SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 28, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 1-10259
WABAN INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0109661
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 651-6500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------- ------------------------
Common Stock, par value $.01 New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
6-1/2% Convertible Subordinated Debentures
due July 1, 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on April 1, 1995 was $645,836,000.
There were 33,249,154 shares of the Registrant's Common Stock, $.01 par
value, outstanding as of April 1, 1995.
Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on June 13, 1995 (Part III).
<PAGE>
PART I
Item 1. Business
The Company operates two warehouse merchandising businesses: BJ's Wholesale Club
("BJ's") and HomeBase. BJ's introduced the warehouse club concept to New England
in 1984 and is the third largest membership warehouse chain nationwide. BJ's
sells a narrow assortment of brand-name food and general merchandise within a
wide range of product categories. HomeBase is the second largest operator of
home improvement warehouse stores in the western United States and offers a very
broad assortment of home improvement and building supply products. As of January
28, 1995, the Company operated 62 BJ's warehouse clubs and 77 HomeBase warehouse
stores.
Both BJ's and HomeBase utilize the efficiencies provided by the warehouse
merchandising format to offer their customers first-quality, brand name
merchandise at prices substantially below those available through traditional
channels of distribution. BJ's and HomeBase both emphasize productivity,
efficiency, and disciplined inventory management in order to minimize the cost
of carrying and handling merchandise. Each employs sophisticated management
information systems to facilitate efficient purchasing, distribution and pricing
of inventory. Both chains purchase most of their merchandise directly from
manufacturers for shipment to individual warehouses or to
consolidation/deconsolidation facilities where truckload shipments are separated
and reassembled for immediate delivery to individual warehouse stores.
The Company was formed in 1989, when Zayre Corp. (now The TJX Companies, Inc.
("TJX")), as part of its restructuring, combined its BJ's Wholesale Club and
HomeBase divisions to form "Waban Inc." In June 1989, TJX distributed all of the
Company's outstanding common stock to its shareholders on a pro rata basis.
BJ's Wholesale Club
General
BJ's Wholesale Club introduced the warehouse club concept to New England in
1984 and has since expanded in the New England and Mid-Atlantic states, as well
as in southern Florida. BJ's operates 62 warehouse clubs in twelve states and
has over 3.2 million members. The table below shows BJ's locations by state.
<TABLE>
<CAPTION>
Number of
State Locations
<S> <C>
New York 13
Massachusetts 11
New Jersey 8
Maryland 6
Virginia 6
Pennsylvania 5
Florida 4
Connecticut 3
New Hampshire 3
Delaware 1
Maine 1
Rhode Island 1
Total 62
</TABLE>
Industry Overview
Warehouse clubs typically sell a narrow assortment of food and general
merchandise within a wide range of product categories. In order to achieve high
sales volumes and rapid inventory turnover, merchandise selections are generally
limited to items that are brand name leaders in their categories. Since
warehouse clubs sell a diversified selection of product categories, they attract
customers from a wide range of other traditional wholesale and retail
distribution channels, such as supermarkets, discount stores, office supply
stores, consumer electronics stores, automotive stores and wholesale
distributors and jobbers. The Company believes that it is difficult for these
higher cost channels of distribution to effectively compete with the low prices
offered by warehouse clubs.
Warehouse clubs eliminate many of the merchandise handling costs associated with
traditional multiple-step distribution channels by purchasing directly from
manufacturers and by storing merchandise on the sales floor rather than in
central warehouses. By operating no-frills, self-service warehouse facilities,
warehouse clubs have fixturing
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and operating costs substantially below those of traditional retailers. Two
broad groups of customers, individual households and small businesses, have been
attracted to the savings on brand name merchandise made possible by the high
sales volumes and low operating costs achieved by warehouse clubs. The customers
at warehouse clubs are generally limited to members who pay an annual fee.
The warehouse club industry has grown from sales of approximately $14 billion in
1988 to approximately $39 billion in 1994, rapidly gaining market share of both
food and general merchandise sales. The Company believes that continued growth
in the industry's market share will come from the addition of new clubs as well
as from sales growth of existing clubs, primarily at the expense of more
traditional channels of distribution. The Company's management believes the
northeastern United States is underserved by the warehouse club industry, as
compared to other areas of the United States where warehouse clubs account for a
greater percentage of total retail sales.
Expansion
Over the last five years BJ's increased the number of its warehouse clubs
from 23 to 62.
<TABLE>
<CAPTION>
Warehouse Warehouse Warehouse Warehouse
Clubs Clubs Clubs Clubs
in Operation Opened Closed in Operation
Fiscal Year at Beginning During During at End
Ended January of Year the Year the Year of Year
<S> <C> <C> <C> <C>
1991 23 5 1 27
1992 27 6 4 29
1993 29 10 -- 39
1994 39 13 -- 52
1995 52 11 1 62
</TABLE>
BJ's currently plans to open approximately 12 new warehouse clubs each year
over the next several years. The Company expects that virtually all of these
new warehouse clubs will be located in the Northeast. BJ's store opening
strategy for 1995 (the fiscal year ending January 27, 1996) is focused on
filling in existing markets, with expansion in future years planned for both
existing and contiguous market areas. Although expansion within existing
markets may initially affect sales at existing warehouse clubs adversely, the
Company believes that this strategy increases market penetration by
increasing the frequency of shopping by current members. In addition, BJ's
anticipates improving operational efficiencies in distribution costs and
management supervision by concentrating its warehouse clubs geographically.
Store Profile
The average size of the 62 BJ's warehouse clubs in operation at January 28, 1995
is approximately 110,000 square feet. Including space for parking, a typical
BJ's warehouse club requires eight to ten acres of land. BJ's warehouse clubs
are located in both free-standing locations and "strip malls." In some
locations, BJ's warehouse clubs are combined with other large store retailers in
shopping centers known as power centers.
Construction and site development costs for a new BJ's warehouse club average
approximately $5.0 million. Land acquisition costs for a warehouse club
generally range from $2.5 million to $5.5 million, but can be significantly
higher in some locations. A new BJ's warehouse club entails an initial capital
investment of approximately $2.0 million for fixtures and equipment. In addition
to capital expenditures, each new warehouse club requires approximately $2.0
million for inventory (net of accounts payable) and pre-opening expenses.
In November 1994 the Company opened two 68,000 square foot warehouse clubs in
smaller market areas in upstate New York. The Company will continue to evaluate
the effectiveness of this format for less densely populated markets during 1995.
Of the twelve new BJ's units planned to be opened in 1995, five or six are
expected to be in the 68,000 square foot format in smaller markets.
Merchandising
BJ's merchandising strategy is to provide its members with a broad range of high
quality, brand name merchandise at everyday prices consistently lower than the
prices available through traditional wholesalers, discount retailers or
supermarkets. BJ's limits specific items in each product line to fast selling
styles, sizes and colors and, therefore, carries an average of approximately
3,500 stock-keeping units ("SKUs"). By contrast, supermarkets normally stock
18,000 to 35,000 SKUs.
In recent years, food has become an increasing percentage of BJ's sales mix and
currently represents approximately 61% of sales. The remaining 39% consists of a
wide variety of non-food items. Food categories at
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BJ's include frozen foods, meat and dairy products, dry grocery items, fresh
produce, canned goods, and household paper products and cleaning supplies. BJ's
offers fresh meat and bakery departments in nearly all its clubs. General
merchandise includes office supplies, office equipment, televisions, stereos,
small appliances, auto accessories, tires, jewelry, housewares and apparel.
BJ's continually strives to add new products, services and membership benefits
to attract new members and to generate incremental sales from existing members.
In recent years, for example, BJ's has introduced fresh meat and bakery
departments, cellular phones, greeting cards, optical centers, lottery ticket
counters, an auto buying service and a travel service. BJ's works closely with
manufacturers to develop packaging and sizes which are best suited to selling
through the warehouse club format in order to minimize handling costs and to
provide increased value to its members.
To ensure that its merchandise selection is closely attuned to the tastes of its
members, BJ's employs regional buyers, each of whom is responsible for tailoring
the product selection in individual warehouse clubs to the regional and ethnic
tastes of the local market.
Membership
Paid membership is an integral part of the warehouse club concept. In addition
to providing a source of revenue which permits the Company to offer low prices,
membership also reinforces customer loyalty and acts as a screening device,
allowing BJ's to concentrate on serving high volume repeat customers. BJ's
internal demographic studies indicate that its customers are more likely to be
home owners and tend to have incomes, ages and family sizes which are above the
average for its trading areas. BJ's has two primary types of members: business
members and Inner Circle (household) members. At January 28, 1995, the Company
had over 3.2 million members (including supplemental cardholders).
BJ's charges an annual membership fee for individuals and qualified businesses
of $30 for the primary membership card and provides one free supplemental card
to each primary member. Additional supplemental cards for business members cost
$15 each. BJ's membership policy is less restrictive than certain of its
competitors, who require individual members to belong to certain qualifying
groups. The Company believes that its more liberal membership policy is
beneficial in helping it to expand awareness of the warehouse club concept and
has attracted incremental sales without adversely affecting its costs.
BJ's permits members to pay for their purchases by cash, check, Discover card,
or a BJ's credit card, which is provided by a major financial institution on a
non-recourse basis. BJ's does not accept other national credit cards because of
their high fee structure.
Advertising
BJ's increases customer awareness of its warehouse clubs primarily through
public relations efforts, new store marketing programs and direct mail
solicitations. BJ's employs a team of dedicated marketing personnel who solicit
potential business members and who contact selected community groups to increase
the number of members. BJ's also uses one-day passes to introduce non-members to
its warehouse clubs.
BJ's policy is generally to limit advertising and promotional expenses to new
warehouse club openings and to utilize print and electronic media advertising
sparingly. The Company uses limited vendor-funded television and radio
advertising during the holiday season. These policies result in very low
marketing expenses as compared to typical discount retailers and supermarkets.
Warehouse Club Operations
The Company's ability to achieve profitable operations while offering high
quality merchandise at low prices depends upon the efficient operation of its
warehouse clubs and high sales volumes. BJ's buys virtually all of its
merchandise at volume discounts from manufacturers for shipment either directly
to BJ's warehouse clubs or to a consolidation/deconsolidation facility. As a
result, BJ's eliminates many of the costs associated with traditional
multiple-step distribution channels, including distributors' commissions and the
costs of storing merchandise in central distribution facilities.
BJ's routes a significant percentage of its non-food merchandise as well as an
increasing percentage of food purchases through consolidation/deconsolidation
facilities which break down truckload quantity shipments from manufacturers and
re-allocate these goods for shipment, generally on a same-day basis, to
individual warehouse clubs. This permits BJ's to negotiate better volume
discounts and reduces freight expense by combining full
3
<PAGE>
truckload merchandise shipments from different vendors to individual warehouse
clubs. In addition, by receiving and processing merchandise at a central point,
BJ's reduces the number of trucks received at each warehouse club and related
receiving costs. BJ's believes that its strategy of opening additional warehouse
clubs within existing markets will permit it to realize further efficiencies
from its existing consolidation/deconsolidation facilities.
BJ's works closely with manufacturers to minimize the amount of handling
required once merchandise is received at a warehouse club. Most merchandise is
pre-marked by the manufacturer with the universal product code (UPC) so that it
does not require ticketing at the warehouse club. In addition, BJ's minimizes
labor costs because its warehouse clubs are self-serve. Merchandise for sale is
displayed on pallets containing large quantities of each item, thereby reducing
labor required for handling, stocking and restocking. Back-up merchandise is
generally stored on racks above the sales floor. BJ's goal is to keep at least
one day's supply of each item on the selling floor.
BJ's has been able to limit inventory losses to levels well below those typical
of discount retailers by strictly controlling the exits of its warehouse clubs,
by generally limiting customers to members and by using state-of-the-art
electronic article surveillance. Problems associated with payments by check have
also been insignificant, since the memberships of customers who issue dishonored
checks are terminated. Also, bank information from business members is verified
prior to the establishment of check purchase limits.
Management Information Systems
Over the past several years, BJ's has made a significant investment in enhancing
the efficiency with which it handles purchases and captures sales information.
BJ's was the first warehouse club to introduce scanning devices which work in
conjunction with its electronic point of sale (EPOS) terminals. Sales data from
the EPOS terminals is continually transmitted to a minicomputer in the warehouse
club and transmitted daily to a mainframe computer which provides detailed sales
information to the Company's management and merchants. BJ's utilizes a
sophisticated merchandise replenishment algorithm to suggest quantities to be
re-ordered, which are then monitored daily by BJ's buying staff. BJ's fully
integrated MIS system also maintains detailed purchasing data on individual
members, permitting BJ's merchants and store managers to track changes in
members' buying behavior.
Competition
BJ's competes with a wide range of national, regional and local retailers and
wholesalers selling food or general merchandise in its markets, including
supermarkets, general merchandise chains, specialty chains and other warehouse
clubs, several of which have significantly greater financial and marketing
resources than the Company. Major competitors that operate warehouse clubs
include Price-Costco Inc. and Sam's Clubs (a division of Wal-Mart Stores, Inc.).
A large number of competitive membership warehouse clubs have opened in the
Northeast within the last three years. Fifty-six of BJ's 62 warehouse clubs have
at least one competitive membership warehouse club in their trading areas at an
average distance of approximately 6 miles. The influx of competitors' units (as
well as the addition of new BJ's warehouse clubs) over the past three years has
had an adverse effect on BJ's comparable stores' sales. While the Company
expects additional competition to continue, it expects the pace of competitive
openings will be lower than it has been in the past, in part due to the recent
industry consolidation.
The Company believes price is the major competitive factor in the markets in
which BJ's competes. Other competitive factors include store location,
merchandise selection and name recognition. The Company believes that its
efficient, low cost form of distribution gives it a significant competitive
advantage compared to more traditional channels of wholesale and retail
distribution. As a regional chain, BJ's strives to differentiate itself from
other membership warehouse club operators by its attention to local buying
preferences and seasonality.
4
<PAGE>
HomeBase
General
HomeBase opened its first warehouse store in California in October 1983 and as
of January 28, 1995, operated 77 warehouse stores in 10 states (including 4
stores identified for closing as part of HomeBase's restructuring. See
"Strategic Initiatives and Restructuring"). HomeBase's warehouse stores are
located in the western United States. The table below shows HomeBase's locations
by state as of January 28, 1995.
<TABLE>
<CAPTION>
Number of
State Locations
<S> <C>
California 47
Washington 9
Colorado 5
Arizona 4
Oregon 3
Nevada 2
New Mexico 2
Texas 2
Utah 2
Idaho 1
Total 77
</TABLE>
Industry Overview
Warehouse-format home centers typically provide lower prices than traditional
channels of home improvement and building supply product distribution. The
warehouse format also generally offers a very broad assortment of home
improvement products, combined with a high level of service from knowledgeable,
well trained warehouse staff. These factors are communicated to customers
through ongoing, aggressive advertising.
The warehouse format generally serves two broad customer groups within the home
improvement industry. The first group consists of Do-It-Yourself (DIY) customers
who are individuals and families that are making purchases and completing
projects generally for their own homes on a Do-It-Yourself basis. These
customers range from casual to serious, and require varying levels of support in
planning and selecting their purchases. The second customer group consists of
professional contractors and facility managers who use home improvement and
building supply products on a daily basis in their businesses.
The Company believes that demographic and lifestyle factors such as the aging of
baby boomers, the increase in home-centered activities and the aging housing
stock will create growing demand for home improvement products and services. The
Company believes that the overall market for home improvement products was
approximately $125 billion in 1994. The market for home improvement products is
fragmented, with the ten largest home improvement retailers representing
approximately 27% of sales in 1994.
Over the last ten years, warehouse-format home center retailers have gained
significant market share in the United States by offering lower prices, greater
product selection and more in-stock merchandise than traditional home center,
hardware and lumber yard operators. In addition, warehouse stores have been able
to take advantage of economies created by large sales volumes.
Strategic Initiatives and Restructuring
Last year HomeBase introduced a series of strategic initiatives designed to
strengthen its market position in the western United States and improve its
profitability. These initiatives included (i) a significant increase in the
level of customer service offered at HomeBase stores, through an increase in the
number of salespeople, including hiring experienced tradespeople and others with
specialized product knowledge in home improvement fields, and enhanced sales and
service training for both new and existing store employees, (ii) improvement in
gross margin through buying efficiencies created by centralization of the
merchandise replenishment function, improved distribution of merchandise to
reduce freight costs, and selective price increases, and (iii) an aggressive
marketing program to communicate to customers the benefits of shopping at
HomeBase and its improved levels of customer service. In the third quarter of
1993 a new management team, led by a senior executive from BJ's, was installed
at HomeBase to implement these strategic initiatives.
In connection with a restructuring plan, which the Company's Board of Directors
approved on November 15, 1993, the Company recorded a pre-tax restructuring
charge of $101.1 million in the fourth quarter of 1993 primarily
5
<PAGE>
to cover expenses related to the repositioning of HomeBase. The restructuring
has enabled HomeBase to focus its management efforts and financial resources on
strengthening its competitive position in the western United States. This charge
reflects (i) the closing of all eight of the Company's stores in midwestern
markets (Chicago and Toledo), which were outside HomeBase's primary market area,
(ii) the planned closing of 12 additional stores, 8 of which were closed by
January 28, 1995, and (iii) liquidating certain discontinued merchandise. The
Company is actively seeking to sell, assign or sublease 7 closed stores, as well
as the other 4 stores identified for closing, which were still in operation at
January 28, 1995.
Expansion
HomeBase is currently the largest or second largest home improvement operator in
most of the metropolitan markets which it serves. HomeBase's current expansion
strategy is oriented towards reinforcing its position in these existing markets
and expanding selectively to contiguous markets.
The following table shows the number of HomeBase stores opened and closed
during the last five years:
<TABLE>
<CAPTION>
Warehouse Warehouse Warehouse Warehouse
Stores Stores Stores Stores
in Operation Opened Closed in Operation
Fiscal Year at Beginning During During at End
Ended January of Year the Year the Year of Year
<S> <C> <C> <C> <C>
1991 58 8 -- 66
1992 66 7 -- 73
1993 73 13 -- 86
1994 86 5 9 82
1995 82 3 8 77
</TABLE>
HomeBase plans to open approximately four warehouse stores (including the
relocation of one store) in 1995, which will be located in existing market
areas. Sixteen stores have been closed in the last two years in connection
with HomeBase's restructuring. An additional four stores in operation as of
January 28, 1995 are expected to be closed.
Store Profile
The average size of the 77 HomeBase warehouse stores in operation at January 28,
1995 was 102,000 square feet. Most HomeBase warehouse stores also utilize
additional outside selling space for nursery and garden centers. HomeBase's
warehouse stores are located in both free-standing locations and "strip malls."
In some locations, HomeBase warehouse stores are combined with membership
warehouse clubs or other large store retailers in shopping centers known as
power centers.
Including space for parking, a typical HomeBase warehouse store requires six to
ten acres of land. Construction and site development costs for a new HomeBase
warehouse store average $5.0 million. Land acquisition costs for a new warehouse
store generally range from $2.0 million to $6.0 million. A new HomeBase
warehouse store entails an initial capital investment of approximately $1.5
million for fixtures and equipment. In addition to capital expenditures, each
new warehouse store requires an investment of approximately $2.5 million for
inventory (net of accounts payable) and pre-opening expenses.
Merchandising
HomeBase's large product offering provides a broad selection of brand name
merchandise to both DIY customers and professional contractors. HomeBase's
merchandise selection is broad enough to allow a customer to purchase virtually
every item needed to build an entire home. The Company believes that its 28,000
SKU selection is broader than the selection offered by traditional home center
competitors.
By making use of the operating efficiencies of the warehouse format to maximize
productivity, HomeBase believes it is able to provide substantial savings over
other channels of home improvement and building supply product distribution. In
order to achieve greater operational efficiencies, HomeBase has recently
centralized its merchandise replenishment operations and improved its logistics
of distribution to reduce freight costs. By centralizing its replenishment
activities, the Company believes it has been able to improve the manner in which
it acquires products. In addition, this program permits the Company to redeploy
store personnel, which increases customer service.
Merchandise sold by HomeBase includes lumber, building materials, plumbing
supplies and fixtures, electrical materials and fixtures, hand and power tools,
hardware, paints, garden supplies, nursery items, home decorative
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<PAGE>
items and related seasonal and household merchandise. HomeBase's brand name
orientation allows customers to compare HomeBase's prices to the same items
offered by competitors. In selected categories, HomeBase supplements these brand
name offerings with high quality private label products at lower prices.
Marketing and Advertising
HomeBase addresses its primary target customers through a mix of newspaper,
direct mail, radio and television advertising. The primary advertising medium is
newspaper advertisements, including both freestanding inserts and
run-of-press-ads. Television and radio advertising are used to reinforce
HomeBase's image of providing superior customer service and offering a broad
assortment of merchandise at everyday low prices. Additionally, the Company
participates in or hosts a variety of home shows, customer hospitality events
and contractor product shows. HomeBase solicits vendor participation in many of
its advertising programs.
Warehouse Operations
HomeBase is committed to providing superior service to every customer. Carefully
selected home improvement specialists, many of whom have extensive experience in
their respective fields, are available throughout the store to assist DIY
customers and professional contractors. HomeBase's project design centers and
kitchen design centers feature computer assisted design tools where customers
can work with design coordinators to conceptualize and plan virtually any home
improvement project.
HomeBase believes that it is important not only to address the needs of the
existing DIY marketplace, but that it is also important to expand the DIY
marketplace by encouraging new DIY customers and upgrading the skills and
confidence levels of existing DIY customers. HomeBase provides assistance and
training to DIY customers, including regularly scheduled customer clinics on a
wide range of home improvement projects.
A series of programs has been designed by HomeBase to specifically address the
needs of contractors. A majority of HomeBase warehouse stores have Contractor
Desks, with staff dedicated to handling contractors' special needs, including
the ability to receive faxed orders and pre-assemble them for pick-up, and
quickly obtaining special items and sizes. HomeBase will also deliver bulk
purchases to job sites for a nominal fee. HomeBase warehouse stores offer
extended hours, opening early in the morning to serve professional contractors.
HomeBase strives to develop the skills of its store personnel to ensure that
customers consistently receive knowledgeable and courteous assistance.
HomeBase's training programs have been recently reoriented to emphasize the
importance of customer service and to improve store employees' selling skills.
HomeBase provides extensive training for its entry level warehouse store
personnel through a comprehensive in-house training program that combines
on-the-job training with formal seminars and meetings. On an ongoing basis,
warehouse store personnel attend frequent in-house training sessions conducted
by HomeBase's training staff or by manufacturers' representatives, and they
receive sales, product and other information in frequent meetings with their
managers. HomeBase's satellite television system (HBTV) permits it to
simultaneously broadcast training sessions from its Irvine, California
headquarters to every individual warehouse store location.
Most of HomeBase's merchandise is purchased from manufacturers for shipment
either directly to the selling warehouse store or to
consolidation/deconsolidation facilities where large shipments are broken down
and separated for transfer to individual warehouse stores, generally on a
same-day basis. By operating no-frills warehouse facilities, HomeBase's
fixturing and operating costs are kept substantially below those of traditional
home improvement retailers.
HomeBase offers its own private label credit card to customers under a
non-recourse program operated by a major financial institution and also accepts
MasterCard, Visa, Discover and American Express.
Management Information Systems
HomeBase uses a fully integrated management information system to monitor sales,
track inventory and provide rapid feedback on the performance of its business.
Each HomeBase warehouse store operates point-of-sale- terminals which capture
information on each item sold via UPC scanning. Minicomputers at each warehouse
store process and consolidate this information during the selling day and
transmit it each night to HomeBase's information center via satellite. From this
information, the data center produces daily reports that are used to support
merchandising, inventory replenishment and promotional decisions.
HomeBase's satellite television network broadcasts several times each week to
all of HomeBase's warehouse stores. Broadcasts include training sessions, vendor
product demonstrations and interactive discussions with HomeBase's management.
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<PAGE>
HomeBase introduced scanning to the home improvement industry and is a leader in
implementing electronic data interchange ("EDI"). EDI permits both HomeBase and
its vendors to save money and reduce errors by electronically transmitting
purchase order information. HomeBase now uses EDI with over 1,000 vendors and
plans to continue to expand its use of this technology.
Competition
HomeBase competes with a wide range of businesses engaged in the wholesale or
retail sale of home improvement and building supply merchandise, including home
centers, hardware stores, lumber yards and discount stores. The Company believes
the major competitive factors in the markets in which HomeBase competes are
customer service, price, product selection, location and name recognition. The
Company believes that its improving level of customer service, the value offered
by HomeBase's low prices and the one-stop shopping available through its full
range of home improvement products give it an advantage over many of its
traditional home center competitors. The major competitor in HomeBase's market
areas that also uses the warehouse merchandising format is The Home Depot, Inc.,
which has significantly greater financial and marketing resources than the
Company. Approximately 87% of HomeBase's warehouse stores currently have at
least one warehouse home improvement retailer in their trading areas at an
average distance of approximately 3 miles. Approximately 75% of HomeBase's
warehouse stores currently compete with Home Depot units. HomeBase also competes
with a number of smaller regional operators such as Orchard Supply Hardware
Stores Corp., Contractor's Warehouse (a division of Grossman's Inc.) and Eagle
Hardware & Garden, Inc.
Employees
As of January 28, 1995, the Company had approximately 18,000 employees, of whom
approximately 2,700 were part-time employees. Approximately 1,250 employees were
corporate and divisional management and office support employees; the balance
were warehouse personnel.
None of the Company's employees is represented by unions. The Company considers
its relations with its employees to be excellent.
Item 2. Properties
The Company operated 139 warehouse locations as of January 28, 1995, of which
105 are leased under long-term leases and 26 are owned. The Company owns the
buildings at the remaining eight locations, which are subject to long-term
ground leases.
The unexpired terms of warehouse location leases range from 4.8 years to 38.9
years, and average approximately 14.3 years. The Company has options to renew
all but one of its leases for periods that range from approximately 5 to 50
years and average approximately 18.5 years. These leases require fixed monthly
rental payments which are subject to various adjustments. In addition, certain
leases require payment of a percentage of the warehouse's gross sales in excess
of certain amounts. Most leases require that the Company pay all property taxes,
insurance, utilities and other operating costs.
The Company's principal executive offices in Natick, Massachusetts, which
include the home office of its BJ's division, occupy approximately 125,000
square feet under a lease expiring January 31, 1999, with an option to extend
this lease through January 31, 2001. The Company also maintains a home office
for its HomeBase division in Irvine, California, occupying approximately 164,000
square feet under a lease expiring July 24, 2004, with options to extend this
lease through July 24, 2019.
See Note D of Notes to the Consolidated Financial Statements included elsewhere
in this report for additional information with respect to the Company's leases.
Certain of the Company's locations are financed through long-term secured
financings. See Note C of Notes to the Consolidated Financial Statements for
additional information with respect to such financings.
Listings of BJ's and HomeBase locations within each state are shown on pages
1 and 5, respectively.
Item 3. Legal Proceedings
The Company is involved in various legal proceedings incident to the character
of its business, some of which involve substantial claims. Although it is not
possible to predict the outcome of these proceedings, or any claims against the
Company related thereto, the Company believes that such proceedings will not,
individually or in the aggregate, have a material adverse effect on its
financial condition or results of operations.
8
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended January 28, 1995.
Item 4A. Executive Officers of the Registrant
The following persons are the executive officers of the Company as of the
date hereof:
<TABLE>
<CAPTION>
Office and Employment
Name Age During Last Five Years
<S> <C> <C>
Sumner L. Feldberg 70 Chairman of the Board of the Company since
February 1989; Chairman of the Board of
The TJX Companies, Inc. ("TJX") since
1989.
Herbert J. Zarkin 56 President, Chief Executive Officer and
Director of the Company since May 1993;
Executive Vice President of the Company
(1989-1993); President of BJ's Wholesale
Club Division (1990-1993).
John J. Nugent 48 Executive Vice President of the Company
and President of BJ's Wholesale Club since
September 1993; Senior Vice President of
BJ's Wholesale Club (1991-1993); Director
of Sales Operations of BJ's Wholesale Club
(1989-1993).
Allan P. Sherman 50 Executive Vice President of the Company
since May 1993 and President of HomeBase
since September 1993; President of BJ's
Wholesale Club (May 1993 to September
1993); Senior Vice President and General
Merchandise Manager--Non-Food of BJ's
Wholesale Club (August 1991 to May 1993);
Vice President and General Merchandise
Manager--Non-Food of BJ's Wholesale Club
(February 1991 to August 1991); President
of My House, a division of Jamesway
(1989-1991).
Sarah M. Gallivan 52 Employed by the Company since October 1989
and elected Vice President, General
Counsel and Secretary of the Company in
December 1989.
Edward J. Weisberger 53 Senior Vice President, Treasurer and Chief
Financial Officer since September 1994;
Vice President--Finance of the Company
(April 1989 to September 1994).
</TABLE>
All officers hold office until the next annual meeting of the Board of
Directors in 1995 and until their successors are elected and qualified.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters The common stock of the Company is listed on the New York Stock
Exchange (symbol WBN). The quarterly high and low stock prices for the fiscal
years ended January 28, 1995 and January 29, 1994 were:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
January 28, 1995 January 29, 1994
Quarter High Low High Low
<S> <C> <C> <C> <C>
First 20-1/8 14-1/8 17 11-3/4
Second 19 14-1/2 15-1/8 12
Third 20 16-3/4 16 12
Fourth 19-3/4 14-7/8 15-1/4 12-1/4
</TABLE>
The approximate number of stockholders of record at February 25, 1995 was 4,500.
The Company has not paid any dividends. For restrictions on the payment of
dividends, see Note C of Notes to the Consolidated Financial Statements.
9
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended
Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Jan. 25, 1992 Jan. 26, 1991
(53 weeks)
(Dollars in Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 3,650,281 $ 3,589,341 $ 3,357,794 $ 2,783,585 $ 2,409,726
Cost of sales, including
buying and occupancy
costs 3,110,787 3,086,670 2,881,334 2,399,765 2,076,372
Selling, general and
administrative expenses 418,404 423,026 401,905 322,705 288,377
Restructuring charge -- 101,133 -- -- --
Cost of closing BJ's
warehouse clubs in
Chicago -- -- -- 5,500 --
Discontinuation of
HomeClub name and
membership program -- -- -- 3,400 8,800
Interest on debt and
capital leases (net) 14,898 12,489 6,280 3,292 5,491
Income (loss) before
income taxes and
cumulative effect of
accounting principle
changes 106,192 (33,977) 68,275 48,923 30,686
Provision (benefit) for
income taxes 41,202 (15,290) 24,033 18,914 12,274
Income (loss) before
cumulative effect of
accounting principle
changes 64,990 (18,687) 44,242 30,009 18,412
Cumulative effect of
accounting principle
changes -- 905 -- -- --
Net income (loss) $ 64,990 $ (17,782) $ 44,242 $ 30,009 $ 18,412
Income (loss) per common
share:
Primary earnings per
share:
Income (loss) before
cumulative effect of
accounting principle
changes $ 1.95 $ (0.56) $ 1.33 $ 1.01 $ 0.64
Cumulative effect of
accounting principle
changes -- 0.02 -- -- --
Net income (loss) $ 1.95 $ (0.54) $ 1.33 $ 1.01 $ 0.64
Fully diluted earnings
per share:
Income (loss) before
cumulative effect of
accounting principle
changes $ 1.83 $ (0.56) $ 1.31 $ 1.01 $ 0.64
Cumulative effect of
accounting principle
changes -- 0.02 -- -- --
Net income (loss) $ 1.83 $ (0.54) $ 1.31 $ 1.01 $ 0.64
Number of common shares
for earnings per share
computations:
Primary 33,405,014 33,082,362 33,191,497 29,807,255 28,597,817
Fully diluted 37,792,893 33,082,362 35,706,763 29,810,348 28,689,256
Balance Sheet Data:
Working capital $ 291,767 $ 203,809 $ 285,797 $ 268,559 $ 154,344
Total assets 1,241,931 1,072,994 1,007,014 786,405 579,784
Long-term debt and
obligations under
capital leases 258,763 174,054 192,630 86,774 29,199
Stockholders' equity 488,089 420,492 436,610 388,645 284,185
Warehouses open at end
of year:
BJ's Wholesale Club 62 52 39 29 27
HomeBase 77 82 86 73 66
</TABLE>
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company's fiscal year ends on the last Saturday in January. The fiscal years
ended January 28, 1995 ("1994" or "fiscal 1994") and January 29, 1994 ("1993" or
"fiscal 1993") each included 52 weeks. The fiscal year ended January 30, 1993
("1992" or "fiscal 1992") included 53 weeks.
Results of Operations
The following table presents selected income statement and segment data for
the last three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, 1995 January 29, 1994 January 30, 1993
(53 weeks)
% of % of % of
$ Net Sales $ Net Sales $ Net Sales
(Dollars in Millions Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Net sales $3,650.3 100.0% $3,589.3 100.0% $3,357.8 100.0%
Cost of sales,
including
buying and occupancy
costs 3,110.8 85.2 3,086.7 86.0 2,881.3 85.8
Selling, general and
administrative
expenses 418.4 11.5 423.0 11.8 401.9 12.0
Restructuring charge -- -- 101.1 2.8 -- --
Interest on debt and
capital
leases (net) 14.9 .4 12.5 .3 6.3 .2
Income (loss) before
income taxes and
cumulative effect
of accounting
principle changes 106.2 2.9 (34.0) (.9) 68.3 2.0
Provision (benefit)
for income taxes 41.2 1.1 (15.3) (.4) 24.1 .7
Income (loss) before
cumulative effect
of accounting principle
changes 65.0 1.8 (18.7) (.5) 44.2 1.3
Cumulative effect of
accounting
principle changes -- -- .9 -- -- --
Net income (loss) $ 65.0 1.8% $ (17.8) (.5)% $ 44.2 1.3%
Fully diluted net
income
(loss) per common
share $ 1.83 $ (0.54) $ 1.31
Selected Segment
Data:
BJ's Wholesale Club:
Net sales $2,293.1 100.0% $2,003.4 100.0% $1,786.9 100.0%
Operating income $ 68.8 3.0% $ 45.2 2.3% $ 35.4 2.0%
HomeBase:
Net sales $1,357.2 100.0% $1,586.0 100.0 % $1,570.9 100.0%
Operating income
(loss) $ 60.7 4.5% $ (55.8) (3.5)% $ 47.2 3.0%
</TABLE>
The Company's results for the fiscal year ended January 28, 1995 excluded
sales and operating income or losses of 16 HomeBase warehouse stores that
were closed or were planned to be closed in connection with the Company's
restructuring announced in the fourth quarter of 1993, when the Company
recorded a $101.1 million pre-tax restructuring charge. Results for 1993
excluded sales and operating income or losses from October 31, 1993 to
January 29, 1994 for the eight midwestern HomeBase warehouse stores that
closed in that quarter, and from November 28, 1993 to January 29, 1994 for
the other 16 HomeBase warehouse stores planned to be closed. Sales from all
24 warehouse stores have been removed from comparable store sales.
11
<PAGE>
Sales
Total sales of the Company increased by 1.7% from 1993 to 1994 and by 6.9% from
1992 (which contained 53 weeks) to 1993. The increases in both years were due to
the opening of new warehouse stores. Reported sales in 1993 included $270
million for the 24 HomeBase warehouse stores included in the restructuring
reserve and excluded from 1994's results. Excluding these sales from 1993's
results, total sales for the Company increased by 10.0% from 1993 to 1994.
Comparable store sales decreases on a same-week basis for the last two fiscal
years were as follows:
<TABLE>
<CAPTION>
1994 vs. 1993 vs.
1993 1992
<S> <C> <C>
BJ's Wholesale Club (2.5)% (9.9)%
HomeBase (1.1)% (1.5)%
Total (1.9)% (6.4)%
</TABLE>
Comparable store sales at BJ's in both 1994 and 1993 were affected by increased
competition and by the opening of new BJ's clubs in the same markets as existing
BJ's clubs. Comparable store sales in 1993 were also impacted by the effects of
price deflation. Comparable store sales results improved at BJ's over the course
of 1994, ranging from a decrease of 3.9% in the first quarter to a decrease of
0.2% in the fourth quarter.
HomeBase's comparable store sales were also affected by increased competition in
1994 and 1993, as well as weak economic conditions in California, where HomeBase
has its largest concentration of stores. Comparable store sales performance also
improved at HomeBase over the course of 1994, ranging from a decrease of 3.4% in
the first quarter to an increase of 1.3% in the fourth quarter.
Cost of Sales
Cost of sales (including buying and occupancy costs) as a percentage of sales
was 85.2% in 1994, compared with 86.0% in 1993 and 85.8% in 1992. Although BJ's,
a lower margin business than HomeBase, contributed an increasing proportion of
sales throughout the period from 1992 to 1994, the cost of sales percentage
increased by only .2% in 1993 and decreased by .8% in 1994. Gross selling
margins increased at both divisions in 1994, especially at HomeBase. Gross
selling margins in 1993 were also higher than the previous year at both
divisions, with BJ's recording the greater improvement.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses as a percentage of sales
were 11.5% in 1994 versus 11.8% in 1993 and 12.0% in 1992. The ratio of SG&A
expenses to sales was lower than the previous year in both 1994 and 1993
primarily because of BJ's increased proportion of consolidated sales. SG&A
expenses as a percentage of sales are lower at BJ's than at HomeBase, which
offers a higher level of customer service. This more than offset an increase in
HomeBase's SG&A expenses as a percentage of sales in 1994, which was due
primarily to increased store payroll to provide improved customer service.
Restructuring
The Company's $101.1 million pre-tax restructuring charge in 1993 related
primarily to store closings and the write-down of discontinued inventory at
HomeBase. The charge, which was recorded in the fourth quarter of 1993,
anticipated the closing of 24 HomeBase warehouse stores. As of January 28, 1995,
sixteen of these stores have been closed. Four additional stores are expected to
close in the future, which will bring the revised number of HomeBase stores
closed in connection with the restructuring to twenty. Four stores that were
originally included in the restructuring are not being closed, due to their
improved performance. Of the sixteen stores that have been closed, the Company
is still obligated under leases for six stores and is attempting to sell one
other store that it owns.
The reduction in the number of stores to be closed from 24 to 20 will result in
lower store closing costs, employee termination costs and losses from the
disposal of owned property than originally estimated. However, the portion of
the restructuring charge related to HomeBase's net obligations for leased
properties after their closing dates is expected to be higher than originally
estimated. These changes are expected to offset each other, so the original
amount of the restructuring charge of $101.1 million (pre-tax) has not been
amended. The cost of liquidating HomeBase's discontinued inventory was in line
with the original estimate. Results of the four stores in the restructuring
reserve which are still operating will be included in the sales and operating
results of all HomeBase stores after January 28, 1995 until they begin closing.
The effect on comparable store sales and operating income of including these
results is not expected to be material.
12
<PAGE>
The balance remaining in the restructuring reserves at January 28, 1995 totalled
$40.0 million. Approximately $29 million was reserved for lease obligations (net
of sublease income), $8 million for store closing costs and $3 million (which is
netted against property held for sale) for losses on the disposal of owned
property. This reserve is based on a number of estimates, and actual future
costs could vary from these estimates, principally the Company's ability to
sublease, assign or sell closed HomeBase locations on anticipated terms.
Operating Income
BJ's operating income in 1994 was $68.8 million versus $45.2 million in 1993 and
$35.4 million in 1992. Operating income in 1993 included a pre-tax charge of
$2.2 million related to the relocation of BJ's Syracuse, NY club. Operating
income in 1992 included a $1.1 million pre-tax gain from the disposal of real
estate properties. BJ's improvement in operating income over the three-year
period reflects a shift in the mix of sales from high-ticket, lower margin
categories, such as consumer electronics and office equipment, to higher margin
categories, efficiencies in merchandise distribution and effective expense
control.
HomeBase recorded operating income of $60.7 million in 1994 compared with an
operating loss of $55.8 million in 1993 and operating income of $47.2 million in
1992. HomeBase's operating loss in 1993 included a pre-tax restructuring charge
of $98.5 million and operating losses of $7.6 million for the 24 stores in the
restructuring reserve. Excluding these items for purposes of comparison, 1994's
operating income of $60.7 million is approximately 21% higher than 1993's $50.3
million. This improvement was due to higher gross margins which more than offset
higher store payrolls, reflecting HomeBase's strategic initiative to improve
customer service and achieve higher gross margins through a better mix of sales,
efficiencies in merchandise distribution and selective price increases.
Operating income in 1993 (excluding the restructuring charge) was lower than
1992's operating income by approximately 9%, mainly because of increased payroll
and occupancy costs.
Interest
The components of net interest expense in the last three years were as
follows (in millions):
<TABLE>
<CAPTION>
Fiscal Year Ended
Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993
<S> <C> <C> <C>
Interest expense on debt $19.1 $11.4 $ 8.4
Interest and investment income (6.0) (1.5) (4.7)
Interest on debt (net) 13.1 9.9 3.7
Interest on capital leases 1.8 2.6 2.6
Interest on debt and capital leases (net) $14.9 $12.5 $ 6.3
</TABLE>
The increases in interest expense on debt and in interest and investment
income from 1993 to 1994 were due primarily to the issuance of $100 million
of 11% Senior Subordinated Notes in May 1994 and the investment of the net
proceeds of $97.3 million. Interest expense on debt in 1993 was higher than
the previous year mainly because 1992's expense included only a partial
year's interest on the borrowing of $108.6 million of 6.5% Convertible
Subordinated Debentures through a public offering in July 1992. The proceeds
of this borrowing were subsequently invested in the expansion of the
Company's businesses. For additional information, see "Liquidity and Capital
Resources" below.
Income Taxes
The Company's income tax provision was 38.8% of pre-tax income in 1994 compared
to an income tax benefit of 45.0% in 1993 and a provision of 35.2% in 1992.
During the Company's third quarter of 1993, the statutory federal income tax
rate for corporations was raised from 34% to 35%, retroactive to January 1,
1993, and the Targeted Jobs Tax Credit was restored retroactive to July 1, 1992.
The net effect of the tax law changes on the Company's provision (benefit) for
income taxes, which was recorded in the third quarter of 1993, was not material.
The Company's provision for income taxes in 1993 included 38.2% of pre-tax
income before the restructuring charge and a 40.5% tax benefit from the
restructuring charge. The tax rate in 1992 was favorably impacted by a benefit
resulting from the difference in the book and tax bases of real estate which was
sold. See Note F of Notes to the Consolidated Financial Statements for
additional information.
Accounting Changes
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other
13
<PAGE>
Than Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment
Benefits." The cumulative effect of these accounting principle changes
increased (decreased) after-tax income by the following amounts (in
millions):
<TABLE>
<CAPTION>
<S> <C>
SFAS No. 109, "Accounting for Income Taxes" $1.6
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," net of tax benefit (.2)
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," net of tax
benefit (.5)
$ .9
</TABLE>
Net Income
Net income for 1994 was $65.0 million, or $1.83 per share, fully diluted,
compared to a net loss of $17.8 million, or $.54 per share, in 1993 and net
income of $44.2 million, or $1.31 per share, in 1992.
Results for 1993 included the following transactions (in millions):
<TABLE>
<CAPTION>
Income (Expense)
Pre-Tax Post-Tax
<S> <C> <C>
Restructuring charge $(101.1) $(60.2)
Cost of relocating BJ's Syracuse, NY club (2.2) (1.3)
Operating losses of 24 stores that were subsequently
included in the restructuring reserve (7.6) (4.5)
Cumulative effect of accounting changes (net) -- .9
$(110.9) $(65.1)
</TABLE>
Excluding the items in the preceding table, net income for 1993 was $47.3
million, or $1.37 per share, fully diluted. Compared to this adjusted result,
net income for 1994 increased approximately 37% and fully diluted earnings per
share increased approximately 34%.
Net income in 1993, adjusted for the restructuring charge, the cost of
relocating BJ's Syracuse club and the cumulative effect of accounting changes,
was $42.8 million, or $1.25 per share, fully diluted. Net income in 1992,
adjusted for a post-tax gain of $2.3 million from the disposal of real estate
properties at BJ's, was $41.9 million, or $1.25 per share.
Liquidity and Capital Resources
Net cash provided by operating activities in 1994 was $123.1 million versus
$91.0 million in 1993. Excluding cash flow generated by the Company's
restructuring, net cash provided by operating activities was $95.6 million in
1994 and $75.8 million in 1993.
Cash expended for property additions in 1994 was $111.7 million versus $132.0
million in 1993. The Company opened three new HomeBase warehouse stores and
eleven new BJ's clubs, including the relocation of one club in 1994. In the
previous fiscal year, the Company opened a total of 18 new stores. Eleven of the
new stores opened in 1994 were owned versus ten in 1993. During 1994 the Company
also remodeled 11 HomeBase warehouse stores.
The Company expects to open approximately 12 additional BJ's clubs and four
additional HomeBase warehouse stores (including the relocation of one store) in
1995. Approximately twelve additional HomeBase stores are expected to be
remodeled. Capital expenditures are planned to be approximately $165 million in
1995, including an estimated $85 million for new store real estate. The timing
and amount of actual openings and expenditures could vary from these estimates
due to the complexity of the real estate development process.
The Company's restructuring has generated approximately $64 million of cash flow
to date, of which approximately $48 million was realized in 1994. In addition to
tax benefits, cash has been provided by the sale of inventory and property of
closed stores (net of accounts payable and closing costs) and from the
liquidation of HomeBase's discontinued inventory. Cash flow from the disposition
of the remaining warehouse locations, excluding long-term lease obligations, is
expected to be approximately $10 million to $15 million (including tax
benefits). The net cash outflow for long-term lease obligations (net of tax
benefits) after closing all locations is also expected to approximate $10
million to $15 million over the remaining terms of the leases, which expire at
various dates through 2011. In some cases, the Company has made lump sum cash
payments to settle lease obligations and may settle other future lease
obligations in the same manner when the Company believes it is economically
14
<PAGE>
advantageous to do so. The actual amounts of remaining cash flow could vary
from the estimates above, depending on certain factors, principally the
Company's ability to sublease or sell closed HomeBase locations on
anticipated terms.
In May 1994 the Company issued $100 million of 11% Senior Subordinated Notes due
May 15, 2004. The proceeds (net of expenses) to the Company of approximately
$97.3 million will be used primarily to fund the opening of new stores,
including the acquisition of real estate and the construction of stores, and for
general corporate purposes. The funds have been temporarily invested in high
quality securities of less than two-year maturity issued by corporations and
governmental entities.
On April 7, 1995 the Company entered into an agreement with a group of banks
which provides a $150 million line of credit through March 30, 1998. The
agreement includes a $20 million sub-facility for standby letters of credit. In
addition to a fee of $75,000 upon signing the agreement, the Company is required
to pay an annual facility fee of $300,000 (subject to adjustment based upon the
Company's fixed charge coverage ratio). Borrowings can be made at prime rate, at
LIBOR plus a surcharge (currently 0.45%) that depends on fixed charge coverage,
or on a competitive bid basis. The agreement also contains covenants which,
among other things, include minimum fixed charge coverage and net worth
requirements and a maximum funded debt to capital limitation. The payment of
cash dividends on common stock is limited to not more than 25% of the Company's
consolidated net income for the immediately preceding fiscal year. There are no
compensating balance requirements under the agreement.
The Company's cash, cash equivalents and marketable securities totalled $129.0
million as of January 28, 1995. The Company expects that its current resources,
together with anticipated cash flow from operations, will be sufficient to
finance its operations into fiscal 1996. However, the Company may from time to
time seek to obtain additional financing. The Company's cash requirements may
vary, based on, among other things, the rate at which it disposes of the
HomeBase stores that are included in the restructuring.
Seasonality
BJ's sales and operating income have been strongest in the Christmas holiday
season and lowest in the first quarter of each fiscal year. HomeBase's sales and
earnings are typically lower in the first and fourth quarters than they are in
the second and third quarters, which correspond to the most active season for
home construction.
15
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Statements of Income for the fiscal years ended January 28, 1995, January 29, 1994
and January 30, 1993 17
Consolidated Balance Sheets as of January 28, 1995 and January 29, 1994 18
Consolidated Statements of Cash Flows for the fiscal years
ended January 28, 1995, January 29, 1994 and January 30, 1993 19
Consolidated Statements of Stockholders' Equity for the fiscal years ended January 28, 1995,
January 29, 1994 and January 30, 1993 20
Notes to Consolidated Financial Statements 21
Selected Quarterly Financial Data 31
Report of Independent Accountants 32
Report of Management 32
Schedules:
II Valuation and Qualifying Accounts 33
Consent and Report of Independent Accountants 34
</TABLE>
16
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, January 29, January 30,
1995 1994 1993
(53 weeks)
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Net sales $3,650,281 $3,589,341 $3,357,794
Cost of sales, including buying and
occupancy costs 3,110,787 3,086,670 2,881,334
Selling, general and administrative expenses 418,404 423,026 401,905
Restructuring charge -- 101,133 --
Interest on debt and capital leases (net) 14,898 12,489 6,280
Total expenses 3,544,089 3,623,318 3,289,519
Income (loss) before income taxes and cumulative
effect of accounting principle changes 106,192 (33,977) 68,275
Provision (benefit) for income taxes 41,202 (15,290) 24,033
Income (loss) before cumulative effect of accounting
principle changes 64,990 (18,687) 44,242
Cumulative effect of accounting principle changes -- 905 --
Net income (loss) $ 64,990 $ (17,782) $ 44,242
Income (loss) per common share:
Primary earnings per share:
Income (loss) before cumulative effect of
accounting principle changes $ 1.95 $ (0.56) $ 1.33
Cumulative effect of accounting principle changes -- 0.02 --
Net income (loss) $ 1.95 $ (0.54) $ 1.33
Fully diluted earnings per share:
Income (loss) before cumulative effect of
accounting principle changes $ 1.83 $ (0.56) $ 1.31
Cumulative effect of accounting principle changes -- 0.02 --
Net income (loss) $ 1.83 $ (0.54) $ 1.31
Number of common shares for earnings per share
computations:
Primary 33,405 33,082 33,191
Fully diluted 37,793 33,082 35,707
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
WABAN INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 28, January 29,
1995 1994
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 65,040 $ 19,877
Marketable securities 63,933 --
Accounts receivable 51,875 62,447
Merchandise inventories 512,619 505,188
Current deferred income taxes 34,460 36,996
Prepaid expenses 8,992 9,662
Total current assets 736,919 634,170
Property at cost:
Land and buildings 289,781 222,522
Leasehold costs and improvements 72,874 59,844
Furniture, fixtures and equipment 237,373 195,740
600,028 478,106
Less accumulated depreciation and amortization 130,245 96,623
469,783 381,483
Property under capital leases 17,129 18,452
Less accumulated amortization 7,150 6,924
9,979 11,528
Property held for sale (net) 12,251 30,247
Deferred income taxes -- 4,967
Other assets 12,999 10,599
Total assets $1,241,931 $1,072,994
LIABILITIES
Current liabilities:
Current installments of long-term debt $ 12,763 $ 13,814
Accounts payable 249,842 253,232
Restructuring reserve 14,079 29,444
Accrued expenses and other current liabilities 164,945 129,637
Accrued federal and state income taxes 2,536 2,970
Obligations under capital leases due within one year 987 1,264
Total current liabilities 445,152 430,361
Real estate debt 1,752 4,075
General corporate debt 36,000 48,000
Senior subordinated debt 100,000 --
Convertible subordinated debt 108,600 108,600
Obligations under capital leases, less portion due within one year 12,411 13,379
Noncurrent restructuring reserve 22,900 28,642
Other noncurrent liabilities 22,617 19,445
Deferred income taxes 4,410 --
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 190,000,000 shares,
issued and outstanding 33,186,418 and 33,086,295 shares 332 331
Additional paid-in capital 325,565 322,915
Unrealized holding losses (44) --
Retained earnings 162,236 97,246
Total stockholders' equity 488,089 420,492
Total liabilities and stockholders' equity $1,241,931 $1,072,994
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, January 29, January 30,
1995 1994 1993
(53 weeks)
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 64,990 $ (17,782) $ 44,242
Adjustments to reconcile net income to net
cash provided by operating activities:
Restructuring charge -- 101,133 --
Depreciation and amortization of property 40,425 37,039 29,823
(Gain) loss on property disposals 2,016 790 (706)
Amortization of premium on marketable
securities 388 9 2,280
Other non-cash items (net) 1,963 3,102 1,536
Deferred income taxes 11,942 (41,518) (1,825)
Increase (decrease) in cash due to changes in:
Accounts receivable 10,572 (21,042) (11,580)
Merchandise inventories (7,431) 10,048 (128,705)
Prepaid expenses 670 (1,121) (3,558)
Other assets (net) (318) (1,042) (1,160)
Accounts payable (3,390) 14,215 45,280
Restructuring reserves (25,769) (15,850) --
Accrued expenses 24,320 20,411 18,611
Accrued income taxes (434) (953) (487)
Other noncurrent liabilities 3,172 3,589 1,705
Net cash provided by (used in) operating
activities 123,116 91,028 (4,544)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (120,944) -- (135,274)
Sale of marketable securities 37,303 11,839 127,990
Maturity of marketable securities 19,082 5,066 58,610
Property additions (111,704) (131,974) (164,928)
Property disposals 16,140 14,839 2,658
Net cash used in investing activities (160,123) (100,230) (110,944)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt, net of issuance
costs of $2,747 in FYE 1/95 and $2,569 in FYE
1/93 97,253 -- 106,031
Repayment of long-term debt (15,374) (2,222) (2,051)
Repayment of capital lease obligations (1,227) (5,024) (1,020)
Proceeds from sale and issuance of common
stock 1,518 681 1,815
Net cash provided by (used in) financing
activities 82,170 (6,565) 104,775
Net increase (decrease) in cash and cash
equivalents 45,163 (15,767) (10,713)
Cash and cash equivalents at beginning of
year 19,877 35,644 46,357
Cash and cash equivalents at end of year $ 65,040 $ 19,877 $ 35,644
Supplemental cash flow information:
Interest paid $ 18,280 $ 13,682 $ 10,226
Income taxes paid 29,723 25,099 26,345
Noncash financing and investing activities:
Capital lease obligations -- 329 786
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands Except Per Share Amounts)
Common Additional Unrealized Total
Stock Paid-In Holding Retained Stockholders'
Par Value $.01 Capital Losses Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance, January 25, 1992 $327 $317,532 $ -- $ 70,786 $388,645
Net income -- -- -- 44,242 44,242
Sale and issuance of
common stock 3 3,720 -- -- 3,723
Balance, January 30, 1993 330 321,252 -- 115,028 436,610
Net loss -- -- -- (17,782) (17,782)
Sale and issuance of
common stock 1 1,663 -- -- 1,664
Balance, January 29, 1994 331 322,915 -- 97,246 420,492
Net income -- -- -- 64,990 64,990
Unrealized holding losses -- -- (44) -- (44)
Sale and issuance of
common stock 1 2,650 -- -- 2,651
Balance, January 28, 1995 $332 $325,565 $(44) $162,236 $488,089
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Accounting Policies
Basis of Presentation
The consolidated financial statements of Waban Inc. (the "Company") include the
financial statements of all of the Company's subsidiaries, all of which are
wholly-owned.
Fiscal Year
The Company's fiscal year ends on the last Saturday in January. The fiscal years
ended January 28, 1995 ("1994" or "fiscal 1994") and January 29, 1994 ("1993" or
"fiscal 1993") each included 52 weeks. The fiscal year ended January 30, 1993
("1992" or "fiscal 1992") included 53 weeks.
Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with a maturity of three months
or less at time of purchase to be cash equivalents. Investments with maturities
exceeding three months are classified as marketable securities.
See Notes K and L for further information.
Merchandise Inventories
Inventories are stated at the lower of cost, determined under the average cost
method, or market. The Company recognizes the write-down of slow-moving or
obsolete inventory in cost of sales when such write-downs are probable and
estimable. At January 29, 1994, merchandise inventories were stated net of a
reserve of $9,653,000, established in connection with the Company's
restructuring. The balance in this reserve was zero as of January 28, 1995.
Property and Equipment
Buildings, furniture, fixtures and equipment are depreciated by use of the
straight-line method over the estimated useful lives of the assets. Leasehold
costs and improvements are amortized by use of the straight-line method over the
lease term or their estimated useful life, whichever is shorter.
Preopening Costs
Preopening costs consist of direct incremental costs of opening a facility and
are charged to operations within the fiscal year that a new warehouse store or
club opens.
Membership Fees
Membership fees are included in revenue when received, but not before a
warehouse club opens.
Interest on Debt and Capital Leases
Interest on debt and capital leases in the Statement of Income is presented net
of interest income and investment income of $5,979,000 in 1994, $1,507,000 in
1993 and $4,743,000 in 1992.
Capitalized Interest
The Company capitalizes interest related to the development of owned facilities.
Interest in the amount of $2,134,000, $2,773,000 and $2,441,000 was capitalized
in 1994, 1993 and 1992, respectively.
Net Income Per Common Share
Primary and fully diluted net income per common share are based on the weighted
average number of common and common equivalent shares and other dilutive
securities outstanding in each year.
A. Cumulative Effect of Accounting Principle Changes
Effective January 31, 1993 (the first day of fiscal 1993), the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect of these
accounting principle changes increased (decreased) after-tax income by the
following amounts (in thousands):
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SFAS No. 109, "Accounting for Income Taxes" $1,616
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," net
of tax benefit of $138 (210)
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," net of tax benefit of
$328 (501)
$ 905
</TABLE>
B. Restructuring Reserve
In the fourth quarter of 1993 the Company recorded a pre-tax restructuring
charge of $101.1 million ($60.2 million post-tax) primarily related to
repositioning its HomeBase division, which included:
1) closing all eight HomeBase warehouses in the midwestern markets of
Chicago and Toledo;
2) closing or relocating an additional 16 HomeBase warehouses which had
limited potential for long-term profitability. This group of warehouses
consisted mostly of older units which did not have desirable locations or
were not suitable for the current HomeBase prototype;
3) liquidating discontinued merchandise; and
4) related administrative expenses.
As of January 28, 1995, sixteen HomeBase stores have been closed in connection
with the restructuring, including the entire midwestern market. Four additional
stores are expected to close in the future, which will bring the number of
HomeBase stores closed in connection with the restructuring to twenty. Four
stores that were originally included in the restructuring are not being closed,
due to their improved performance. The discontinued merchandise has been
liquidated.
The amount of the original restructuring charge has not been amended. The
Company believes that the balance remaining in the reserve is appropriate to
cover future liabilities related to stores which have been closed, but have not
been subleased or sold, and the four additional stores that are expected to be
closed.
In addition to the restructuring reserves included in current and noncurrent
liabilities in the balance sheets, property held for sale was stated net of a
reserve for write-down of $2,974,000 at January 28, 1995 and $17,479,000 at
January 29, 1994. Merchandise inventories were stated net of a reserve of
$9,653,000 at January 29, 1994.
C. Debt
At January 28, 1995 and January 29, 1994, long-term debt, exclusive of
current installments, consisted of the following:
<TABLE>
<CAPTION>
January 28, January 29,
1995 1994
(In Thousands)
<S> <C> <C>
Real estate debt, interest at 8.25% to 9.25%, maturing
through March 1, 2003 $ 1,752 $ 4,075
General Corporate Debt:
Senior notes, interest at 9.58%,
maturing May 31, 1995 through
May 31, 1998 $ 36,000 $ 48,000
Senior Subordinated Debt:
Senior subordinated notes, interest at 11%,
maturing May 15, 2004 $100,000 $ --
Convertible Subordinated Debt:
Convertible debentures, interest at 6.5%,
maturing July 1, 2002 $108,600 $108,600
</TABLE>
22
<PAGE>
The aggregate maturities of long-term debt outstanding at January 28, 1995
were as follows:
<TABLE>
<CAPTION>
Real General Senior Convertible
Estate Corporate Subordinated Subordinated
Fiscal Years Ending January Debt Debt Debt Debt Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
1997 $ 828 $12,000 $ -- $ -- $ 12,828
1998 474 12,000 -- -- 12,474
1999 72 12,000 -- -- 12,072
2000 79 -- -- -- 79
Later years 299 -- 100,000 108,600 208,899
Total $1,752 $36,000 $100,000 $108,600 $246,352
</TABLE>
As of January 28, 1995, real estate debt was collateralized by land and
buildings with a net book value of $17,397,000.
In May 1994, the Company issued $100 million of 11% senior subordinated notes
due May 15, 2004. The Company's 9.58% unsecured senior notes are payable in five
annual installments of $12 million each, which began May 31, 1994. The 6.5%
convertible subordinated debentures are convertible into the Company's common
stock at a conversion price of $24.75 per share.
The Company's senior note, senior subordinated debt and bank credit agreements
contain covenants which, among other things, include minimum working capital,
net worth and fixed charge coverage requirements and a maximum funded debt to
capital limitation. Under the most restrictive requirement, cash dividends are
limited to not more than 25% of the Company's consolidated net income for the
immediately preceding fiscal year.
At January 28, 1995, the Company had letter of credit facilities of
approximately $37.0 million primarily to support the purchase of inventories, of
which approximately $23.0 million were outstanding.
On April 7, 1995 the Company entered into an agreement with a group of banks
which provides a $150 million line of credit through March 30, 1998. The
agreement includes a $20 million sub-facility for standby letters of credit. In
addition to a fee of $75,000 upon signing the agreement, the Company is required
to pay an annual facility fee of $300,000 (subject to adjustment based upon the
Company's fixed charge coverage ratio). Borrowings can be made at prime rate, at
LIBOR plus a surcharge (currently 0.45%) that depends on fixed charge coverage,
or on a competitive bid basis. There are no compensating balance requirements
under this agreement.
D. Commitments and Contingencies
The Company is obligated under long-term leases for the rental of real estate
and fixtures and equipment, some of which are classified as capital leases
pursuant to SFAS No. 13. In addition, the Company is generally required to pay
insurance, real estate taxes and other operating expenses and, in some cases,
additional rentals based on a percentage of sales or increases in the Consumer
Price Index. The real estate leases range up to 45 years and have varying
renewal options. The fixture and equipment leases range up to 7 years.
Future minimum lease payments as of January 28, 1995 were:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Years Ending January Leases Leases
(In Thousands)
<S> <C> <C>
1996 $ 2,614 $ 99,533
1997 2,181 101,789
1998 1,831 104,335
1999 1,859 103,949
2000 1,882 102,760
Later years 19,371 1,069,791
Total minimum lease payments 29,738 $1,582,157
Less amount representing interest 16,340
Present value of net minimum capital lease payments $13,398
</TABLE>
23
<PAGE>
Rental expense under operating leases (including contingent rentals which were
not material) amounted to $87,366,000, $90,699,000 and $81,006,000 in 1994, 1993
and 1992, respectively. These amounts exclude rent of $12.5 million and $3.6
million charged to the restructuring reserve in 1994 and 1993, respectively.
The table of future minimum lease payments above includes lease commitments for
six HomeBase stores which have closed in connection with HomeBase's
restructuring as of January 28, 1995, but which were not subleased or assigned
at that date. As of January 28, 1995, the Company was also contingently liable
on one HomeBase warehouse store lease that was assigned to a third party; the
Company believes that this contingent liability will not have a material effect
on the Company's financial condition.
The Company is involved in various legal proceedings incident to the character
of its business, some of which involve substantial claims. Although it is not
possible to predict the outcome of these proceedings, or any claims against the
Company related thereto, the Company believes that such proceedings will not,
individually or in the aggregate, have a material adverse effect on its
financial condition or results of operations.
E. Capital Stock, Stock Options and Stock Purchase Plans
Under its Stock Incentive Plan, the Company has granted certain key employees
options, which expire five to ten years from the grant date, to purchase common
stock at prices equal to 100% of market price on the grant date. Options
outstanding are exercisable over various periods generally starting one year
after the grant date. At January 28, 1995, 676,220 shares were exercisable under
the Stock Incentive Plan.
Option activity during the past three years was as follows:
<TABLE>
<CAPTION>
Number of
Option Prices Options
<S> <C> <C>
Fiscal Year Ended January 30, 1993:
Options granted $18.75-$25.625 590,550
Options exercised $ 6.25-$15.875 (113,520)
Cancellations $ 6.25-$25.625 (61,259)
Outstanding at January 30, 1993 $ 6.25-$25.625 1,615,281
Fiscal Year Ended January 29, 1994:
Options granted $12.625-$13.375 908,131
Options exercised $ 6.25-$9.125 (78,165)
Cancellations $ 8.125-$25.625 (942,346)
Outstanding at January 29, 1994 $ 6.25-$25.625 1,502,901
Fiscal Year Ended January 28, 1995:
Options granted $ 16.625-$19.25 1,427,200
Options exercised $ 6.25-$15.875 (119,873)
Cancellations $ 6.25-$25.625 (267,499)
Outstanding at January 28, 1995 $ 6.25-$25.625 2,542,729
</TABLE>
The Company has also issued, at no cost, restricted stock awards to certain key
employees under its Stock Incentive Plan. The restrictions on the
transferability of those shares tied to Company performance lapse over periods
that range up to eight years; for other awards, restrictions on the sale of
shares lapse over periods that range up to four years. The market price of
restricted stock issued is charged to income ratably over the period during
which the restrictions lapse. In 1994, 1993 and 1992 the Company issued 5,500,
237,250 and 160,250 restricted shares, respectively; 24,500, 229,145 and 2,125
restricted shares were returned to the Company and cancelled in 1994, 1993 and
1992, respectively.
As of January 28, 1995 and January 29, 1994, respectively, 309,309 and 1,450,010
shares were reserved for future stock awards under the Company's Stock Incentive
Plan.
In 1989 the Company adopted a shareholder rights plan designed to discourage
attempts to acquire the Company on terms not approved by the Board of Directors.
Under the plan, shareholders were issued one Right for each share of common
stock owned, which entitles them to purchase 1/100 share of Series A Junior
Participating Preferred Stock ("Series A Preferred Stock") at an exercise price
of $75. The Company has
24
<PAGE>
designated 1,900,000 shares of Series A Preferred Stock for use under the rights
plan; none has been issued. Generally the terms of the Series A Preferred Stock
are designed so that each 1/100 share of Series A Preferred Stock is the
economic equivalent of one share of the Company's common stock. In the event any
person acquires 15% or more of the Company's outstanding stock, the Rights
become exercisable for the number of common shares which, at the time, would
have a market value of two times the exercise price of the Right.
The Company has authorized 10,000,000 shares of preferred stock, $.01 par value,
of which no shares have been issued.
F. Income Taxes
Effective January 31, 1993 (the first day of fiscal 1993), the Company
adopted SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 changed the
Company's method of accounting for income taxes from the income statement
approach prescribed by Accounting Principles Board Opinion No. 11 to an
assets and liabilities approach. The cumulative effect of this accounting
change was to increase net income by $1,616,000 in 1993 (See Note A). As
permitted by SFAS No. 109, prior years' financial statements were not
restated.
During the third quarter of 1993, the statutory federal income tax rate for
corporations was raised from 34% to 35%, retroactive to January 1, 1993, and the
Targeted Jobs Tax Credit was restored retroactive to July 1, 1992. The net
effect of the tax law changes on the Company's provision (benefit) for income
taxes, which was recorded in the third quarter of 1993, was not material.
The provision (benefit) for income taxes on income (loss) before the
cumulative effect of accounting changes includes the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, January 29, January 30,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Federal
Current $23,979 $ 18,450 $ 20,523
Deferred 8,957 (29,555) (1,442)
State
Current 5,887 3,665 5,335
Deferred 2,379 (7,850) (383)
Total income tax provision
(benefit) $41,202 $(15,290) $ 24,033
</TABLE>
The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates on income (loss) before the cumulative
effect of accounting principle changes:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, January 29, January 30,
1995 1994 1993
<S> <C> <C> <C>
Statutory federal income tax rates 35% (35)% 34%
State income taxes, net of federal
tax benefit 5 (8) 5
Benefit from sale of real estate -- -- (2)
Targeted jobs tax credit (1) (3) (1)
Other -- 1 (1)
Effective income tax rates 39% (45)% 35%
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of January 28, 1995 and January 29, 1994 are as follows:
25
<PAGE>
<TABLE>
<CAPTION>
January 28, January 29,
1995 1994
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves $20,061 $14,032
Rental step liabilities 7,625 7,116
Restructuring reserves 16,181 32,993
Capital leases 1,385 1,261
Compensation and benefits 5,370 4,664
Other 5,456 4,175
Total deferred tax assets 56,078 64,241
Deferred tax liabilities:
Accelerated depreciation-property 25,608 21,805
Other 420 473
Total deferred tax liabilities 26,028 22,278
Net deferred tax assets $30,050 $41,963
</TABLE>
The Company has not established a valuation allowance because
its deferred tax assets can be realized by offsetting taxable income mainly in
the carryback period, and also against deferred tax liabilities and future
taxable income, which management believes will more likely than not be earned,
based on the Company's historical earnings record.
For 1992, the deferred tax provision was computed in accordance with Accounting
Principles Opinion No.11 and represents the effects of timing differences
between financial and income tax reporting. The following is a summary of the
major items comprising federal and state deferred income tax expense in that
year:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 30,
1993
(In Thousands)
<S> <C>
Accelerated depreciation $ 1,746
Insurance liabilities (4,368)
Discontinuation of HomeClub name and
membership program 1,702
Rental step adjustments (564)
Other (341)
Total $(1,825)
</TABLE>
G. Pensions The Company has a non-contributory defined benefit
retirement plan covering full-time employees who have attained twenty-one years
of age and have completed one year of service. Benefits are based on
compensation earned in each year of service. During 1992, the Board of Directors
voted that no benefits would accrue under this plan after July 4, 1992. No gain
or loss resulted from the curtailment of this plan. In December 1993, the
Company terminated its unfunded defined benefit plan which provided additional
retirement benefits for certain key employees. The net income effect of the
termination and settlement of this plan was not material. The Company also has a
non-contributory retirement plan covering directors who are not employees or
officers of the Company.
Net periodic pension cost under the Company's plans, presented in accordance
with SFAS No. 87, includes the following components (in thousands):
26
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, January 29, January 30,
1995 1994 1993
<S> <C> <C> <C>
Service cost $ 209 $ 451 $ 722
Interest cost on projected benefit obligation 435 592 656
Actual return on assets (73) (380) (157)
Net amortization and deferrals (264) 21 (81)
Net pension cost $ 307 $ 684 $1,140
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit pension plan for full-time employees as of January 28, 1995 and
January 29, 1994 (amounts related to the Directors' plan are immaterial) in
accordance with SFAS No. 87 (in thousands):
<TABLE>
<CAPTION>
January 28, 1995 January 29, 1994
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested benefits $4,622 $ 4,790
Nonvested benefits 474 940
$5,096 $ 5,730
Projected benefit obligation $5,096 $ 5,730
Plan assets at fair market value 5,106 4,880
Projected benefit obligation in excess of (less than) plan
assets (10) 850
Prior service cost reduction not yet recognized 17 34
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (891) (1,431)
Minimum liability adjustment -- 1,397
Accrued (prepaid) pension cost included in balance sheets $ (884) $ 850
</TABLE>
The weighted average discount rates used in determining the actuarial present
value of the projected benefit obligation were 8.0% and 7.5%, respectively,
in 1994 and 1993. The expected long-term rate of return on assets used was
9.0% and 9.5%, respectively, in 1994 and 1993. The Company's funding policy
is to contribute annually an amount allowable for federal income tax
purposes. Pension plan assets consist primarily of equity and fixed income
securities.
Effective on July 4, 1992, the Company's 401(k) Savings Plans were amended so
that participating employees may make pre-tax contributions up to 15% of covered
compensation. The Company matches employee contributions at 100% of the first
one percent of covered compensation and 50% of the next four percent, payable at
the end of the year. Before the amendment became effective, participating
employees could make pre-tax contributions up to 10% of covered compensation,
and the Company matched contributions of the first five percent of covered
compensation at rates ranging from 25% to 50%. The Company's expense under these
plans was $3,561,000 in 1994, $3,277,000 in 1993 and $2,216,000 in 1992.
In 1994, the Company established a non-contributory defined contribution
retirement plan for certain key employees. Under the plan, the Company funds
annual retirement contributions for the designated participants, on an after-tax
basis. For 1994, the Company's contribution equalled 5% of the participants'
base salary. Participants become fully vested in their contribution accounts at
the end of the fiscal year in which they complete four years of service. The
Company's expense under this plan was $875,000 in 1994.
H. Postretirement Medical Benefits
The Company sponsors a defined benefit postretirement medical plan that covers
employees and their spouses who retire after age 55 with at least 10 years of
service, who are not eligible for Medicare, and who participated in a
Company-sponsored medical plan. Amounts contributed by retired employees under
this plan are based on years of service prior to retirement. The plan is not
funded.
27
<PAGE>
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," requires employers to recognize postretirement benefits over the
periods during which employees render services rather than at the time benefits
are paid. SFAS No. 106 was implemented by the Company by recognizing the
transition obligation of $348,000 in the first quarter of 1993.
Net periodic postretirement medical benefit cost for the fiscal years ended
January 28, 1995 and January 29, 1994, presented in accordance with SFAS No.
106, includes the following components:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, January 29,
1995 1994
(In Thousands)
<S> <C> <C>
Service cost $128 $100
Interest cost 42 38
Net periodic postretirement benefit cost $170 $138
</TABLE>
The following table sets forth the status of the Company's postretirement
medical plan and the amount recognized in the Company's balance sheets at
January 28, 1995 and January 29, 1994 in accordance with SFAS No. 106:
<TABLE>
<CAPTION>
January 28, January 29,
1995 1994
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants $ -- $ --
Fully eligible active participants 37 11
Other active participants 387 424
Unfunded accumulated postretirement benefit
obligation 424 435
Unrecognized net gain 232 51
Accrued postretirement benefit cost included in
balance sheet $656 $486
</TABLE>
For measurement purposes as of January 29,
1994, an annual rate of increase in the per capita cost of medical coverage of
10% in 1994 grading down to 5% after 10 years was assumed. Increasing the
assumed health care cost trend rate one percentage point would increase the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1994 by $33,000 and would increase the
accumulated postretirement benefit obligation as of January 28, 1995 by $76,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% as of January 28, 1995 and 7.5% as of
January 29, 1994.
I. Accrued Expenses and Other Current Liabilities
The major components of accrued expenses and other current liabilities are as
follows:
<TABLE>
<CAPTION>
January 28, January 29,
1995 1994
(In Thousands)
<S> <C> <C>
Employee compensation $ 25,783 $ 18,995
Self-insurance reserves 49,756 34,472
Fixed asset additions 23,674 12,443
Sales and use taxes, rent, utilities,
advertising and other 65,732 63,727
$164,945 $129,637
</TABLE>
The Company's reported expense and reserves for insurance are derived from
estimated ultimate cost based upon individual claim file reserves. The Company
maintains insurance coverage for individual occurrences above $250,000 for
worker's compensation and general liability, and above $200,000 for group
medical claims.
28
<PAGE>
J. Selected Information by Major Business Segment
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, January 29, January 30,
1995 1994 1993
(53 weeks)
(In Thousands)
<S> <C> <C> <C>
Net sales:
BJ's Wholesale Club $2,293,091 $2,003,385 $1,786,916
HomeBase 1,357,190 1,585,956 1,570,878
$3,650,281 $3,589,341 $3,357,794
Operating income (loss):
BJ's Wholesale Club $ 68,804 $ 45,216 $ 35,366
HomeBase (net of $98,533 restructuring
charge in FYE 1/94) 60,706 (55,805) 47,170
General corporate expense (including
$2,600 restructuring charge in FYE
1/94) (8,420) (10,899) (7,981)
121,090 (21,488) 74,555
Interest on debt and capital leases
(net) (14,898) (12,489) (6,280)
Income (loss) before income taxes and
cumulative effect of accounting
principle changes $ 106,192 $ (33,977) $ 68,275
Identifiable assets:
BJ's Wholesale Club $ 579,423 $ 501,230 $ 364,154
HomeBase 533,535 551,887 590,344
Corporate (cash, cash equivalents and
marketable securities) 128,973 19,877 52,516
$1,241,931 $1,072,994 $1,007,014
Depreciation and amortization:
BJ's Wholesale Club $ 22,529 $ 16,825 $ 11,362
HomeBase 17,896 20,214 18,461
$ 40,425 $ 37,039 $ 29,823
Capital expenditures:
BJ's Wholesale Club $ 71,017 $ 95,170 $ 89,765
HomeBase 51,918 37,974 76,083
$ 122,935 $ 133,144 $ 165,848
</TABLE>
K. Investments in Marketable Securities
The Company classifies all of its investments in marketable securities as
available-for-sale securities in accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Marketable securities at January 28, 1995 included the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Aggregate
Cost Basis Holding Gains Holding Losses Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Debt securities issued by states or
their political subdivisions $54,017 $35 $(108) $53,944
Corporate debt securities 9,989 -- -- 9,989
$64,006 $35 $(108) $63,933
</TABLE>
29
<PAGE>
The contractual maturities of marketable securities at January 28, 1995 were
as follows:
<TABLE>
<CAPTION>
Amortized Aggregate
Cost Basis Fair Value
(In Thousands)
<S> <C> <C>
Less than one year $47,421 $47,384
1-5 years 16,585 16,549
$64,006 $63,933
</TABLE>
Proceeds and gross realized losses on the sale of marketable securities for the
year ended January 28, 1995 were $37.3 million and $165,000, respectively. The
specific identification method is used as the basis for computing realized gains
or losses on the sale of marketable securities. The increase in unrealized
holding losses (net of taxes) for the year was $44,000.
L. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of
these instruments.
Marketable Securities
The fair value of the Company's marketable securities is based on quoted values
provided by an independent pricing service utilized by broker dealers and mutual
fund companies.
Real Estate Debt and General Corporate Debt
The fair value of the Company's real estate debt and general corporate debt is
estimated based on the current rates for similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
Subordinated Debt
The fair value of the Company's subordinated debt is based on quoted market
prices.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
January 28, 1995 January 29, 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 65,040 $ 65,040 $ 19,877 $ 19,877
Marketable securities 63,933 63,933 -- --
Real estate debt (2,515) (2,611) (5,889) (6,287)
General corporate debt (48,000) (48,422) (60,000) (65,085)
Senior subordinated debt (100,000) (97,500) -- --
Convertible subordinated debt (108,600) (97,740) (108,600) (102,627)
</TABLE>
30
<PAGE>
M. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Fiscal year ended January 28, 1995
Net sales $820,840 $951,804 $905,606 $972,031
Gross earnings (a) 117,105 143,448 130,718 148,223
Net income 9,129 21,142 13,399 21,320
Per common share, fully diluted .27 .59 .38 .59
Fiscal year ended January 29, 1994
Net sales $834,225 $967,209 $897,646 $890,261
Gross earnings (a) 113,379 137,438 124,169 127,685
Income (loss) before cumulative
effect of accounting principle changes 4,425 13,704 8,087 (44,903)(b)
Per common share, fully diluted .13 .39 .24 (1.36)(b)
Net income 5,330 13,704 8,087 (44,903)(b)
Per common share, fully diluted .16 .39 .24 (1.36)(b)
</TABLE>
(a) Gross earnings equals net sales less cost of sales, including buying and
occupancy costs.
(b) Includes a post-tax restructuring charge of $60.2 million and a $1.3 million
post-tax charge for relocating one BJ's Wholesale Club warehouse. Excluding
these items, fully diluted earnings per share would have been $.47.
N. Relationship with The TJX Companies, Inc. ("TJX")
The Company was formed in 1989, when Zayre Corp. (now TJX), as part of its
restructuring, combined its BJ's Wholesale Club and HomeBase divisions to form
Waban Inc. In connection with the spin-off from TJX (the "Spin-Off"), the
Company and TJX entered into a Distribution Agreement and a Services Agreement.
The Distribution Agreement provides for, among other things, (i) the division
between the Company and TJX of certain liabilities, and (ii) certain other
agreements governing the relationship between the Company and TJX following the
Spin-Off. Under the Distribution Agreement, TJX assumed certain liabilities
relating to the Company's business for the period prior to the Spin-Off. In
general, the Company assumed responsibility for all post-Spin-Off liabilities
relating to its business. TJX retained liability for insured claims arising
before the Spin-Off and in 1999 will receive from (or pay to) the Company the
amount by which TJX's costs at the end of this 10-year period exceed (or are
less than) the reserve amount agreed to.
Pursuant to the Services Agreement, TJX provided certain services, primarily
data processing, for which the Company paid TJX $7,616,000, $6,483,000 and
$5,547,000 in 1994, 1993 and 1992, respectively. The Company has elected to
continue to purchase data processing and certain other services through 1997.
31
<PAGE>
Coopers & Lybrand Coopers & Lybrand L.L.P
a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Waban Inc.:
We have audited the accompanying consolidated balance sheets of Waban Inc. and
subsidiaries as of January 28, 1995 and January 29, 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three fiscal years in the period ended January 28, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Waban Inc. and
subsidiaries as of January 28, 1995 and January 29, 1994 and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 28, 1995 in conformity with generally accepted
accounting principles.
As discussed in Notes A, F and H to the Consolidated Financial Statements, the
Company changed its methods of accounting for postretirement benefits other than
pensions, for postemployment benefits and for income taxes in the fiscal year
ended January 29, 1994.
[Signature of Coopers & Lybrand L.L.P]
Boston, Massachusetts
February 27, 1995, except as to the
information in the last paragraph in
Note C, for which the date is
April 7, 1995.
REPORT OF MANAGEMENT
The financial statements and related financial information in this annual report
have been prepared by and are the responsibility of management. The financial
statements were prepared in accordance with generally accepted accounting
principles and necessarily include amounts which are based upon judgments and
estimates made by management.
The Company maintains a system of internal controls designed to provide, at
appropriate cost, reasonable assurance that assets are safeguarded, transactions
are executed in accordance with management's authorization and the accounting
records may be relied upon for the preparation of financial statements. The
accounting and control systems are continually reviewed by management and
modified as necessary in response to changing business conditions and the
recommendations of the Company's internal auditors and independent public
accountants.
The Audit Committee, which is comprised of members of the Board of Directors who
are neither officers nor employees, meets periodically with management, the
internal auditors and the independent public accountants to review matters
relating to the Company's financial reporting, the adequacy of internal
accounting control and the scope and results of audit work. The internal
auditors and the independent public accountants have free access to the
Committee.
The financial statements have been audited by Coopers & Lybrand, whose opinion
as to their fair presentation in accordance with generally accepted accounting
principles appears above.
[Signature of Herbert J. Zarkin]
Herbert J. Zarkin
President and
Chief Executive Officer
[Signature of Edward J. Weisberger]
Edward J. Weisberger
Senior Vice President and
Chief Financial Officer
February 27, 1995
32
<PAGE>
WABAN INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended January 28, 1995 and January 29, 1994
(Dollars In Thousands)
<TABLE>
<CAPTION>
Column C
Column A Column B Additions Column D Column E
(1) (2)
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts-- Deductions-- End of
Description of Period Expenses Describe (c) Describe Period
<S> <C> <C> <C> <C> <C>
Year ended January 28,
1995:
Reserve for write-down
of discontinued
inventories $ 9,653 $ -- $ -- $ 9,653(a) $ --
Reserve for write-down
of property held for
sale 17,479 -- (4,662) 9,843(a) 2,974
Restructuring reserve 29,444 -- 1,955 17,320(b) 14,079
Noncurrent restructuring
reserve 28,642 -- 2,707 8,449 22,900
$85,218 $ -- $ -- $45,265 $39,953
Year ended January 29,
1994:
Reserve for write-down
of discontinued
inventories $ -- $ 9,766 $ -- $ 113(a) $ 9,653
Reserve for write-down
of property held for
sale -- 17,431 -- (48)(a) 17,479
Restructuring reserve -- 45,294 -- 15,850(b) 29,444
Noncurrent restructuring
reserve -- 28,642 -- -- 28,642
$ -- $101,133 $ -- $15,915 $85,218
</TABLE>
(a) Net loss on sale or disposal of discontinued inventory and property held
for sale in connection with the Company's restructuring.
(b) Other costs and expenses incurred in connection with the Company's
restructuring, mainly operating losses, closing costs and settlement of lease
obligations in HomeBase warehouse stores closed or to be closed.
(c) Reclassification of components of restructuring reserve.
33
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Waban Inc. on Form S-8 (File Nos. 33-29473 and 33-40155) of our reports
dated February 27, 1995, except as to the information in the last paragraph
in Note C, for which the date is April 7, 1995, on our audits of the
consolidated financial statements and financial statement schedules of Waban
Inc. as of January 28, 1995 and January 29, 1994, and for the three years
ended January 28, 1995, January 29, 1994 and January 30, 1993, which reports
are included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Waban Inc.:
Our report on the consolidated financial statements of Waban Inc. and
Subsidiaries is included in this Form 10-K. In connection with our audits of
such financial statements, we have also audited the related financial
statement schedules listed herein.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 27, 1995, except as to the
information in the last paragraph in
Note C, for which the date is
April 7, 1995.
34
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company will file with the Securities and Exchange Commission a
definitive Proxy Statement no later than 120 days after the close of its
fiscal year ended January 28, 1995 (the "Proxy Statement"). The information
required by this Item and not given in Item 4A, Executive Officers of the
Registrant, is incorporated by reference from the Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the
Proxy Statement. However, information under "Executive Compensation Committee
Report" and "Performance Graph" in this Proxy Statement is not so
incorporated.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference from the
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from the
Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. The Financial Statements and Financial Statement Schedules filed as part
of this report are listed and indexed on page 16. Schedules other than those
listed in the index have been omitted because they are not applicable or the
required information has been included elsewhere in this report.
B. Listed below are all Exhibits filed as part of this report. Certain
Exhibits are incorporated by reference to documents previously filed by the
Registrant with the Securities and Exchange Commission pursuant to Rule
12b-32 under the Securities Exchange Act of 1934, as amended.
Exhibit No. Exhibit
- ----------- -------
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 By-laws, as amended, of the Company (2)
4.1 Instruments Defining Rights of Security Holders (See
Exhibits 3.1, 3.2, 4.2, 4.3 and 10.15)
4.2 Rights Agreement dated as of May 23, 1989 between the
Company and Morgan Shareholder Services Trust Company, as
Rights Agent (1)
4.3 Indenture dated as of July 1, 1992 between the Company and
Continental Bank, National Association, as Trustee, with
respect to 6 1/2% Convertible Subordinated Debentures due
July 1, 2002 (6)
10.1 Services Agreement, as amended, dated as of May 1, 1989
between the Company and Zayre Corp. (2)
10.1a Agreement dated as of January 28, 1993 between the Company
and The TJX Companies, Inc. extending the Services
Agreement referred to in Exhibit 10.1 (7)
10.2 Distribution Agreement dated as of May 1, 1989 between the
Company and Zayre Corp. (1)
10.3 Waban Inc. 1989 Stock Incentive Plan, as amended through
June 13, 1991* (5)
10.4 Waban Inc. Executive Retirement Plan* (10)
10.5 Waban Inc. Retirement Plan for Directors, as amended
September 17, 1990* (3)
35
<PAGE>
10.6 Waban Inc. General Deferred Compensation Plan* (2)
10.7 Waban Inc. Growth Incentive Plan* (10)
10.8 Executive Services Agreement dated as of June 1, 1989
between the Company and Zayre Corp. with respect to Sumner
L. Feldberg* (2)
10.9 Executive Services Agreement dated as of June 1, 1989
between the Company and Zayre Corp. with respect to Arthur
F. Loewy* (2)
10.9a Amendment dated as of January 29, 1994 between the Company
and The TJX Companies, Inc. to Executive Services
Agreement with respect to Arthur F. Loewy referred to in
Exhibit 10.9* (10)
10.10 Employment Agreement dated as of May 25, 1993 with Herbert
J. Zarkin* (10)
10.10a Change of Control Severance Agreement dated as of May 25,
1993 with Herbert J. Zarkin* (10)
10.11 Employment Agreement dated as of February 1, 1994 with
John J. Nugent* (11)
10.12 Employment Agreement dated as of September 29, 1994 with
Edward J. Weisberger* (13)
10.13 Employment Agreement dated as of February 1, 1994 with
Dale N. Garth* (11)
10.13a Separation Agreement dated as of September 28, 1994 with
Dale N. Garth* (13)
10.14 Employment Agreement dated as of September 29, 1993 with
Allan P. Sherman* (10)
10.14a Change of Control Severance Agreement dated as of
September 29, 1993 with Allan P. Sherman* (10)
10.14b Loan Agreement dated as of January 19, 1994 with Allan P.
Sherman* (10)
10.14c Promissory Note dated as of January 19, 1994 from Allan P.
Sherman to the Company* (10)
10.15 Form of Indemnification Agreement between the Company and
its officers and directors* (2)
10.16 Form of Change of Control Severance Agreement between the
Company and officers of the Company* (11)
10.17 Note Purchase Agreement dated as of June 15, 1991 with
respect to 9.58% Senior Notes due May 31,1998 (4)
10.17a Amendment dated as of December 16, 1991 to Note Purchase
Agreement dated as of June 15, 1991 referred to in Exhibit
10.18 (5)
10.17b Second Amendment and Waiver dated as of March 28, 1994 to
Note Purchase Agreement dated as of June 15, 1991 (11)
10.17c Third Amendment and Waiver dated as of September 29, 1994
to Note Purchase Agreement dated as of June 15, 1991 (13)
10.18 Indenture dated as of May 15, 1994 between the Company and
The First National Bank of Boston, as Trustee, with
respect to 11% Senior Subordinated Notes due May 15, 2004 (12)
10.19 Credit Agreement dated as of April 4, 1995 among the
Company and certain banks
10.20 Agreement dated as of January 24, 1995 between the Company and
The TJX Companies, Inc.
11.0 Statement regarding computation of per share earnings
21.0 Subsidiaries of the Company
*Management contract or other compensatory plan or arrangement.
(1) Incorporated herein by reference to the Registrant's Form 10 (#1-10259)
(2) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 27, 1990
(3) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended October 27, 1990
(4) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended July 27, 1991
(5) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 25, 1992
(6) Incorporated herein by reference to the Registrant's Form S-3 (#33-48423)
36
<PAGE>
(7) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 30, 1993
(8) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended July 31, 1993
(9) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended October 30, 1993
(10) Incorporated herein by reference to the Registrant's Form 10-K for the
fiscal year ended January 29, 1994
(11) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended April 30, 1994
(12) Incorporated herein by reference to the Registrant's Form S-3 (#33-
52665)
(13) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended October 29, 1994
C. The Registrant has not filed any reports on Form 8-K during the last
quarter of the period covered by this Report.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WABAN INC.
Dated: April 28, 1995
/s/ HERBERT J. ZARKIN
Herbert J. Zarkin
President and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ HERBERT J. ZARKIN /s/ SUMNER L. FELDBERG
Herbert J. Zarkin, President Sumner L. Feldberg, Chairman
Principal Executive Officer and Director of the Board and Director
/s/ EDWARD J. WEISBERGER /s/ S. JAMES COPPERSMITH
Edward J. Weisberger, Senior Vice President S. James Coppersmith, Director
and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ STANLEY H. FELDBERG /s/ KERRY L. HAMILTON
Stanley H. Feldberg, Director Kerry L. Hamilton, Director
/s/ ALLYN L. LEVY /s/ ARTHUR F. LOEWY
Allyn L. Levy, Director Arthur F. Loewy, Director
/s/ THOMAS J. SHIELDS /s/ LORNE R. WAXLAX
Thomas J. Shields, Director Lorne R. Waxlax, Director
Dated: April 28, 1995
38
CREDIT AGREEMENT
AMONG
WABAN INC.,
THE LENDERS PARTY HERETO,
THE FIRST NATIONAL BANK OF BOSTON,
SHAWMUT BANK, N.A.
AND
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Co-Agents
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
Dated as of April 4, 1995
<PAGE>
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS .............................................. 1
ARTICLE II - THE CREDITS ............................................. 13
2.1. Description of Facility ................................. 13
2.2. Availability of Facility ................................ 13
2.3. Committed Advances ...................................... 13
2.3.1. Commitment ....................................... 13
2.3.2. Ratable Loans; Types of Advances ................. 13
2.3.3. Minimum Amount of Each Committed Advance ......... 14
2.3.4. Applicable Margin ................................ 14
2.3.5. Method of Selecting Types and Interest Periods
for New Committed Advances .............................. 15
2.3.6. Conversion and Continuation of Outstanding
Committed Advances ...................................... 15
2.4. Competitive Bid Advances ................................ 15
2.4.1. Competitive Bid Option; Repayment of Competitive
Bid Advances ............................................ 15
2.4.2. Competitive Bid Quote Request .................... 16
2.4.3. Invitation for Competitive Bid Quotes ............ 16
2.4.4. Submission and Contents of Competitive Bid
Quotes .................................................. 16
2.4.5. Notice to Borrower ............................... 17
2.4.6. Acceptance and Notice by Borrower ................ 17
2.4.7. Allocation by the Agent .......................... 18
2.5. Method of Borrowing ..................................... 18
2.6. Fees .................................................... 18
2.6.1. Facility Fee ..................................... 18
2.6.2. Upfront Fee ...................................... 18
2.6.3. Agent Fees ....................................... 19
2.7. Reductions in Aggregate Commitment; Principal
Payments ................................................ 19
2.7.1. Reductions in Aggregate Commitment ............... 19
2.7.2. Principal Payments ............................... 19
2.8. Changes in Interest Rate, etc ........................... 19
2.9. Rates Applicable After Default .......................... 19
2.10. Method of Payment ....................................... 20
2.11. Notes; Telephonic Notices ............................... 20
2.12. Interest Payment Dates; Interest and Fee Basis .......... 20
2.13. Notification by Agent ................................... 20
2.14. Lending Installations ................................... 21
2.15. Non-Receipt of Funds by the Agent ....................... 21
2.16. Withholding Tax Exemption ............................... 21
2.17. Extension of Termination Date ........................... 21
2.18. Change in Circumstances ................................. 22
2.18.1. Yield Protection ................................ 22
2.18.2. Changes in Capital Adequacy Regulations ......... 22
2.18.3. Availability of Types of Advances ............... 23
2.18.4. Funding Indemnification ......................... 23
2.18.5. Mitigation of Additional Costs;
Replacement of Lenders .................................. 23
2.18.6. Lender Statements; Survival of Indemnity ........ 24
ARTICLE III - THE LETTER OF CREDIT SUBFACILITY ....................... 24
3.1. Obligation to Issue ..................................... 24
3.2. Types and Amounts ....................................... 24
3.3. Conditions .............................................. 25
3.4. Procedure for Issuance of Facility Letters of
Credit .................................................. 25
3.5. Reimbursement Obligations; Duties of Issuing
Banks ................................................... 26
3.6. Participation ........................................... 27
3.7. Payment of Reimbursement Obligations .................... 28
3.8. Compensation for Facility Letters of Credit ............. 28
ARTICLE IV - CONDITIONS PRECEDENT .................................... 29
4.1. Initial Advance ......................................... 29
4.2. Each Advance or Issuance of a Facility Letter of
Credit .................................................. 30
ARTICLE V - REPRESENTATIONS AND WARRANTIES ........................... 30
5.1. Corporate Existence and Standing ........................ 30
5.2. Authorization and Validity .............................. 31
5.3. No Conflict; Government Consent ......................... 31
5.4. Financial Statements .................................... 31
5.5. Material Adverse Change ................................. 31
5.6. Taxes ................................................... 31
5.7. Litigation and Contingent Obligations ................... 31
5.8. Subsidiaries ............................................ 32
5.9. ERISA ................................................... 32
5.10. Accuracy of Information ................................. 32
5.11. Regulation U ............................................ 32
5.12. Material Agreements ..................................... 32
5.13. Compliance With Laws .................................... 32
5.14. Ownership of Properties ................................. 32
5.15. Investment Company Act .................................. 32
5.16. Public Utility Holding Company Act ...................... 33
5.17. Other Indebtedness ...................................... 33
5.18. Post-Retirement Benefits ................................ 33
5.19. Insurance ............................................... 33
ARTICLE VI - COVENANTS ............................................... 33
6.1. Financial Reporting ..................................... 33
6.2. Use of Proceeds ......................................... 34
6.3. Notice of Default ....................................... 35
6.4. Conduct of Business ..................................... 35
6.5. Taxes ................................................... 35
6.6. Insurance ............................................... 35
6.7. Compliance with Laws .................................... 35
6.8. Maintenance of Properties ............................... 35
6.9. Inspection .............................................. 35
6.10. Dividends ............................................... 35
6.11. Indebtedness ............................................ 36
6.12. Merger .................................................. 37
6.13. Sale of Assets .......................................... 37
6.14. Letters of Credit ....................................... 38
6.15. Investments and Acquisitions ............................ 38
6.16. Liens ................................................... 40
6.17. Affiliates .............................................. 42
6.18. Subordinated Indebtedness ............................... 42
6.19. Rate Hedging Obligations ................................ 42
6.20. Financial Covenants ..................................... 42
6.20.1. Funded Debt to Capital Ratio .................... 42
6.20.2. Fixed Charge Coverage Ratio ..................... 42
6.20.3. Tangible Net Worth .............................. 42
6.21. Subsidiary Guaranties ................................... 43
6.22. Intercompany Indebtedness ............................... 43
ARTICLE VII - DEFAULTS ............................................... 43
ARTICLE VIII - ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES ........ 44
8.1. Acceleration ............................................ 44
8.2. Amendments .............................................. 45
8.3. Preservation of Rights .................................. 46
ARTICLE IX - GENERAL PROVISIONS ...................................... 46
9.1. Survival of Representations ............................. 46
9.2. Governmental Regulation ................................. 46
9.3. Taxes ................................................... 46
9.4. Headings ................................................ 46
9.5. Entire Agreement ........................................ 46
9.6. Several Obligations; Benefits of this Agreement ......... 46
9.7. Expenses; Indemnification ............................... 47
9.8. Numbers of Documents .................................... 47
9.9. Accounting .............................................. 47
9.10. Severability of Provisions .............................. 47
9.11. Nonliability of Lenders ................................. 47
9.12. CHOICE OF LAW ........................................... 47
9.13. CONSENT TO JURISDICTION ................................. 48
9.14. WAIVER OF JURY TRIAL .................................... 48
9.15. Confidentiality ......................................... 48
ARTICLE X - THE AGENT ................................................ 48
10.1. Appointment ............................................. 48
10.2. Powers .................................................. 48
10.3. General Immunity ........................................ 49
10.4. No Responsibility for Loans, Recitals, etc .............. 49
10.5. Action on Instructions of Lenders ....................... 49
10.6. Employment of Agents and Counsel ........................ 49
10.7. Reliance on Documents; Counsel .......................... 49
10.8. Agent's Reimbursement and Indemnification ............... 49
10.9. Rights as a Lender ...................................... 50
10.l0. Lender Credit Decision .................................. 50
10.11. Successor Agent ......................................... 50
ARTICLE XI - SETOFF; RATABLE PAYMENTS ................................ 51
11.1. Setoff .................................................. 51
11.2. Ratable Payments ........................................ 51
ARTICLE XII - BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS. 51
12.1. Successors and Assigns .................................. 51
12.2. Participations .......................................... 52
12.2.1. Permitted Participants; Effect .................. 52
12.2.2. Voting Rights ................................... 52
12.2.3. Benefit of Setoff ............................... 52
12.3. Assignments ............................................. 52
12.3.1. Permitted Assignments ........................... 52
12.3.2. Effect; Effective Date .......................... 53
12.4. Dissemination of Information ............................ 53
12.5. Tax Treatment ........................................... 53
ARTICLE XIII - NOTICES ............................................... 54
13.1. Giving Notice ........................................... 54
13.2. Change of Address ....................................... 54
ARTICLE XIV - COUNTERPARTS ........................................... 54
<PAGE>
EXHIBITS
EXHIBIT "A-1" - COMMITTED NOTE ....................................... 59
EXHIBIT "A-2" - COMPETITIVE BID NOTE ................................. 61
EXHIBIT "B" - COMPETITIVE BID QUOTE REQUEST ........................ 63
EXHIBIT "C" - INVITATION FOR COMPETITIVE BID QUOTES ................ 64
EXHIBIT "D" - COMPETITIVE BID QUOTE ................................ 65
EXHIBIT "E" - FORM OF OPINION ...................................... 67
EXHIBIT "F" - LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION ....... 69
EXHIBIT "G" - COMPLIANCE CERTIFICATE ............................... 70
EXHIBIT "H" - ASSIGNMENT AGREEMENT ................................. 72
EXHIBIT "I" - SUBSIDIARY GUARANTY .................................. 80
SCHEDULES
SCHEDULE "1" - PERCENTAGES ........................................... 86
SCHEDULE "2" - SUBSIDIARIES AND OTHER INVESTMENTS .................... 87
SCHEDULE "3" - INDEBTEDNESS AND LIENS ................................ 89
SCHEDULE "4" - EXISTING FACILITY LETTERS OF CREDIT ................... 90
<PAGE>
CREDIT AGREEMENT
This Agreement, dated as of April 4, 1995, is among Waban Inc., the
Lenders and The First National Bank of Chicago, as Agent. The parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Absolute Rate" means, with respect to a Loan made by a given Lender for
the relevant Absolute Rate Interest Period, the rate of interest per annum
(rounded to the nearest 1/100 of 1%) offered by such Lender and accepted by the
Borrower pursuant to Section 2.4.6.
"Absolute Rate Advance" means a borrowing hereunder consisting of the
aggregate amount of the several Absolute Rate Loans made by some or all of the
Lenders to the Borrower at the same time and for the same Absolute Rate Interest
Period.
"Absolute Rate Auction" means a solicitation of Competitive Bid Quotes
setting forth Absolute Rates pursuant to Section 2.4.
"Absolute Rate Interest Period" means, with respect to an Absolute Rate
Advance or an Absolute Rate Loan, a period of not less than 30 and not more than
180 days commencing on a Business Day selected by the Borrower pursuant to this
Agreement, but in no event extending beyond the Termination Date. If such
Absolute Rate Interest Period would end on a day which is not a Business Day,
such Absolute Rate Interest Period shall end on the next succeeding Business
Day.
"Absolute Rate Loan" means a Loan which bears interest at an Absolute
Rate.
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage or voting power) of the
outstanding partnership interests of a partnership.
<PAGE>
"Active Subsidiary" means a Subsidiary that has total assets of at least
$500,000.
"Advance" means a borrowing hereunder consisting of the aggregate amount
of the several Loans made by some or all of the Lenders to the Borrower of the
same Type (or on the same interest basis in the case of Competitive Bid
Advances) and, in the case of Fixed Rate Advances, for the same Interest Period
and includes both a Committed Advance and a Competitive Bid Advance.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" means The First National Bank of Chicago in its capacity as agent
for the Lenders pursuant to Article X, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to Article X.
"Aggregate Available Commitment" means at any time the Aggregate
Commitment minus the Facility Letter of Credit Obligations.
"Aggregate Commitment" means $150,000,000, as such amount may be reduced
from time to time pursuant to the terms hereof.
"Agreement" means this credit agreement, as it may be amended or modified
and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum
of Federal Funds Effective Rate for such day plus 1/2% per annum.
"Alternate Base Rate Advance" means an Advance which bears interest at the
Alternate Base Rate.
"Alternate Base Rate Loan" means a Loan which bears interest at the
Alternate Base Rate.
<PAGE>
"Applicable Margin" means, at any date of determination thereof with
respect to any Eurodollar Committed Advance, the facility fees payable pursuant
to Section 2.6.1 and the Facility Letter of Credit Fees, the respective rates
per annum for such Eurodollar Committed Advance, facility fees and Facility
Letter of Credit Fees calculated in accordance with the terms of Section 2.3.4.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the Chairman, President, Chief Financial
Officer, Treasurer or any Vice President-Finance of the Borrower, acting singly,
as such Authorized Officers may be modified from time to time in writing by the
Agent and a then existing Authorized Officer of the Borrower.
"Borrower" means Waban Inc., a Delaware corporation, and its successors
and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"Capital" means, as of any date of determination, the sum of Tangible Net
Worth plus Funded Debt plus the outstanding principal amount of Convertible
Subordinated Debt.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change in Control" means the acquisition by any Person, or two or more
Persons acting in concert (a "group"), of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934) of 40% or more of the outstanding shares of
voting stock of the Borrower.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, for each Lender, the obligation of such Lender to make
Committed Loans and participate in Facility Letters of Credit equal to its
Percentage of the Aggregate Commitment.
"Committed Advance" means a borrowing hereunder consisting of the
aggregate amount of the several Committed Loans made by the Lenders to the
Borrower at the same time, of the same Type and, in the case of Eurodollar
Committed Advances, for the same Interest Period.
"Committed Borrowing Notice" is defined in Section 2.3.5.
"Committed Loan" means a Loan made by a Lender pursuant to Section 2.3.
"Committed Note" means a promissory note in substantially the form of
Exhibit "A-1" hereto, with appropriate insertions, duly executed and delivered
to the Agent by the Borrower for the account of a Lender and payable to the
order of such Lender in the amount of its Commitment, including any amendment,
modification, renewal or replacement of such promissory note.
"Competitive Bid Acceptance Notice" is defined in Section 2.4.6.
"Competitive Bid Advance" means a borrowing hereunder consisting of the
aggregate amount of the several Competitive Bid Loans made by some or all of the
Lenders to the Borrower at the same time, at the same interest basis, and for
the same Interest Period.
"Competitive Bid Loan" means a Eurodollar Bid Rate Loan or an Absolute
Rate Loan, as the case may be.
"Competitive Bid Margin" means the margin above or below the applicable
Eurodollar Base Rate offered for a Eurodollar Bid Rate Loan, expressed as a
percentage (rounded to the nearest 1/100 of 1%) to be added or subtracted from
such Eurodollar Base Rate.
"Competitive Bid Note" means a promissory note in substantially the form
of Exhibit "A-2" hereto, with appropriate insertions, duly executed and
delivered to the Agent by the Borrower for the account of a Lender and payable
to the order of such Lender, including any amendment, modification, renewal or
replacement of such promissory note.
"Competitive Bid Quote" means a Competitive Bid Quote substantially in the
form of Exhibit "D" hereto completed and delivered by a Lender to the Agent in
accordance with Section 2.4.4.
<PAGE>
"Competitive Bid Quote Request" means a Competitive Bid Quote Request
substantially in the form of Exhibit "B" hereto completed and delivered by the
Borrower to the Agent in accordance with Section 2.4.2.
"Condemnation" is defined in Section 7.8.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement or take-or-pay contract (but does not include any (i) application for
a Letter of Credit or (ii) obligation of any Person to pay the purchase price of
real estate, subject to the satisfaction of customary conditions precedent,
contracted for in the ordinary course of business).
"Conversion/Continuation Notice" is defined in Section 2.3.6.
"Convertible Subordinated Debt" means that certain $108,600,000 of 6.5%
Convertible Subordinated Debentures Due 2002 issued pursuant to an Indenture,
dated as of July 1, 1992, between the Borrower, as issuer and Bank of America
Illinois (f/k/a Continental Bank, National Association), as Trustee.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by First Chicago from time to time, changing when and
as said corporate base rate changes.
"Current Maturities" means, as of any date of determination, the sum of
all amounts which were due and payable within 12 months prior to such date with
respect to any Indebtedness with an original term in excess of one year (it
being understood that Indebtedness under this Agreement shall not be included),
all determined on a consolidated basis for the Borrower and its Subsidiaries.
"Default" means an event described in Article VII.
"EBITR" means, for any period, earnings before interest expense, income
taxes and Rentals, all determined on a consolidated basis for the Borrower and
its Subsidiaries.
<PAGE>
"Effective Date" is defined in Section 4.1.
"ERISA" means the Employee Retirement Income Security Act of l974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means a Eurodollar Committed Advance or a Eurodollar
Bid Rate Advance, as applicable.
"Eurodollar Auction" means a solicitation of Competitive Bid Quotes
setting forth Competitive Bid Margins pursuant to Section 2.4.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the
relevant Eurodollar Interest Period, the rate determined by the Agent to be the
rate at which deposits in U.S. dollars are offered by First Chicago to
first-class banks in the London interbank market at approximately 11 a.m.
(London time) two Business Days prior to the first day of such Eurodollar
Interest Period, in the approximate amount of First Chicago's relevant
Eurodollar Loan, or, in the case of a Eurodollar Bid Rate Advance, the amount of
the Eurodollar Bid Rate Advance requested by the Borrower, and having a maturity
approximately equal to such Eurodollar Interest Period.
"Eurodollar Bid Rate" means, with respect to a Eurodollar Bid Rate Loan
made by a given Lender for the relevant Eurodollar Interest Period, the sum of
(i) the Eurodollar Base Rate and (ii) the Competitive Bid Margin offered by such
Lender and accepted by the Borrower pursuant to Section 2.4.6.
"Eurodollar Bid Rate Advance" means a Competitive Bid Advance which bears
interest at a Eurodollar Bid Rate.
"Eurodollar Bid Rate Loan" means a Competitive Bid Loan which bears
interest at a Eurodollar Bid Rate.
"Eurodollar Committed Advance" means an Advance which bears interest at a
Eurodollar Rate requested by the Borrower pursuant to Section 2.3.
"Eurodollar Committed Loan" means a Loan which bears interest at a
Eurodollar Rate requested by the Borrower pursuant to Section 2.3.
"Eurodollar Interest Period" means, with respect to a Eurodollar Advance,
a period of one, two, three or six months commencing on a Business Day selected
by the Borrower pursuant to this Agreement. Such Eurodollar Interest Period
shall end on (but exclude) the day which corresponds numerically to such date
one, two, three or six months thereafter, provided, however, that if there is no
such numerically corresponding day in such next, second, third or sixth
succeeding month, such Eurodollar Interest Period shall end on the last Business
Day of
<PAGE>
such next, second, third or sixth succeeding month. If a Eurodollar Interest
Period would otherwise end on a day which is not a Business Day, such Eurodollar
Interest Period shall end on the next succeeding Business Day, provided,
however, that if said next succeeding Business Day falls in a new calendar
month, such Eurodollar Interest Period shall end on the immediately preceding
Business Day.
"Eurodollar Loan" means a Eurodollar Committed Loan or a Eurodollar Bid
Rate Loan, as applicable.
"Eurodollar Rate" means, with respect to a Eurodollar Committed Advance
for the relevant Eurodollar Interest Period, the sum of (i) the quotient of (a)
the Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided
by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to
such Eurodollar Interest Period, plus (ii) the Applicable Margin plus (iii) at
any time that, and so long as, the outstanding Advances exceed 50% of the
Aggregate Commitment, .10% per annum. The Eurodollar Rate shall be rounded to
the next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Extension Date" is defined in Section 2.17.
"Extension Request" is defined in Section 2.17.
"Facility Letter of Credit" means an irrevocable standby Letter of Credit
issued by (i) The First National Bank of Boston prior to the date hereof and
listed on Schedule "4" hereto or (ii) an Issuing Bank pursuant to Section 3.1.
"Facility Letter of Credit Fee" is defined in Section 3.8.
"Facility Letter of Credit Obligations" means, as at the time of
determination thereof, all liabilities, whether actual or contingent, of the
Borrower with respect to Facility Letters of Credit, including the sum of (a)
the Reimbursement Obligations and (b) the aggregate undrawn face amount of the
then outstanding Facility Letters of Credit.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"First Chicago" means The First National Bank of Chicago in its individual
capacity, and its successors.
<PAGE>
"Fixed Charge Coverage Ratio" means a ratio of (i) EBITR for such fiscal
quarter and the three immediately preceding fiscal quarters to (ii) the sum of
interest expense and Rentals for such fiscal quarter and the three immediately
preceding fiscal quarters plus Current Maturities as of the end of such fiscal
quarter, all determined on a consolidated basis for the Borrower and its
Subsidiaries.
"Fixed Rate" means the Eurodollar Rate, the Eurodollar Bid Rate or the
Absolute Rate.
"Fixed Rate Advance" means an Advance which bears interest at a Fixed
Rate.
"Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate.
"Funded Debt" means, as of any date of determination, for the Borrower and
its Subsidiaries on a consolidated basis, the sum of (i) the outstanding
principal amount of all Indebtedness plus (ii) the product of eight (8) times
Rentals (for the twelve (12) months prior to the date of determination) minus
(iii) the outstanding principal amount of Convertible Subordinated Debt.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
Property or services (other than accounts payable arising in the ordinary course
of such Person's business payable on terms customary in the trade), (iii)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) Capitalized Lease Obligations, (vi) net liabilities under Rate
Hedging Obligations, (vii) unreimbursed draws under Letters of Credit and (viii)
Contingent Obligations.
"Interest Period" means a Eurodollar Interest Period or an Absolute Rate
Interest Period.
"Investment" of a Person means any loan, advance (other than advances to
officers and employees made in the ordinary course of business), extension of
credit (other than accounts receivable arising in the ordinary course of
business on terms customary in the trade), deposit account or contribution of
capital by such Person to any other Person or any investment in, or purchase or
other acquisition of, the stock, partnership interests, notes, debentures or
other securities of any other Person made by such Person.
"Investment Subsidiary" means Natick Security Corp., a Massachusetts
corporation and a Wholly-Owned Subsidiary of the Borrower, and its successors.
"Invitation for Competitive Bid Quotes" means an Invitation for
Competitive Bid Quotes substantially in the form of Exhibit "C" hereto,
completed and delivered by the Agent to the Lenders in accordance with Section
2.4.3.
"Issuance Date" is defined in Section 3.4(a).
<PAGE>
"Issuance Notice" is defined in Section 3.4(c).
"Issuing Bank" means, with respect to each Facility Letter of Credit,
First Chicago or such other Lender selected by the Borrower to issue such
Facility Letter of Credit so long as such other Lender consents to act in such
capacity.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Letter of Credit Request" is defined in Section 3.4(a).
"Level I Status" is defined in Section 2.3.4.
"Level II Status" is defined in Section 2.3.4.
"Level III Status" is defined in Section 2.3.4.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any
Advance.
"Loan Documents" means this Agreement, the Notes and the Facility Letters
of Credit.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the Loan Documents, or
(iii) the validity or enforceability of any of the Loan Documents or the rights
or remedies of the Agent or the Lenders thereunder.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
<PAGE>
"Net Income" means, for any period, the net income (or loss) of the
Borrower and its Subsidiaries on a consolidated basis for such period taken as a
single accounting period determined in conformity with Agreement Accounting
Principles; provided, however, that to the extent reported as a separate item on
the Borrower's financial statements delivered pursuant to Section 6.1, there
shall be excluded (i) the income (or loss) of any Affiliate of the Borrower or
other Person (other than a Subsidiary of the Borrower) in which any Person
(other than the Borrower or any of its Subsidiaries) has a joint interest,
except to the extent of the amount of dividends or other distributions actually
paid to the Borrower, or any of its Subsidiaries by such Affiliate or other
Person during such period and (ii) the income (or loss) of any Person accrued
prior to the date such Person becomes a Subsidiary of the Borrower or is merged
into or consolidated with the Borrower or any of its Subsidiaries or that
Person's assets are acquired by the Borrower or any of its Subsidiaries.
"Net Worth" means the aggregate amount of shareholders equity as
determined from a consolidated balance sheet of the Borrower and its
Subsidiaries, prepared in accordance with Agreement Accounting Principles.
"Notes" means, collectively, the Competitive Bid Notes and the Committed
Notes; and "Note" means any one of the Notes.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, the Facility Letter of Credit Obligations, all accrued
and unpaid fees and all expenses, reimbursements, indemnities and other
obligations of the Borrower to the Lenders or to any Lender, the Agent or any
indemnified party hereunder arising under the Loan Documents.
"Operating Subsidiaries" means HomeClub, Inc. of Texas, a Delaware
corporation, HomeClub, Inc., a Nevada corporation, and any other Wholly-Owned
Subsidiary of the Borrower formed after the date hereof for the purpose of
owning and operating retail stores in states in which the Borrower has
determined that there are tax advantages to operating retail stores in such
state through a Wholly-Owned Subsidiary.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last day of each March, June, September and
December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Percentage" means, for each Lender the percentage set forth opposite its
name on Schedule "1" attached hereto, as such percentage (and such schedule) may
be modified from time to time pursuant to the terms hereof, including but not
limited to the provisions of Section 12.3.2.
<PAGE>
"Permitted Investments" means Investments in any of the following:
(i) Short-term obligations of, or fully guaranteed by, the United
States of America;
(ii) Commercial paper rated A-2 or better by Standard and Poor's
Corporation or P-2 or better by Moody's Investors Service, Inc. and
securities commonly known as "short-term bank notes" issued by any Lender
denominated in United States dollars which at the time of purchase have
been rated and the ratings for which are not less than P-2 if rated by
Moody's Investors Services, Inc., and not less than A-2 if rated by
Standard and Poor's Corporation;
(iii) Demand deposit accounts maintained in the ordinary course of
business;
(iv) Certificates of deposit issued by and time deposits with
commercial banks (whether domestic or foreign) having capital and surplus
in excess of $100,000,000;
(v) Tax-free government securities rated "A" or better as rated by
Standard and Poor's Corporation or Moody's Investors Service, Inc. and
government securities mutual funds which have a weighted average life of
less than two (2) years;
(vi) Corporate debt securities rated "A" or better as rated by
Standard and Poor's Corporation or Moody's Investors Service, Inc. that
mature within two (2) years from the date the Investment is made by the
Borrower or any of its Subsidiaries;
(vii) Collateralized mortgage obligations rated "A" or better as
rated by Standard and Poor's Corporation or Moody's Investors Service,
Inc. with an average life less than two (2) years; provided that after
giving effect to any such Investment, the aggregate cost of all such
Investments does not exceed $50,000,000;
(viii) Money market preferred stock investments rated "A" or better
as rated by Standard and Poor's Corporation or Moody's Investors Service,
Inc.; provided that after giving effect to any such Investment, the
aggregate cost of all such Investments does not exceed $50,000,000;
(ix) Repurchase agreements relating to a security which is rated "A"
or better as rated by Standard and Poor's Corporation or Moody's Investors
Service, Inc. that mature within two (2) years from the date the
Investment is made by the Borrower or any of its Subsidiaries; provided
that after giving effect to any such Investment, the aggregate cost of all
such Investments does not exceed $50,000,000; and
(x) Tax free government securities rated "SP2" or better by Standard
and Poor's Corporation or "MIG2" or better by Moody's Investors Service,
Inc. with an average
<PAGE>
life of less than two (2) years; provided, that after giving effect to any
such Investment, the aggregate cost of all such Investments does not
exceed $50,000,000.
"Person" means any natural person, corporation, firm, joint venture,
limited liability company, partnership, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Purchasers" is defined in Section 12.3.1.
"Rate Hedging Agreements" of a Person means (i) any and all agreements,
devices or arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward rates
applicable to such party's assets, liabilities or exchange transactions,
including, but not limited to, dollar-denominated or cross-currency interest
rate exchange agreements, forward currency exchange agreements, interest rate
cap or collar protection agreements, forward rate currency or interest rate
options, puts and warrants, and (ii) any and all cancellations, buy backs,
reversals, terminations or assignments of any of the foregoing.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under Rate Hedging
Agreements.
"Real Estate Subsidiary" means any Wholly-Owned Subsidiary of the Borrower
now existing or formed after the date hereof for the purpose of purchasing,
developing and/or carrying real estate and which conducts no business other than
that which is incidental to purchasing, developing and/or carrying real estate.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the
<PAGE>
purpose of purchasing or carrying margin stocks applicable to member banks of
the Federal Reserve System.
"Reimbursement Obligations" means, at any time, the aggregate of the
obligations of the Borrower to the Lenders, the Issuing Banks and the Agent in
respect of all unreimbursed payments or disbursements made by the Lenders, the
Issuing Banks and the Agent under or in respect of the Facility Letters of
Credit.
"Rentals" means all rental expense of the Borrower and its Subsidiaries
paid under operating leases.
"Reorganization" means a transaction or a series of related transactions
which would consist of a one time transfer by the Borrower of substantially all
of its assets to one or more Wholly-Owned Subsidiaries, divided among such
Wholly-Owned Subsidiaries on the same basis as the Borrower's divisions are then
comprised.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Required Lenders" means Lenders whose Commitments, in the aggregate, are
equal to at least 60% of the Aggregate Commitment or, if the Aggregate
Commitment has been terminated, Lenders in the aggregate holding at least 60% of
the sum of (i) the aggregate unpaid principal amount of the outstanding Advances
plus (ii) the Facility Letter of Credit Obligations.
"Reserve Requirement" means, with respect to a Eurodollar Interest Period,
the maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Senior Subordinated Debt" means that certain $100,000,000 of 11% Senior
Subordinated Notes due May 15, 2004 issued pursuant to an Indenture, dated as of
May 11, 1994, between the Borrower, as Issuer and The First National Bank of
Boston, as Trustee.
<PAGE>
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Status" means, at any date of determination thereof, whichever of Level I
Status, Level II Status or Level III Status exists at such date.
"Subordinated Indebtedness" means the Convertible Subordinated Debt and
the Senior Subordinated Debt.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled or of which such
Person, directly or indirectly, is the general partner. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which represents more than 10% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as at
the beginning of the twelve-month period ending with the month in which such
determination is made.
"Tangible Net Worth" means Net Worth minus Intangible Assets. For purposes
of this definition "Intangible Assets" means the amount (to the extent reflected
in determining Net Worth) of (i) all write-ups (other than write-ups resulting
from foreign currency translations) subsequent to January 28, 1995 in the book
value of any asset owned by the Borrower or a consolidated Subsidiary, (ii) all
investments in unconsolidated Subsidiaries and all equity investments in Persons
which are not Subsidiaries and (iii) all unamortized debt discount and expense,
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, organization or developmental expenses and other
intangible items.
"Termination Date" means March 30, 1998, as the same may be extended
pursuant to Section 2.17, or such earlier date on which the Agreement is
terminated by the parties hereto.
"Trademark Subsidiaries" means Natick Corporation, a Delaware corporation,
Fullerton Corporation, a Delaware corporation, and any other Wholly-Owned
Subsidiary of the Borrower formed after the date hereof for the purpose of
owning trademarks and/or other intellectual property and whose income is
primarily derived from royalties received from the Borrower and its Subsidiaries
for the use of such trademarks and/or other intellectual property.
"Transferee" is defined in Section 12.4.
<PAGE>
"Type" means, with respect to any Loan or Advance, its nature as an
Alternate Base Rate Advance or Loan, Eurodollar Committed Advance or Loan,
Eurodollar Bid Rate Advance or Loan or Absolute Rate Advance or Loan.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which (other than director qualifying shares)
shall at the time be owned or controlled, directly or indirectly, by such Person
or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and
one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership,
association, joint venture or similar business organization 100% of the
ownership interests having ordinary voting power of which shall at the time be
so owned or controlled.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1. Description of Facility. Upon the terms and subject to the conditions
set forth in this Credit Agreement, the Lenders hereby grant to the Borrower a
revolving credit facility pursuant to which: (i) each Lender severally agrees to
make Committed Loans to the Borrower in accordance with Section 2.3; and (ii)
each Lender may, in its sole discretion, make bids to make Competitive Bid Loans
to the Borrower in accordance with Section 2.4; provided that in no event may
the aggregate principal amount of all outstanding Advances exceed the Aggregate
Available Commitment.
2.2. Availability of Facility. Subject to all of the terms and conditions
of this Agreement, the facility is available from the date of this Agreement to
the Termination Date, and the Borrower may borrow, repay and reborrow at any
time prior to the Termination Date.
2.3. Committed Advances.
<PAGE>
2.3.1. Commitment. From and including the date of this Agreement and
prior to the Termination Date, each Lender severally agrees, on the terms and
conditions set forth in this Agreement, to make Committed Loans to the Borrower
from time to time in amounts not to exceed in the aggregate at any one time
outstanding (after giving effect to the intended use of proceeds of any
Committed Advance used to repay any outstanding Reimbursement Obligations) an
amount equal to such Lender's Percentage of the Aggregate Available Commitment.
The Commitments to lend hereunder shall expire on the Termination Date.
2.3.2. Ratable Loans; Types of Advances. Each Committed Advance
hereunder shall consist of Loans made from the several Lenders ratably in
proportion to the ratio that their respective Commitments bear to the Aggregate
Commitment. The Committed Advances may be Alternate Base Rate Advances or
Eurodollar Committed Advances, or a combination thereof, selected by the
Borrower in accordance with Sections 2.3.5 and 2.3.6; provided, however, that
there shall not be more than six Eurodollar Committed Advances outstanding at
any one time. Committed Advances shall be evidenced by the Committed Notes.
2.3.3. Minimum Amount of Each Committed Advance.Each Committed
Advance shall be in the minimum amount of $5,000,000 (and in multiples of
$1,000,000 if in excess thereof); provided, however, that any Alternate Base
Rate Advance may be in the amount of the unused Aggregate Available Commitment.
2.3.4. Applicable Margin. The Applicable Margin set forth below with
respect to each Eurodollar Committed Advance and for facility fees and Facility
Letter of Credit Fees payable hereunder, shall be subject to adjustment (upwards
or downwards, as appropriate) based on the Borrower's Status as at the end of
each fiscal quarter in accordance with the table set forth below. The Borrower's
Status as at the last day of each fiscal quarter shall be determined from the
then most recent annual or quarterly financial statements of the Borrower
delivered with the compliance certificate required pursuant to Section 6.1(iii)
(collectively, the "Financials"). The adjustment, if any, to the Applicable
Margin shall take place on, and be effective from and after, the fifth Business
Day following the date on which the Agent has received the Financials. In the
event that the Borrower shall at any time fail to furnish to the Lenders the
Financials within the time limitations specified by Section 6.1, then the
Borrower's Status shall be Level III Status from the date of such failure until
five Business Days after such Financials are so delivered. Notwithstanding
anything to the contrary contained herein, the Borrower's Status as of the
Effective Date shall be determined based on the compliance certificate delivered
pursuant to Section 4.1.
Applicable Margin Level I Status Level II Status Level III Status
Eurodollar Rate .40% .45% .525%
<PAGE>
Facility Letter
of Credit Fee .40% .45% .525%
Facility Fee .15% .20% .225%
For purposes of this Agreement, the Borrower's Status will be determined based
on the following definitions:
"Level I Status" exists at any date if, as of the last day of the fiscal
quarter of the Borrower referred to in the Financials, the Fixed Charge Coverage
Ratio is greater than 1.80 to 1.0.
"Level II Status" exists at any date if, as of the last day of the fiscal
quarter of the Borrower referred to in the Financials, (i) the requirements
necessary to achieve Level I Status shall not have been satisfied and (ii) the
Fixed Charge Coverage Ratio is greater than 1.65 to 1.0.
"Level III Status" exists at any date if the requirements necessary to
achieve Level I Status or Level II Status shall not have been satisfied.
2.3.5. Method of Selecting Types and Interest Periods for New
Committed Advances. The Borrower shall select the Type of Committed Advance, and
in the case of each Eurodollar Committed Advance the Interest Period applicable
thereto, for each such Committed Advance. The Borrower shall give the Agent
irrevocable notice (a "Committed Borrowing Notice") not later than 10:00 a.m.
(Chicago time) on the Borrowing Date for each Alternate Base Rate Advance and
three Business Days before the Borrowing Date for each Eurodollar Committed
Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of
such Committed Advance,
(ii) the aggregate amount of such Committed Advance,
(iii) the Type of Committed Advance selected, and
(iv) in the case of each Eurodollar Committed Advance, the
Interest Period applicable thereto.
2.3.6. Conversion and Continuation of Outstanding Committed Advances.
Alternate Base Rate Advances shall continue as Alternate Base Rate Advances
unless and until such Alternate Base Rate Advances are converted into Eurodollar
Committed Advances. Each Eurodollar Committed Advance shall continue as a
Eurodollar Committed Advance until the
<PAGE>
end of the then applicable Interest Period therefor, at which time such
Eurodollar Committed Advance shall be automatically converted into an Alternate
Base Rate Advance unless such Eurodollar Committed Advance is paid by the
Borrower or the Borrower shall have given the Agent a Conversion/Continuation
Notice requesting that, at the end of such Interest Period, such Eurodollar
Committed Advance continue as a Eurodollar Committed Advance for the same or
another Interest Period. Subject to the terms of Section 2.3.3, the Borrower may
elect from time to time to convert all or any part of an Alternate Base Rate
Advance into a Eurodollar Committed Advance. The Borrower shall give the Agent
irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an
Alternate Base Rate Advance or continuation of a Eurodollar Committed Advance
not later than 10:00 a.m. (Chicago time) at least three Business Days prior to
the date of the requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount and Type of the Committed Advance which is to
be converted or continued; and
(iii) the amount and Type(s) of Committed Advance(s) into which such
Committed Advance is to be converted or continued and, in the case
of a conversion into or continuation of a Eurodollar Committed
Advance, the duration of the Interest Period applicable thereto.
2.4. Competitive Bid Advances.
2.4.1. Competitive Bid Option; Repayment of Competitive Bid Advances.
In addition to Committed Advances pursuant to Section 2.3, but subject to all of
the terms and conditions of this Agreement (including, without limitation, the
limitation set forth in Section 2.1 as to the maximum aggregate principal amount
of all outstanding Advances hereunder), the Borrower may, as set forth in this
Section 2.4, request the Lenders, prior to the Termination Date, to make offers
to make Competitive Bid Advances to the Borrower. Each Lender may, but shall
have no obligation to, make such offers and the Borrower may, but shall have no
obligation to, accept any such offers in the manner set forth in this Section
2.4. No Lender shall at any time be liable for the Competitive Bid Loans of any
other Lender made hereunder. Competitive Bid Advances shall be evidenced by the
Competitive Bid Notes. Each Competitive Bid Advance shall be repaid in full by
the Borrower on the last day of the Interest Period applicable thereto.
2.4.2. Competitive Bid Quote Request. When the Borrower wishes to
request offers to make Competitive Bid Loans under this Section 2.4, the
Borrower shall transmit to the Agent by telecopy a Competitive Bid Quote Request
so as to be received no later than (x) 10:00 a.m., Chicago time, at least five
Business Days prior to the Borrowing Date proposed therein, in the case of a
Eurodollar Auction, or (y) 9:00 a.m., Chicago time, at least one Business Day
prior to the Borrowing Date proposed
<PAGE>
therein, in the case of an Absolute Rate Auction, specifying in accordance with
all of the terms of this Credit Agreement:
(i) the proposed Borrowing Date for the proposed Competitive Bid
Advance;
(ii) the aggregate principal amount of such Competitive Bid Advance;
(iii) whether the Competitive Bid Quotes requested are to set forth a
Competitive Bid Margin or an Absolute Rate, or both; and
(iv) the Interest Period applicable thereto.
The Borrower may request offers to make Competitive Bid Loans for more than one
Interest Period and for a Eurodollar Auction and an Absolute Rate Auction in a
single Competitive Bid Quote Request. No Competitive Bid Quote Request shall be
given within five Business Days (or upon reasonable prior notice to the Lenders,
such other number of days as the Borrower and the Agent may agree) of any other
Competitive Bid Quote Request. Each Competitive Bid Quote Request shall be in a
minimum amount of $5,000,000 or a larger multiple of $1,000,000. A Competitive
Bid Quote Request that does not conform substantially to the format of Exhibit
"B" hereto shall be rejected, and the Agent shall promptly notify the Borrower
of such rejection by telecopy.
2.4.3. Invitation for Competitive Bid Quotes. Promptly upon receipt
of a Competitive Bid Quote Request that is not rejected pursuant to Section
2.4.2, the Agent shall send to each of the Lenders by telecopy an Invitation for
Competitive Bid Quotes which shall constitute an invitation by the Borrower to
each Lender to submit Competitive Bid Quotes offering to make the Competitive
Bid Loans to which such Competitive Bid Quote Request relates in accordance with
this Section 2.4.
2.4.4. Submission and Contents of Competitive Bid Quotes.
(a) Each Lender may, in its sole discretion, submit a Competitive Bid
Quote containing an offer or offers to make Competitive Bid Loans in response to
any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must
comply with the requirements of this Section 2.4.4 and must be submitted to the
Agent by telecopy at its offices specified in or pursuant to Article XIII not
later than (i) (A) 12:45 p.m., Chicago time, in the case of First Chicago and
(B) 1:00 p.m., Chicago time, in the case of each other Lender, at least four
Business Days prior to the proposed Borrowing Date in the case of a Eurodollar
Auction, or (ii) (A) 8:45 a.m., Chicago time, in the case of First Chicago and
(B) 9:00 a.m., Chicago time, in the case of each other Lender, on the proposed
Borrowing Date in the case of an Absolute Rate Auction (or, in any such case
upon reasonable prior notice to the Lenders, such other time and date as the
Borrower and the Agent may agree; provided that First Chicago shall always
<PAGE>
be required to submit its Competitive Bid Quotes not less than fifteen minutes
prior to the other Lenders). Subject to Articles IV and VIII, any Competitive
Bid Quote so made shall be irrevocable except with the written consent of the
Agent given on the instructions of the Borrower.
(b) Each Competitive Bid Quote shall in any case specify: (i) the
proposed Borrowing Date, which shall be the same as that set forth in the
applicable Invitation for Competitive Bid Quotes; (ii) the principal amount of
the Competitive Bid Loan for which each such offer is being made, (1) which
principal amount may be greater than, less than or equal to the Commitment of
the quoting Lender, but in no case greater than the unutilized Aggregate
Available Commitment, (2) which principal amount must be at least $5,000,000 and
in integral multiples of $1,000,000, and (3) which principal amount may not
exceed the principal amount of Competitive Bid Loans for which offers were
requested; (iii) in the case of a Eurodollar Auction, the Competitive Bid Margin
offered for each such Competitive Bid Loan; (iv) the minimum or maximum amount,
if any, of the Competitive Bid Loan which may be accepted by the Borrower; (v)
in the case of an Absolute Rate Auction, the Absolute Rate offered for each such
Competitive Bid Loan; (vi) the applicable Interest Period; and (vii) the
identity of the quoting Lender.
(c) The Agent shall reject any Competitive Bid Quote that: (i) is not
substantially in the form of Exhibit "D" hereto or does not specify all of the
information required by Section 2.4.4(b); (ii) contains qualifying, conditional
or similar language, other than any such language contained in Exhibit "D"
hereto; (iii) proposes terms other than or in addition to those set forth in the
applicable Invitation for Competitive Bid Quotes; or (iv) arrives after the time
set forth in Section 2.4.4(a).
(d) If any Competitive Bid Quote shall be rejected pursuant to
Section 2.4.4(c), then the Agent shall notify the Borrower and the relevant
Lender of such rejection as soon as practicable.
2.4.5. Notice to Borrower. The Agent shall promptly notify the
Borrower of the terms (i) of any Competitive Bid Quote submitted by a Lender
that is in accordance with Section 2.4.4 and (ii) of any Competitive Bid Quote
that is in accordance with Section 2.4.4 and amends, modifies or is otherwise
inconsistent with a previous Competitive Bid Quote submitted by such Lender with
respect to the same Competitive Bid Quote Request. Any such subsequent
Competitive Bid Quote shall be disregarded by the Agent unless such subsequent
Competitive Bid Quote specifically states that it is submitted solely to correct
a manifest error in such former Competitive Bid Quote. The Agent's notice to the
Borrower shall specify the aggregate principal amount of Competitive Bid Loans
for which offers have been received for each Interest Period specified in the
related Competitive Bid Quote Request and the respective principal amounts and
Competitive Bid Margins or Absolute Rates, as the case may be, so offered.
<PAGE>
2.4.6. Acceptance and Notice by Borrower. Subject to the receipt of
the notice from the Agent referred to in Section 2.4.5, not later than (i) 10:00
a.m. (Chicago time) at least three Business Days prior to the proposed Borrowing
Date, in the case of a Eurodollar Auction or (ii) 10:00 a.m. (Chicago time) on
the proposed Borrowing Date, in the case of an Absolute Rate Auction, the
Borrower shall notify the Agent of the Borrower's acceptance or rejection of the
offers so notified to it pursuant to Section 2.4.5; provided, however, that the
failure by the Borrower to give such notice to the Agent shall be deemed to be a
rejection by the Borrower of all such offers. In the case of acceptance, such
notice (a "Competitive Bid Acceptance Notice") shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept or reject any Competitive Bid Quote in whole or in part
(subject to the terms of Section 2.4.4(b)(iv)); provided that:
(i) the aggregate principal amount of each Competitive Bid Advance
may not exceed the applicable amount set forth in the related Competitive
Bid Quote Request;
(ii) acceptance of offers may only be made on the basis of ascending
Competitive Bid Margins or Absolute Rates, as the case may be; and
(iii) the Borrower may not accept any offer of the type described in
Section 2.4.4(c) or that otherwise fails to comply with the requirements of
this Agreement for the purpose of obtaining a Competitive Bid Loan under
this Agreement.
2.4.7. Allocation by the Agent. If offers are made by two or more
Lenders with the same Competitive Bid Margins or Absolute Rates, as the case may
be, for a greater aggregate principal amount than the amount in respect of which
offers are permitted to be accepted for the related Interest Period, the
principal amount of Competitive Bid Loans in respect of which such offers are
accepted shall be allocated by the Agent among such Lenders as nearly as
possible (in such multiples as the Agent may deem appropriate) in proportion to
the aggregate principal amount of such offers; provided, however, that no Lender
shall be allocated a portion of any Competitive Bid Advance which is less than
the minimum amount which such Lender has indicated that it is willing to accept.
Allocations by the Agent of the amounts of Competitive Bid Loans shall be
conclusive in the absence of manifest error. The Agent shall promptly, but in
any event on the same Business Day in the case of Eurodollar Bid Rate Advances,
and by 11:00 a.m. (Chicago time) on the same Business Day in the case of
Absolute Rate Advances, notify each Lender of its receipt of a Competitive Bid
Acceptance Notice and the aggregate principal amount of each Competitive Bid
Advance allocated to each participating Lender.
2.5. Method of Borrowing. On each Borrowing Date, each Lender shall
make available its Loan or Loans, if any, not later than 1:00 p.m., Chicago
time, in funds immediately available to the Agent, in Chicago, Illinois at its
address specified pursuant to Article XIII. The Agent will make the funds so
received from the Lenders available to the
<PAGE>
Borrower at the Agent's aforesaid address. Notwithstanding the foregoing
provisions of this Section 2.5, to the extent that a Loan made by a Lender
matures on the Borrowing Date of a requested Loan, such Lender shall apply the
proceeds of the Loan it is then making to the repayment of principal of the
maturing Loan.
2.6. Fees.In addition to the Facility Letter of Credit Fees and issuance
fees identified in Section 3.8, the Borrower agrees to pay the following fees:
2.6.1. Facility Fee. The Borrower agrees to pay to the Agent for the
account of each Lender, for the period from the date hereof to and including the
Termination Date, a facility fee equal to the product of (i) such Lender's
Commitment times (ii) the percentage indicated as the Applicable Margin for the
facility fee, payable on each Payment Date hereafter, on the Termination Date
and on the effective date of any termination of the obligations of the Lenders
to make Loans and participate in Facility Letters of Credit hereunder.
2.6.2. Upfront Fee. The Borrower agrees to pay to the Agent, for the
account of Lenders, an upfront fee on the Effective Date equal to .05% of the
Aggregate Commitment (to be shared among the Lenders in accordance with their
Percentages).
2.6.3. Agent Fees. The Borrower agrees to pay certain fees to the
Agent on the dates and in the amounts set forth in that certain fee letter
between the Borrower and the Agent dated February 1, 1995, as it may be amended
from time to time.
2.7. Reductions in Aggregate Commitment; Principal Payments.
2.7.1. Reductions in Aggregate Commitment. The Borrower may
permanently reduce the Aggregate Commitment in whole, or in part ratably among
the Lenders in a minimum aggregate amount of $10,000,000, upon at least three
Business Days' written notice to the Agent, which notice shall specify the
amount of any such reduction; provided, however, that the amount of the
Aggregate Commitment may not be reduced below the sum of (i) the aggregate
principal amount of the outstanding Advances plus (ii) the Facility Letter of
Credit Obligations.
2.7.2. Principal Payments.
(i) Optional Payments. The Borrower may from time to time pay,
without penalty or premium, all outstanding Alternate Base Rate Advances,
or, in a minimum aggregate amount of $1,000,000 or any integral multiple
of $1,000,000 in excess thereof, any portion of the outstanding Alternate
Base Rate Advances upon one Business Day's prior notice to the Agent. A
Eurodollar Committed Advance may be paid in full by the Borrower upon
three Business Days' prior written notice to the Agent; provided that the
Borrower compensates the Lenders as required pursuant to
<PAGE>
Section 2.18.4. A Fixed Rate Advance, other than a Eurodollar Committed
Advance (as described above), may not be paid prior to the last day of the
applicable Interest Period.
(ii) Termination. Any outstanding Advances and all other unpaid
Obligations shall be paid in full by the Borrower on the Termination Date.
2.8. Changes in Interest Rate, etc.Each Alternate Base Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a Eurodollar
Committed Advance into an Alternate Base Rate Advance pursuant to Section 2.3.6
to but excluding the date it becomes due or is converted into a Eurodollar
Committed Advance pursuant to Section 2.3.6 hereof, at a rate per annum equal to
the Alternate Base Rate for such day. Changes in the rate of interest on that
portion of any Advance maintained as an Alternate Base Rate Advance will take
effect simultaneously with each change in the Alternate Base Rate. Each Fixed
Rate Advance shall bear interest from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such Fixed Rate
Advance. No Interest Period may end after the Termination Date.
2.9. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.3.5 or 2.3.6, during the continuance of a
Default or Unmatured Default no Advance may be made as, converted into or
continued as a Eurodollar Committed Advance unless otherwise consented to by the
Required Lenders. During the continuance of a Default the Required Lenders may,
at their option, by notice to the Borrower, declare that (i) each Fixed Rate
Advance shall bear interest for the remainder of the applicable Interest Period
at the rate otherwise applicable to such Interest Period plus 2% per annum and
(ii) each Alternate Base Rate Advance shall bear interest at a rate per annum
equal to the Alternate Base Rate otherwise applicable to the Alternate Base Rate
Advance plus 2% per annum. While any such declaration is in effect, interest
shall be payable in accordance with Section 2.12 and on demand.
2.10. Method of Payment.All payments of the Obligations hereunder shall be
made, without setoff, deduction, or counterclaim, in immediately available funds
to the Agent at the Agent's address specified pursuant to Article XIII, or at
any other Lending Installation of the Agent specified in writing by the Agent to
the Borrower, by noon (local time) on the date when due and shall be applied
ratably by the Agent among the Lenders. Each payment delivered to the Agent for
the account of any Lender shall be delivered promptly by the Agent to such
Lender in the same type of funds that the Agent received at its address
specified pursuant to Article XIII or at any Lending Installation specified in a
notice received by the Agent from such Lender. The Agent is hereby authorized to
charge the account of the Borrower maintained with First Chicago for each
payment of principal, interest and fees as it becomes due hereunder.
<PAGE>
2.11. Notes; Telephonic Notices.Each Lender is hereby authorized to record
the principal amount of each of its Loans and each repayment on the schedule
attached to its Notes; provided, however, that the failure to so record shall
not affect the Borrower's obligations under such Notes. The Borrower hereby
authorizes the Lenders and the Agent to extend, convert or continue Advances,
effect selections of Types of Advances and to transfer funds, and authorizes the
Issuing Bank to issue Facility Letters of Credit, based on telephonic notices
made by any person or persons the Agent or any Lender in good faith believes to
be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to
the Agent a written confirmation, if such confirmation is requested by the Agent
or any Lender, of each telephonic notice signed by an Authorized Officer. If the
written confirmation differs in any material respect from the action taken by
the Agent and the Lenders, the records of the Agent and the Lenders shall govern
absent manifest error.
2.12. Interest Payment Dates; Interest and Fee Basis. Interest accrued on
each Alternate Base Rate Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof, on any date
on which the Alternate Base Rate Advance is prepaid, whether due to acceleration
or otherwise, and at maturity. Interest accrued on that portion of the
outstanding principal amount of any Alternate Base Rate Advance converted into a
Eurodollar Committed Advance on a day other than a Payment Date shall be payable
on the date of conversion. Interest accrued on each Fixed Rate Advance shall be
payable on the last day of its applicable Interest Period, on any date on which
the Fixed Rate Advance is prepaid, whether by acceleration or otherwise, and at
maturity. Interest accrued on each Fixed Rate Advance having an Interest Period
longer than three months shall also be payable on the last day of each
three-month interval during such Interest Period. Interest and fees shall be
calculated for actual days elapsed on the basis of a 360-day year. Interest
shall be payable for the day an Advance is made but not for the day of any
payment on the amount paid if payment is received prior to noon(local time) at
the place of payment. If any payment of principal of or interest on an Advance
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and, in the case of a principal
payment, such extension of time shall be included in computing interest in
connection with such payment.
2.13. Notification by Agent.Promptly after receipt thereof, the Agent will
notify each Lender of the contents of each Aggregate Commitment reduction
notice, Committed Borrowing Notice, Competitive Bid Acceptance Notice,
Conversion/Continuation Notice, Letter of Credit Request, Issuance Notice and
repayment notice received by it hereunder. The Agent will notify each Lender
affected thereby of the interest rate applicable to each Fixed Rate Advance
promptly upon determination of such interest rate and will give each Lender
prompt notice of each change in the Alternate Base Rate.
2.14. Lending Installations. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change its Lending Installation
from time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Notes shall
<PAGE>
be deemed held by each Lender for the benefit of such Lending Installation. Each
Lender may, by written or telex notice to the Agent and the Borrower, designate
a Lending Installation through which Loans will be made by it and for whose
account Loan payments are to be made.
2.15. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Committed Loan or its share of the unreimbursed amount pursuant to
Section 3.6(b) or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (i) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day or (ii) in the case of payment by the
Borrower, the interest rate applicable to the relevant Loan.
2.16. Withholding Tax Exemption. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Lender, each Lender that is not incorporated under the laws of the United
States of America, or a state thereof, agrees that it will deliver to each of
the Borrower and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Lender is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each Lender
which so delivers a Form 1001 or 4224 further undertakes to deliver to each of
the Borrower and the Agent two additional copies of such form (or a successor
form) on or before the date that such form expires (currently, three successive
calendar years for Form 1001 and one calendar year for Form 4224) or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the Agent, in
each case certifying that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the Agent that
it is not capable of receiving payments without any deduction or withholding of
United States federal income tax.
2.17. Extension of Termination Date. The Borrower may request a one year
extension of the Termination Date by submitting a request for an extension to
the Agent (an "Extension
<PAGE>
Request") no more than 60 days prior to each May 31 (other than in 1995 or the
year in which the then existing Termination Date falls). The Borrower may submit
up to two Extension Requests pursuant to this Section 2.17. The Extension
Request must specify the date (which must be at least 30 days after the
Extension Request is delivered to the Agent) as of which the Lenders must
respond to the Extension Request (the "Extension Date"). Promptly upon receipt
of an Extension Request, the Agent shall notify each Lender of the contents
thereof and shall request each Lender to approve the Extension Request. Each
Lender approving the Extension Request shall deliver its written consent no
later than the Extension Date. Any consent delivered by a Lender to the Agent
prior to the Extension Date may be revoked prior to the Extension Date by the
Lender giving written notice of such revocation to the Agent before the
Extension Date. If the consent of each of the Lenders is received by the Agent
and remains in effect on the Extension Date, the Termination Date shall
automatically be deemed to have been extended by one year and the Agent shall
promptly notify the Borrower and each Lender of the new Termination Date.
2.18. Change in Circumstances.
2.18.1. Yield Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law), or any interpretation thereof, or the compliance
of any Lender therewith,
(i) subjects any Lender or any applicable Lending Installation to any
tax, duty, charge or withholding on or from payments due from the
Borrower (excluding federal taxation of the overall net income of any
Lender or applicable Lending Installation), or changes the basis of
taxation of payments to any Lender in respect of its Loans, its
interest in the Facility Letters of Credit or other amounts due it
hereunder, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended
by, any Lender or any applicable Lending Installation (other than
reserves and assessments taken into account in determining the
interest rate applicable to Fixed Rate Advances), or
(iii) imposes any other condition the result of which is to increase the
cost to any Lender or any applicable Lending Installation of making,
funding, issuing, participating in or maintaining loans or letters of
credit or reduces any amount receivable by any Lender or any
applicable Lending Installation in connection with loans or letters
of credit, or requires any Lender or any applicable Lending
Installation to make any payment calculated by reference to the
amount of loans held, letters of credit issued or participated in or
interest received by it, by an amount deemed material by such Lender,
<PAGE>
then, within 15 days of demand by such Lender, the Borrower shall pay
such Lender that portion of such increased expense incurred or
reduction in an amount received which such Lender determines is
attributable to making, funding and maintaining its Loans, its
interest in the Facility Letters of Credit, and its Commitment;
provided, however, that the Borrower shall not be liable for any such
increased expense incurred or reduction in an amount received which
arose with respect to any period of time more than 120 days prior to
the date that such Lender makes demand therefor.
2.18.2. Changes in Capital Adequacy Regulations. If a Lender
determines the amount of capital required to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased capital
which such Lender determines is attributable to this Agreement, its Loans, its
interest in the Facility Letters of Credit, or its obligation to make Loans,
participate in or issue Facility Letters of Credit hereunder (after taking into
account such Lender's policies as to capital adequacy). "Change" means (i) any
change after the date of this Agreement in the Risk-Based Capital Guidelines or
(ii) any adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline, interpretation, or
directive (whether or not having the force of law) after the date of this
Agreement which affects the amount of capital required or expected to be
maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based
capital guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States implementing the
July 1988 report of the Basle Committee on Banking Regulation and Supervisory
Practices Entitled "International Convergence of Capital Measurements and
Capital Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
2.18.3. Availability of Types of Advances. If any Lender determines
that maintenance of any of its Eurodollar Loans at a suitable Lending
Installation would violate any applicable law, rule, regulation or directive,
whether or not having the force of law, the Agent shall suspend the availability
of the affected Type of Advance and require any Eurodollar Advances of the
affected Type to be repaid; or if the Required Lenders determine that (i)
deposits of a type or maturity appropriate to match fund Eurodollar Advances are
not available, the Agent shall suspend the availability of the affected Type of
Advance with respect to any Eurodollar Advances made after the date of any such
determination, or (ii) an interest rate applicable to a Type of Advance does not
accurately reflect the cost of making a Eurodollar Advance of such Type, then,
if for any reason whatsoever the provisions of Section 2.18.1 are inapplicable,
the Agent shall suspend the availability of the affected Type of Advance with
respect to any Eurodollar Advances made after the date of any such
determination.
<PAGE>
2.18.4. Funding Indemnification. If any payment of a Fixed Rate
Advance occurs on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment or otherwise, or a Fixed
Rate Advance is not made on the date specified by the Borrower for any reason
other than default by the Lenders, the Borrower will indemnify each Lender for
any loss or cost incurred by it resulting therefrom, including, without
limitation, any loss or cost in liquidating or employing deposits acquired to
fund or maintain the Fixed Rate Advance.
2.18.5. Mitigation of Additional Costs; Replacement of Lenders. If,
in respect of any Lender, circumstances arise which would or would upon the
giving of notice result in:
(i) an increase in the liability of the Borrower to such Lender under
Section 2.18.1 or 2.18.2,
(ii) the unavailability of a Type of Committed Advance under Section
2.18.3, or
(iii) a Lender being incapable of receiving payments without deduction or
withholding of United States federal income tax;
then, without in any way limiting, reducing or otherwise qualifying the
Borrower's obligations under any of the Sections referred to above in this
Section 2.18.5, such Lender shall promptly upon becoming aware of such
circumstances notify the Agent thereof and such Lender shall, in consultation
with the Agent and the Borrower and to the extent that it can do so without
disadvantaging itself, take such reasonable steps as may be reasonably open to
it to mitigate the effects of such circumstances (including, without limitation,
the designation of an alternate Lending Installation or the transfer of its
Loans to another Lending Installation). If and so long as a Lender has been
unable to take, or has not taken, steps acceptable to the Borrower to mitigate
the effect of the circumstances in question or if a Lender has refused to
consent to an Extension Request or the Borrower's request to permit the
Reorganization pursuant to Section 6.13, such Lender shall be obliged, at the
request of the Borrower, to assign all its rights and obligations hereunder to
another Person nominated by the Borrower with the approval of the Agent (which
shall not be unreasonably withheld) and willing to participate in the facility
in place of such Lender; provided that such Person satisfies all of the
requirements of this Agreement including, but not limited to, providing the
forms required by Sections 2.16 and 12.3.2. Notwithstanding any such assignment,
the obligations of the Borrower under Sections 2.18.1, 2.18.2 and 9.7 shall
survive any such assignment and be enforceable by such Lender.
2.18.6. Lender Statements; Survival of Indemnity. Each Lender shall
deliver a written statement of such Lender as to the amount due, if any, under
Sections 2.18.1, 2.18.2 or 2.18.4. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such amount
and shall be final, conclusive and binding on the Borrower in the absence of
manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Loan shall be calculated as though each Lender
<PAGE>
funded its Eurodollar Loan through the purchase of a deposit of the type and
maturity corresponding to the deposit used as a reference in determining the
Eurodollar Rate applicable to such Loan, whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in the written
statement shall be payable on demand after receipt by the Borrower of the
written statement. The obligations of the Borrower under Sections 2.18.1, 2.18.2
and 2.18.4 shall survive payment of the Obligations and termination of this
Agreement.
ARTICLE III
THE LETTER OF CREDIT SUBFACILITY
3.1. Obligation to Issue. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the
Borrower herein set forth, each Issuing Bank hereby agrees to issue for the
account of the Borrower through such of the Issuing Bank's branches as it and
the Borrower may jointly agree, one or more Facility Letters of Credit in
accordance with this Article III, from time to time during the period,
commencing on the Effective Date and ending on the Business Day prior to the
Termination Date.
3.2. Types and Amounts. The issuance of a Facility Letter of Credit shall
be subject to the following conditions:
(a) the aggregate maximum amount then available for drawing under
Letters of Credit issued by such Issuing Bank, after giving effect to the
Facility Letter of Credit requested hereunder, shall not exceed any limit
imposed by law or regulation upon such Issuing Bank;
(b) after giving effect thereto, the sum of (a) the aggregate unpaid
principal balance of the Advances plus (b) the Facility Letter of Credit
Obligations do not exceed the Aggregate Commitment as then in effect;
(c) it does not have an expiration date after the Termination Date;
(d) it does not have an expiration date more than twelve (12) months
after the date of its issuance or extension; or
(e) the Facility Letter of Credit Obligations, after giving effect to
any Facility Letter of Credit requested hereunder, do not exceed $20,000,000.
<PAGE>
3.3. Conditions. In addition to being subject to the satisfaction of the
conditions contained in Section 4.2, the obligation of an Issuing Bank to issue
any Facility Letter of Credit is subject to the satisfaction in full of the
following conditions:
(a) the Borrower shall have delivered to such Issuing Bank at such
times and in such manner as such Issuing Bank may reasonably prescribe such
documents and materials as may be required pursuant to the terms of the proposed
Facility Letter of Credit (it being understood that if any inconsistency exists
between such documents and the Loan Documents, the terms of the Loan Documents
shall control) and the proposed Facility Letter of Credit shall be reasonably
satisfactory to the Issuing Bank as to form and content;
(b) as of the date of issuance, no order, judgment or decree of any
court, arbitrator or governmental authority shall purport by its terms to enjoin
or restrain such Issuing Bank from issuing the requested Facility Letter of
Credit and no law, rule or regulation applicable to that Issuing Bank and no
request or directive (whether or not having the force of law) from any
governmental authority with jurisdiction over that Issuing Bank shall prohibit
or request that such Issuing Bank refrain from the issuance of Letters of Credit
generally or the issuance of the requested Facility Letter or Credit in
particular; and
(c) the Issuing Bank and the Borrower having agreed on the fee
referred to in Section 3.8(b).
3.4. Procedure for Issuance of Facility Letters of Credit.
(a) The Borrower shall give the Issuing Bank and the Agent at least
two (2) Business Days' prior written notice of any requested issuance of a
Facility Letter of Credit under this Agreement (a "Letter of Credit Request")
(except that, in lieu of such written notice, the Borrower may give the Issuing
Bank and the Agent telephonic notice of such request if confirmed in writing by
delivery to the Issuing Bank and the Agent (i) immediately (A) of a telecopy of
the written notice required hereunder which has been signed by an Authorized
Officer or (B) of a telex containing all information required to be contained in
such written notice and (ii) promptly (but in no event later than the requested
date of issuance) of the written notice required hereunder containing the
original signature of an Authorized Officer); such notice shall be irrevocable
and shall specify:
(1) the stated amount of the Facility Letter of Credit requested (which
stated amount shall not be less than $500,000);
(2) the effective date (which day shall be a Business Day) of issuance of
such requested Facility Letter of Credit (the "Issuance Date");
(3) the date on which such requested Facility Letter of Credit is to
expire (which date shall be a Business Day and shall in no event be
later than the earlier of the
<PAGE>
Termination Date and a date which is twelve (12) months after the
Issuance Date);
(4) the name of the Issuing Bank chosen by the Borrower as the issuer of
the requested Facility Letter of Credit;
(5) the purpose for which such Facility Letter of Credit is to be issued;
and
(6) the Person for whose benefit the requested Facility Letter of Credit
is to be issued.
At the time such request is made, the Borrower shall also provide the Agent and
the Issuing Bank with a copy of the form of the Facility Letter of Credit it is
requesting be issued. Such notice, to be effective, must be received by such
Issuing Bank and the Agent not later than 2:00 p.m. (Chicago time) on the last
Business Day on which notice can be given under this Section 3.4(a).
(b) Subject to the terms and conditions of this Article III and
provided that the applicable conditions set forth in Section 4.2 hereof have
been satisfied, such Issuing Bank shall, on the Issuance Date, issue a Facility
Letter of Credit on behalf of the Borrower in accordance with the Issuing Bank's
usual and customary business practices unless the Issuing Bank has actually
received (i) written notice from the Borrower specifically revoking the Letter
of Credit Request with respect to such Facility Letter of Credit, (ii) written
notice from a Lender, which complies with the provisions of Section 3.6(a) or
(iii) written or telephonic notice from the Agent stating that the issuance of
such Facility Letter of Credit would violate Section 3.2.
(c) Each Issuing Bank shall give the Agent and the Borrower written
or telex notice, or telephonic notice confirmed promptly thereafter in writing,
of the issuance of a Facility Letter of Credit (the "Issuance Notice").
(d) An Issuing Bank shall not extend or amend any Facility Letter of
Credit or allow any Facility Letter of Credit to be automatically extended
unless the requirements of this Agreement are met as though a new Facility
Letter of Credit was being requested and issued.
3.5. Reimbursement Obligations; Duties of Issuing Banks.
(a) (i) Each Issuing Bank shall promptly notify the Borrower and the
Agent of any draw under a Facility Letter of Credit and the Borrower shall
reimburse such Issuing Bank in accordance with Section 3.7; and (ii) any
Reimbursement Obligation with respect to any Facility Letter of Credit shall
bear interest from the date of the relevant drawings under the pertinent
Facility Letter of Credit until payment in full is received by the pertinent
<PAGE>
Issuing Bank at (A) the Alternate Base Rate until the next succeeding Business
Day and (B) the Default interest rate for Alternate Base Rate Advances
calculated in accordance with Section 2.9 for each day thereafter.
(b) Any action taken or omitted to be taken by an Issuing Bank under
or in connection with any Facility Letter of Credit, if taken or omitted in the
absence of willful misconduct or gross negligence, shall not put that Issuing
Bank under any resulting liability to any Lender or, assuming that such Issuing
Bank has complied with the procedures specified in Section 3.4, all conditions
to the issuance of a Facility Letter of Credit have been satisfied and such
Lender has not given a notice contemplated by Section 3.6(a) that continues in
full force and effect, relieve that Lender of its obligations hereunder to that
Issuing Bank. In determining whether to pay under any Facility Letter of Credit,
an Issuing Bank shall have no obligation relative to the Lenders other than to
confirm that any documents required to be delivered under such Letter of Credit
appear to have been delivered in compliance and that they appear to comply on
their face, with the requirements of such Letter of Credit.
3.6. Participation.
(a) Immediately upon (i) the Effective Date for those Facility
Letters of Credit issued prior to such date and (ii) issuance by an Issuing Bank
of any Facility Letter of Credit in accordance with the procedures set forth in
Section 3.4, each Lender shall be deemed to have irrevocably and unconditionally
purchased and received from that Issuing Bank, without recourse, representation
or warranty, an undivided interest and participation equal to its Percentage in
such Facility Letter of Credit (including, without limitation, all obligations
of the Borrower with respect thereto) and any security therefor or guaranty
pertaining thereto; provided, that a Letter of Credit issued by any Issuing Bank
shall not be deemed to be a Facility Letter of Credit for purposes of this
Section 3.6 if (A) such Letter of Credit has an expiration date which is after
the Termination Date or (B) such Issuing Bank shall have received written notice
from any Lender on or before the Business Day prior to the date of its issuance
of such Letter of Credit that one or more of the conditions to the issuance of a
Facility Letter of Credit is not then satisfied, and, in the event an Issuing
Bank receives such a notice, it shall have no further obligation to issue any
Facility Letter of Credit until such notice is withdrawn by that Lender or it
receives a notice from the Agent that such condition has been effectively waived
in accordance with the provisions of this Agreement.
(b) In the event that any Issuing Bank makes any payment under any
Facility Letter of Credit and the Borrower shall not have repaid such amount to
such Issuing Bank pursuant to Section 3.7 hereof, such Issuing Bank shall
promptly notify the Agent, which shall promptly notify each Lender, of such
failure, and each Lender shall promptly and unconditionally pay to the Agent for
the account of such Issuing Bank the amount of such Lender's Percentage of the
unreimbursed amount of such payment, and the Agent shall promptly pay such
amount to the Issuing Bank. The failure of any Lender to make available to the
Agent for the account of any Issuing Bank its Percentage of the unreimbursed
amount
<PAGE>
of any such payment shall not relieve any other Lender of its obligation
hereunder to make available to the Agent for the account of such Issuing Bank
its Percentage of the unreimbursed amount of any payment on the date such
payment is to be made, but no Lender shall be responsible for the failure of any
other Lender to make available to the Agent its Percentage of the unreimbursed
amount of any payment on the date such payment is to be made.
(c) Whenever an Issuing Bank receives a payment on account of a
Reimbursement Obligation, including any interest thereon, it shall promptly pay
to the Agent and the Agent shall promptly pay to each Lender which has funded
its participating interest therein, in immediately available funds, an amount
equal to such Lender's Percentage thereof.
(d) Upon the request of the Agent or any Lender, an Issuing Bank
shall furnish to such Agent or Lender copies of any Facility Letter of Credit to
which that Issuing Bank is party and such other documentation as may reasonably
be requested by the Agent or Lender.
(e) The obligations of a Lender to make payments to the Agent for the
account of each Issuing Bank with respect to a Facility Letter of Credit shall
be absolute, unconditional and irrevocable, not subject to any counterclaim,
set-off, qualification or exception whatsoever and shall be made in accordance
with the terms and conditions of this Agreement under all circumstances.
3.7. Payment of Reimbursement Obligations.
(a) The Borrower agrees to pay to each Issuing Bank the amount of all
Reimbursement Obligations, interest and other amounts payable to such Issuing
Bank under or in connection with any Facility Letter of Credit immediately when
due (and in any event shall reimburse an Issuing Bank for drawings under a
Facility Letter of Credit issued by it no later than the next succeeding
Business Day after the payment by that Issuing Bank), irrespective of any claim,
set-off, defense or other right which the Borrower or any Subsidiary may have at
any time against any Issuing Bank or any other Person, under all circumstances,
including without limitation any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time against a beneficiary named in
a Facility Letter of Credit or any transferee of any Facility
Letter of Credit (or any Person for whom any such transferee may
be acting), the Agent, the Issuing Bank, any Lender, or any
other Person, whether in connection with this Agreement, any
Facility Letter of Credit, the transactions contemplated herein
or any unrelated transactions (including any
<PAGE>
underlying transactions between the Borrower or any Subsidiary
and the beneficiary named in any Facility Letter of Credit);
(iii) any draft, certificate or any other document presented under
the Facility Letter of Credit proving to be forged, fraudulent
or invalid in any respect or any statement therein being untrue
or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Loan Documents;
or
(v) the occurrence of any Default or Unmatured Default.
(b) In the event any payment by the Borrower or any Subsidiary
received by an Issuing Bank with respect to a Facility Letter of Credit and
distributed by the Agent to the Lenders on account of their participations is
thereafter set aside, avoided or recovered from that Issuing Bank in connection
with any receivership, liquidation, reorganization or bankruptcy proceeding,
each Lender which received such distribution shall, upon demand by that Issuing
Bank, contribute such Lender's Percentage of the amount set aside, avoided or
recovered together with interest at the rate required to be paid by that Issuing
Bank upon the amount required to be repaid by it.
3.8. Compensation for Facility Letters of Credit.
(a) The Borrower shall pay to the Agent, for the ratable account of
the Lenders, based upon the Lenders' respective Percentages, a fee (the
"Facility Letter of Credit Fee") with respect to each Facility Letter of Credit,
in an amount equal to the product of the average daily undrawn amount of such
Facility Letter of Credit times the percentage indicated as the Applicable
Margin for the Facility Letter of Credit Fee, for the period from the Issuance
Date thereof to but including the final expiration date thereof. The Facility
Letter of Credit Fee shall be due and payable in arrears on each Payment Date
and, to the extent any such fees are then due and unpaid, on the Termination
Date. The Agent shall promptly remit such Facility Letter of Credit Fees, when
paid, to the other Lenders in accordance with their Percentages thereof.
(b) Each Issuing Bank shall have the right to receive solely for its
own account such amounts as it and the Borrower may agree, in writing, to pay to
such Issuing Bank with respect to issuance fees for any Facility Letter of
Credit. In addition, each Issuing Bank shall be entitled to receive its
reasonable out-of-pocket costs of issuing and servicing Facility Letters of
Credit.
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Initial Advance. The Lenders shall not be required to make the
initial Advance and, if the initial advance shall not have been made, an Issuing
Bank shall not be obligated to issue any Facility Letter of Credit hereunder
unless the Borrower has furnished to the Agent with sufficient copies for the
Lenders the following items (and the date upon which all such items shall have
been so furnished is referred to as the "Effective Date"):
(i) Copies of the articles of incorporation of the Borrower, together
with all amendments, and a certificate of good standing, both
certified by the appropriate governmental officer in its
jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary of the
Borrower, of its by-laws and of its Board of Directors' resolutions
(and resolutions of other bodies, if any are deemed necessary by
counsel for any Lender) authorizing the execution of the Loan
Documents.
(iii) An incumbency certificate, executed by the Secretary or Assistant
Secretary of the Borrower, which shall identify by name and title
and bear the signature of the officers of the Borrower authorized
to sign the Loan Documents and to make borrowings and request
Facility Letters of Credit hereunder, upon which certificate the
Agent and the Lenders shall be entitled to rely until informed of
any change in writing by the Borrower.
(iv) A completed compliance certificate, in substantially the form of
Exhibit "G" attached hereto, signed by the chief financial officer
of the Borrower and dated as of the Effective Date.
(v) A written opinion or opinions of the Borrower's counsel, addressed
to the Lenders covering in substance those items contained in
Exhibit "E" hereto.
(vi) Notes payable to the order of each of the Lenders.
(vii) Fully executed originals of this Agreement.
(viii) Written money transfer instructions, in substantially the form of
Exhibit "F" hereto, addressed to the Agent and signed by an
Authorized Officer, together with such other related money transfer
authorizations as the Agent may have reasonably requested.
<PAGE>
(ix) Payment of all fees described in Section 2.6, which are required to
be paid on the Effective Date.
(x) Such other documents as any Lender or its counsel may have
reasonably requested.
4.2. Each Advance or Issuance of a Facility Letter of Credit. The Lenders
shall not be required to make any Advance (other than an Advance that, after
giving effect thereto and to the application of the proceeds thereof, does not
increase the aggregate amount of outstanding Advances) and an Issuing Bank shall
not be obligated to issue any Facility Letter of Credit, unless on the
applicable Borrowing Date or Issuance Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are true
and correct as of such Borrowing Date or Issuance Date except to
the extent any such representation or warranty is stated to relate
solely to an earlier date, in which case such representation or
warranty shall be true and correct on and as of such earlier date
(other than the representation and warranty made under Section 5.4,
which shall be deemed to refer to the most recent annual audited
financial statements furnished to the Lenders pursuant to Section
6.1(i) hereof).
(iii) All legal matters incident to the making of such Advance or
issuance of such Facility Letter of Credit shall be satisfactory to
the Lenders and their counsel.
Each Borrowing Notice with respect to each such Advance and each Letter of
Credit Request with respect to each Facility Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 4.2(i) and (ii) have been satisfied. Any Lender or Issuing Bank may
require a duly completed compliance certificate in substantially the form of
Exhibit "G" hereto as a condition to making an Advance or issuing a Facility
Letter of Credit.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
5.1. Corporate Existence and Standing. Each of the Borrower and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each
<PAGE>
jurisdiction in which its business is conducted, except where the failure to
have such requisite authority would not have a Material Adverse Effect.
5.2. Authorization and Validity. The Borrower has the corporate power and
authority and legal right to execute and deliver the Loan Documents and to
perform its obligations thereunder. The execution and delivery by the Borrower
of the Loan Documents and the performance of its obligations thereunder have
been duly authorized by proper corporate proceedings, and the Loan Documents
constitute legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
5.3. No Conflict; Government Consent. Neither the execution and delivery
by the Borrower of the Loan Documents, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof will violate
any law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on the Borrower or any of its Subsidiaries or the Borrower's or any
Subsidiary's articles of incorporation or by-laws or the provisions of any
indenture, instrument or agreement to which the Borrower or any of its
Subsidiaries is a party or is subject, or by which it, or its Property, is
bound, or conflict with or constitute a default thereunder, or result in the
creation or imposition of any Lien in, of or on the Property of the Borrower or
a Subsidiary pursuant to the terms of any such indenture, instrument or
agreement. No order, consent, approval, license, authorization, or validation
of, or filing, recording or registration with, or exemption by, any governmental
or public body or authority, or any subdivision thereof, is required to
authorize, or is required in connection with the execution, delivery and
performance of, or the legality, validity, binding effect or enforceability of,
any of the Loan Documents.
5.4. Financial Statements. The January 29, 1994 and the draft January 28,
1995 consolidated financial statements of the Borrower and its Subsidiaries
heretofore delivered to the Lenders were prepared in accordance with generally
accepted accounting principles in effect on the date such statements were
prepared and fairly present the consolidated financial condition and operations
of the Borrower and its Subsidiaries at such date and the consolidated results
of their operations for the period then ended.
5.5. Material Adverse Change. Since January 28, 1995, there has been no
change in the business, Property, prospects, condition (financial or otherwise)
or results of operations of the Borrower and its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect.
5.6. Taxes.The Borrower and its Subsidiaries have filed all United States
federal tax returns and all other tax returns which are required to be filed and
have paid all taxes due pursuant to said returns or pursuant to any assessment
received by the Borrower or any of its Subsidiaries, except such taxes, if any,
as are being contested in good faith and as to which
<PAGE>
adequate reserves have been provided. The United States income tax returns of
the Borrower and its Subsidiaries have been audited by the Internal Revenue
Service through the fiscal year ended January 25, 1992, for which no tax liens
have been filed and no claims are being asserted. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of any
taxes or other governmental charges are adequate.
5.7. Litigation and Contingent Obligations. Except as disclosed to the
Lenders in writing prior to the Effective Date, there is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrower or any of its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect. The Borrower has no material contingent obligations not
provided for or disclosed in the financial statements referred to in Section
5.4.
5.8. Subsidiaries. As of the date of this Agreement, Schedule "2" hereto
contains an accurate list of all of the presently existing Subsidiaries of the
Borrower, setting forth their respective jurisdictions of incorporation and the
percentage of their respective capital stock owned by the Borrower or other
Subsidiaries. All of the issued and outstanding shares of capital stock of such
Subsidiaries have been duly authorized and issued and are fully paid and
non-assessable.
5.9. ERISA. There are no Unfunded Liabilities for any Single Employer
Plans. Neither the Borrower nor any other member of the Controlled Group has
incurred, or is reasonably expected to incur, any withdrawal liability to
Multiemployer Plans. Each Plan complies in all material respects with all
applicable requirements of law and regulations, no Reportable Event has occurred
with respect to any Plan, neither the Borrower nor any other members of the
Controlled Group has withdrawn from any Plan or initiated steps to do so, and no
steps have been taken to reorganize or terminate any Plan for which the Borrower
or other member of the Controlled Group has any Unfunded Liability.
5.10. Accuracy of Information. No information, exhibit or report furnished
by the Borrower or any of its Subsidiaries to the Agent or to any Lender in
connection with the negotiation of, or compliance with, the Loan Documents
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein not misleading.
5.11. Regulation U. Margin stock (as defined in Regulation U) constitutes
less than 25% of those assets of the Borrower and its Subsidiaries which are
subject to any limitation on sale, pledge, or other restriction hereunder.
5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations,
<PAGE>
covenants or conditions contained in (i) any agreement to which it is a party,
which default could reasonably be expected to have a Material Adverse Effect or
(ii) any agreement or instrument evidencing or governing Indebtedness.
5.13. Compliance With Laws.The Borrower and its Subsidiaries have complied
in all material respects with all applicable material statutes, rules,
regulations, orders and restrictions of any domestic or foreign government or
any instrumentality or agency thereof, having jurisdiction over the conduct of
their respective businesses or the ownership of their respective Property.
Neither the Borrower nor any Subsidiary has received any notice to the effect
that its operations are not in material compliance with any of the requirements
of applicable federal, state and local environmental, health and safety statutes
and regulations or the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could reasonably be expected to have a Material Adverse Effect.
5.14. Ownership of Properties. Except as set forth on Schedule "3" hereto,
on the date of this Agreement, the Borrower and its Subsidiaries will have good
title, free of all Liens other than those permitted by Section 6.16, to all of
the Property and assets reflected in the financial statements as owned by it.
5.15. Investment Company Act. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
5.16. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.17. Other Indebtedness. The Obligations constitute senior indebtedness
which is entitled to the benefits of the subordination provisions of all
outstanding Subordinated Indebtedness. The Obligations shall rank at least pari
passu in right of payment and security and in all other respects with all other
unsubordinated Indebtedness, except, as it relates to security, for the Liens
permitted by Section 6.16.
5.18. Post-Retirement Benefits. The present value of the expected cost of
post-retirement medical and insurance benefits payable by the Borrower and its
Subsidiaries to its employees and former employees, as estimated by the Borrower
in accordance with procedures and assumptions deemed reasonable by the Required
Lenders, does not exceed $2,000,000.
<PAGE>
5.19. Insurance. The property and casualty insurance program carried by
the Borrower is adequate for its business needs.
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with generally accepted accounting principles, and furnish to the Lenders:
(i) Within 90 days after the close of each of its fiscal years, an
unqualified audit report certified by independent certified public
accountants, acceptable to the Lenders, prepared in accordance with
Agreement Accounting Principles on a consolidated basis for itself
and the Subsidiaries, including balance sheets as of the end of
such period, related profit and loss and reconciliation of surplus
statements, and a statement of cash flows, accompanied by any
management letter prepared by said accountants.
(ii) Within 50 days after the close of the first three quarterly periods
of each of its fiscal years, for itself and the Subsidiaries, a
consolidated unaudited balance sheet as at the close of each such
period and consolidated profit and loss and reconciliation of
surplus statements and a statement of cash flows for the period
from the beginning of such fiscal year to the end of such quarter,
all certified by its chief financial officer.
(iii) Together with the financial statements required hereunder, a
compliance certificate in substantially the form of Exhibit "G"
hereto signed by its chief financial officer showing the
calculations necessary to determine compliance with this Agreement
and stating that no Default or Unmatured Default exists, or if any
Default or Unmatured Default exists, stating the nature and status
thereof.
(iv) Within 270 days after the close of each fiscal year, a statement of
the Unfunded Liabilities of each Single Employer Plan, certified as
correct by an actuary enrolled under ERISA.
(v) As soon as possible and in any event within 10 days after the
Borrower knows that any Reportable Event has occurred with respect
to any Plan, a statement,
<PAGE>
signed by the chief financial officer of the Borrower, describing
said Reportable Event and the action which the Borrower proposes to
take with respect thereto.
(vi) As soon as possible and in any event within 10 days after receipt
by the Borrower, a copy of (a) any notice or claim to the effect
that the Borrower or any of its Subsidiaries is or may be liable to
any Person as a result of the release by the Borrower, any of its
Subsidiaries, or any other Person of any toxic or hazardous waste
or substance into the environment, and (b) any notice alleging any
violation of any federal, state or local environmental, health or
safety law or regulation by the Borrower or any of its
Subsidiaries, which, in the case of clause (a) or (b), could
reasonably be expected to have a Material Adverse Effect.
(vii) As soon as available, but in any event on or before the last day of
the first fiscal quarter of each fiscal year of the Borrower, a
copy of the plan and forecast (including a one year projected
consolidated balance sheet, income statement and funds flow
statement) of the Borrower for such fiscal year.
(viii) For any fiscal quarter during which the Borrower has created a new
Subsidiary or terminated the existence of any existing Subsidiary
as may be permitted hereunder, together with the financial
statements required hereunder covering such period, a certificate
signed by an Authorized Officer attaching a revised Schedule "2"
which modifies the list of Subsidiaries contained therein to show
any such additions and deletions (which revised Schedule shall
replace the old Schedule and shall be deemed to have become part of
the Agreement), the delivery of which shall be deemed to be a
representation and warranty of the Borrower as to the accuracy of
such revised Schedule.
(ix) Promptly upon the furnishing thereof to the shareholders of the
Borrower, copies of all financial statements, reports and proxy
statements so furnished.
(x) Promptly upon the filing thereof, copies (excluding exhibits) of
all registration statements and annual, quarterly, monthly or other
regular reports which the Borrower or any of its Subsidiaries files
with the Securities and Exchange Commission.
(xi) Such other information (including non-financial information) as the
Agent or any Lender may from time to time reasonably request.
6.2. Use of Proceeds.The Borrower will use the Facility Letters of Credit
and the proceeds of the Advances for general corporate purposes and to repay
outstanding Advances and Reimbursement Obligations. The Borrower will not, nor
will it permit any Subsidiary to, use any of the Facility Letters of Credit or
the proceeds of the Advances to purchase or carry
<PAGE>
any "margin stock" (as defined in Regulation U), except that the Borrower may
repurchase shares of its common stock in a so-called open market purchase
program or similar transaction to the extent permitted hereunder.
6.3. Notice of Default.The Borrower will, and will cause each Subsidiary
to, give prompt notice in writing to the Lenders of the occurrence of any
Default or Unmatured Default and of any other development, financial or
otherwise, which could reasonably be expected to have a Material Adverse Effect.
6.4. Conduct of Business. The Borrower will, and will cause each Active
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and to do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and maintain all requisite authority to conduct its business in
each jurisdiction in which its business is conducted, except where the failure
to conduct business, remain incorporated or have such requisite authority would
not have a Material Adverse Effect.
6.5. Taxes.The Borrower will, and will cause each Subsidiary to, pay when
due all taxes, assessments and governmental charges and levies upon it or its
income, profits or Property, except those which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves
have been set aside.
6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies (and/or
through a self insurance program) insurance on all their Property in such
amounts (and/or with such reserves) and covering such risks as is consistent
with sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply in all material respects with all material laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject.
6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property which is used or useful in the business of the Borrower or any of
its Subsidiaries in good repair, working order and condition, and make all
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Lenders, by their respective representatives and agents, to inspect
any of the Property, corporate books and financial records of the Borrower and
each Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Borrower and each Subsidiary, and to discuss the
affairs, finances and accounts of the Borrower and each
<PAGE>
Subsidiary with, and to be advised as to the same by, their respective officers
at such reasonable times and intervals as the Lenders may designate.
6.10. Dividends. The Borrower will not, nor will it permit any Subsidiary
to, declare or pay any dividends on its capital stock (other than dividends
payable in its own capital stock) or redeem, repurchase or otherwise acquire or
retire any of its capital stock at any time outstanding, except that (i) any
Subsidiary may declare and pay dividends to the Borrower or to a Wholly-Owned
Subsidiary and (ii) the Borrower may (a) purchase or otherwise acquire shares of
its capital stock with the proceeds received from the issue of new shares of its
capital stock, (b) repurchase for cash shares of common stock issued under the
Borrower's 1989 Stock Incentive Plan or the 1995 Director Stock Option Plan, as
from time to time in effect, provided that the aggregate amount of repurchases
permitted by this clause shall not exceed $2,000,000, (c) so long as prior to
and after giving effect thereto no Default or Unmatured Default shall exist,
repurchase shares of its common stock in a so-called open market purchase
program or similar transaction and (d) so long as prior to and after giving
effect thereto no Default or Unmatured Default shall exist, declare and pay
dividends on shares of its outstanding common stock in any fiscal year
commencing with the Borrower's 1995 fiscal year not exceeding in the aggregate
twenty-five percent (25%) of Net Income for the immediately preceding fiscal
year.
6.11. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) The Loans and the Reimbursement Obligations.
(ii) Indebtedness existing on the date hereof and described in Schedule
"3" hereto.
(iii) Contingent Obligations (a) by endorsement of instruments for
deposit or collection in the ordinary course of business, (b) to
purchase real property from another Person or guaranties incurred
in the ordinary course of business in connection with the purchase
or lease of stores or distribution centers, provided that (A) not
less than eighty percent (80%) of the total square footage of each
such store or distribution center so purchased or leased shall be
utilized by the Borrower and its Subsidiaries and (B) the aggregate
amount of such Contingent Obligations pursuant to this clause (b)
at any time outstanding shall not exceed $50,000,000 and (c)
consisting of guaranties incurred by the Borrower to support
operating leases and/or Indebtedness incurred by any Subsidiary
permitted by Section 6.11 (vii) or (viii).
(iv) Subordinated Indebtedness.
(v) Bankers' acceptances utilized in the ordinary course of business to
purchase inventory.
<PAGE>
(vi) Indebtedness of one or more special purpose Wholly-Owned
Subsidiaries in connection with a transfer by the Borrower or a
Wholly-Owned Subsidiary of interests in accounts or notes
receivable on a limited recourse basis, provided that (a) such
transfer qualifies as a sale under generally accepted accounting
principles and (b) any such Indebtedness, at any time outstanding,
does not exceed $100,000,000 in the aggregate.
(vii) Capitalized Leases entered into by the Borrower or any Real Estate
Subsidiary not to exceed, at any time outstanding, $100,000,000 in
the aggregate.
(viii) Indebtedness, at any time outstanding, of the Borrower or any Real
Estate Subsidiary incurred in the ordinary course of business in
connection with real property not to exceed $200,000,000 in the
aggregate.
(ix) Indebtedness of the Operating Subsidiaries to the Borrower in an
aggregate amount not to exceed ten percent (10%) of the Borrower's
consolidated assets.
(x) So long as (i) the sum of (a) the aggregate unpaid principal
balance of the Advances plus (b) the Facility Letter of Credit
Obligations is less than (ii) $50,000,000, Indebtedness of the
Investment Subsidiary owed to the Borrower.
(xi) Indebtedness incurred by the Borrower and owed to any Subsidiary
(other than a Trademark Subsidiary).
(xii) Indebtedness owed to the Trademark Subsidiaries; provided, that the
aggregate amount of such Indebtedness does not exceed the
cumulative royalties earned by the Trademark Subsidiaries.
(xiii) Additional Indebtedness, at any time outstanding, not to exceed
$125,000,000 in the aggregate; provided that no more than
$50,000,000 of such Indebtedness may be incurred by or exist at the
Borrower's Subsidiaries.
6.12. Merger. The Borrower will not, nor will it permit any Subsidiary to,
merge or consolidate with or into any other Person, except that:
(i) a Subsidiary may merge with and into the Borrower or a Wholly-Owned
Subsidiary;
(ii) the Borrower may merge or consolidate with any Person which is in a
business related to the Borrower's business; and
(iii) any Subsidiary of the Borrower may merge or consolidate with or
into another Person in a transaction constituting (A) a disposition
of assets by the Borrower
<PAGE>
so long as such disposition is permitted by Section 6.13 hereof or
(B) an Acquisition so long as such Acquisition is permitted by
Section 6.15,
provided that in each such case, (a) immediately after giving effect thereto, no
event shall occur and be continuing that constitutes a Default or Unmatured
Default and, (b) in the case of any such merger or consolidation to which the
Borrower is a party, the Borrower is the surviving corporation.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property, to any other
Person except:
(i) for sales of inventory and obsolete, worn out or no longer useful
equipment in the ordinary course of business;
(ii) that (A) any Subsidiary may sell, lease or otherwise dispose of
assets to any other Subsidiary or to the Borrower and (B) the
Borrower may transfer liquor licenses owned by the Borrower or
other permits obtained by the Borrower and used in the operation of
any of the stores to any such Subsidiary;
(iii) for any transfer of an interest in accounts or notes receivable on
a limited recourse basis, provided that such transfer qualifies as
a sale under generally accepted accounting principles;
(iv) for leases, sales or other dispositions of its Property that,
together with all other Property of the Borrower and its
Subsidiaries previously leased, sold or disposed of (other than
dispositions permitted under clauses (i), (ii) and (iii) above) as
permitted by this Section during the twelve-month period ending
with the month in which any such lease, sale or other disposition
occurs, do not constitute a Substantial Portion of the Property of
the Borrower and its Subsidiaries;
(v) pursuant to the Reorganization, provided that the Borrower has
received the prior written consent of the Lenders; it being
understood that (a) each Lender's decision on whether or not to
consent will be conditioned on, among other things, (i) delivery of
(A) satisfactory pro-forma financial statements, (B) satisfactory
guaranties from each of the new Wholly-Owned Subsidiaries, (C) a
satisfactory solvency opinion from a nationally recognized
appraisal firm with respect to the Borrower and each of the new
Wholly- Owned Subsidiaries (after giving effect to its guaranty)
and (D) satisfactory opinions of counsel with respect to such
guaranties, (ii) to the extent such Wholly-Owned Subsidiaries will
be providing guaranties to the holders of the Subordinated
Indebtedness, the subordination provisions contained in such
guaranties shall be satisfactory to such Lender and its counsel and
(iii) all legal matters incident to the Reorganization and the
giving of guaranties by the new Wholly-Owned
<PAGE>
Subsidiaries being satisfactory to such Lender and its counsel and
(b) if consent of the Lenders is received, an amendment to this
Agreement (modifying the covenants as may be appropriate based on
the Reorganization) shall be promptly negotiated and consummated,
provided that in each such case, immediately after giving effect
thereto, no event shall have occurred and be continuing that
constitutes a Default or an Unmatured Default.
6.14. Letters of Credit. The Borrower will not, nor will it permit any
Subsidiary to, apply for or become liable upon any Letter of Credit, except for:
(i) Facility Letters of Credit; (ii) other standby Letters of Credit, provided
that the aggregate amount of issued but undrawn standby Letters of Credit (which
are not Facility Letters of Credit) and all unreimbursed drawings thereunder
shall not at any time exceed $25,000,000; and (iii) commercial Letters of Credit
utilized in the ordinary course of business to purchase inventory, provided that
the aggregate amount of issued but undrawn commercial Letters of Credit shall
not at any time exceed ten percent (10%) of the value of the Borrower's
consolidated merchandise inventory.
6.15. Investments and Acquisitions. The Borrower will not, nor will it
permit any Subsidiary to,
(a) make or suffer to exist any Investments (including without limitation,
loans and advances to, and other Investments in, Subsidiaries), or commitments
therefor, or to create any Subsidiary or to become or remain a partner in any
partnership or joint venture, except:
(i) Existing (A) Investments in Subsidiaries as of January 28, 1995 and
(B) other Investments in existence on the date hereof, and in both
cases, described in Schedule "2" hereto.
(ii) Permitted Investments.
(iii) Investments consisting of loans to participants, or the purchase of
securities of the Borrower from participants, made pursuant to the
provisions of any employee benefit plan, including without
limitation the Borrower's 1989 Stock Incentive Plan or the 1995
Director Stock Option Plan;
(iv) Investments consisting of stock or other securities acquired in
connection with the satisfaction or enforcement of Indebtedness or
other claims due or owing to the Borrower or any Subsidiary or as
security for any such Indebtedness or claim;
(v) Loans made by the Borrower in connection with the development of
new retail establishments or distribution centers for the Borrower;
provided that the aggregate outstanding amount of all such loans,
as and when any such loan is
<PAGE>
made, shall not exceed five percent (5%) of the Borrower's
consolidated assets as of the last day of the most recently ended
fiscal quarter of the Borrower.
(vi) Investments made by the Borrower in the Operating Subsidiaries;
provided that the aggregate amount of all such Investments, as and
when any such Investment is made, shall not exceed ten percent
(10%) of the Borrower's consolidated assets as of the last day of
the most recently ended fiscal quarter of the Borrower.
(vii) So long as (i) the sum of (a) the aggregate unpaid principal
balance of the Advances plus (b) the Facility Letter of Credit
Obligations is less than (ii) $50,000,000, Investments made by the
Borrower in the Investment Subsidiary for the purpose of making
Permitted Investments.
(viii) Investments made by any Subsidiary (other than a Trademark
Subsidiary) in the Borrower.
(ix) Investments made by the Trademark Subsidiaries in the Borrower
and/or its Subsidiaries; provided, that the aggregate amount of
such loans does not exceed the cumulative royalties earned by the
Trademark Subsidiaries.
(x) Investments made by the Borrower or any Trademark Subsidiary in any
Real Estate Subsidiary, so long as, for any such Real Estate
Subsidiary, the sum of such Investments plus any other Indebtedness
of such Real Estate Subsidiary does not exceed 105% of the
acquisition cost of the real estate owned by such Real Estate
Subsidiary.
(xi) Investments made by means of a merger or consolidation permitted by
Section 6.12 hereof.
(xii) For the Borrower only: any Investment consisting of (A) the
acquisition of stock or other equity interests which constitutes an
Acquisition permitted pursuant to the terms of Section 6.15(b); (B)
the creation of any new Subsidiary to act as the purchaser in an
Acquisition permitted pursuant to the terms of Section 6.15(b); and
(C) an Investment in a Subsidiary for the purpose of facilitating
an Acquisition permitted pursuant to the terms of Section 6.15(b),
provided, however, that the aggregate amount of such Investments
made since the Effective Date is less than thirty percent (30%) of
Tangible Net Worth.
(xiii) The creation of any new Wholly-Owned Subsidiary.
(xiv) Investments in one or more special purpose entities made in
connection with a transfer by the Borrower or a Wholly-Owned
Subsidiary of interests in accounts
<PAGE>
or notes receivable on a limited recourse basis, provided that (a)
such transfer qualifies as a sale under generally accepted
accounting principles and (b) any such Investments, at any time
outstanding, do not exceed $100,000,000 in the aggregate.
(xv) Additional Investments, at any time outstanding, not to exceed
$10,000,000 in the aggregate.
(b) make any Acquisition of any Person, except for an Acquisition: (i) for
which the board of directors of the Person being acquired has approved the terms
of the Acquisition, (ii) the purchase price of which (including assumed
liabilities for borrowed money), when added to the purchase price of all other
Acquisitions made during the same fiscal year, is less than twenty five percent
(25%) of the Borrower's consolidated assets as of the beginning of such fiscal
year, (iii) the giving effect to which will not cause a Default or an Unmatured
Default and (iv) for which the Borrower has first provided the Lenders with (a)
financial information with respect to the entity to be acquired (including
historical financial statements, pro-forma statements after giving effect to the
Acquisition and projections) and (b) to the extent available, a detailed
description of the entity to be acquired, its products, markets served and
customer concentrations.
6.16. Liens. The Borrower will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings and for which adequate
reserves in accordance with generally accepted principles of
accounting shall have been set aside on its books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or
other social security or retirement benefits, or similar
legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar
character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in the
business of the Borrower or the Subsidiaries.
<PAGE>
(v) Liens existing on the date hereof and described in Schedule "3"
hereto.
(vi) Liens incurred in connection with purchase money financing of
Property in the ordinary course of business, provided that such
Liens shall attach solely to the Property acquired and any
improvement thereon and shall not attach to any other Property.
(vii) Liens existing on Property acquired by the Borrower or any of its
Subsidiaries at the time of its Acquisition, so long as such Lien
was not created in contemplation of such Acquisition.
(viii) The following Liens arising in the course of merchandising
operations: (A) trust receipt or floor plan or other title
retention or security agreements or arrangements entered into in
connection with the purchase of inventory, the aggregate principal
amount of the Indebtedness secured by which does not exceed two
percent (2%) of the value of the inventory of the Borrower and its
Subsidiaries, (B) sales on layaway plans whereby the customer
acquires the merchandise only upon full payment therefor, or (C)
Liens customary in connection with bankers' acceptances entered
into in connection with the purchase of inventory, provided that no
such Lien permitted by this clause (C) shall secure any
Indebtedness incurred to refinance the payment of any such bankers'
acceptance, and provided further that the principal amount of
Indebtedness secured by Liens permitted by this clause (C) shall
not exceed fifteen percent (15%) of the value of the Borrower's
consolidated merchandise inventories.
(ix) Liens resulting from commitments of the Borrower and its
Subsidiaries under Capitalized Leases.
(x) Liens incurred in connection with any transfer of an interest in
accounts or notes receivable, that at the time of such transfer,
qualified as a sale under generally accepted accounting principles.
(xi) Liens under leases of personalty or real estate to which the
Borrower and any of its Subsidiaries is a party, provided that such
Liens (A) do not attach to inventory held for sale in leased stores
or warehouses except only after bankruptcy, insolvency or similar
events to the extent of any landlord's lien, (B) are not incurred
in connection with the borrowing of money or the obtaining of
advances or credit by the Borrower or any of its Subsidiaries, and
(C) do not in the aggregate materially detract from the value of
the Property of the Borrower and its Subsidiaries or materially
impair the use thereof in the operation of their respective
businesses.
<PAGE>
(xii) Liens incidental to the conduct of the business of the Borrower or
any of its Subsidiaries which do not cover accounts receivable,
cover only de minimis amounts of inventory sold to the Borrower and
its Subsidiaries by certain suppliers to secure the amounts owing
such suppliers for the same, are not incurred in connection with
the borrowing of money or the obtaining of advances or credits or
in connection with the acquisition of real property or machinery or
equipment except incidental to the acquisition of business
properties as a whole or as a going concern, and which do not in
the aggregate materially detract from the value of the Property of
the Borrower or any of its Subsidiaries or materially impair the
use thereof in the operation of their respective businesses.
(xiii) Liens granted by any Subsidiary to the Borrower or a Wholly-Owned
Subsidiary to secure loans from the Borrower or such Wholly-Owned
Subsidiary, which loans were permitted by Section 6.15(a).
(xiv) Liens on real property which relate to Indebtedness permitted by
Section 6.11(viii).
(xv) In addition to Liens otherwise permitted by this Section 6.16,
Liens on assets of the Borrower and its Subsidiaries securing
obligations not exceeding $10,000,000 in the aggregate at any time
outstanding.
6.17. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate (other than the Borrower or a Wholly-Owned Subsidiary
with respect to transactions other than the sale, transfer or other disposition
of assets) except in the ordinary course of business and pursuant to the
reasonable requirements of the Borrower's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary
than the Borrower or such Subsidiary would obtain in a comparable arms-length
transaction.
6.18. Subordinated Indebtedness. The Borrower will not, and will not
permit any Subsidiary to, (i) make any amendment or modification to the
indenture, note or other agreement evidencing or governing any Subordinated
Indebtedness (except that the Borrower may amend the Indenture relating to the
Convertible Subordinated Debt in order to modify Article Thirteen thereof to
include provisions which would permit the Borrower to transfer substantially all
of its assets to two Wholly-Owned Subsidiaries and have such Persons guarantee
the Convertible Subordinated Debt on a subordinated basis), or (ii) directly or
indirectly voluntarily prepay, defease or in substance defease, purchase,
redeem, retire or otherwise acquire, any Subordinated Indebtedness, except that
so long as after giving effect thereto no Default or Unmatured Default shall
exist, the Borrower may prepay up to $5,000,000 of Subordinated Indebtedness in
the aggregate.
<PAGE>
6.19. Rate Hedging Obligations. The Borrower will not, and will not permit
any Subsidiary to, enter into or remain liable upon any Rate Hedging
Obligations, except for Rate Hedging Obligations in a notional amount not to
exceed $50,000,000.
6.20. Financial Covenants. The Borrower shall maintain, for itself and its
Subsidiaries on a consolidated basis, each of the following financial covenants,
each calculated in accordance with Agreement Accounting Principles.
6.20.1. Funded Debt to Capital Ratio. The Borrower shall maintain, on a
consolidated basis, as of the end of each fiscal quarter a ratio of Funded Debt
to Capital not exceeding .65 to 1.0.
6.20.2. Fixed Charge Coverage Ratio. The Borrower shall maintain, on a
consolidated basis, as of the end of each fiscal quarter a Fixed Charge Coverage
Ratio greater than 1.50 to 1.0.
6.20.3. Tangible Net Worth. The Borrower shall maintain, on a consolidated
basis, at all times a Tangible Net Worth that is greater than or equal to the
sum of (i) $425,000,000 plus (ii) 50% of the Borrower's quarterly Net Income, if
positive, for each fiscal quarter ending after the Effective Date plus (iii) 50%
of the aggregate net proceeds of any equity offering received by the Borrower
after the date of this Agreement minus (iv) the lesser of (a) fifty percent
(50%) of the aggregate amount paid by the Borrower after the date of this
Agreement for stock repurchases or (b) $25,000,000.
6.21. Subsidiary Guaranties. If any Subsidiary (other than the Investment
Subsidiary or a Real Estate Subsidiary) has assets which in the aggregate have a
book value equal to or greater than 10% of the book value of the Borrower's
total assets determined on a consolidated basis as at the end of any fiscal
quarter, the Borrower shall cause such Subsidiary to deliver to the Agent, on
behalf of the Lenders, within 30 days after the end of any such fiscal quarter
(i) an executed guaranty in substantially the form attached hereto as Exhibit
"I" and (ii) an opinion of counsel to such Subsidiary that such guaranty has
been duly executed and delivered and is a legal, valid and binding obligation of
such Subsidiary enforceable in accordance with its terms (subject to customary
exceptions).
6.22. Intercompany Indebtedness. After the occurrence and during the
continuance of a Default or an Unmatured Default, the Borrower will not prepay,
defease or in substance defease, purchase, redeem, retire or otherwise acquire,
any Indebtedness owed to any Subsidiary.
<PAGE>
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Default:
7.1.Any representation or warranty made or deemed made by or on behalf of
the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in
connection with this Agreement, any Loan, any Facility Letter of Credit, or any
certificate or information delivered in connection with this Agreement or any
other Loan Document shall be materially false on the date as of which made.
7.2. Nonpayment of principal of any Note when due, nonpayment of any
Reimbursement Obligation when due, or nonpayment of interest upon any Note or of
any fee or other obligations under any of the Loan Documents within five days
after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2, 6.3, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.18, 6.19, 6.20,
6.21 or 6.22.
7.4. The breach by the Borrower (other than a breach which constitutes a
Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this
Agreement which is not remedied within 20 days after written notice from the
Agent or any Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay any
Indebtedness with a principal amount in excess of $10,000,000 when due; or the
default by the Borrower or any of its Subsidiaries in the performance of any
material term, provision or condition contained in any agreement under which any
Indebtedness with a principal amount in excess of $12,000,000 was created or is
governed, or any other material event shall occur or material condition shall
exist (and in each case shall be continuing), the effect of which is to cause,
or to permit the holder or holders of such Indebtedness to cause, such
Indebtedness to become due prior to its stated maturity; or any Indebtedness
with a principal amount in excess of $10,000,000 of the Borrower or any of its
Subsidiaries shall be declared to be due and payable or required to be prepaid
(other than by a regularly scheduled payment) prior to the stated maturity
thereof; or the Borrower or any of its Subsidiaries shall not pay, or admit in
writing its inability to pay, its debts generally as they become due.
7.6. The Borrower or any of its Active Subsidiaries shall (i) have an
order for relief entered with respect to it under the Federal bankruptcy laws as
now or hereafter in effect, (ii) make an assignment for the benefit of
creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment
of a receiver, custodian, trustee, examiner, liquidator or similar official for
it or any of its Property which constitutes a Substantial Portion, (iv)
institute any proceeding seeking an order for relief under the Federal
bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
<PAGE>
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (v) take any corporate
action to authorize or effect any of the foregoing actions set forth in this
Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding
described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or any
of its Active Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Active Subsidiaries
or any of its Property which constitutes a Substantial Portion, or a proceeding
described in Section 7.6(iv) shall be instituted against the Borrower or any of
its Active Subsidiaries and such appointment continues undischarged or such
proceeding continues undismissed or unstayed for a period of 60 consecutive
days.
7.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of the Borrower and its Subsidiaries which,
when taken together with all other Property of the Borrower and its Subsidiaries
so condemned, seized, appropriated, or taken custody or control of, during the
twelve-month period ending with the month in which any such Condemnation occurs,
constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to
pay, bond or otherwise discharge any judgment or order for the payment of money,
which is not stayed on appeal or otherwise being appropriately contested in good
faith and which, when added to all other similar judgments or orders for the
payment of money, exceeds $10,000,000.
7.10. Any Change in Control shall occur.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans and
of an Issuing Bank to issue Facility Letters of Credit hereunder shall
automatically terminate and the Obligations shall immediately become due and
payable without any election or action on the part of the Agent or any Lender.
If any other Default occurs, the Required Lenders may terminate or suspend the
obligations of the Lenders to make Loans and of an Issuing Bank to issue
Facility Letters of Credit hereunder, or declare the Obligations to be due and
payable, or both, whereupon the Obligations shall become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which the Borrower hereby expressly waives. In addition to the foregoing
following the occurrence of a Default, so long as any Facility Letter of Credit
has
<PAGE>
not been fully drawn and has not been cancelled or expired by its terms, upon
demand by the Agent the Borrower shall pay to the Agent, for the benefit of the
Lenders, cash in an amount equal to the aggregate undrawn face amount of all
outstanding Facility Letters of Credit and all fees and other amounts due or
which may become due with respect thereto, to be applied to such Obligations. If
any such Facility Letter of Credit is subsequently cancelled or expires by its
terms without having been fully drawn, the Agent and the Lenders shall promptly
account to the Borrower for any amount required to be paid to the Borrower on
account thereof.
If, within 30 days after acceleration of the maturity of the Obligations
or termination of the obligations of the Lenders to make Loans and of an Issuing
Bank to issue Facility Letters of Credit hereunder as a result of any Default
(other than any Default as described in Section 7.6 or 7.7 with respect to the
Borrower) and before any judgment or decree for the payment of the Obligations
due shall have been obtained or entered, the Required Lenders (in their sole
discretion) shall so direct, the Agent shall, by notice to the Borrower, rescind
and annul such acceleration and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of each Lender directly or indirectly affected thereby:
(i) Extend the maturity of any Loan or Note or forgive all or any
portion of the principal amount thereof, or reduce the rate or
extend the time of payment of interest or fees thereon.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
(iii) Extend the Termination Date, or reduce the amount or extend the
payment date for, the mandatory payments required under Section
2.7.2(ii), or increase the amount of the Commitment of any Lender
hereunder, or permit the Borrower to assign its rights under this
Agreement.
(iv) Amend (a) this Section 8.2 or (b) Section 3.2, 3.4(b), 3.6(a),
6.13(v), 7.6 or 7.7.
(v) Increase the maximum drawable amount or extend the expiration date
of any outstanding Facility Letter of Credit (other than in
accordance with Article III) or reduce the principal amount of or
extend the time of payment of any Reimbursement Obligation or fee
associated with any Facility Letter of Credit.
<PAGE>
(vi) Release any guarantor of any Obligations or, release all or
substantially all of the collateral, if any, securing any
Obligations.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive payment
of the fee required under Section 12.3.2 without obtaining the consent of any
other party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan or the issuance of a Facility Letter of Credit notwithstanding
the existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Loan or Facility Letter of Credit shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.2, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
ARTICLE IX
GENERAL PROVISIONS
9.1. Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans and the issuance of the Facility Letters of Credit
herein contemplated.
9.2. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. Taxes. Any taxes (excluding federal income taxes on the overall net
income of any Lender) or other similar assessments or charges made by any
governmental or revenue authority in respect of the Loan Documents shall be paid
by the Borrower, together with interest and penalties, if any.
9.4. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
<PAGE>
9.5. Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent and the Lenders and supersede all
prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof.
9.6. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder, but no Lender shall be responsible for the failure of any
other Lender to perform its obligations hereunder. This Agreement shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement and their respective successors and assigns.
9.7. Expenses; Indemnification. The Borrower shall reimburse the Agent for
any reasonable costs, internal charges and out-of-pocket expenses (including
attorneys' fees and time charges of attorneys for the Agent, which attorneys may
be employees of the Agent) paid or incurred by the Agent in connection with the
preparation, negotiation, execution, delivery, review, amendment, modification,
and administration of the Loan Documents. The Borrower also agrees to reimburse
the Agent and the Lenders for any reasonable costs, internal charges and
out-of-pocket expenses (including attorneys' fees and time charges of attorneys
for the Agent and the Lenders, which attorneys may be employees of the Agent or
the Lenders) paid or incurred by the Agent or any Lender in connection with the
collection and enforcement of the Loan Documents. The Borrower further agrees to
indemnify the Agent and each Lender, its directors, officers and employees
(each, an "indemnified party") against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including, without limitation, all expenses
of litigation or preparation therefor whether or not the Agent or any Lender is
a party thereto, collectively, the "losses") which any of them may pay or incur
arising out of or relating to this Agreement, the other Loan Documents, the
transactions contemplated hereby, the direct or indirect application or proposed
application of the proceeds of any Loan or the use or intended use of any
Facility Letter of Credit hereunder or the issuance or performance under or the
participation in any Facility Letter of Credit, except that the Borrower shall
not be liable for any portion of the losses resulting from the gross negligence
or wilful misconduct of any indemnified party as determined in a final judgment
by a court of competent jurisdiction. The obligations of the Borrower under this
Section shall survive the termination of this Agreement.
9.8. Numbers of Documents. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient counterparts
so that the Agent may furnish one to each of the Lenders.
<PAGE>
9.9. Accounting. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with Agreement Accounting Principles.
9.10. Severability of Provisions. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
9.11. Nonliability of Lenders. The relationship between the Borrower and
the Lenders and the Agent shall be solely that of borrower and lender. Neither
the Agent nor any Lender shall have any fiduciary responsibilities to the
Borrower. Neither the Agent nor any Lender undertakes any responsibility to the
Borrower to review or inform the Borrower of any matter in connection with any
phase of the Borrower's business or operations.
9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9.13. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF
ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE
AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
<PAGE>
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.15. Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to its Affiliates and other Lenders and
their respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to that Lender or to a Transferee, (iii) to regulatory
officials, (iv) to any Person as requested pursuant to or as required by law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which that Lender is a party, and (vi) permitted by Section 12.4;
provided that in connection with any disclosure pursuant to clauses (i), (ii) or
(vi), such Lender shall instruct such Persons to treat the information in a
confidential manner.
ARTICLE X
THE AGENT
10.1. Appointment. The First National Bank of Chicago is hereby appointed
Agent hereunder and under each other Loan Document, and each of the Lenders
irrevocably authorizes the Agent to act as the agent of such Lender. The Agent
agrees to act as such upon the express conditions contained in this Article X.
The Agent shall not have a fiduciary relationship in respect of the Borrower or
any Lender by reason of this Agreement.
10.2. Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
for its or their own gross negligence or willful misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (i) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
<PAGE>
limitation, any agreement by an obligor to furnish information directly to each
Lender; (iii) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered to the Agent; (iv) the validity,
effectiveness or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith; or (v) the value, sufficiency,
creation, perfection or priority of any interest in any collateral security. The
Agent shall have no duty to disclose to the Lenders information that is not
required to be furnished by the Borrower to the Agent at such time, but is
voluntarily furnished by the Borrower to the Agent (either in its capacity as
Agent or in its individual capacity).
10.5. Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Loan Documents,
(ii) for any other reasonable expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery, administration
and enforcement of the Loan Documents and (iii) for any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of the Loan Documents or any other document delivered in connection
therewith or the transactions contemplated thereby, or the enforcement of any of
the terms thereof or of any such other documents, provided that no Lender shall
be
<PAGE>
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Agent. The obligations of the Lenders
under this Section 10.8 shall survive payment of the Obligations and termination
of this Agreement.
10.9. Rights as a Lender. In the event the Agent is a Lender (including
its capacity as an Issuing Bank), the Agent shall have the same rights and
powers hereunder and under any other Loan Document as any Lender and may
exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent may
accept deposits from, lend money to, and generally engage in any kind of trust,
debt, equity or other transaction, in addition to those contemplated by this
Agreement or any other Loan Document, with the Borrower or any of its
Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby
from engaging with any other Person. The Agent, in its individual capacity, is
not obligated to remain a Lender; provided that at any time that the Agent is
not a Lender, the Agent agrees to resign in accordance with Section 10.11 upon
the request of the Borrower or the Required Lenders.
10.l0. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
10.11. Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower, such resignation to be effective
upon the appointment of a successor Agent or, if no successor Agent has been
appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Required Lenders shall have
the right to appoint, on behalf of the Borrower and the Lenders, a successor
Agent. If no successor Agent shall have been so appointed by the Required
Lenders within thirty days after the resigning Agent's giving notice of its
intention to resign, then the resigning Agent may appoint, on behalf of the
Borrower and the Lenders, a successor Agent. If the Agent has resigned and no
successor Agent has been appointed, the Lenders may perform all the duties of
the Agent hereunder and the Borrower shall make all payments in respect of the
Obligations to the applicable Lender and for all other purposes shall deal
directly with the Lenders. No successor Agent shall be deemed to be appointed
hereunder until such successor Agent has accepted the appointment. Any such
successor Agent shall be a commercial bank having capital and retained earnings
of at least $100,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
resigning Agent. Upon the effectiveness of the resignation of the Agent, the
resigning Agent shall be discharged from its duties and obligations hereunder
and under the Loan Documents. After the effectiveness of the resignation of an
Agent, the provisions of this Article X shall continue in effect for the benefit
of such Agent in respect of any actions taken or omitted to be taken by it while
it was acting as the Agent hereunder and under the other Loan Documents.
<PAGE>
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. Setoff. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default or Unmatured Default occurs, any and all deposits
(including all account balances, whether provisional or final and whether or not
collected or available) and any other Indebtedness at any time held or owing by
any Lender to or for the credit or account of the Borrower may be offset and
applied toward the payment of the Obligations owing to such Lender, whether or
not the Obligations, or any part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has
payment made to it upon its share of any Advance or Reimbursement Obligation
(other than payments received pursuant to Sections 2.18.1, 2.18.2 or 2.18.4) in
a greater proportion than that received by any other Lender, such Lender agrees,
promptly upon demand, to purchase a portion of that Advance or Reimbursement
Obligation held by the other Lenders so that after such purchase each Lender
will hold its ratable proportion of that Advance or Reimbursement Obligation. If
any Lender, whether in connection with setoff or amounts which might be subject
to setoff or otherwise, receives collateral or other protection for its
Obligations or such amounts which may be subject to setoff, such Lender agrees,
promptly upon demand, to take such action necessary such that all Lenders share
in the benefits of such collateral ratably in proportion to their Loans. In case
any such payment is disturbed by legal process, or otherwise, appropriate
further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may
at any time, without the consent of the Borrower or the Agent, assign all or any
portion of its rights under this Agreement and its Notes to a Federal Reserve
Bank; provided, however, that no such assignment shall release the transferor
Lender from its obligations hereunder. The Agent may treat the payee of any Note
as the owner thereof for all purposes hereof unless and until such payee
complies with Section 12.3 in the case of an assignment thereof or, in the case
of any other transfer, a written notice of the transfer is filed with the Agent.
Any assignee or transferee of a Note agrees by acceptance thereof to be bound by
all the terms and provisions of the Loan Documents. Any request, authority or
consent of any Person, who at the time of making such request or giving such
authority or consent is the holder of any Note, shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
<PAGE>
12.2.Participations.
12.2.1. Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held by
such Lender, any interest in Facility Letters of Credit, any Commitment of
such Lender or any other interest of such Lender under the Loan Documents.
In the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender shall
remain the holder of any such Note for all purposes under the Loan
Documents, all amounts payable by the Borrower under this Agreement shall
be determined as if such Lender had not sold such participating interests,
and the Borrower and the Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations
under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other than
any amendment, modification or waiver with respect to any Loan, Facility
Letter of Credit or Commitment in which such Participant has an interest
which forgives principal, interest or fees or reduces the interest rate or
fees payable with respect to any such Loan, Facility Letter of Credit or
Commitment, postpones any date fixed for any regularly-scheduled payment
of principal of, or interest or fees on, any such Loan, Facility Letter of
Credit or Commitment, releases any guarantor of any such Loan or Facility
Letter of Credit or releases any substantial portion of collateral, if
any, securing any such Loan or Facility Letter of Credit.
12.2.3. Benefit of Setoff. The Borrower agrees that each Participant
shall be deemed to have the right of setoff provided in Section 11.1 in
respect of its participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under the Loan Documents,
provided that each Lender shall retain the right of setoff provided in
Section 11.1 with respect to the amount of participating interests sold to
each Participant. The Lenders agree to share with each Participant, and
each Participant, by exercising the right of setoff provided in Section
11.1, agrees to share with each Lender, any amount received pursuant to
the exercise of its right of setoff, such amounts to be shared in
accordance with Section 11.2 as if each Participant were a Lender.
<PAGE>
12.3.Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary course
of its business and in accordance with applicable law, at any time assign
to one or more banks or other entities (excluding entities registered
under the Investment Company Act of 1940) with a net worth and/or capital
and surplus of at least $500,000,000 ("Purchasers") all or any part of its
rights and obligations under the Loan Documents; provided, however, that
(i) any such assignment shall be in a minimum amount of at least
$5,000,000 and (ii) if a Default has occurred and is continuing, the
restriction against assignments to entities registered under the
Investment Company Act of 1940 shall not apply. Such assignment shall be
substantially in the form of Exhibit "H" hereto or in such other form as
may be agreed to by the parties thereto. The consent of the Borrower and
the Agent shall be required prior to an assignment becoming effective with
respect to a Purchaser which is not a Lender or an Affiliate thereof;
provided, however, that if a Default has occurred and is continuing, the
consent of the Borrower shall not be required. Such consent shall not be
unreasonably withheld.
12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of a
notice of assignment, substantially in the form attached as Annex "I" to
Exhibit "H" hereto (a "Notice of Assignment"), together with any consents
required by Section 12.3.1, and (ii) payment of a $3,000 fee to the Agent
for processing such assignment, such assignment shall become effective on
the effective date specified in such Notice of Assignment. The Notice of
Assignment shall contain a representation by the Purchaser to the effect
that none of the consideration used to make the purchase of the
Commitment, Facility Letters of Credit and Loans under the applicable
assignment agreement are "plan assets" as defined under ERISA and that the
rights and interests of the Purchaser in and under the Loan Documents will
not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to
this Agreement and any other Loan Document executed by the Lenders and
shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and
no further consent or action by the Borrower, the Lenders or the Agent
shall be required to release the transferor Lender with respect to the
Percentage of the Aggregate Commitment, Facility Letters of Credit and
Loans assigned to such Purchaser. Upon the consummation of any assignment
to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the
Agent and the Borrower shall make appropriate arrangements so that
replacement Notes are issued to such transferor Lender and new Notes or,
as appropriate, replacement Notes, are issued to such Purchaser, in each
case in principal amounts reflecting their Commitment, as adjusted
pursuant to such assignment. In addition, within a reasonable time after
the effective date of any assignment, the Agent shall, and is hereby
authorized and directed to, revise Schedule "1" reflecting the revised
Percentages of each of the Lenders and shall distribute such revised
Schedule "1" to each of the Lenders and the Borrower and such revised
Schedule "1" shall replace the old Schedule "1" and become part of this
Agreement.
<PAGE>
12.4. Dissemination of Information. The Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries; provided
that each Transferee and prospective Transferee agrees in writing, prior to such
disclosure, to be bound by Section 9.15 of this Agreement.
12.5. Tax Treatment. If any interest in any Loan Document is transferred
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to comply
with the provisions of Section 2.16.
<PAGE>
ARTICLE XIII
NOTICES
13.1. Giving Notice. Except as otherwise permitted by Section 2.11 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
13.2. Change of Address. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and the Lenders
and each party has notified the Agent by telex or telephone, that it has taken
such action.
{Rest of page intentionally left blank}
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
WABAN INC.
By: /s/ Edward J. Weisberger
Print Name: Edward J. Weisberger
Title: Senior Vice President,
Chief Financial Officer
One Mercer Road
P.O. Box 9600
Natick, MA 01760
Phone: (508) 651-6500
Fax: (508) 651-6623
Attention: Edward J. Weisberger,
Chief Financial Officer
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ John Runger
Print Name: John Runger
Title: V.P./Senior Corporate Banker
One First National Plaza
Chicago, Illinois 60670
Phone: (312) 732-7101
Fax: (312) 732-1117
Attention: John D. Runger, Vice President
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON,
Individually and as Co-Agent
By: /s/ Mitchell B. Feldman
Print Name: Mitchell B. Feldman
Title:Director
100 Federal Street
Mail Stop 01-09-04
Boston, MA 02110
Phone:(617) 434-5760
Fax: (617) 434-0637
Attention: Mitchell B. Feldman, Director
SHAWMUT BANK, N.A.,
Individually and as Co-Agent
By: /s/ Gerry Sheehan
Print Name: Gerry Sheehan
Title: Assistant Vice President
National Banking Group/Retailing Team
One Federal Street, Mail Code OF-0305
Boston, MA 02211
Phone:(617) 292-2845
Fax: (617) 292-2619
Attention: Mr. Gerry Sheehan, Assistant Vice
President
WELLS FARGO BANK, NATIONAL ASSOCIATION,
Individually and as Co-Agent
By: /s/ Lenny L. Mason
Print Name: Lenny L. Mason
Title: Assistant Vice President
Corporate Banking Group
420 Montgomery St., 9th Floor
San Francisco, CA 94163
Phone:(415) 396-5997
Fax: (415) 421-1352
Attention: Lenny L. Mason, Assistant
Vice President
<PAGE>
BANK HAPOALIM, B.M.
By: /s/ Nancy S. Lushan
Print Name: Nancy S. Lushan
Title: V.P.
By: /s/ Jeffrey J. DiSandro
Print Name: Jeffrey J. DiSandro
Title: A.V.P.
Boston Branch
70 Federal Street
Boston, MA 02110
Phone:(617) 457-1811
Fax: (617) 542-0015
Attention: Ms. Nancy Lushan, Vice President
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: /s/ Dennis J. Diczok
Print Name: Dennis J. Diczok
Title: Managing Director
First Union Capital Markets Group
One First Union Center, TW-10
Charlotte, NC 28288-0745
Phone:(704) 383-7630
Fax: (704) 374-2802
Attention: Mr. Dennis J. Diczok,
Managing Director
<PAGE>
LTCB TRUST COMPANY
By: /s/ Noboru Kubota
Print Name: Noboru Kubota
Title: Senior Vice President
165 Broadway
New York, NY 10006
Phone:(212) 335-4533
Fax: (212) 608-2371
Attention: Mr. Theodor R. Koerner, II,
Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Kwan L. Grays
Print Name: Kwan L. Grays
Title: Commercial Banking Officer
335 Madison Avenue
New York, NY 10017
Phone:(212) 557-5334
Fax: (212) 557-5461
Attention: Mr. Kwan Grays, Commercial Banking
Officer
FLEET BANK OF MASSACHUSETTS, N.A.
By: /s/ Roger C. Boucher
Print Name: Roger C. Boucher
Title: Vice President
Fleet Center
Mail Stop MA BO FO4B
75 State Street
Boston, MA 02109-1810
Phone:(617) 346-1577
Fax: (617) 346-1679
Attention: Mr. Roger C. Boucher,
Vice President, National Corporate Group
AGREEMENT
This agreement dated as of this 24th day of January 1995 is entered
into by and between The TJX Companies, Inc., a Delaware corporation ("TJX"), and
Waban Inc., a Delaware corporation ("Waban").
WHEREAS, Waban has requested TJX to provide certain computer services
(the "Computing Services") to Waban during fiscal years ending on the last
Saturday of January of each of 1996, 1997 and 1998; and
WHEREAS, TJX has agreed to provide such services.
NOW THEREFORE, in consideration of the promises contained herein, the
parties agree as follows:
1. Term. The term of this Agreement shall terminate upon the later of
(i) the last day of Fiscal 1998 (January 31, 1998) (the "initial term") or (ii)
if the parties agree to an extension hereof as provided below (the "Extension
Period"), the last day of such Extension Period. Neither party shall have the
right to terminate this Agreement during the initial term.
If Waban wishes to extend the term of this Agreement for an additional
one year term, Waban shall so notify TJX in writing of its planned computer
usage requirements for such additional one year term no later than July 1 of the
year which is one year prior to the year in which this Agreement (whether or not
extended) would otherwise terminate. If TJX agrees to such an extension, TJX
shall, no later than 60 days after receipt of Waban's notification, notify Waban
in writing of TJX's estimated rates for such additional one year term and Waban
shall have 30 days to indicate its acceptance of such rates. Additional one year
extensions may be requested in the succeeding year(s) and agreed to in the same
manner as provided in this Section 1.
If TJX declines to provide Computing Services during the Extension
Period, or if Waban chooses not to accept TJX's offer for the Extension Period,
Waban shall have 30 days after the date on which TJX declines to provide such
services or notifies Waban of TJX's estimated rates to elect an extension of
services for an additional period of four months beyond the termination of the
then current term (the "Tail") by providing TJX with its planned requirements
for the Tail. TJX shall be obligated to provide Computing Services during the
Tail at the same rates that were in effect for the one year period prior to the
beginning of the Tail.
2. Usage Requirements. Attached hereto as Attachment I are Waban's
computer usage requirements for fiscal 1996 and estimates of its usage
requirements for fiscal 1997 and fiscal 1998. Such requirements are hereinafter
sometimes referred to collectively as the "planned amounts" or the "planned
requirements." By July 1 of each year of the term beginning July 1, 1995, Waban
shall deliver to TJX a computer usage plan for its requirements for Computing
Services through the end of the following fiscal year, and an estimate of its
requirements for the fiscal year following such fiscal year. (For example, on or
before July 1, 1995, Waban shall deliver its requirements for fiscal 1997 and an
estimate of its requirements for fiscal 1998.) It is understood that Waban's
computer usage requirements for fiscal 1997 and fiscal 1998 may not be less than
90% of its estimates for each such year included in Attachment I and may not
exceed 200% of its estimates for each such year unless TJX agrees to provide
services at such increased level. Waban's computer usage plan will be
sufficiently detailed to allow TJX to provide its rates for Computing Services
for the next following fiscal year and Waban's estimate for requirements during
the additional fiscal year will be sufficiently detailed to allow TJX to provide
an estimate of its rates for Computing Services for such additional fiscal year
and to estimate its hardware needs for such additional fiscal year.
As soon as practicable, but no later than September 1 of each year
(provided TJX has received such planned requirements by July 1), TJX will notify
Waban in writing of the rates for Computing Services during the next following
fiscal year and an estimate of the rates TJX expects during such additional
fiscal year. It is understood that the estimate of rates for the additional
fiscal year is a good faith estimate only and that definitive initial rates for
such period will be established following July 1 of the following year in
accordance with the procedures set forth above.
3. Calculation of Rates. Waban's planned requirements (as well as the
planned requirements for all users of TJX's computing services) for each fiscal
year shall be the basis upon which TJX will set Waban's rates for such fiscal
year. Attached hereto in Attachment II are the rates for Computing Services for
fiscal 1996 and estimated rates (based on preliminary estimates of usage for all
users of TJX's Computing Services) for fiscal 1997 and fiscal 1998. Waban
acknowledges that TJX's Chadwick's of Boston division shall receive a discount
on its rates of 30% on computing services in Fiscal 1996; a discount of 20% in
Fiscal 1997; and a discount of 10% in Fiscal 1998. The charges for any fiscal
year shall be subject to adjustment as provided in Section 4. If during any
fiscal year, TJX realizes that its actual costs are significantly different from
its estimates thereof then in effect for purposes of calculating rates
hereunder, then TJX shall provide Waban with a new estimate of rates for such
fiscal year and shall either (i) invoice Waban for Computing Services
theretofore provided based on the revised estimates for sums in excess of sums
already paid since the beginning of such fiscal year (in the event of increased
rates estimates) or (ii) give Waban an appropriate credit (in the event that the
revised rates are lower). In any event, subsequent rates shall be based upon
such revised estimates. Notwithstanding the foregoing provisions of this
<PAGE>
paragraph, in the event that (i) TJX's businesses exceed 110% of their planned
requirements for any such fiscal year and as a result thereof TJX added to its
data processing system hardware or system software and (ii) Waban did not exceed
120% of its planned requirements for such fiscal year (or, if there was an
excess, such excess did not pertain to the usage of such hardware or system
software), then Waban shall not be charged additional fees with respect to such
fiscal year for any costs with respect to such additional hardware or system
software.
TJX agrees that Waban's rates for each fiscal year shall be based on
usage of Computing Services equal to 100% of the planned requirements in Waban's
computer usage plan for each fiscal quarter of each fiscal year. If Waban's
computer usage plan does not provide requirements by fiscal quarter, then fiscal
year planned requirements will be divided equally to arrive at fiscal quarter
requirements. If Waban's actual usage requirements exceed 120% of its planned
requirements for a fiscal quarter and the requirements of TJX's businesses do
not exceed 110% of TJX's planned requirements for such fiscal quarter (or any
such excess usage does not pertain to hardware or system software used by
Waban), then TJX will be entitled to increase amounts billed to Waban to recover
its additional costs resulting from Waban's excess usage.
In the event that Waban's actual usage for any fiscal quarter is less
than 80% of its planned requirements, Waban shall pay to TJX an amount based on
the rate for 80% of such planned requirements.
TJX shall use reasonable efforts to satisfy requirements in excess of
120% of Waban's planned requirements consistent with TJX's responsibilities to
meet the computer services needs of the TJX divisions.
TJX agrees that it will not change the basic methodology used to
determine rates during a fiscal year except in connection with new Computing
Services arising during such fiscal year that were not included by Waban in its
computer usage plan submitted by Waban to TJX for such fiscal year. TJX may,
however, change such methodology with respect to a following fiscal year at the
time it presents Waban with its estimate of rates (i.e., on September 1
preceding such following fiscal year), and TJX shall inform Waban of the change
at the time. Without limiting the generality of the next preceding sentence, if
during any fiscal year TJX adds to or upgrades its data processing system
hardware or systems software based on the needs of TJX's businesses, then the
methodology used to determine rates for the following fiscal year shall be
appropriately adjusted to include changes in Waban's rate reflecting usage of
such hardware or software.
During the initial term, TJX will discount the rates charged Waban for
CPU, Print, Microfiche, Data Entry and Payroll Processing by 15%. During the
initial term TJX will discount the Host Connect rate by 75% for all remote
connections supported directly by Waban employees. In addition, at the end of
each fiscal year during the initial term, TJX shall credit Waban with the amount
of $333,334 on the invoice applicable to the last month of the fiscal year.
4. Reconciliation. Within thirty days after the end of each fiscal
year, TJX shall reconcile the actual costs pertaining to the provision of the
Computing Services for such fiscal year and determine the pro rata amount paid
by each user. If the reconciliation shows that the actual costs exceeded the
rates charged and paid during such fiscal year, Waban shall within 30 days of
TJX's invoice therefor pay to TJX Waban's pro rata share of the difference. If
the reconciliation shows that the actual costs were less than the rates charged
and paid, TJX shall pay Waban Waban's pro rata share of the difference within 30
days after the completion of the reconciliation.
5. Software Licenses. TJX shall promptly notify Waban upon its receipt
of any notice that a third party intends to increase its software license fees
as a result of the provision by TJX of the Computing Services. In such event,
TJX shall appoint Waban as its agent to negotiate the amount of such increase
and shall cooperate with Waban to ensure that all additional license rights
(other than those already held by TJX, which shall not be affected) are in the
name of, or freely assignable (without the payment of additional consideration)
to, Waban. If TJX is required to incur additional software license fees then
such fees shall be charged to Waban (it being understood that such fees are not
included in the rates appearing on Schedule II hereto and will not be included
in the subsequent rates determined pursuant to Section 3 hereof).
6. Performance Levels. The performance levels for the Computing
Services provided to Waban shall be no less than those specified on Attachment
III. Notwithstanding the foregoing, TJX shall not be required to maintain the
performance levels for Computing Services to the extent that it is unable to
maintain them for itself and its operating units for reasons beyond its control.
In the event that TJX is unable to meet the performance levels for Computing
Services for reasons beyond its control, TJX shall provide Waban the same levels
and quality of Computing Services that it provides to itself and its operating
units and shall use its best efforts to alleviate any condition causing a
diminution in such performance levels. TJX acknowledges that TJX has in place a
disaster recovery contract pursuant to which mainframe production services will
be available at a secondary site within 24 hours of declaration of a disaster.
7. Invoices; Audit Rights. TJX shall render to Waban each month, within
30 days after the end of the month or as soon as practicable thereafter, an
invoice for the charges for Computing Services incurred during the previous
month showing usage by billing category. Such invoice shall be payable within
thirty days of its receipt by Waban.
Waban shall be entitled, upon request and at reasonable times and
places, to audit the books and records of TJX that relate to (i) the Computing
Services and (ii) the charges appearing on any invoice. In addition, Waban shall
be entitled to similar audit rights with respect to the methodology used by TJX
to determine the rates established pursuant to Section 3 hereof.
8. Ownership of Waban Data, etc. Waban shall be the owner of all of its
data. TJX shall maintain such data in confidence pursuant to Section 10 hereof
<PAGE>
and make no use of such Waban data or allow anyone other than Waban access to it
except for TJX personnel (including agents) who require access thereto in order
to perform the obligations to Waban under this Agreement.
9. Delivery of Software. Upon Waban's request, TJX shall deliver to
Waban within a reasonable period after such request the following items with
respect to all applications, utility routines, utility programs and/or systems
software developed by TJX and used in connection with the Computing Services
provided hereunder to Waban in which no third party has any rights:
(a) One copy of object code or other executable code on magnetic
media.
(b) One copy of source code on magnetic media.
(c) One copy of any documentation, including source documentation,
maintenance documentation and other documentation, for such
software to the extent then available.
Waban shall pay TJX for its reasonable additional costs relating to such
delivery of software.
10. Confidentiality of Information. TJX will not reveal to third
parties or use for its own purposes the information of Waban stored within its
computer system or accessible within its communications network and will use the
same security precautions as it uses to prevent disclosure to third parties of
TJX proprietary information to prevent disclosure to third parties of Waban
information stored in its computer system or accessible over its corporate
communications network. After the termination of this Agreement, TJX will return
to Waban or, at Waban's written direction, destroy and certify destruction of
all tapes and other media or records containing any Waban data. The provisions
of this Section 10 shall survive the termination of the Agreement.
11. Coordinating Committee. For the purpose of providing and continuing
the harmonious relationship between TJX and Waban, each party shall appoint at
least one individual to coordinate and review the relationship between the two
companies and their performance under this Agreement, as well as strategic
planning and technology changes. These individuals shall meet periodically, no
less frequently than monthly, to discuss operations under this Agreement and any
problems arising hereunder.
12. Independent Contractor Status. TJX shall perform services
under this Agreement as an independent contractor and not as an agent of Waban
or any other relationship.
13. Limitation of Liability. Neither TJX, nor any of its officers,
employees, agents or affiliates, shall in any event be liable for the defense of
claims, actions, causes of action, losses, expenses or for any damages including
reasonable attorneys' fees, which are caused by, arise out of or result from
TJX's (or any such officers', employees', agents' or affiliates') performance or
failure to perform any of its obligations under this Agreement, other than those
claims, actions, causes of action, losses, expenses and damages caused by or
arising out of or resulting from TJX's willful misconduct or gross negligence.
Waban hereby agrees to defend, indemnify, and hold harmless TJX for all damages,
losses and expenses, including reasonable attorneys' fees, incurred by TJX as a
result of the provision by TJX pursuant to this Agreement of the Computing
Services, other than costs or damages incurred by TJX as a result of its willful
misconduct or gross negligence. TJX hereby agrees to defend, indemnify and hold
Waban harmless for all damages, losses and expenses, including reasonable
attorneys' fees, incurred by Waban as a result of TJX's willful misconduct or
gross negligence in providing Computing Services to Waban pursuant to this
Agreement. Notwithstanding the foregoing, neither party shall be liable to the
other for indirect or consequential damages, including without limitation, loss
of profits or revenues.
Waban acknowledges that because this Agreement cannot be terminated
during the initial term, Waban agrees that in any circumstance in which Waban
terminates receiving services under the Agreement (other than as a result of
TJX's material default) Waban shall continue to pay all charges otherwise due
hereunder, as if there had been no termination, and, that for purposes of
computing charges, Waban's usage will be deemed to be not less than 90% of its
estimates for fiscal 1997 and fiscal 1998 and 100% of its requirements for
fiscal 1996, all as set forth in Attachment I hereto.
14. Assignment. This Agreement shall not be assignable, directly or
indirectly, by either party without the prior written consent of the other
party. Notwithstanding the foregoing, this Agreement may be assigned by either
party to a corporate affiliate or to a related party that would result from
either party entering into any agreement which provides for the acquisition of
all of its assets or the merger of all of its assets with those of a third
party, provided that, with respect to any such assignment, the assigning party
remains fully liable for the performance of all of its obligations under this
Agreement.
15. Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telecopy) addressed or transmitted as provided below and if either (i) actually
delivered at such address, (ii) in the case of a letter, three business days
shall have elapsed after the same shall have been deposited in the United States
mail, postage prepaid and registered or certified, or (iii) if in the form of a
telecopy, when the receiving party gives telephonic notice of complete and
legible receipt to:
Waban at: One Mercer Road
Natick, MA 01760
Telecopy Number: (508) 651-6623
Attention: Chief Financial Officer
TJX at: 770 Cochituate Road
Framingham, MA 01701
Telecopy Number: (508) 390-2199
Attention: Chief Financial Officer
<PAGE>
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule that would cause the application of the domestic substantive laws of any
other jurisdiction.
17. Amendments. This Agreement may not be modified or amended except by
an agreement in writing signed by the parties.
18. Entire Agreement. This Agreement represents the entire agreement
between the parties hereby and supersedes all prior negotiations,
representations or agreements either written or oral including, but not limited
to, letters of intent and correspondence between the parties.
19. Titles and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning of interpretation of this Agreement.
20. Exhibits and Schedules. The Attachments shall be construed with and
as an integral part of thisAgreement to the same extent as if the same had been
set forth verbatim herein.
IN WITNESS WHEREOF, TJX and Waban have caused this Agreement to be duly
executed by their respective officers, each of whom is fully authorized, all as
of the day and year first above written.
The TJX Companies, Inc.
By: /s/ Donald G. Campbell
Senior Vice President - Finance
and Chief Financial Officer
Waban Inc.
By: /s/ Herbert J. Zarkin
President and Chief
Executive Officer
<PAGE>
ATTACHMENT I
WABAN INC.
FYE 1996 COMPUTER USAGE REQUIREMENTS AND ESTIMATES FOR
FYE 1997 AND FYE 1998 REQUIREMENTS
CPU HOURS FY '96 FY '97 FY '98
Total CPU 8,243 10,139 12,167
Print Lines (000's)
Total Print (000's lines) 2,470 3,088 3,705
Other
Payroll Checks (000's) 538 646* 762*
Microfiche (000's) 215 258* 310*
Data Entry (000's) 1,352 1,622* 1,947*
Host Connections - H.O 6,144 6,267 6,392
Host Connections - Clubs 5,070 6,350 7,627
* For the purposes of Section 2 of the Agreement, the following is the expected
low end range of volume for the following categories:
FY '97 FY '98
Payroll Checks (000's) 572 0
Microfiche (000's) 133 0
Data Entry (000's) 1,174 720
<PAGE>
ATTACHMENT II
COMPUTER SERVICES and RATES:
The computer services listed below will be provided to Waban by TJX during
fiscal year 1996 at the rates indicated in the FY'96 column below and subject to
the terms and conditions of the Agreement. The estimated rates for fiscal years
1997 and 1998 are informational only. The rates for fiscal years 1997 and 1998
will be set in accordance with the terms of the Agreement.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
RATE RATE RATE
1. Computer Processing FY '96 FY '97 FY '98
<S> <C> <C> <C>
a. Per CPU Hour (3090-400E) $ 455.00 $ 425.00 $ 400.00
Per CPU Hour (3090-600S) 548.00 512.00 482.00
Per CPU Hour (3090-600J) 595.00 556.00 523.00
Per CPU Hour (9000-820) 1321.00 1234.00 1161.00
b. Per Thousand 1-up PRINT Lines .44 .43 .43
Per Thousand 2-up PRINT Lines .26 .26 .26
Per Thousand Remote PRINT Lines .02 .02 .02
c. Per MicroFiche .43 .43 .43
d. Per Data Entry record .041 .041 .041
Per D/E Floppy File 9.80 9.80 9.80
e. Per Payroll Check .35 .36 .36
NOTE: Should a Central Processing Unit (CPU) other than one of
those listed above be used to process the Waban workload,
the rate per hour will be determined based on the
proportional speed of the unlisted CPU.
2. Computer Services
a. Per Monthly Host Connect Unit-H.O. $ 48.00 $ 48.00 $ 48.00
b. Per Monthly Host Connect Unit-Club 24.00 24.00 24.00
c. Per Monthly Unplanned Disk Device 400.00 400.00 400.00
3. Computer Rate Discounts
a. Discount on Computer Processing
Rates (1a thru 1e) 15.0% 15.0% 15.0%
b. Discount on Host Connect Rate (2a&b) 75.0% 75.0% 75.0%
(Waban will handle all communication cabling and equipment
support within each Waban building).
4. Other Available Services/Charges
Remote Comm. Usage Rate: $0.25 per Thousand records transmitted
(line charges will be paid by Waban)
Payroll Prog. Support: $50.00 per billable hour (for all hours
which exceed the Waban annual allocation)
Unplanned Projects: Support provided based on time & materials
cost
</TABLE>
<PAGE>
ATTACHMENT III
PERFORMANCE LEVELS FOR COMPUTING SERVICES
SERVICE LEVEL ITEM PERFORMANCE GOAL *
Hardware/Software Availability 99.5 percent
On-Line Application Availability 98.0 percent
TSO System Availability 99.5 percent
Report Delivery On Schedule 98.0 percent
RESPONSE TIME TARGETS:
IMS (95th Percentile) 4.0 seconds
CICS (95th Percentile) 4.0 seconds
TSO (95th Percentile) 3.0 seconds
* - These performance goals (which will be calculated on a monthly basis)
assume Waban's conformance with TJX's operating standards.
Exhibit 11
WABAN INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
The computation of net income available and adjusted
shares outstanding follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28, January 29, January 30,
1995 1994 1993
<S> <C> <C> <C>
Net income as reported $64,990,000 $(17,782,000) $44,242,000
Net income used for primary
computation $64,990,000 $(17,782,000) $44,242,000
Add (where dilutive):
Tax effected interest and
amortization of debt expense
on convertible debt 4,347,000 - 2,560,000
Net income used for fully
diluted computation $69,337,000 $(17,782,000) $46,802,000
Weighted average number of
common shares outstanding 33,142,641 33,082,362 32,869,945
Add (where dilutive):
Assumed exercise of those options
that are common stock equivalents
net of treasury shares deemed
to have been repurchased 262,373 - 321,552
Weighted average number of common
and common equivalent shares
outstanding, used for primary
computation 33,405,014 33,082,362 33,191,497
Add (where dilutive):
Assumed exercise of convertible
securities 4,387,879 - 2,515,266
Adjusted shares outstanding used
for fully diluted computation 37,792,893 33,082,362 35,706,763
</TABLE>
Exhibit 21
Subsidiaries
The following is a list of Subsidiaries of Waban Inc. as of April 1, 1995:
State of Incorporation
----------------------
HomeClub, Inc. Nevada
HomeClub, Inc. of Texas Delaware
Fullerton Corporation Delaware
Natick Security Corp. Massachusetts
Natick Corporation Delaware
HCI Development Corp. California
HomeClub First Realty Corp. Colorado
Natick First Realty Corp. Connecticut
Natick Second Realty Corp. Massachusetts
Natick Third Realty Corp. New Jersey
Natick Fourth Realty Corp. New Jersey
Natick Fifth Realty Corp. Maryland
Natick Sixth Realty Corp. Connecticut
Natick MA Realty Corp. Massachusetts
Natick NH Realty Corp. New Hampshire
Natick NY Realty Corp. New York
HCWA Realty Corp. Washington
HCCA Realty Corp. California
Natick NY 1992 Realty Corp. New York
Natick PA Realty Corp. Pennsylvania
Natick VA Realty Corp. Virginia
HBNM Realty Corp. New Mexico
Natick Portsmouth Realty Corp. New Hampshire
HBCA 1993 Realty Corp. California
HBOR Realty Corp. Oregon
HBUT Realty Corp. Utah
HCWA 1993 Realty Corp. Washington
Natick NJ Realty Corp. New Jersey
Natick NJ 1993 Realty Corp. New Jersey
Natick NJ 1994 Realty Corp. New Jersey
BJ's PA Distribution Center, Inc. Pennsylvania
BJ's MA Distribution Center, Inc. Massachusetts
Natick CT Realty Corp. Connecticut
HBCO Realty Corp. Colorado
HBNM 1994 Realty Corp. New Mexico
HBCO 1994 Realty Corp. Colorado
Natick ME 1995 Realty Corp. Maine
Natick NY 1995 Realty Corp. New York
Natick MA 1995 Realty Corp. Massachusetts
Natick NH 1994 Realty Corp. New Hampshire
Natick PA 1995 Realty Corp. Pennsylvania
CWC Beverages Corp. Connecticut
FWC Beverages Corp. Florida
JWC Beverages Corp. New Jersey
Mormax Beverages Corp. Delaware
Mormax Corporation Massachusetts
RWC Beverages Corp. Rhode Island
YWC Beverages Corp. New York
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Waban
Inc. consolidated statements of income and consolidated balance sheets filed
with the Form 10-K for the year ended January 28, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 65,040
<SECURITIES> 63,933
<RECEIVABLES> 51,875
<ALLOWANCES> 0
<INVENTORY> 512,619
<CURRENT-ASSETS> 736,919
<PP&E> 617,157
<DEPRECIATION> 137,395
<TOTAL-ASSETS> 1,241,931
<CURRENT-LIABILITIES> 445,152
<BONDS> 258,763
<COMMON> 332
0
0
<OTHER-SE> 487,757
<TOTAL-LIABILITY-AND-EQUITY> 1,241,931
<SALES> 3,650,281
<TOTAL-REVENUES> 3,650,281
<CGS> 3,110,787
<TOTAL-COSTS> 3,110,787
<OTHER-EXPENSES> 418,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,898
<INCOME-PRETAX> 106,192
<INCOME-TAX> 41,202
<INCOME-CONTINUING> 64,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,990
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.83
</TABLE>