upon the registration
of transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company in reliance thereon, whether or not notation of such action is
made upon such Note.
ARTICLE 2.
THE NOTES
SECTION 2.01 Form and Dating
The Notes and the Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit A attached
hereto, with such appropriate insertions, substitutions and other variations as
are required or permitted by this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage, as
designated by the Company or its counsel. Each Note shall be dated the date of
its authentication. The Notes shall be in denominations of $1,000 and integral
multiples thereof.
Notes issued in global form shall be substantially in the form
of Exhibit A attached hereto (including the Global Note Legend). Notes issued in
definitive form shall be substantially in the form of Exhibit A attached hereto
(but without the Global Note Legend). The Global Note shall represent such of
the outstanding Notes as shall be specified therein and the aggregate principal
amount of outstanding Notes represented thereby from time to time shall be
reflected on the records maintained by the Trustee. The aggregate principal
amount of outstanding Notes represented by a Global Note may from time to time
be reduced or increased, as appropriate, to reflect transfers, exchanges,
repurchases and redemptions. Any increase or decrease in the aggregate principal
amount outstanding of a Global Note shall be reflected on the records maintained
by the Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by Section
2.06 hereof.
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<PAGE> 28
SECTION 2.02 Execution and Authentication
Two Officers of the Company shall sign the Notes for the
Company by manual or facsimile signature. The seal of the Company shall be
reproduced on the Notes and may be in facsimile form.
If an Officer of the Company whose signature is on a Note no
longer holds that office at the time the Note is authenticated, the Note shall
nevertheless be valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Note so authenticated has been duly authenticated and
delivered hereunder.
The Trustee shall, by written order of the Company signed by
two Officers, authenticate Notes for original issue in the aggregate principal
amount of up to $100,000,000. Except as contemplated by Section 2.07 hereof, the
aggregate principal amount of Notes outstanding at any time may not exceed
$100,000,000.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent has the same
rights as an Agent to deal with any Holder, the Company or an Affiliate of the
Company. The Trustee shall not be liable for any act or failure to act of the
authenticating agent to perform any duty either required herein or authorized
herein to be performed by such person in accordance with this Indenture. Each
authenticating agent shall be acceptable to the Company and otherwise comply in
all respects with the eligibility requirements of the Trustee contained in this
Indenture.
SECTION 2.03 Registrar and Paying Agent
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented or surrendered for payment
("Paying Agent"). The Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company may appoint one or more additional paying
agents. The term "Paying Agent" includes any additional paying agents. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company shall notify the Trustee in writing of the name and address of any
Agent not a party to this Indenture. If the Company fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as such and
shall be entitled to appropriate compensation in accordance with Section 7.07
hereof. The Company or any of its Subsidiaries may not act as Paying Agent or
Registrar.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The
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<PAGE> 29
Company initially appoints The Depository Trust Company ("DTC") to act as
Depositary with respect to the Global Note.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Note.
SECTION 2.04 Paying Agent to Hold Assets in Trust
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, premium, if any, or interest on the Notes (whether such
assets have been distributed to it by the Company or any other obligor on the
Notes), and will notify the Trustee of any default by the Company or any
Guarantor or any other obligor on the Notes in making any such payment. While
any such default continues, the Trustee may require a Paying Agent to distribute
all assets held by it to the Trustee and account for any assets disbursed. The
Company at any time may require a Paying Agent to pay all assets held by it to
the Trustee and account for any assets disbursed. Upon payment over and
accounting to the Trustee, the Paying Agent shall have no further liability for
the assets. Upon any bankruptcy or reorganization proceedings relating to the
Company or any Guarantor, the Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05 Holder Lists
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company and/or the Guarantors shall
furnish to the Trustee at least seven Business Days before each Interest Payment
Date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of the Holders of Notes, including the aggregate principal amount
of Notes held by each Holder, and the Company and/or the Guarantors shall
otherwise comply with TIA Section 312(a).
SECTION 2.06 Transfer and Exchange
(a) Transfer and Exchange of the Global Note. The Global Note
may not be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. The Global Note
will be exchanged by the Company for Definitive Notes if, and only if, either
(i) the Depositary is at any time unwilling or unable to continue as depositary
and a successor depositary is not appointed by the Company within 90 days, (ii)
an Event of Default has occurred and is continuing and the Registrar has
received a request from the Depositary to issue Definitive Notes in lieu of all
or a portion of the Global Note (in which case the Company shall deliver
Definitive Notes within 30 days of such request), or (iii) the Company
determines not to have the Notes represented by a Global
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<PAGE> 30
Note. Upon the occurrence of any of the preceding events in (i), (ii) or (iii)
above, Definitive Notes shall be issued in such names as the Depositary shall
instruct the Trustee. The Global Note also may be exchanged or replaced, in
whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note
authenticated and delivered in exchange for, or in lieu of, the Global Note or
any portion thereof, pursuant to Section 2.07 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Note. The
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a); however, beneficial interests in the Global Note may be
transferred and exchanged as provided in Section 2.06(b) or (c) hereof.
(b) Transfer and Exchange of Beneficial Interests in the
Global Note. The transfer and exchange of beneficial interests in the Global
Note shall be effected through the Depositary, in accordance with the provisions
of the Applicable Procedures.
(c) Transfer or Exchange of Beneficial Interests in the Global
Note for Definitive Notes. If beneficial interests in the Global Note are to be
exchanged for Definitive Notes pursuant to Section 2.06(a) hereof, the
Depositary shall give instructions to the Registrar containing information
regarding the Person in whose name such Definitive Notes shall be registered to
effect such registration of transfer or exchange. Upon satisfaction of the above
conditions, the Trustee shall cause the aggregate principal amount of the Global
Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c) shall be registered in such name or
names and in such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions from the
Depositary and the Agent Member. The Trustee shall deliver such Definitive Notes
to the Persons in whose names such Notes are so registered.
(d) Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(d), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. A Holder of Definitive Notes may
transfer such Notes to a Person who takes delivery thereof in the form of a
Definitive Note. Upon receipt of a request to register such a transfer, the
Registrar shall register the Definitive Notes pursuant to the instructions from
the Holder thereof.
(e) Legends. The Global Note shall bear a legend in
substantially the following form:
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<PAGE> 31
"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR PART FOR
NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW
YORK, NEW YORK) ("DTC") TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OR TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
(f) Cancellation and/or Adjustment of the Global Note. At such
time as all beneficial interests in the Global Note have been exchanged for
Definitive Notes or the Global Note has been redeemed, repurchased or cancelled
in whole and not in part, the Global Note shall be returned to or retained and
cancelled by the Trustee in accordance with Section 2.11 hereof. At any time
prior to such cancellation, if any beneficial interest in the Global Note is
exchanged for Definitive Notes, the principal amount of Notes represented by
the Global Note shall be reduced accordingly and a notation shall be made on
the records of the Trustee, by the Trustee, to reflect such reduction.
(g) General Provisions with respect to Transfer and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate,
pursuant to the terms of this Indenture, the Global Note and
the Definitive Notes upon receipt of a Company Order or at the
Registrar's request.
(ii) No service charge shall be made to a holder of a
beneficial interest in the Global Note or to a Holder of a
Definitive Note for any registration of transfer or exchange,
but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or
similar governmental charges payable upon exchange or transfer
pursuant to Sections 2.10, 3.07, 4.16, 4.17 and 9.05 hereof).
(iii) Neither the Company nor the Registrar shall be
required to register the transfer or exchange of any Note
selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
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<PAGE> 32
(iv) The Global Note and all Definitive Notes issued upon
any registration of transfer or exchange of the Global Note or
the Definitive Notes shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the same
benefits under this Indenture as the Global Note or the
Definitive Notes surrendered upon such registration of
transfer or exchange.
(v) The Company shall not be required (A) to issue or to
register the transfer or exchange of Notes during a period
beginning at the opening of business 15 days before the day of
any selection of Notes for redemption under Section 3.02
hereof and ending at the close of business on the day of
selection, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part or
(C) to register the transfer of or to exchange a Note between
a record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company
or any agent of the Trustee or any Agent of the Company may
deem and treat the Person in whose name any Note is registered
as the absolute owner of such Note for the purpose of
receiving payment of principal of, premium, if any, and
interest on such Note and for all other purposes, and none of
the Trustee, any Agent nor the Company or any agent of the
Trustee or any Agent of the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate the Global Note and
the Definitive Notes in accordance with the provisions of
Section 2.02 hereof.
SECTION 2.07 Replacement Notes
If any mutilated Note is surrendered to the Trustee, or the
Company and the Trustee and the Company receive evidence to their satisfaction
of the destruction, loss or theft of any Note, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Note if the Trustee's and the
Company's requirements are met. If required by the Trustee or the Company, an
indemnity bond must be supplied by the Holder that is sufficient in the judgment
of the Trustee and the Company to protect the Company, the Trustee, any Agent
and any authenticating agent from any loss that any of them may suffer if a Note
is replaced. The Company and the Trustee may charge for their expenses in
replacing a Note. If after the delivery of such new Note, a bona fide purchaser
of the original Note in lieu of which such new Note was issued presents for
payment such original Note, the Company and the Trustee shall be entitled to
recover such new Note from the person to whom it was delivered or any transferee
thereof, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Company or the Trustee in connection therewith.
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<PAGE> 33
Every replacement Note is an additional obligation of the
Company and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
SECTION 2.08 Outstanding Notes
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in the Global Note
effected by the Trustee hereunder in accordance with the provisions hereof, and
those described in this Section 2.08 as not outstanding. Except as set forth in
Section 2.09 hereof, a Note does not cease to be outstanding because either of
the Company or an Affiliate of the Company holds a Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on the Redemption Date or maturity date, money
sufficient to pay all principal, interest and premium, if any, payable on that
date on the Notes (or the portion thereof to be redeemed or maturing, as the
case may be), then on and after that date such Notes (or portions thereof) shall
be deemed to be no longer outstanding and shall cease to accrue interest.
SECTION 2.09 Treasury Notes
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company or any Affiliate of the Company shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that a Responsible Officer of the Trustee actually knows are so owned
shall be so disregarded. The Company shall notify the Trustee, in writing, when
the Company or any of its Affiliates repurchases or otherwise acquires Notes and
the aggregate principal amount of such Notes so repurchased or otherwise
acquired.
SECTION 2.10 Temporary Notes
Until permanent Notes are ready for delivery, the Company may
prepare and the Trustee, upon receipt of the written order of the Company signed
by two Officers of the Company, shall authenticate and deliver temporary Notes.
Temporary Notes shall be substantially in the form of permanent Notes but may
have variations that the Company and the Trustee consider appropriate for
temporary Notes. Without unreasonable delay, the Company shall prepare and the
Trustee, upon receipt of the written order of the Company
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<PAGE> 34
signed by two Officers of the Company, shall authenticate and deliver,
definitive Notes in exchange for temporary Notes.
Until such exchange, Holders of temporary Notes shall be
entitled to all of the rights, benefits and privileges of this Indenture.
SECTION 2.11 Cancellation
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation, except as expressly
permitted by this Indenture. The Company may not issue new Notes to replace
Notes that it has redeemed or paid or that have been delivered to the Trustee
for cancellation. All cancelled Notes held by the Trustee shall be destroyed
(subject to the record retention requirement of the Exchange Act). Certification
of the destruction of all cancelled Notes shall be delivered to the Company.
SECTION 2.12 Defaulted Interest
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Note is registered at the close of business on the Regular
Record Date for such interest.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date and interest
on such defaulted interest at the applicable interest rate borne by the Notes,
to the extent lawful (such defaulted interest (and interest thereon) herein
collectively called "Defaulted Interest") shall forthwith cease to be payable to
the Holder on the relevant Regular Record Date by virtue of having been such
Holder; and such Defaulted Interest shall be paid by the Company to the Persons
in whose names the Notes are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall give the Trustee at least 15 days'
written notice (unless a shorter period is acceptable to the Trustee for its
convenience) of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held by the Trustee in
trust for the benefit of the Persons entitled to such Defaulted Interest as is
provided in this Section 2.12. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall not be more than 15
days and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date. In the name and at the expense of the Company, the Trustee shall cause
notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class
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<PAGE> 35
postage prepaid, to each Holder at his address as it appears in the Registrar,
not less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor having
been so mailed, such Defaulted Interest shall be paid to the Persons in whose
names the Notes are registered at the close of business on such Special Record
Date.
Subject to the foregoing provisions of this Section 2.12, each
Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
SECTION 2.13 CUSIP Number
The Company in issuing the Notes shall use a CUSIP number, and
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders of Notes; provided, however, that no representation is
hereby deemed to be made by the Trustee as to the correctness or accuracy of the
CUSIP number printed in the notice or on the certificates representing the
Notes, and that reliance may be placed only on the other identification numbers
printed on the certificates representing the Notes. The Company will promptly
notify the Trustee of any change in a CUSIP number.
SECTION 2.14 Deposit of Moneys
On each Interest Payment Date and each date on which payments
in respect of the Notes are required to be made pursuant to the terms of this
Indenture, the Company shall, not later than noon (New York City time), deposit
with the Paying Agent in immediately available funds money sufficient to make
any cash payments due on such date in a timely manner which permits the Paying
Agent to remit payment to the Holders on such date.
ARTICLE 3.
REDEMPTION AND OFFERS TO PURCHASE
SECTION 3.01 Applicability of Article
Redemption of Notes at the election of the Company shall be
made in accordance with this Article 3.
SECTION 3.02 Election to Redeem; Notice to Trustee
The election of the Company to redeem any Notes pursuant to
Section 3.08 hereof shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 45 but
not more than 60 days prior to the Redemption Date fixed by it (unless a shorter
notice period shall be satisfactory to the
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<PAGE> 36
Trustee for its convenience), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed.
SECTION 3.03 Selection of Notes to Be Redeemed
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption shall be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company and the
Registrar (if other than the Trustee) in writing of the Notes selected for
redemption and, in the case of any Notes selected for partial redemption, the
principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Notes shall relate,
in the case of any Note redeemed or to be redeemed only in part, to the portion
of the principal amount of such Note which has been or is to be redeemed.
SECTION 3.04 Notice of Redemption
Notices of redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the Redemption
Date to each Holder of Notes to be redeemed at such Holder's registered address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price, separately stating the amount of any
accrued and unpaid interest to be paid in connection with the
redemption;
(3) if less than all Notes then outstanding are to be
redeemed, the identification (and, in the case of a Note to be redeemed
in part, principal amount) of such Note to be redeemed;
(4) that on the Redemption Date the Redemption Price, plus
accrued and unpaid interest thereon to the Redemption Date, will become
due and payable upon each such Note or portion thereof, and that
(unless the Company shall default in payment of the Redemption Price
and accrued interest thereon) interest thereon shall cease to accrue on
or after said date;
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<PAGE> 37
(5) the place or places where such Notes are to be surrendered
for payment of the Redemption Price and accrued interest thereon;
(6) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price, plus accrued and
unpaid interest thereon to the Redemption Date;
(7) the CUSIP number, if any, relating to such Notes; and
(8) in the case of a Note to be redeemed in part, the
principal amount of such Note to be redeemed and that after the
Redemption Date upon surrender of such Note, a new Note or Notes in the
aggregate principal amount equal to the unredeemed portion thereof will
be issued.
At the Company's request, the Trustee shall give the notice of
redemption in the name of the Company and at its expense: provided, however,
that the Company shall deliver to the Trustee, at least 45 days prior to the
Redemption Date (unless a shorter notice period shall be satisfactory to the
Trustee for its convenience), an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.
SECTION 3.05 Deposit of Redemption Price
On or prior to any Redemption Date, the Company shall deposit
with the Trustee (to the extent not already held by the Trustee) or with the
Paying Agent an amount of money in same day funds (or New York Clearing House
funds if such deposit is made prior to the applicable Redemption Date)
sufficient to pay the Redemption Price of, and accrued and unpaid interest to
the Redemption Date on, all Notes or portions thereof which are to be redeemed
on that date.
SECTION 3.06 Notes Payable on Redemption Date
Notice of redemption having been given as aforesaid, the Notes
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, plus accrued and unpaid interest thereon to
the Redemption Date, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest thereon)
such Notes shall cease to bear interest. Upon surrender of any such Note for
redemption in accordance with said notice, such Note shall be paid by the
Company at the Redemption Price, plus accrued and unpaid interest thereon to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Notes, registered as such on the relevant Regular Record Dates according
to the terms and provisions of Section 2.12 hereof.
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<PAGE> 38
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal thereof (and premium, if any,
thereon) shall, until paid, bear interest from the Redemption Date at the rate
borne by such Note.
SECTION 3.07 Notes Redeemed in Part
Any Note which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 4.02 hereof (with, if the Company, the Registrar or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company, the Registrar or the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing), and a new Note
in principal amount equal to the unredeemed portion will be issued in the name
of the Holder thereof upon cancellation of the original Note. On and after the
Redemption Date, unless the Company defaults in payment of the Redemption Price
and accrued interest thereon, interest shall cease to accrue on Notes or
portions thereof called for redemption.
SECTION 3.08 Optional Redemption
Except as described below, the Notes are not redeemable at the
Company's option prior to November __, 2002. Thereafter, the Notes will be
subject to redemption at any time at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon to the applicable Redemption Date, if
redeemed during the twelve-month period beginning on November __ of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002............................................................. . %
--------
2003............................................................. . %
--------
2004............................................................. . %
--------
2005 and thereafter.............................................. 100.0000%
</TABLE>
Notwithstanding the foregoing, on or prior to November __,
2000, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of the Notes originally issued at a redemption price
of _____% of the principal amount thereof, plus accrued and unpaid interest
thereon, to the Redemption Date, with the net cash proceeds of one or more
Public Equity Offerings; provided that at least 65% of the aggregate principal
amount of the Notes originally issued remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption shall
occur within 60 days of the date of the closing of any such Public Equity
Offering.
In addition, at any time prior to November __, 2002, the
Company may, at its option, redeem the Notes, in whole or in part, at a
redemption price equal to 100% of the principal amount plus the applicable
Make-Whole Premium, plus accrued and unpaid interest thereon to the Redemption
Date.
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<PAGE> 39
SECTION 3.09 Mandatory Redemption
Except as set forth under Sections 3.10, 4.16 and 4.17 hereof,
the Company shall not be required to make any mandatory redemption or sinking
fund payments with respect to the Notes.
SECTION 3.10 Offer to Purchase by Application of Excess Proceeds
In the event that, pursuant to Section 4.16 hereof, the
Company shall be required to make an offer to all Holders of Notes to purchase
Notes (an "Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for at least 30 and not
more than 40 days, except to the extent that a longer period is required by
applicable law (the "Offer Period"). On a date within five Business Days after
the termination of the Offer Period (the "Purchase Date"), the Company shall
purchase the principal amount of Notes required to be purchased pursuant to
Section 4.16 hereof (the "Offer Amount") or, if less than the Offer Amount has
been tendered, all Notes tendered in response to the Asset Sale Offer.
The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with any offer required to be made by the Company to repurchase the Notes as a
result of an Asset Sale Offer.
If the Purchase Date is on or after a Regular Record Date and
on or before the related Interest Payment Date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such Regular Record Date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to each of the Holders, with a copy to
the Trustee. The notice shall contain all instructions and materials necessary
to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The
Asset Sale Offer shall be made to all Holders. The notice, which shall govern
the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.10 and Section 4.16 hereof and the length of time the Asset
Sale Offer shall remain open;
(b) the Offer Amount, the purchase price, separately stating
the amount of any accrued and unpaid interest, and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
remain outstanding and continue to accrue interest;
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<PAGE> 40
(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest on the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, or transfer by book-entry transfer, to the Company,
a depositary, if appointed by the Company, or a Paying Agent at the
address specified in the notice not later than the last Business Day of
the Offer Period;
(f) that Holders shall be entitled to withdraw their tendered
Notes and their election to require the Company to purchase such Notes,
provided that the Company, the depositary or the Paying Agent, as the
case may be, receives, not later than the close of business on the last
Business Day of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Notes the Holder tendered for purchase, and a
statement that such Holder is withdrawing his tendered Notes and his
election to have such Notes purchased;
(g) that, if the aggregate principal amount of Notes properly
tendered by Holders exceeds the Offer Amount, the Trustee shall select
the Notes to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by the Trustee so that only Notes in
denominations of $1,000, or integral multiples thereof, shall be
purchased); and
(h) that Holders whose Notes are being purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).
On or before noon (New York City time) on each Purchase Date,
the Company shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount (or, if less than the Offer
Amount has been properly tendered, such lesser amount as shall equal the
principal amount of Notes properly tendered), together with accrued and unpaid
interest thereon to the Purchase Date, to be held for payment in accordance with
the terms of this Section 3.10. On the Purchase Date, the Company shall, to the
extent lawful, (i) accept for payment, on a pro rata basis to the extent
necessary, the Offer Amount of Notes or portions thereof tendered pursuant to
the Asset Sale Offer, or if less than the Offer Amount has been tendered, all
Notes tendered, (ii) deliver or cause the Paying Agent or depositary, as the
case may be, to deliver to the Trustee Notes so accepted and (iii) deliver to
the Trustee an Officers' Certificate stating that such Notes or portions thereof
were accepted for payment by the Company in accordance with the terms of this
Section 3.10. The Company, the depositary or the Paying Agent, as the case may
be, shall promptly (but in any case not later than three Business Days after the
Purchase Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Notes tendered by such Holder and accepted by the Company
for purchase, plus accrued and unpaid interest
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thereon to the Purchase Date, and the Company shall promptly issue a new Note,
and the Trustee, upon written request from the Company, shall authenticate and
mail or deliver such new Note to such Holder, equal in principal amount to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall send a notice to each Holder stating the results of the Asset Sale Offer
on the Purchase Date.
ARTICLE 4.
COVENANTS
SECTION 4.01 Payment of Notes
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and in this Indenture. Principal, premium, if any, and
interest shall be considered paid on the date due if the Paying Agent holds as
of noon (New York City time) on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at the rate of the then applicable
interest rate on the Notes to the extent lawful; the Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace period)
from time to time on demand at the same rate to the extent lawful. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
SECTION 4.02 Maintenance of Office or Agency
The Company will maintain, in The City of New York, an office
or agency (which may be an office of the Trustee or Registrar) where Notes may
be presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes, and may from time to
time rescind such
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designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
SECTION 4.03 Money for Security Payments to be Held in Trust
Whenever the Company shall have one or more Paying Agents for
the Notes, it will, on or before each due date of the principal of, premium, if
any, or interest on any Notes, deposit with a Paying Agent a sum in same day
funds (or New York Clearing House funds if such deposit is made prior to the
date on which such deposit is required to be made) sufficient to pay the
principal, premium, if any, or interest so becoming due (or at the option of the
Company, payment of interest may be made by check mailed to the Holders of Notes
at their respective addresses set forth in the register of Holders of Notes;
provided that all payments on the Global Note and all payments of interest on
the Definitive Notes, the holders of which have given wire transfer instructions
to the Company or the Paying Agent at least ten Business Days prior to the
applicable payment date, shall be made by wire transfer in same day funds), such
sum to be held in trust for the benefit of the Persons entitled to such
principal, premium or interest and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of such action or any failure so to
act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section
4.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the
principal of, premium, if any, or interest on Notes in
trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company
(or any other obligor upon the Notes) in the making of
any payment of principal, premium, if any, or interest;
(c) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay
to the Trustee all sums so held in trust by such Paying
Agent; and
(d) acknowledge, accept and agree to comply in all respects
with the provisions of this Indenture relating to the
duties, rights and obligations of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which
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such sums were held by the Company or such Paying Agent; and, upon such payment
by any Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on Company Request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense of the Company cause
notice to be promptly sent to each Holder that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such notification, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 4.04 Reports
(a) So long as any of the Notes remain outstanding, the
Company shall cause copies of all quarterly and annual reports and of the
information, documents and other reports which the Company is required to file
with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports") to be delivered to the Trustee and mailed to the Holders of Notes at
their addresses appearing in the register of Notes maintained by the Registrar,
in each case, within 5 days of filing with the SEC. If the Company is not
subject to the requirements of Section 13(a) or 15(d) of the Exchange Act or
shall cease to be required by the SEC to file SEC Reports, the Company shall
nevertheless continue to cause SEC Reports, comparable to those which it would
be required to file pursuant to Section 13(a) or 15(d) of the Exchange Act if
it were subject to the requirements of either such Section, to be so filed with
the SEC for public availability (unless the SEC will not accept such a filing)
and with the Trustee and mailed to the Holders of Notes, in each case, within
the same time periods as would have applied (including under the preceding
sentence) had the Company been subject to the requirements of Section 13(a) or
15(d) of the Exchange Act. The Company shall make all such information
available to prospective investors who request it in writing. The Company shall
also comply with the provisions of TIA Section 314(a).
(b) If the Company instructs the Trustee to distribute any of
the documents described in clause (a) above to the Holders of Notes, the Company
shall provide the Trustee with a sufficient number of copies of all SEC Reports
that the Company may be required to deliver to the Holders of Notes under this
Section 4.04. Any such distribution by the Trustee pursuant to this clause (b)
shall be at the expense of the Company.
SECTION 4.05 Compliance Certificate
(a) The Company and each Guarantor shall deliver to the
Trustee, within 90 days after the end of each fiscal year ending after the date
hereof, an Officers' Certificate
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stating whether, to such officers' knowledge, the Company and such Guarantor is
in compliance with all covenants and conditions to be complied with by it under
this Indenture (including, with respect to any Restricted Payments made during
such year, the basis upon which the calculations required by Section 4.10 hereof
were computed, which calculations may be based on the Company's latest financial
statements), and further stating, as to each Officer signing such certificate,
that to the best of his or her knowledge each entity is not in default in the
performance or observance of any terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall exist, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or interest
on the Notes is prohibited or if such event has occurred, a description of the
event and what action the Company is taking or proposes to take with respect
thereto. For purposes of this Section 4.05, such compliance shall be determined
without regard to any period of grace or requirement of notice under this
Indenture.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual reports delivered to the Trustee pursuant to Section 4.04 above shall be
accompanied by a written statement of the Company's independent public
accountants (which shall be a firm of established national reputation
satisfactory to the Trustee) that in making the examination necessary for
certification of such financial statements, nothing has come to their attention
which would lead them to believe that either the Company or any of its
Subsidiaries has violated any provisions of Article 4 or 5 of this Indenture or,
if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of any
such violation.
(c) The Company will, so long as any of the Notes are
outstanding, within five Business Days, upon becoming aware of (i) any Default
or Event of Default or (ii) any default under any mortgage, document, indenture,
instrument or agreement relating to Indebtedness in excess of $5.0 million of
the Company or any Guarantor, deliver to the Trustee an Officers' Certificate
specifying such Default, Event of Default or other default and what action the
Company is taking or proposes to take with respect thereto.
SECTION 4.06 Taxes
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed upon it or any Subsidiary
or upon the income, profits or property of the Company or any of its
Subsidiaries and (b) all material lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a Lien upon the property of the
Company or any of its Subsidiaries that could produce a material adverse effect
on the consolidated financial condition of the Company; provided, however, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in
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good faith by appropriate proceedings and in respect of which appropriate
reserves (in the good faith judgment of management of the Company) are being
maintained in accordance with GAAP.
SECTION 4.07 Stay, Extension and Usury Laws
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
SECTION 4.08 Corporate Existence; Maintenance
of Properties and Insurance
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) its (and its Restricted
Subsidiaries') rights (charter and statutory), licenses and franchises;
provided, however, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any of its Restricted Subsidiaries, if the Board of Directors or management of
the Company shall determine in good faith that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of Notes.
With such exceptions, if any, as are not material in the
aggregate and are not adverse in any material respect to the Holders of Notes,
the Company shall, and shall cause each of its Subsidiaries to, maintain its
properties in good working order and condition (subject to ordinary wear and
tear) and make all reasonably necessary repairs, renewals, replacements,
additions and improvements required for it to actively conduct and carry on its
business.
The Company shall maintain insurance against loss or damage of
the kinds that, in the good faith judgment of the Company, are adequate and
appropriate for the conduct of the business of the Company and its Subsidiaries
in a prudent manner, with reputable insurers or with the government of the
United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary, in
the good faith judgment of the Company, for companies similarly situated in the
industry.
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SECTION 4.09 Limitation on the Incurrence of Indebtedness and
Issuance of Preferred Stock
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and the Company shall not issue any Disqualified Stock and shall not
permit any of its Subsidiaries to issue any shares of preferred stock (other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company);
provided, however, that the Company and the Guarantors may incur Indebtedness
(including Acquired Debt but excluding Hedging Obligations) or issue shares of
Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.25 to 1 if such Indebtedness is
incurred or such Disqualified Stock is issued on or prior to November
__, 1999 or 2.50 to 1 if such Indebtedness is incurred or such
Disqualified Stock is issued thereafter, determined on a pro forma
basis in accordance with Article 11 of Regulation S-X under the
Securities Act or any successor provision, as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter
period; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro
forma basis to, such incurrence or issuance.
The provisions of the first paragraph of this Section 4.09
will not apply to the incurrence of any of the following items of Indebtedness
or issuances of preferred stock or Disqualified Stock (collectively, "Permitted
Debt"):
(i) the incurrence by the Company and its Restricted
Subsidiaries of Indebtedness arising under or in connection with the
Amended Credit Facility; provided that the aggregate principal amount
of all Indebtedness (with letters of credit being deemed for all
purposes of this Indenture to have a principal amount equal to the
maximum potential liability of the Company and its Restricted
Subsidiaries in respect thereof) outstanding under the Amended Credit
Facility after giving effect to such incurrence, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (i), does not
exceed an amount equal to the greater of $100.0 million or $10.0
million plus the Borrowing Base, in each case less the aggregate amount
of all Indebtedness permanently repaid with the Net Proceeds of any
Asset Sale;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
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(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Restricted
Subsidiary, in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
other Indebtedness incurred pursuant to this clause (iii), not to
exceed $5.0 million at any time outstanding;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace
Indebtedness (other than Hedging Obligations and other than
Indebtedness permitted to be incurred pursuant to clause (v) or clause
(x) of this paragraph) that was permitted by this Indenture to be
incurred;
(v) the incurrence by the Company or any of its Wholly Owned
Restricted Subsidiaries of intercompany Indebtedness between or among
the Company and any of its Wholly Owned Restricted Subsidiaries;
provided, however, that (A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly
Owned Restricted Subsidiary of the Company (other than any pledge of
such Indebtedness to the lenders under the Amended Credit Facility)
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case
may be;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose
of hedging against fluctuations in currency values or for the purpose
of fixing or hedging interest rate risk with respect to any floating
rate Indebtedness of the Company or any of its Restricted Subsidiaries
that is permitted by the terms of this Indenture to be outstanding,
provided that the notional principal amount of any Hedging Obligations
does not significantly exceed the principal amount of Indebtedness to
which such agreement relates;
(vii) the Guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Wholly Owned
Restricted Subsidiary of the Company that was permitted to be incurred
by another provision of this Section 4.09;
(viii) the issuance by the Company's Unrestricted Subsidiaries
of preferred stock or the incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company;
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(ix) the incurrence by the Company and its Restricted
Subsidiaries of Indebtedness represented by the Notes and the
Subsidiary Guarantees; and
(x) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness (other than Hedging
Obligations) or the issuance by the Company of Disqualified Stock;
provided that the aggregate principal amount of outstanding
Indebtedness, together with the aggregate liquidation preference of
outstanding Disqualified Stock, issued or incurred pursuant to this
clause (x) does not at any time exceed $10.0 million.
SECTION 4.10 Limitation on Restricted Payments
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company) or to the direct or indirect
holders of the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or dividends or distributions payable to any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Wholly Owned Restricted Subsidiary of the Company,
any Equity Interests then being issued by the Company or a Wholly Owned
Restricted Subsidiary of the Company or any Investment in a Person that, after
giving effect to such Investment, is a Wholly Owned Restricted Subsidiary of the
Company); (iii) make any payment on or with respect to, or purchase, redeem,
repay, defease or otherwise acquire or retire for value, any Indebtedness that
is subordinated in right of payment to the Notes (other than regularly scheduled
payments of interest); or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the date of this Indenture (excluding
Restricted Payments permitted by clauses (ii), (iii), (iv), (vi) and
(vii) of the next succeeding paragraph), is less than the sum of (i)
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50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of this Indenture to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate
net cash proceeds received by the Company from the issue or sale since
the date of this Indenture of Equity Interests of the Company (other
than Disqualified Stock) or of Disqualified Stock or debt securities of
the Company that have been converted into such Equity Interests (other
than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of this Indenture is
sold for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) (but only to the
extent not included in subclause (i) of this clause (c)), and (B) the
initial amount of such Restricted Investment, plus (iv) $5.0 million.
The foregoing provisions shall not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or
other acquisition of subordinated Indebtedness with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
scheduled dividends on any Disqualified Stock issued after the date hereof in
compliance with the provisions of this Indenture; (v) payments made with respect
to the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Subsidiary of the Company held by any
member of the Company's (or any of its Restricted Subsidiaries') management
pursuant to any management equity subscription agreement or stock option
agreement in effect as of the date of this Indenture (provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $1.0 million in any twelve-month period); (vi)
the purchase, redemption, repayment, acquisition or retirement of the Company's
11.21% Senior Subordinated Notes due 1999 and the Company's 8% Convertible
Subordinated Notes due 2002 with the proceeds of the offering of the Notes as
described in the Prospectus under the caption "Use of Proceeds"; (vii) the
purchase, redemption, repayment, acquisition or retirement for value of the
Company's 7% Convertible Subordinated Notes due 2002 at any time during the six
month period ending June 1, 2002; and (viii) the payment of regular quarterly
dividends on shares of common stock of the Company in an aggregate amount not to
exceed $.10 per share per annum (as equitably adjusted by resolution of the
Board of Directors of the Company for stock splits, stock
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dividends and similar events after the date of this Indenture); provided,
however, that at the time of, and after giving effect to, any Restricted Payment
permitted under clauses (i) through (v), (vii) and (viii) no Default or Event of
Default shall have occurred and be continuing.
The Board of Directors of the Company may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would
not cause a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this Section 4.10. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greater of (x) the net book value of such Investments at the time
of such designation and (y) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment, to be
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a resolution of the Board of
Directors of the Company set forth in an Officers' Certificate. Not later than
the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.10 were computed, together with a copy of any fairness opinion
required by this Indenture.
SECTION 4.11 Limitation on Liens
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or on any income or profits therefrom or assign
or convey any right to receive income therefrom, except Permitted Liens.
SECTION 4.12 Limitation on Transactions with Affiliates
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by
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the Company or such Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate payments or consideration
in excess of $1.0 million, a resolution of the Board of Directors of the Company
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the independent members of the Board of Directors of
the Company and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate payments or consideration in
excess of $5.0 million, an opinion as to the fairness to the Company or such
Subsidiary of such Affiliate Transaction from a financial point of view issued
by an investment banking firm of national standing; provided, however, that (i)
any employment agreement, compensation agreement or employee benefit arrangement
paid or made available to officers and employees of the Company or its
Subsidiaries for services actually rendered entered into by the Company or any
of its Subsidiaries in the ordinary course of business and consistent with the
past practice of the Company or such Subsidiary (including reimbursement or
advancement of reasonable out-of-pocket expenses and directors' and officers'
liability insurance), (ii) compensation (in the form of reasonable director's
fees and reimbursement or advancement of reasonable out-of-pocket expenses) paid
to any director of the Company or its Subsidiaries for services rendered in such
person's capacity as a director and indemnification and directors' and officers'
liability insurance in connection therewith, (iii) transactions between or among
the Company and its Wholly Owned Restricted Subsidiaries, and (iv) Restricted
Payments that are permitted by Section 4.10 hereof, in each case, shall not be
deemed Affiliate Transactions.
SECTION 4.13 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any Indebtedness or other obligations
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of this Indenture,
(b) the Amended Credit Facility as in effect as of the date of this Indenture,
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive as a whole with
respect to such dividend and other payment restrictions than those contained in
the Amended Credit Facility as in effect on the date of this Indenture, (c) this
Indenture and the Notes, (d) applicable law, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such
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Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person (including any Subsidiary of the Person), so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of this Indenture to be incurred, (f) by reason of
customary non-assignment and net worth provisions in leases or other agreements
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (h) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced, (i) customary
restrictions in Capital Lease Obligations, security agreements or mortgages
securing Indebtedness of the Company or a Restricted Subsidiary to the extent
such restrictions restrict the transfer of the property subject to such Capital
Lease Obligations, security agreements or mortgages, (j) customary restrictions
with respect to an agreement that has been entered into for the sale or
disposition of assets or Capital Stock held by the Company or any Restricted
Subsidiary, and (k) customary restrictions contained in any agreements or
documentation governing Indebtedness incurred pursuant to clause (x) of Section
4.09 hereof.
SECTION 4.14 Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Restricted Subsidiaries
The Company (i) shall not, and shall not permit any Wholly
Owned Restricted Subsidiary of the Company to, issue, transfer, convey, sell,
lease or otherwise dispose of any Equity Interests or other ownership interests
(including convertible debt securities) of any Wholly Owned Restricted
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company), unless (a) such issuance, transfer,
conveyance, sale, lease or other disposition is of all the Equity Interests and
other ownership interests of such Wholly Owned Restricted Subsidiary and (b) the
Net Proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with Section 4.16 hereof and (ii) shall not permit any
Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity
Interests or other ownership interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company.
SECTION 4.15 Limitation on Layering Debt
(a) The Company shall not, directly or indirectly, incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is by its terms subordinate or junior in right of payment to any Senior
Debt of the Company and senior in any respect in right of payment to the Notes.
(b) The Company shall not permit any Guarantor, directly or
indirectly, to incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is by its terms subordinate or junior in right
of payment to any Senior Debt of such
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Guarantor and senior in any respect in right of payment to the Subsidiary
Guarantee of such Guarantor.
SECTION 4.16 Asset Sales
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) the Company (or such Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors of the Company
and as set forth in an Officers' Certificate delivered to the Trustee) of the
assets or Equity Interests issued or sold or otherwise disposed of and (ii) at
least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary, as the case may be, from such Asset Sale is in the form
of cash; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that expressly releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) shall be deemed to be
cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to
permanently reduce any Senior Debt of the Company (and to correspondingly reduce
commitments with respect thereto in the case of revolving borrowings), or (b) to
the acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in the same line of business as the Company was engaged in on the date of this
Indenture. Pending the final application of any such Net Proceeds, the Company
may invest such Net Proceeds in any manner that is not prohibited by this
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0
million the Company shall make an Asset Sale Offer to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon, to the date of purchase, in
accordance with the procedures set forth in Section 3.10 of this Indenture. To
the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero. The Asset Sale Offer must be commenced within 30 days following
the date on which the aggregate amount of Excess Proceeds exceeds $5.0 million
and remain open for at least 30 and not more than 40 days (unless otherwise
required by applicable law).
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The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Asset Sale Offer.
SECTION 4.17 Offer to Repurchase Upon Change of Control
(a) Upon the occurrence of a Change of Control, the Company
shall make an offer to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of each Holder's Notes pursuant to the offer described below
(the "Change of Control Offer") at an offer price in cash (the "Change of
Control Payment") equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase (the "Change of
Control Payment Date").
(b) Notice of a Change of Control Offer shall be mailed by or
on behalf of the Company, with a copy to the Trustee or, at the option of the
Company and at the expense of the Company, by the Trustee within 30 days
following a Change of Control to each Holder of Notes, with the following
statements and/or information:
(1) a Change of Control Offer is being made pursuant to
this Section 4.17 and that all Notes properly
tendered pursuant to such Change of Control Offer
will be accepted for payment;
(2) the purchase price, the expiration date of the Change
of Control Offer (the "Expiration Date"), which shall
be no earlier than 30 days nor later than 40 days
from the date such notice is mailed (except as may be
otherwise required by applicable law) and the Change
of Control Payment Date, which shall be no later than
the third Business Day following the Expiration Date;
(3) any Note not properly tendered will remain
outstanding and continue to accrue interest;
(4) unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for
payment pursuant to the Change of Control Offer will
cease to accrue interest on the Change of Control
Payment Date;
(5) Holders electing to have a Note purchased pursuant to
any Change of Control Offer shall be required to
surrender the Note, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the
Company, a depositary, if appointed by the Company,
or a Paying Agent and at the address specified in the
notice prior to the expiration of the Change of
Control Offer;
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(6) Holders shall be entitled to withdraw their tendered
Notes and their election to require the Company to
purchase such Notes, provided that the Company, the
depositary or Paying Agent, as the case may be,
receives, not later than the close of business on the
Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the
Holder, the principal amount of the Notes tendered
for purchase, and a statement that such Holder is
withdrawing his tendered Notes and his election to
have such Notes purchased; and
(7) that Holders whose Notes are being purchased only in
part shall be issued new Notes equal in principal
amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer),
which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
(c) The Company shall comply with any tender offer rules under
the Exchange Act which may then be applicable, including Rule 14e-1, in
connection with the repurchase of the Notes pursuant to a Change of Control
Offer.
(d) On the Change of Control Payment Date, the Company shall,
to the extent lawful, (1) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
Paying Agent an amount equal to the aggregate Change of Control Payment in
respect of all Notes or portions thereof so tendered and (3) deliver, or cause
to be delivered, to the Trustee for cancellation the Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof properly tendered to the Company. The Paying Agent shall
promptly mail or deliver to each Holder of Notes so tendered the Change of
Control Payment for such Notes, and the Trustee shall promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
(e) Notwithstanding the foregoing, if the Change of Control
Payment Date is on or after a Regular Record Date and on or before the related
Interest Payment Date, any accrued and unpaid interest shall be paid to the
Person in whose name a Note is registered at the close of business on such
Regular Record Date, and no additional interest shall be payable to Holders who
tender Notes pursuant to the Change of Control Offer.
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(f) Notwithstanding the foregoing, the Company shall not be
required to make a Change of Control Offer upon a Change of Control if a third
party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in this Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
(g) The Change of Control provisions described in this Section
4.17 will be applicable whether or not any other provisions of this Indenture
are applicable.
SECTION 4.18 Additional Subsidiary Guarantees
If the Company or any of its Subsidiaries shall acquire or
create another Subsidiary after the date hereof, then the Company shall cause
such newly acquired or created Subsidiary (at any time such Subsidiary has gross
assets or stockholders' equity in excess of $50,000) to (i) become (by a
supplemental indenture, executed and delivered to the Trustee in form
satisfactory to the Trustee) a Guarantor and (ii) deliver to the Trustee, an
Opinion of Counsel reasonably satisfactory to the Trustee that such supplemental
indenture has been duly executed and delivered; provided, however, that all
Subsidiaries that have been properly designated as Unrestricted Subsidiaries in
accordance with this Indenture shall not be subject to the preceding clause for
so long as they continue to constitute Unrestricted Subsidiaries. In addition,
(i) each of JBAK Canton Realty, Inc., a Massachusetts corporation ("JBAK
Realty") and JBAK Holding, Inc., a Massachusetts corporation ("JBAK Holding"),
will be required to become a Guarantor at such time, if any, as it is not
prohibited from doing so under the terms of the Existing Indebtedness listed as
item __ in Schedule I hereto or of any Permitted Refinancing Indebtedness, the
net proceeds of which are used to refund, refinance or replace such Existing
Indebtedness, (ii) JBAK Realty will be required to become a Guarantor at such
time, if any, as it (A) engages in any business activity other than the
ownership, operation and maintenance of the Canton Property and activities
incidental thereto, (B) acquires or owns any material assets other than the
Canton Property and such incidental personal property as may be necessary for
the operation of the Canton Property or (C) incurs any Indebtedness other than
the Indebtedness referred to in the preceding clause (i) and (iii) JBAK Holding
will be required to become a Guarantor at such time, if any, as it (A) engages
in any business or activity other than the ownership of the stock of JBAK Realty
and activities incidental thereto, including the management of the Canton
Property, (B) acquires or owns any material asset other than the stock of JBAK
Realty, or (C) incurs any Indebtedness.
SECTION 4.19 Payments for Consent
Neither the Company nor any of its Subsidiaries 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 any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
and is paid to all Holders of Notes that consent, waive or agree to amend
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in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
ARTICLE 5.
SUCCESSORS
SECTION 5.01 Limitation on Merger, Consolidation or Sale of Assets
(a) The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another
corporation, entity or other Person, unless (i) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company under the Notes and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after giving effect to such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Company with or into a Wholly Owned Subsidiary of the Company, the Company
or the Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) shall have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) shall, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09 hereof.
(b) The Company shall deliver to the Trustee prior to the
consummation of any proposed transaction subject to the foregoing clause (a) an
Officers' Certificate and an Opinion of Counsel, each stating that the proposed
transaction and such supplemental indenture comply with this Indenture. The
Trustee shall be entitled to conclusively rely upon such Officers' Certificate
and Opinion of Counsel.
SECTION 5.02 Successor Corporation Substituted
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer,
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lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor corporation had been
named as the Company herein.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default
Each of the following constitutes an Event of Default:
(1) default for 30 days or more in the payment when due of
interest on the Notes (whether or not prohibited by Article 10 hereof);
or
(2) default in payment when due (whether payable at maturity,
upon redemption or otherwise) of the principal of or premium, if any,
on the Notes (whether or not prohibited by Article 10 hereof); or
(3) failure by the Company to comply with Section 3.10, 4.16,
4.17 or 5.01 hereof; or
(4) failure by the Company or any Subsidiary of the Company
for 30 days after written notice from the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes to the
Company to comply with any of its other agreements in this Indenture or
the Notes other than those referred to in clauses (1), (2) and (3)
above; or
(5) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of
this Indenture, which default (i) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior
to the expiration of the grace period provided in such Indebtedness on
the date of such default (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; or
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(6) failure by the Company or any of its Restricted
Subsidiaries to pay final and non-appealable judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or
stayed for a period of 60 days after their entry; or
(7) except as permitted by this Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable
or invalid and such judgment has become final or non-appealable or
shall cease for any other reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny
or disaffirm its obligations under its Subsidiary Guarantee; or
(8) the Company, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, pursuant to
or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against
it in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing its inability generally to pay its
debts as the same become due; or
(9) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company, any Restricted
Subsidiary that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary in an involuntary case or
proceeding,
(B) appoints a Custodian of the Company, any Restricted
Subsidiary that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute
a Significant Subsidiary or for all or a substantial part of
the property of the Company, any Restricted Subsidiary that is
a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a
Significant Subsidiary, or
(C) orders the liquidation of the Company, any Restricted
Subsidiary that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute
a Significant Subsidiary,
and the order or decree contemplated in clause (A), (B) or (C) of this clause
(9) remains unstayed and in effect for 60 consecutive days.
SECTION 6.02 Acceleration of Maturity
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If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes and all other Obligations thereunder to be due and
payable immediately by notice in writing to the Company and the Trustee. Upon a
declaration of acceleration, the Notes and all other Obligations thereunder
shall become immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of
Default specified in clause (8) or (9) of Section 6.01 hereof occurring with
respect to the Company, any Significant Subsidiary that is a Restricted
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all then outstanding Notes and all other
Obligations thereunder shall become immediately due and payable without further
action or notice.
If any Event of Default occurs by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company or any
Guarantor with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to Section 3.08 hereof, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the Notes.
SECTION 6.03 Other Remedies
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy (under this Indenture or otherwise) to collect
the payment of principal of, premium, if any, and interest on the Notes or to
enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04 Waiver of Past Defaults
The Holders of a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on any Note held by a
non-consenting Holder; provided, however, that the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding may rescind
an acceleration and its consequences, including any related payment default that
resulted from such acceleration. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every
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purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05 Control by Majority
The Holders of a majority in aggregate principal amount of the
then outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability. The Trustee may take any other action
which it deems proper and which is not inconsistent with any such direction.
SECTION 6.06 Limitation on Suits
No Holder of a Note will have any right to institute any
proceeding with respect to this Indenture or for any remedy hereunder, unless
(i) such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default with respect to the Notes, (ii) the Holders of at
least 25% in aggregate principal amount of the Notes then outstanding shall have
made written request to the Trustee to institute such proceeding and, if
requested by the Trustee, provided an indemnity satisfactory to the Trustee,
with respect to such proceeding, (iii) the Trustee shall not have received from
the Holders of a majority in aggregate principal amount of the Notes then
outstanding a direction inconsistent with such request and (iv) the Trustee
shall have failed to institute such proceeding within 30 days after such request
and, if requested, the provision of an indemnity satisfactory to the Trustee.
Notwithstanding anything to the contrary contained in this
Section 6.06, Holders of a majority in principal amount of the outstanding Notes
may institute any proceeding with respect to this Indenture or the Notes or any
remedy thereunder; provided that, upon institution of any proceeding or
exercise of any remedy, such Holders provide the Trustee with prompt written
notice thereof.
A Holder of Notes may not use this Indenture to prejudice the
rights of another Holder of Notes or to obtain a preference or priority over
another Holder of Notes.
SECTION 6.07 Rights of Holders to Receive Payment
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium, if any,
or interest on any Note, on or
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after the respective due dates expressed in such Note, any Redemption Date, any
Change of Control Payment Date or any Purchase Date, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.08 Collection Suit by Trustee
If an Event of Default specified in Section 6.01(1) or (2)
hereof occurs and is continuing, the Trustee is authorized to recover judgment
in its own name and as trustee of an express trust against the Company or any
Guarantor for the whole amount of principal of, premium, if any, and interest
owing on the Notes and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due to the Trustee under Section 7.07 hereof.
SECTION 6.09 Trustee May File Proofs of Claim
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder of Notes to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders of Notes, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof. To the extent that the payment of any
such compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section 7.07
hereof out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other properties that
the Holders of Notes may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder of Notes any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder of Notes in any such proceeding.
SECTION 6.10 Priorities
If the Trustee collects any money pursuant to this Article 6,
it shall first pay the Trustee, its agents and attorneys for amounts due under
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Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection and, thereafter, the Trustee shall pay out the remainder
of the money, subject to Article 10 and Section 12.04 hereof, in the
following order:
First: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium, if any, and interest,
respectively;
Second: without duplication, to the Holders for any other
Obligations owing to the Holders under this Indenture and the Notes;
and
Third: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 Undertaking for Costs
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.07 hereof, or a suit by a Holder or Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01 Duties of Trustee
(1) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
its own affairs.
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(2) Except during the continuance of an Event of Default:
(A) the duties of the Trustee shall be determined solely
by the TIA or the express provisions of this Indenture and the Trustee
need perform, and be liable for (as set forth herein), only those duties
that are specifically set forth in the TIA or this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(B) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture, provided that the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(3) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(A) this paragraph does not limit the effect of clause (2)
of this Section 7.01;
(B) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(C) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(4) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
clauses (1), (2) and (3) of this Section 7.01.
(5) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture unless the Holders shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
(6) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(7) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or other paper or documents, but the Trustee, in its discretion may
make such further inquiry or investigation into such facts or
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matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company or any Subsidiary of the Company, personally
or by agent or attorney.
SECTION 7.02 Rights of Trustee
(1) The Trustee may conclusively rely and shall be fully
protected in relying upon any resolution, document, Officers' Certificate or any
other certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond or other document believed by it to be genuine and to have
been signed or presented by the proper Person. The Trustee need not investigate
any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(3) The Trustee may act through its attorneys, agents,
custodians, and nominees and shall not be responsible for the misconduct or
negligence of any agent, custodian and nominee appointed with due care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(5) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company or any Guarantor shall
be sufficient if signed by an Officer of the Company or such Guarantor. A
permissive right granted to the Trustee hereunder shall not be deemed an
obligation to act.
(6) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture
including, without limitation, the provisions of Section 6.05 hereof, unless
such Holders shall have offered to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities that
might be incurred by it in compliance with such request, order or direction.
(7) The Trustee shall not be charged with knowledge of any
Default or Event of Default unless either (i) a Responsible Officer of the
Trustee shall have actual knowledge of such Default or Event of Default or (ii)
written notice of such Default or Event of Default shall have been given to the
Trustee by the Company or any Holder.
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(8) In no event shall the Trustee be liable for the selection
of investments or for investment losses incurred thereon. The Trustee shall have
no liability in respect of losses incurred as a result of the liquidation of any
such investment prior to its stated maturity or the failure of the party
directing such investment to provide timely written investment direction;
provided in each such case that the Trustee shall have acted strictly in
accordance with written directions received from the instructing party. The
Trustee shall have no obligation to invest or reinvest any amounts held
hereunder in the absence of such written investment direction.
(9) In the event that the Trustee is also acting as Paying
Agent, transfer agent, or Registrar hereunder, the rights and protections
afforded to the Trustee pursuant to this Article 7 shall also be afforded to
such Paying Agent, transfer agent, or Registrar.
SECTION 7.03 Individual Rights of Trustee
The Trustee, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Company or
any Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. However, the Trustee is also subject to Sections 7.10 and
7.11 hereof.
SECTION 7.04 Trustee's Disclaimer
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the direction of the Company under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05 Notice of Defaults
If a Default or Event of Default occurs and is continuing and
if it is known to a Responsible Officer of the Trustee, the Trustee shall mail
to Holders of Notes a notice of the Default or Event of Default within 90 days
after it occurs. Except in the case of a Default or Event of Default in payment
of principal of, premium, if any, or interest on any Note pursuant to Section
6.01(1) or (2) hereof, the Trustee may withhold the notice if it in good faith
determines that withholding the notice is in the interests of Holders of Notes.
SECTION 7.06 Reports by Trustee to Holders of Notes
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of Notes a brief report dated
as of such reporting date that complies with TIA Section 313(a) (but if no event
described in TIA Section 313(a) has occurred within the twelve months preceding
the reporting date, no report need be transmitted). The Trustee also shall
comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
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SECTION 7.07 Compensation and Indemnity
The Company shall pay to the Trustee, from time to time as may
be agreed upon between them, reasonable compensation for its acceptance of this
Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services in accordance with any provision of this Indenture
(including, without limitation, the reasonable compensation, expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ (A) in connection with the preparation, execution and delivery of
this Indenture, any waiver or consent hereunder, any modification or termination
hereof, or any Event of Default or alleged Event of Default; (B) if an Event of
Default occurs, in connection with such Event of Default and collection,
bankruptcy, insolvency and other enforcement proceedings relating thereto; (C)
in connection with the administration of the Trustee's rights pursuant hereto;
or (D) in connection with any removal of the Trustee pursuant to Section 7.08
hereof), except such disbursements, advances and expenses as may be attributable
to its negligence or bad faith.
The Company shall indemnify the Trustee and its officers,
directors, employees, and agents against any and all losses, liabilities,
obligations, damages, penalties, judgments, actions, suits, proceedings,
reasonable costs and expenses (including reasonable fees and disbursements of
counsel) of any kind whatsoever which may be incurred by the Trustee in
connection with any investigative, administrative or judicial proceeding
(whether or not such indemnified party is designated a party to such proceeding)
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this Section 7.07) and defending itself
against any claim (whether asserted by the Company or any Holder or any other
Person) or liability in connection with the exercise or performance of any of
its duties or powers hereunder; provided, however, that the Company need not
reimburse any expense or indemnify against any loss, obligation, damage,
penalty, judgment, action, suit, proceeding, reasonable cost or expense
(including reasonable fees and disbursements of counsel) of any kind whatsoever
which may be incurred by the Trustee in connection with any investigative,
administrative or judicial proceeding (whether or not such indemnified party is
designated a party to such proceeding) in which it is determined that the
Trustee acted with negligence or bad faith. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of the Company under this Section 7.07 shall
survive the resignation or removal of the Trustee and the satisfaction and
discharge of this Indenture.
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To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(8) or (9) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.08 Replacement of Trustee
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
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If the Trustee, after written request by any Holder of Notes
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10 hereof, such Holder of a Note may, on behalf of itself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
The Company shall give or cause to be given notice of each
resignation and each removal of the Trustee to all Holders in the manner
provided herein. Each notice shall include the name of the successor Trustee and
the address of its Corporate Trust Office.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of Notes. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee; provided that all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business (including
the trust created by this Indenture) to, another corporation, the successor
corporation without any further act shall be the successor Trustee.
SECTION 7.10 Eligibility; Disqualification
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state or territory thereof or of the District of Columbia that
is authorized under such laws to exercise corporate trustee power, that is
subject to supervision or examination by federal, state, territorial or District
of Columbia authorities and that has, or is a wholly owned subsidiary of a bank
holding company that has, a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 7.10 it shall resign immediately
in the manner and with the effect specified in this Article 7.
This Indenture shall always have a Trustee who satisfies the
requirements of the TIA, including TIA Sections 310(a)(1), (2) and (5). The
Trustee is subject to TIA Section 310(b).
SECTION 7.11 Preferential Collection of Claims Against Company
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The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01 Option to Effect Legal Defeasance or Covenant Defeasance
The Company may, at the option of the Board of Directors of
the Company, evidenced by a Board Resolution set forth in an Officers'
Certificate, at any time, with respect to the Notes, elect to have either
Section 8.02 or 8.03 hereof be applied to all Notes and Subsidiary Guarantees
then outstanding upon compliance with the conditions set forth in this Article
8.
SECTION 8.02 Legal Defeasance and Discharge
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be deemed to have been discharged from their respective obligations with respect
to all Notes and Subsidiary Guarantees then outstanding on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, Legal Defeasance means that the Company and any Guarantor shall be
deemed to have paid and discharged the entire Indebtedness represented by the
Notes and any Subsidiary Guarantees then outstanding, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all their other obligations under such Notes and this Indenture (and
the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments prepared by the Company acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of Notes then outstanding to
receive solely from the trust fund described in Section 8.04 hereof, and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, or on
the Redemption Date, as the case may be, (b) the Company's obligations with
respect to such Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 4.02
and 4.03 hereof, (c) the rights, powers, trusts, duties, indemnities and
immunities of the Trustee hereunder and the Company's obligations in connection
therewith and (d) this Article 8. Subject to compliance with this Article 8, the
Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof with respect to the
Notes.
SECTION 8.03 Covenant Defeasance
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Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from their obligations under the covenants contained in Sections
4.04, 4.06, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14 , 4.15, 4.16, 4.17, 4.18 and 4.19
and Article 5 hereof with respect to the outstanding Notes and the Subsidiary
Guarantees on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes and the Subsidiary
Guarantees shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed to be "outstanding" for all other purposes hereunder (it
being understood that such Notes and Subsidiary Guarantees shall not be deemed
outstanding for financial accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes and Subsidiary
Guarantees, the Company and any Guarantor may omit to comply with and shall have
no liability in respect of any term, condition or limitation set forth in any
such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document, and such
omission to comply shall not constitute a Default or Event of Default under
Section 6.01(3) or (4) hereof, but, except as specified above, the remainder of
this Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03, subject to the satisfaction of the conditions set forth in Section
8.04 hereof, Sections 6.01(3) through 6.01(7) hereof shall not constitute Events
of Default.
SECTION 8.04 Conditions to Legal Defeasance or Covenant Defeasance
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes and Subsidiary
Guarantees:
In order to exercise either Legal Defeasance or Covenant
Defeasance, as applicable:
(a) the Company must irrevocably deposit, or cause to be
deposited, with the Trustee, in trust, for the benefit of the Holders
of Notes and without retaining any legal interest in the corpus of such
trust, cash in U.S. dollars, Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
and discharge, and which shall be applied by the Trustee to pay and
discharge, the principal of, premium, if any, and interest due on the
outstanding Notes on the Stated Maturity thereof or on the applicable
Redemption Date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular
Redemption Date;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company
has received from, or there has been
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published by, the U.S. Internal Revenue Service a ruling or (B) since
the date of this Indenture, there has been a change in the applicable
U.S. federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the Holders
of the outstanding Notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such Legal Defeasance
and will be subject to U.S. federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such Covenant Defeasance and
will be subject to U.S. federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event
of Default resulting from the borrowing of funds to be applied to such
deposit) or, insofar as Events of Default set forth in Section 6.01(8)
or 6.01(9) hereof are concerned, at any time in the period ending on
the 91st day after the date of such deposit (it being understood that
this condition shall not be satisfied until the expiration of such
period);
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which
the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and that the Trustee has a perfected
security interest in such trust funds for the ratable benefit of the
Holders of Notes;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the
other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others;
(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied
with; and
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(i) the Trustee shall have received such other documents and
assurances as the Trustee shall reasonably require.
SECTION 8.05 Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions
(a) Subject to the provisions of the last paragraph of Section
4.03 hereof and to Section 8.06 hereof, all money and Government Securities
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant
to Section 8.04 hereof in respect of the Notes then outstanding shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent as the Trustee may determine, to the Holders of such Notes of all sums due
and to become due thereon in respect of principal, premium, if any, and
interest, but such money and Government Securities need not be segregated from
other funds except to the extent required by law.
(b) The Company shall pay and indemnify the Trustee against
any tax, fee or other charge imposed on or assessed against the cash or
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of Notes then outstanding.
This Section 8.05(b) shall survive the termination of this Indenture, and the
earlier removal or resignation of the Trustee.
SECTION 8.06 Repayment to Company
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Securities held by it as provided in Section
8.04 hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.07 Reinstatement
If the Trustee or Paying Agent is unable to apply any United
States dollars or Government Securities in accordance with Section 8.02 or 8.03
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and any Guarantor's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 or 8.03 hereof, as the case may be, until such
time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 or 8.03 hereof, as the case may be; provided,
however, that if the Company or any Guarantor makes any payment of principal of,
premium, if any, or interest on any Note following the reinstatement of its
obligations, the Company or any
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Guarantor shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENTS
SECTION 9.01 Without Consent of Holders
Notwithstanding Section 9.02 of this Indenture, the Company,
the Guarantors and the Trustee may amend or supplement this Indenture or the
Notes without the consent of any Holder of a Note:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Article 5 hereof;
(3) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(4) to provide security for the Notes;
(5) to add a Guarantor under this Indenture;
(6) to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely
affect the legal rights hereunder of any Holder of Notes;
(7) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA;
(8) to provide for the assumption of the Company's or any
Guarantor's obligations to the Holders of Notes; or
(9) to add covenants for the benefit of the Holders or to
surrender any right or power conferred upon the Company.
Upon the written request of the Company, accompanied by a
resolution of the Board of Directors of the Company authorizing the execution of
any such amended or supplemental Indenture, and upon receipt by the Trustee of
an Officers' Certificate and an Opinion of Counsel in compliance with Section
1.05 hereof, the Trustee shall join with the Company and the Guarantors in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
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obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02 With Consent of Holders
Except as provided below in this Section 9.02, this Indenture
and the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, the Notes), and, subject to Sections
6.04 and 6.07 hereof, any existing default or compliance with any provision of
this Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Upon the request of the Company, accompanied by a resolution
of the Board of Directors of the Company authorizing the execution of any such
amended or supplemental Indenture, and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of an Officers' Certificate and an
Opinion of Counsel in compliance with Section 1.05 hereof, the Trustee shall
join with the Company and the Guarantors in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders of each Note
affected thereby a notice briefly describing the amendment, supplement or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such amended
or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof,
the Holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each Holder of Notes affected, an amendment or waiver may not (with respect to
any Note held by a nonconsenting Holder):
(1) reduce the principal amount of the Notes whose Holders
must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of
any Note or alter the provisions with respect to the redemption of the
Notes or, if the Company has become obligated to make a Change of
Control Offer or an Asset Sale Offer,
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amend, change or modify the obligation of the Company to make or
consummate such Change of Control Offer or Asset Sale Offer;
(3) reduce the rate of or change the time for payment of
interest on any Note;
(4) waive a Default or Event of Default in the payment of
principal of, premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in
such Note;
(6) make any change in Section 6.04 or 6.07 hereof;
(7) waive a redemption payment with respect to any Note;
(8) make any change in Section 12.04 or Article 10 hereof that
adversely affects the rights of any Holder of Notes or any change to
any other Section hereof that adversely affects the rights of any
Holder of Notes under Section 12.04 or Article 10 hereof (it being
understood that amendments to Section 4.09 hereof which may have the
effect of increasing the amount of Senior Debt that the Company and the
Guarantors may incur shall not, for purposes of this clause (8), be
deemed to be a change that adversely affects the rights of any Holder
of Notes under Section 12.04 or Article 10 hereof); or
(9) make any change in the foregoing amendment and waiver
provisions of this Article 9.
SECTION 9.03 Compliance with Trust Indenture Act
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental Indenture that complies with
the TIA as then in effect.
SECTION 9.04 Revocation and Effect of Consents
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to such Holder's Note or portion of such
Note by written notice to the Trustee received before the date the amendment,
supplement or waiver becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every Holder
of Notes, except as provided in Section 9.02 hereof.
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SECTION 9.05 Notation on or Exchange of Notes
The Trustee may, but shall not be required to, place an
appropriate notation about an amendment, supplement or waiver on any Note
thereafter authenticated. The Company in exchange for all Notes may issue and
the Trustee shall authenticate new Notes that reflect the amendment, supplement
or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06 Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not, sign it. In signing or refusing to
sign any amended or supplemental indenture, the Trustee shall be entitled to
receive, if requested, an indemnity satisfactory to it and to receive and,
subject to Section 7.01 hereof, shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that such
amendment or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it will be valid and
binding upon the Company and the Guarantors in accordance with its terms. The
Company may not sign an amendment or supplemental Indenture until the Board of
Directors of the Company approves it.
ARTICLE 10.
SUBORDINATION
SECTION 10.01 Agreement to Subordinate
The Company agrees, and each Holder by accepting a Note
agrees, that the payment (by set-off or otherwise) of principal of, premium, if
any, and interest on the Notes (including with respect to any repurchases of the
Notes) shall be subordinated in right of payment, as set forth in this Article
10, to the prior payment in full in cash, or, at the option of the holders of
Senior Debt of the Company, in Cash Equivalents, of all Obligations in respect
of Senior Debt of the Company, whether outstanding on the date hereof or
hereafter incurred.
SECTION 10.02 Liquidation; Dissolution; Bankruptcy
Upon any distribution to creditors of the Company upon any
liquidation, dissolution or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, whether voluntary or involuntary, an assignment for the
benefit of creditors or any marshalling of the Company's assets and liabilities,
the holders of Senior Debt of the Company will be entitled
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to receive payment in full in cash, or, at the option of the holders of Senior
Debt of the Company, in Cash Equivalents, of all Obligations due or to become
due in respect of such Senior Debt (including interest after the commencement of
any such proceeding, at the rate specified in the applicable Senior Debt) before
the Holders of Notes will be entitled to receive any payment of principal of,
premium, if any, or interest on the Notes, and until all Obligations with
respect to Senior Debt of the Company are paid in full in cash, or, at the
option of the holders of Senior Debt of the Company, in Cash Equivalents, any
distribution of any kind or character to which the Holders of Notes would be
entitled shall be made to the holders of Senior Debt of the Company (except that
Holders of Notes may receive Permitted Junior Securities and payments made from
the trust described in Article 8 hereof).
SECTION 10.03 Default on Designated Senior Debt
The Company shall not make, directly or indirectly, (x) any
payment of principal of, premium, if any, or interest on the Notes (except in
Permitted Junior Securities or from the trust described in Article 8 hereof) or
(y) acquire any of the Notes for cash or property or otherwise or make any other
distribution with respect to the Notes if:
(i) any default occurs and is continuing in the payment when
due, whether at maturity, upon any redemption, by declaration or
otherwise, of any principal of, premium, if any, or interest on, any
Designated Senior Debt of the Company, or
(ii) any other default occurs and is continuing with respect
to Designated Senior Debt of the Company that permits holders of the
Designated Senior Debt of the Company as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the holders of such
Designated Senior Debt of the Company.
The Company may and shall resume payments on the Notes:
(a) in the case of a payment default, upon the date on which
such default is cured or waived or otherwise has ceased to exist, and
(b) in the case of a nonpayment default, upon the earlier of
the date on which such nonpayment default is cured or waived or
otherwise has ceased to exist or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of
any Designated Senior Debt of the Company has been accelerated and such
acceleration remains in full force and effect.
No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No nonpayment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such
nonpayment default shall have been waived for a period of not less than 90 days.
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The Company shall give prompt written notice to the Trustee of
any default in the payment of any Senior Debt of the Company or any acceleration
under any Senior Debt of the Company or under any agreement pursuant to which
Senior Debt of the Company may have been issued. Failure to give such notice
shall not affect the subordination of the Notes to the Senior Debt of the
Company or the application of the other provisions provided in this Article 10.
SECTION 10.04 Acceleration of Notes
If the Company fails to make any payment on the Notes when due
or within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure shall constitute an Event of
Default and shall entitle the Holders of Notes to accelerate the Maturity
thereof. The Company shall promptly notify holders of Senior Debt of the Company
and the Guarantors if payment of the Notes is accelerated because of an Event of
Default.
SECTION 10.05 When Distribution Must be Paid Over
In the event that, notwithstanding the foregoing, the Trustee
or any Holder receives any payment of any principal of, premium, if any, or
interest on the Notes at a time when such payment is prohibited by Section 10.02
or 10.03 hereof, such payment shall be held by the Trustee or such Holder, in
trust for the benefit of, and shall be paid forthwith over and delivered to,
upon written request, the holders of Senior Debt of the Company as their
interests may appear or their representative under the indenture or other
agreement (if any) pursuant to which Senior Debt of the Company may have been
issued, as their respective interests may appear, for application to the payment
of all Obligations with respect to Senior Debt of the Company remaining unpaid
to the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Debt.
Each Holder by his acceptance of a Note irrevocably agrees
that if any payment or payments shall be made pursuant to this Indenture and the
amount or total amount of such payment or payments exceeds the amount, if any,
that such Holder would be entitled to receive upon the proper application of the
subordination provisions of this Article 10, the Holder agrees that it will be
obliged to pay over the amount of the excess payment to the holders of Senior
Debt of the Person that made such payment or payments or their representative or
representatives, as instructed in a written notice of such excess payment,
within ten days of receiving such notice.
With respect to the holders of Senior Debt of the Company, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt of the Company shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to
any such holders if the Trustee shall pay over or distribute to or on behalf of
Holders or the Company or any other Person, money or assets to which any
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holders of Senior Debt of the Company shall be entitled by virtue of this
Article 10, except if such payment is made as a result of the willful misconduct
or gross negligence of the Trustee.
SECTION 10.06 Notice by Company
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of principal
of, premium, if any, or interest on the Notes to violate this Article 10, but
failure to give such notice shall not affect the subordination of the Notes to
Senior Debt as provided in this Article 10.
SECTION 10.07 Subrogation
After all Senior Debt of the Company is paid in full and until
the Notes are paid in full in cash, Holders of Notes shall be subrogated
(equally and ratably with all other Indebtedness pari passu with the Notes) to
the rights of holders of Senior Debt of the Company to receive distributions
applicable to Senior Debt of the Company to the extent that distributions
otherwise payable to the Holders of Notes have been applied to the payment of
Senior Debt of the Company. A distribution made under this Article 10 to holders
of Senior Debt of the Company that otherwise would have been made to Holders of
Notes is not, as between the Company and Holders, a payment by the Company on
such Senior Debt.
If any payment or distribution to which the Holders of Notes
would otherwise have been entitled but for the provisions of this Article 10
shall have been applied, pursuant to the provisions of this Article 10, to the
payment of amounts payable under the Senior Debt of the Company, then and in
such case the Holders shall be entitled to receive from the holders of such
Senior Debt at the time outstanding any payments or distributions received by
such holders of such Senior Debt in excess of the amount sufficient to pay all
amounts payable under or respect of such Senior Debt in full; provided that such
payments or distributions shall be paid first pro rata to Holders of Notes that
previously paid amounts then pro rata to all Holders of Notes.
SECTION 10.08 Relative Rights
This Article 10 defines the relative rights of Holders of
Notes and holders of Senior Debt of the Company. Nothing in this Indenture
shall:
(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of, premium, if any, and interest on the Notes in accordance
with their terms;
(2) affect the relative rights of Holders of Notes and
creditors of the Company other than their rights in relation to holders
of Senior Debt of the Company; or
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(3) prevent the Trustee or any Holder of Notes from exercising
its available remedies upon a Default or an Event of Default, subject
to the rights of holders and owners of Senior Debt of the Company to
receive distributions and payments otherwise payable to Holders of
Notes.
If the Company fails because of this Article 10 to pay
principal of, premium, if any, or interest on a Note on the due date, the
failure is nevertheless a Default or an Event of Default.
SECTION 10.09 Subordination May Not be Impaired by Company
No right of any holder of Senior Debt of the Company to
enforce the subordination of the Indebtedness evidenced by the Notes shall be
impaired by any act or failure to act by the Company or any Holder or by the
failure of the Company or any Holder to comply with this Indenture.
SECTION 10.10 Distribution or Notice to Representative
Whenever a distribution is to be made or a notice given to
holders of Senior Debt of the Company, the distribution may be made and the
notice given to their representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders of Notes shall be
entitled to conclusively rely upon any order or decree made by any court of
competent jurisdiction or upon any certificate of such representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior Debt and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10.
SECTION 10.11 Rights of Trustee and Paying Agent
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless a Responsible Officer of the Trustee shall
have received at its Corporate Trust Office at least five Business Days prior to
the date of such payment written notice of facts that would cause the payment of
any principal of, premium, if any, or interest on the Notes to violate this
Article 10. Only the Company or a representative may give the notice. Nothing in
this Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights.
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SECTION 10.12 Authorization to Effect Subordination
Each Holder of a Note by the Holder's acceptance thereof
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time to file such claim, a representative of Designated Senior Debt of the
Company is hereby authorized to file an appropriate claim for and on behalf of
the Holders of Notes.
ARTICLE 11.
SATISFACTION AND DISCHARGE
Section 11.01 Satisfaction and Discharge of Indenture
This Indenture shall be discharged and will cease to be of
further effect as to all Notes issued hereunder, except for Sections 7.07 and
8.05(b) hereof, which shall survive the satisfaction and discharge of
the Indenture, when either
(a) all such Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes
which have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust
and thereafter repaid to the Company) have been
delivered to the Trustee for cancellation; or
(b) (i) all such Notes not theretofore delivered to
such Trustee for cancellation have become
due and payable by reason of the making of a
notice of redemption or otherwise or will
become due and payable within one year and
the Company or a Guarantor has irrevocably
deposited or caused to be deposited with
such Trustee as trust funds in trust an
amount of money sufficient to pay and
discharge the entire Indebtedness on such
Notes not theretofore delivered to the
Trustee for cancellation for principal,
premium, if any, and accrued interest to the
date of maturity or redemption;
(ii) no Default or Event of Default with respect
to this Indenture or the Notes shall have
occurred and be continuing on the date of
such deposit or shall occur as a result of
such deposit and such deposit will not
result in a breach or violation of, or
constitute a default under, any other
instrument to which the Company or a
Guarantor is a party or by which the Company
or a Guarantor is bound;
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(iii) the Company or a Guarantor has paid or
caused to be paid all sums payable by it
under this Indenture; and
(iv) the Company has delivered irrevocable
instructions to the Trustee under this
Indenture to apply the deposited money
toward the payment of such Notes at maturity
or the Redemption Date, as the case may be.
In addition, the Company must deliver an Officers' Certificate
and an Opinion of Counsel to the Trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
Section 11.02 Application of Trust Money
Subject to the provisions of the last paragraph of Section
4.03 hereof, all money deposited with the Trustee pursuant to Section 11.01
hereof shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or
through any Paying Agent as the Trustee may determine, to Persons entitled
thereto, of the principal (and premium, if any) and interest for whose payment
such money has been deposited with the Trustee.
If the Trustee or Paying Agent is unable to apply any money in
accordance with Section 11.01 hereof by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Notes shall be revived and reinstated
as though such deposit had occurred pursuant to Section 11.01 hereof; provided
that if the Company has made any payment of principal of, premium, if any, or
interest on any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 12.
SUBSIDIARY GUARANTEES
Section 12.01 Subsidiary Guarantee
For value received, the Guarantors, jointly and severally,
hereby unconditionally guarantee to the Holders of the Notes and to the Trustee
the due and punctual payment of the principal of, premium, if any, and interest
(including interest accruing on or after the filing of a petition in bankruptcy
or reorganization relating to the Company, whether or not a claim for
post-filing interest is allowed in such proceeding) on, the Notes, and all other
amounts payable by the Company under the Notes and under this Indenture
(collectively, the "Guaranteed Obligations"), when and as the same shall become
due and payable, whether at the stated maturity or by declaration of
acceleration, call for redemption
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or otherwise, according to the terms of the Notes and this Indenture. Each
Subsidiary Guarantee pursuant to this Article 12 constitutes a guarantee of
payment in full when due and not merely a guarantee of collectibility.
Notwithstanding the foregoing, each Guarantor's liability under this Section
12.01 shall be limited to the maximum amount that would not result in such
Guarantor's Subsidiary Guarantee under this Section 12.01 constituting a
fraudulent conveyance or fraudulent transfer under applicable law.
Section 12.02 Obligation of the Guarantors Unconditional
Except as provided in Section 12.05 hereof, the obligations of
each Guarantor hereunder shall be as aforesaid absolute and unconditional, and
shall not be impaired, modified, released or limited by any occurrence or
condition whatsoever, including, without limitation, (i) any compromise,
settlement, release, waiver, renewal, extension, indulgence or modification of,
or any change in, any of the obligations and liabilities of the Company
contained in the Notes or this Indenture, (ii) any impairment, modification,
release or limitation of the liability of the Company or its estate in
bankruptcy, or any remedy for the enforcement thereof, resulting from the
operation of any present or future provision of any applicable Bankruptcy Law,
as amended, or other statute or from the decision of any court, (iii) the
assertion or exercise by the Company, the Holders of Notes or the Trustee of any
rights or remedies under the Notes or this Indenture or their delay in or
failure to assert or exercise any such rights or remedies, (iv) the assignment
or the purported assignment of any property as additional security for the
Notes, including all or any part of the rights of the Company under this
Indenture, (v) the extension of the time for payment by the Company of any
payments or other sums or any part thereof owing or payable under any of the
terms and provisions of the Notes or this Indenture or of the time for
performance by the Company of any other obligations under or arising out of any
such terms and provisions or the extension or the renewal of any thereof, (vi)
the modification or amendment (whether material or otherwise) of any duty,
agreement or obligation of the Company set forth in this Indenture, (vii) the
voluntary or involuntary liquidation, dissolution, sale or other disposition of
all or substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
proceeding affecting, the Company, or any of the Guarantors or any of their
respective assets, or the disaffirmance of this Subsidiary Guarantee pursuant to
this Article 12 or the Notes or this Indenture in any such proceeding, (viii)
the release or discharge of the Company from the performance or observance of
any agreement, covenant, term or condition contained in any of such instruments
by operation of law, (ix) the unenforceability of the Notes or this Indenture or
any Subsidiary Guarantee pursuant to this Article 12, or (x) any other
circumstance which might otherwise constitute a legal or equitable discharge of
a surety or guarantor.
Section 12.03 Waiver Relating to Subsidiary Guarantees
Each Guarantor hereby (i) waives diligence, presentment,
demand of payment, filing of claims with a court in the event of the merger,
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company or to realize on any collateral, protest or notice with
respect to the Guaranteed Obligations and all demands
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whatsoever, (ii) acknowledges that any agreement, instrument or document
evidencing the Guaranteed Obligations may be transferred and that the benefit of
its obligations hereunder shall extend to each holder of any agreement,
instrument or document evidencing the Guaranteed Obligations without notice to
them, and (iii) covenants that its Subsidiary Guarantee pursuant to this Article
12 will not be discharged except pursuant to Section 12.05 hereof or by complete
payment and performance of the Guaranteed Obligations and of its Subsidiary
Guarantee pursuant to this Article 12.
Section 12.04 Subordination of Subsidiary Guarantees
Each Guarantee of a Guarantor under this Article 12 is
subordinate and junior in right of payment to the prior payment in full, in
cash, or at the option of the holders of Senior Debt of such Guarantor, in Cash
Equivalents, of all Senior Debt of such Guarantor, including any Guarantee
issued by such Guarantor that constitutes Senior Debt of such Guarantor, to the
same extent and in the same manner to which the Notes are subordinated pursuant
to Article 10 hereof to the Senior Debt of the Company, and all provisions of
Article 10 hereof applicable to the subordination of the Notes shall similarly
apply to the subordination of the Subsidiary Guarantees pursuant to this Article
12.
Section 12.05 Guarantors May Consolidate, etc., on Certain Terms
Subject to Section 12.06 hereof, no Guarantor (including any
existing or future Restricted Subsidiary that becomes an additional Guarantor)
may consolidate with or merge with or into (whether or not such Guarantor is the
surviving Person) another Person whether or not affiliated with such Guarantor,
or sell, assign, transfer, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions to another
Person, unless (i) the Person formed by or surviving any such consolidation or
merger (if other than such Guarantor) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is a
corporation organized and existing under the laws of the United States of
America, any state thereof, or the District of Columbia and expressly assumes
all the obligations of such Guarantor, pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the Trustee, under the Notes and
this Indenture and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. In connection with any consolidation or
merger contemplated by this Section 12.05, the Company shall deliver to the
Trustee prior to the consummation of the proposed transaction an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation or
merger and such supplemental indenture comply with this Article 12 and that all
conditions precedent herein provided relating to such transaction have been
complied with.
The provisions of clause (i) of the preceding paragraph shall
not apply if the Person formed by or surviving the relevant consolidation or
merger or to which the relevant sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is the Company, a Guarantor or a Person
that is not, after giving effect to such transaction, a Restricted Subsidiary of
the Company.
Section 12.06 Release of Subsidiary Guarantee
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<PAGE> 86
In the event of (i) a merger or consolidation to which a
Guarantor is a party, then the Person formed by or surviving such merger or
consolidation (if, after giving effect to such transaction, other than the
Company or a Restricted Subsidiary of the Company) shall be released and
discharged from the obligations of such Guarantor under its Subsidiary Guarantee
or (ii) a sale or other disposition (whether by merger, consolidation or
otherwise) of all of the Equity Interests of a Guarantor at the time owned by
the Company and its Restricted Subsidiaries to any Person that, after giving
effect to such transaction, is neither the Company nor a Restricted Subsidiary
of the Company, then such Guarantor shall be released and discharged from its
obligations under its Subsidiary Guarantee; provided that, in the case of each
of clauses (i) and (ii) above, (A) the relevant transaction is in compliance
with the terms of this Indenture, (B) immediately after giving effect to such
transaction, no Default or Event of Default shall exist and (C) the Person being
released and discharged shall have been released and discharged from all
obligations it might otherwise have under Guarantees of Indebtedness of the
Company or any of its Restricted Subsidiaries.
Upon any Guarantor ceasing to be a Guarantor pursuant to any
provision of this Indenture, at the request of the Company which request shall
be accompanied by an Officers' Certificate and an Opinion of Counsel, each
certifying that no Event of Default (or event or condition which with the giving
of notice or the passage of time would become an Event of Default) exists and is
continuing and that all conditions precedent herein provided relating to this
Section 12.06 have been complied with, the Trustee shall execute and deliver an
appropriate instrument evidencing any such release. Any Guarantor not released
from its obligations under its Guarantee shall remain liable for the full amount
of principal of, premium, if any, and interest on the Notes and for the other
obligations of any Guarantor under this Indenture as and to the extent provided
in this Indenture.
SECTION 12.07 Contribution of Guarantors
In the event that any Guarantor (such Guarantor being herein
referred to as the "Funding Party") shall make a payment under its Subsidiary
Guarantee pursuant to this Article 12, it shall be entitled to a contribution
from each other Guarantor (each, a "Contributor") in the amount of such
Contributor's pro rata share of the amount of such payment by such Funding Party
so long as exercise of such right does not impair the rights of Holders of Notes
under any Subsidiary Guarantee. The failure of a Contributor to discharge its
obligations under this Section 12.07 shall not affect the obligations of any
Guarantor under its Subsidiary Guarantee pursuant to this Article 12. The
obligations under this Section 12.07 shall be unaffected by any of the events
described in Section 12.02 or any comparable events pertaining to the Funding
Party, its Subsidiary Guarantee or the undertakings in this Section 12.07.
SECTION 12.08. Reinstatement of Subsidiary Guarantees
Each Guarantee pursuant to this Article 12 shall, to the
fullest extent permitted by law, continue to be effective or be reinstated, as
the case may be, if at any time payment and performance of any of the Guaranteed
Obligations is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any
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<PAGE> 87
Holder of Notes or by the Trustee, whether as a "voidable preference,"
"fraudulent conveyance," "fraudulent transfer," or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Guaranteed
Obligations shall, to the fullest extent permitted by law, be reinstated and
deemed reduced only by such amount paid and not so rescinded, reduced, restored
or returned.
ARTICLE 13.
MISCELLANEOUS
SECTION 13.01 Trust Indenture Act Controls
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.
SECTION 13.02 Notices
Any notice or communication by the Company, any Guarantor or
the Trustee to the others is duly given if in writing and delivered by hand
delivery, by first-class mail (registered or certified, return receipt
requested), by facsimile or by overnight air courier guaranteeing next day
delivery, to the others' addresses as follows:
If to the Company or any Guarantor:
J. Baker, Inc.
555 Turnpike Street
Canton, Massachusetts 02021
Attention: Philip G. Rosenberg
Chief Financial Officer
Telecopier No.: 781-821-4867
If to the Trustee:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Attention: Global Trust Services
Telecopier No.: 212-946-8161
The Company, any Guarantor or the Trustee by notice to the
others may designate additional or different addresses of subsequent notices or
communications.
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<PAGE> 88
All notices and communications (other than those sent to
Holders of Notes) shall be deemed to have been duly received: at the time
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; when receipt is confirmed, if
sent by facsimile; and the next Business Day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder of Notes shall be
mailed by first-class mail, certified or registered, return receipt requested,
to his address shown on the register kept by the Registrar. Failure to mail a
notice or communication to a Holder of Notes or any defect in it shall not
affect its sufficiency with respect to other Holders of Notes.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders of
Notes, it shall mail a copy to the Trustee and each Agent at the same time.
SECTION 13.03 Communication by Holders with Other Holders
Holders of Notes may communicate pursuant to TIA Section
312(b) with other Holders of Notes with respect to their rights under this
Indenture or the Notes. The Company, any Guarantor, the Trustee, the Registrar
and anyone else shall have the protection of TIA Section 312(c). Upon
qualification of this Indenture under the TIA, the Trustee shall otherwise
comply with TIA Section 312(b).
SECTION 13.04 Certificate and Opinion as to Conditions Precedent
Upon any request or application by the Company and/or any
Guarantor to the Trustee to take any action under this Indenture, the Company
and/or any Guarantor, as the case may be, shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 1.05 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any provided for in
this Indenture relating to the proposed action have been complied with;
and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 1.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been complied
with.
SECTION 13.05 Rules by Trustee and Agents
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<PAGE> 89
The Trustee may make reasonable rules for action by or at a
meeting of Holders of Notes. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
SECTION 13.06 Legal Holidays
In any case where any Interest Payment Date, any date
established for payment of Defaulted Interest pursuant to Section 2.12 hereof,
or any Maturity with respect to any Note shall not be a Business Day, then
(notwithstanding any other provisions of this Indenture or the Notes) payment of
interest or principal (and premium, if any) need not be made on such date but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date or date established for payment of
Defaulted Interest pursuant to Section 2.12 hereof or Maturity, and no interest
shall accrue with respect to such payment for the period from and after such
Interest Payment Date or date established for payment of Defaulted Interest
pursuant to Section 2.12 hereof or Maturity, as the case may be, to the next
succeeding Business Day.
SECTION 13.07 No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders
No director, officer, employee, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Notes or this Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
shall be part of the consideration for the issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the SEC that such a waiver is against public policy.
SECTION 13.08 Governing Law; Submission to Jurisdiction
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. BY THE EXECUTION AND DELIVERY
OF THIS INDENTURE, EACH OF THE COMPANY AND THE GUARANTORS SUBMITS TO THE
JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY SUIT
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE.
SECTION 13.09 No Adverse Interpretation of Other Agreements
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
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<PAGE> 90
SECTION 13.10 Successors and Assigns
All covenants and agreements in this Indenture and the Notes
by the Company and the Guarantors shall bind their respective successors and
assigns. All covenants and agreements in this Indenture by the Trustee shall
bind its successor and assigns.
SECTION 13.11 Severability
In case any one or more of the provisions in this Indenture or
in the Notes shall be held invalid, illegal or unenforceable in any
jurisdiction, in any respect for any reason, the validity, legality and
enforceability of any such provision in every other jurisdiction and in every
other respect, and of the remaining provisions, shall not in any way be affected
or impaired thereby, it being intended that all of the provisions hereof shall
be enforceable to the full extent permitted by law.
SECTION 13.12 Counterpart Originals
This Indenture may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of them together shall
represent the same agreement.
SECTION 13.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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<PAGE> 91
SIGNATURES
IN WITNESS WHEREOF, the undersigned have caused this Indenture
to be executed as of the date first above written.
J. BAKER, INC.
By:
-------------------------------
Name:
Title:
Guarantors:
WGS CORP.
JBI, INC.
JBI HOLDING CO., INC.
MORSE SHOE, INC.
BUCKMIN, INC.
ELM EQUIPMENT CORP.
ISAB, INC.
JARED CORPORATION
MORSE SHOE (CANADA) LTD.
MORSE SHOE INTERNATIONAL, INC.
WHITE CAP FOOTWEAR, INC.
SPENCER COMPANIES, INC.
THE CASUAL MALE, INC.
TCM HOLDING CO., INC.
TCMB&T, INC.
For each of the above:
By:
-------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
AS TRUSTEE
By:
-------------------------------
Name:
Title:
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<PAGE> 92
EXHIBIT A
FORM OF NOTE
[Face of Note]
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR PART FOR NOTES IN DEFINITIVE FORM,
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC") TO THE ISSUER OR ITS AGENT
FOR REGISTRATION OR TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.](1)
J. BAKER, INC.
___% SENIOR SUBORDINATED NOTES DUE 2007
No. _____________ CUSIP NO.________
$_______________
J. Baker, Inc., a Massachusetts corporation, promises to pay
to Cede & Co. or registered assigns, the principal sum of _______________
Dollars on __________, 2007.
Interest Payment Dates: May __ and November __
Record Dates: May __ and November __
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
- ------------
(1) This paragraph should be included only if the Note is a Global Note.
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<PAGE> 93
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
Dated:
[Seal] J. BAKER, INC.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
This is one of the ___% Senior
Subordinated Notes due 2007 referred to in
the within-mentioned Indenture:
THE CHASE MANHATTAN BANK,
as Trustee
By:
----------------------------
Authorized Signature
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<PAGE> 94
(Back of Note)
__% Senior Subordinated Notes due 2007
Capitalized terms used herein without definition that are
defined in the Indenture referred to below shall have the meanings assigned to
them in such Indenture.
1. Interest. J. Baker, Inc., a Massachusetts corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
___% per annum from the Issuance Date until maturity. The Company will pay
interest semiannually in arrears on May __ and November __ of each year (each an
"Interest Payment Date"), or if any such day is not a Business Day, on the next
succeeding Business Day. Interest on the Notes will accrue from the most recent
Interest Payment Date to which interest has been paid or, if no interest has
been paid, from the Issuance Date; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be May __, 1998.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at the rate of the then applicable interest rate on
the Notes to the extent lawful; the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
2. Method of Payment. The Company shall make payments in
respect of the Notes on or before each due date of the principal of, premium, if
any, or interest on any Notes, by depositing with the Paying Agent a sum in
same day funds (or New York Clearing House funds if such deposit is made prior
to the date on which such deposit is required to be made) sufficient to pay the
principal, premium, if any, or interest so becoming due, or at the option of
the Company, payment of interest may be made by check mailed to the Holders of
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments on the Global Note and all payments of
interest on the Definitive Notes, the holders of which have given wire transfer
instructions to the Company or the Paying Agent at least ten Business Days
prior to the applicable payment date, shall be made by wire transfer in same day
funds. Such payment shall be in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts.
3. Paying Agent and Registrar. Initially, the Trustee will act
as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company or any of its Subsidiaries
may not act as Paying Agent or Registrar.
4. Indenture. The Company issued the Notes under an Indenture,
dated as of ________ __, 1997 (the "Indenture"), among the Company, the
Guarantors and the Trustee. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture
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<PAGE> 95
by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of the Indenture. Notwithstanding
anything to the contrary herein, the Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are general unsecured obligations of the Company limited to
$100,000,000 in aggregate principal amount and are, in the manner and to the
extent provided in Article 10 of the Indenture, subordinated in right of payment
to all existing and future Senior Debt of the Company.
5. Optional Redemption. Except as described below, the Notes
will not be redeemable at the Company's option prior to November __, 2002.
Thereafter, the Notes will be subject to redemption at any time at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon to the applicable
Redemption Date, if redeemed during the twelve-month period beginning on
November __ of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002............................................................. . %
--------
2003............................................................. . %
--------
2004............................................................. . %
--------
2005 and thereafter.............................................. 100.0000%
</TABLE>
Notwithstanding the foregoing, on or prior to November __,
2000, the Company may on any one or more occasions redeem up to 35% of the
aggregate principal amount of the Notes originally issued at a redemption price
of ______% of the principal amount thereof, plus accrued and unpaid interest
thereon, to the Redemption Date, with the net cash proceeds of one or more
Public Equity Offerings; provided that at least 65% of the aggregate principal
amount of Notes originally issued remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption shall
occur within 60 days after the date of the closing of any such Public Equity
Offering.
In addition, at any time prior to November __, 2002, the
Company may, at its option, redeem the Notes, in whole or in part, at a
Redemption Price equal to 100% of the principal amount plus the applicable
Make-Whole Premium, plus accrued and unpaid interest thereon to the Redemption
Date.
6. Mandatory Redemption. Except as referred to in Section 8
hereof, the Company shall not be required to make any mandatory redemption or
sinking fund payments with respect to the Notes.
7. Notice of Redemption. Notice of redemption shall be mailed
by first class mail, postage prepaid, at least 30 but not more than 60 days
before the Redemption Date to each Holder of Notes to be redeemed at such
Holder's registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion
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<PAGE> 96
of the principal amount thereof to be redeemed. Notes called for redemption
become due on the date fixed for redemption. On and after the Redemption Date,
unless the Company defaults in making the redemption payments, interest ceases
to accrue on the Notes or portions thereof called for redemption.
8. Repurchase at Option of Holders. (a) Upon the occurrence of
a Change of Control, the Company shall make an offer (a "Change of Control
Offer") to purchase all or any part (equal to $1,000 or an integral multiple
thereof) of the Notes at an offer price in cash (the "Change of Control
Payment") equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest thereon to the date of purchase (the "Change of Control
Payment Date"). Notice of a Change of Control Offer shall be mailed by or on
behalf of the Company, with a copy to the Trustee or, at the option of the
Company and at the expense of the Company, by the Trustee within 30 days
following a Change of Control to each Holder of Notes containing the
information set forth in Section 4.17 of the Indenture. Holders of Notes that
are subject to an offer to purchase may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the
reverse side of this Note.
(b) When the aggregate amount of Excess Proceeds in connection
with Asset Sales by the Company exceeds $5.0 million, the Company shall make an
offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase, in accordance with
the procedures set forth in Section 3.10 of the Indenture. The Company shall
commence an Asset Sale Offer with respect to Excess Proceeds within 30 days
following the date on which the aggregate amount of Excess Proceeds exceeds $5.0
million by mailing by first class mail the notice required pursuant to the terms
Section 3.10 of the Indenture, with a copy to the Trustee. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero. Holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse side of this Note.
9. Denominations, Transfer, Exchange. The Notes are registered
form without coupons in minimum denominations of $1,000 and integral multiples
of $1,000 in excess thereof. The transfer of Notes may be registered and Notes
may be exchanged only as provided in Article 2 of the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company
need not exchange or register the transfer of any Note or portion of Note
selected for redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, the Company need not exchange or register the transfer
of any Notes for a period of 15 days before
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<PAGE> 97
a selection of Notes to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may
be treated as the owner of it for all purposes and neither the Company, the
Trustee nor any Agent shall be affected by notice to the contrary.
11. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, the Notes), and,
subject to the terms of the Indenture any existing default or compliance with
any provision of the Indenture or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
(including without limitation, consents obtained in connection with a purchase
of, or a tender offer or exchange offer for, the Notes). Without the consent of
any Holder of Notes, the Indenture and the Notes may be amended or supplemented
to cure any ambiguity, defect or inconsistency, to comply with Article 5 of the
Indenture to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide security for the Notes, to add a Guarantor under
the Indenture, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any Holder of Notes, to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA, to provide for the assumption of the Company's or any
Guarantor's obligations to the Holders of Notes or to add covenants for the
benefit of the Holders or to surrender any right or power conferred upon the
Company.
12. Events of Default and Remedies. Each of the following
constitutes an Event of Default: (i) default for 30 days in the payment when due
of interest on the Notes (whether or not prohibited by Article 10 of the
Indenture); (ii) default in payment when due (whether payable at maturity, upon
redemption or otherwise) of the principal of or premium, if any, on the Notes
(whether or not prohibited by Article 10 of the Indenture); (iii) failure by the
Company to comply with Section 3.10, 4.16, 4.17 or 5.01 of the Indenture; (iv)
failure by the Company or any Subsidiary of the Company for 30 days after
written notice from the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes to the Company to comply with any of its
other agreements in the Indenture or the Notes other than those referred to in
clauses (i), (ii) and (iii) above; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $5.0
million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final and non-
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appealable judgments aggregating in excess of $5.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days after their entry; (vii)
except as permitted by the Indenture, any Subsidiary Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid and such judgment has
become final or non-appealable or shall cease for any other reason to be in full
force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; (viii) the Company, any Restricted Subsidiary that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, pursuant to or within the meaning of any
Bankruptcy Law: (A) commences a voluntary case or proceeding, (B) consents to
the entry of an order for relief against it in an involuntary case or
proceeding, (C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, (D) makes a general assignment for the
benefit of its creditors, or (E) admits in writing its inability generally to
pay its debts as the same become due; and (ix) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that (A) is for relief
against the Company, any Restricted Subsidiary that is a Significant Subsidiary
or any group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, in an involuntary case or proceeding, (B) appoints a
Custodian of the Company, any Restricted Subsidiary that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, or for all or a substantial part of the
property of the Company, any Restricted Subsidiary that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, or (C) orders the liquidation of the
Company, any Restricted Subsidiary that is a Significant Subsidiary or any group
of Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, and the order or decree contemplated in clause (A), (B) or (C) of
this clause (ix) remains unstayed and in effect for 60 consecutive days.
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes and all other Obligations thereunder to be due and
payable immediately by notice in writing to the Company and the Trustee.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, any
Significant Subsidiary that is a Restricted Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal, premium, if
any, or interest) if it determines that withholding notice is in their interest.
13. Trustee Dealings with Company. The Chase Manhattan Bank,
the Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Company or
any Affiliate of the Company with the same rights it would have if it were not
Trustee.
14. No Recourse Against Others. No director, officer,
employee, incorporator or stockholder of the Company, as such, shall have any
liability for any obligations of the Company under the Notes, the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of a Note by accepting a Note waives and releases
all such liability. The waiver and release are part of the consideration for the
issuance of the Notes.
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15. Subordination. Each Holder by accepting a Note agrees that
the payment (by set-off or otherwise) of principal of, premium, if any, and
interest on the Notes (including with respect to any repurchases of the Notes)
is subordinated in right of payment, to the extent and in the manner provided in
Article 10 of the Indenture, to the prior payment in full in cash, or, at the
option of holders of Senior Debt of the Company, in Cash Equivalents, of all
Obligations in respect of Senior Debt of the Company, whether outstanding on the
date of the Indenture or thereafter incurred.
16. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee.
17. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with right of survivorship
and not as tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to
Minors Act).
18. Subsidiary Guarantees. Upon the terms and subject to the
conditions set forth in the Indenture, certain Subsidiaries of the Company named
in the Indenture have guaranteed the due and punctual payment of the principal
of, and premium, if any, and interest on, the Notes and all other amounts
payable by the Company under the Notes and the Indenture. Under certain
circumstances set forth in the Indenture, certain additional Subsidiaries of the
Company may become Guarantors. The obligations of each Guarantor under its
Subsidiary Guarantee are or will be subordinated in right of payment to Senior
Debt of such Guarantor to the same extent and in the same manner as the
obligations of the Company in respect of the Notes are subordinated in right of
payment to Senior Debt of the Company. Under certain circumstances set forth in
the Indenture, each Guarantor may be released from its Subsidiary Guarantee.
19. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Note Identification Procedures, the Company will cause
CUSIP numbers to be printed on the Notes as a convenience to Holders of Notes.
No representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
20. Governing Law. This Note and the Indenture shall be
governed by and construed in accordance with the internal laws of the State of
New York, as applied to contracts made and performed entirely within the State
of New York, without regard to principles of conflict of laws.
21. Indenture. Each Holder, by accepting a Note, agrees to be
bound by all of the terms and provisions of the Indenture, as the same may be
amended from time to time.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to: J. Baker,
Inc., 555 Turnpike Street, Canton, Massachusetts 02021, Attention: Philip G.
Rosenberg, Chief Financial Officer.
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ASSIGNMENT FORM
To assign this Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Note to:
________________________________________________________________________________
(Insert assignee's social security or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________ as agent to transfer this Note on
the books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Your Signature:_________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Date: _______________________
Signature Guarantee:____________________________________________________________
NOTICE: Your Signature must be guaranteed by an Institution which is a member of
one of the following recognized signature Guarantee Programs: (i) The Securities
Transfer Agent Medallion Program; (ii) The New York Stock Exchange Medallion
Program; (iii) The Stock Exchange Medallion Program; or (iv) any other guarantee
program acceptable to the Trustee.
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FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.16 or Section 4.17 of the Indenture, check the
appropriate box:
Section 4.16 / / Section 4.17 / /
If you want to have only part of this Note purchased by the
Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount (in integral multiples of $1,000):
$________________
Date:_______________________
Signature:______________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:____________________
NOTICE: Your Signature must be guaranteed by an Institution which is a member of
one of the following recognized signature Guarantee Programs: (i) The Securities
Transfer Agent Medallion Program; (ii) The New York Stock Exchange Medallion
Program; (iii) The Stock Exchange Medallion Program; or (iv) any other guarantee
program acceptable to the Trustee.
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