<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, VIA EDGAR, ON APRIL 6,
1998
REGISTRATION NO. 333-48811
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE BON-TON STORES, INC.
(Exact name of registrant as specified in its Charter)
PENNSYLVANIA 5311 23-2835229
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
HEYWOOD WILANSKY
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
THE BON-TON STORES, INC.
2801 EAST MARKET STREET
YORK, PENNSYLVANIA 17402
2801 EAST MARKET STREET (717) 757-7660
YORK, PENNSYLVANIA 17402 (Name, address, including zip code,
(717) 757-7660 and
(Address, including zip code, and telephone number including area
telephone number, including area code,
code, of agent for service)
of registrant's principal executive
offices)
------------
COPY TO:
DAVID GITLIN, ESQ. STEVEN R. FINLEY, ESQ.
JOHN M. COOGAN, JR., ESQ. GIBSON, DUNN & CRUTCHER LLP
WOLF, BLOCK, SCHORR AND SOLIS-COHEN 200 PARK AVENUE
LLP NEW YORK, NEW YORK 10166
TWELFTH FLOOR PACKARD BUILDING (212) 351-4000
111 SOUTH 15TH STREET
PHILADELPHIA, PENNSYLVANIA 19102
(215) 977-2000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 6, 1998
PROSPECTUS
, 1998
4,000,000 SHARES
[LOGO OF THE BON-TON YOUR FASHION STORE APPEARS HERE]
COMMON STOCK
Of the 4,000,000 shares of Common Stock, $0.01 par value per share (the
"Common Stock"), offered hereby, 2,500,000 shares are being sold by The Bon-Ton
Stores, Inc., and 1,500,000 shares are being offered by Selling Shareholders.
See "Principal and Selling Shareholders." The Company will not receive any of
the proceeds from the sale of the shares being sold by the Selling
Shareholders.
The Company has two classes of authorized common stock, Common Stock, which
is offered hereby and is entitled to one vote per share, and Class A Common
Stock, $0.01 par value per share ("Class A Common Stock" and, together with the
Common Stock, the "Common Shares"), which is entitled to ten votes per share.
See "Description of Capital Stock." Upon completion of the offering, M. Thomas
Grumbacher, Chairman of the Board of the Company, and certain entities
affiliated with Mr. Grumbacher collectively will own approximately 34.3% of the
outstanding Common Shares and will control approximately 77.1% of the combined
voting power of the outstanding Common Shares. Consequently, such shareholders
will control the ability to determine the outcome of shareholder votes,
including votes with respect to corporate transactions requiring the approval
of shareholders and the election of the Company's Board of Directors. See
"Principal and Selling Shareholders."
The Common Stock is listed on the Nasdaq National Market under the symbol
"BONT." On March 30, 1998, the last reported sale price of the Common Stock on
the Nasdaq National Market was $15 3/4 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN RISKS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO THE DISCOUNTS AND TO THE TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $500,000, which will be paid by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 600,000 additional shares at the Price to the Public
less Underwriting Discounts and Commissions, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
the Public, Underwriting Discounts and Commissions, and Proceeds to the
Company will be $ , $ , and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of share certificates will be made in New
York, New York, on or about , 1998.
DONALDSON, LUFKIN & JENRETTE NATIONSBANC MONTGOMERY
SECURITIES CORPORATION SECURITIES LLC
<PAGE>
[MAP DEPICTING LOCATIONS OF THE BON-TON STORES. PICTURE OF ENTRANCE TO
COMPANY STORE; SEVERAL MODELS WEARING APPAREL OFFERED BY THE COMPANY; LOGOS OF
SEVERAL VENDORS TO THE COMPANY INCLUDING COLE . HAAN, LAUREN, POLO JEANS,
TOMMY HILFIGER AND NAUTICA; TEXT READING "THE BON-TON'S BUSINESS STRATEGY IS
TO POSITION ITSELF AS THE PREMIER FASHION RETAILER OF BETTER GOODS IN THE
MARKETS IT SERVES."]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON STOCK PRIOR TO THE
PRICING OF THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON
STOCK, THE PURCHASE OF COMMON STOCK FOLLOWING THE PRICING OF THE OFFERING TO
COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH
THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS) MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus does not give effect to the exercise of the
Underwriters' over-allotment option. Unless the context otherwise requires or
indicates, all references to "The Bon-Ton" or the "Company" in this Prospectus
refer to The Bon-Ton Stores, Inc. and its direct and indirect wholly-owned
subsidiaries. As used in this Prospectus, references to a "fiscal year" refer
to the 52- or 53-week period ending on the Saturday nearer to January 31 of the
following calendar year (e.g., a reference to "fiscal 1996" is a reference to
the fiscal year ended February 1, 1997). For a discussion of certain factors
which should be considered by prospective purchasers of the Common Stock, $0.01
par value per share ("Common Stock"), offered hereby, see "Risk Factors."
THE COMPANY
The Bon-Ton is a leading operator of quality fashion department stores
offering moderate and better apparel, home furnishings, cosmetics, accessories
and shoes in secondary markets. The Company's strategy focuses on being the
premier fashion retailer in smaller markets that demand, but often have limited
access to, better branded merchandise. In many of its markets, The Bon-Ton is
the primary destination for branded fashion merchandise from top designers such
as Calvin Klein, Liz Claiborne, Nautica, Ralph Lauren and Tommy Hilfiger. The
Bon-Ton operates 64 stores, with 35 stores in Pennsylvania, 24 stores in New
York, three stores in Maryland, and one store in each of West Virginia and New
Jersey.
The Bon-Ton provides an in-depth selection of high-quality, well-known
branded merchandise at competitive prices in upscale shopping environments.
None of The Bon-Ton's stores are located in major metropolitan markets, and
most are located in smaller secondary markets. The Bon-Ton's strategic focus is
on smaller secondary markets that are served primarily by moderate-price
competitors offering a more limited selection of better branded fashion
merchandise.
Since 1995, the Company has strengthened the quality and depth of management
by hiring a new chief executive officer and seven additional senior executives,
all of whom have extensive experience with major department stores. This
management team has pursued a series of key initiatives to generate growth.
These initiatives include:
-- shifting its merchandise mix to include a higher proportion of better
branded apparel;
-- offering an extended choice of merchandise in sizes, colors and styles;
-- strengthening its relationship with key vendors;
-- intensifying the selection of its private brands;
-- expanding and upgrading stores in selected smaller markets; and
-- enhancing customer service through frequent purchaser clubs and
promoting The Bon-Ton proprietary credit card.
As a result of these initiatives, The Bon-Ton has achieved comparable store
sales growth, compared to the same period in the prior fiscal year, which ranks
among the highest in the department store industry in each of the last six
fiscal quarters as shown in the following table:
<TABLE>
<CAPTION>
FISCAL 1996 COMPARABLE STORE SALES GROWTH
<S> <C>
Third Quarter 3.2%
Fourth Quarter 9.2%
FISCAL 1997
First Quarter 5.1%
Second Quarter 6.9%
Third Quarter 7.1%
Fourth Quarter 6.5%
</TABLE>
3
<PAGE>
BUSINESS STRATEGY
The Company's business strategy is to position itself as the premier fashion
retailer in its targeted smaller markets. Key elements of the strategy are
summarized below.
PURSUE NICHE AS PREMIER FASHION RETAILER
The Bon-Ton carves out and maintains a niche in smaller secondary markets by
offering a higher proportion of better to moderate merchandise in an upscale
environment with superior customer service. Moderate-price competitors in these
markets generally offer a more limited selection of quality brands or do not
carry the same better brands as The Bon-Ton.
Realign merchandise mix and increase selection. The Bon-Ton is shifting its
apparel merchandise mix to incorporate an improved balance of moderate and
better merchandise. Merchandise categories in which sales of better goods have
increased significantly from fiscal 1995 to fiscal 1997 include misses
sportswear (increasing from 31% of category sales to 36% of category sales),
petites (21% to 30%) and men's sportswear (18% to 36%). The Bon-Ton also is
increasing its selection of sizes, colors and styles in key merchandise
categories. By offering better brands in addition to moderately priced goods,
The Bon-Ton not only attracts new customers who shop for better brands but also
provides its traditional core customers (households with annual incomes of
$30,000 - $75,000) with a broader selection of merchandise.
Enhance relationships with higher-quality vendors. The Company has reduced
its vendor base from approximately 2,400 in 1994 to 1,350 in 1997, resulting in
improved relations with and increased support from its vendors in the form of
enhanced purchasing opportunities and greater advertising subsidies. In
addition, The Bon-Ton intends to increase significantly the number of vendor
shops featuring merchandise from key vendors such as Calvin Klein, Nautica,
Ralph Lauren, Tommy Hilfiger and Tommy Hilfiger Jeans. In vendor shops,
merchandise is grouped and positioned in preferred floor locations and enhanced
with distinctive, vendor-specific fixturing, signage and displays.
Differentiate with private brands. The Bon-Ton positions its private brand
merchandise as quality fashion apparel at competitive prices. These private
brands, which include Andrea Viccaro, Jenny Buchanan, Susquehanna Trail
Outfitters and Susquehanna Blues, differentiate The Bon-Ton from its
competitors. In 1996, the Company expanded its private brand program with
better sportswear, utilizing manufacturers of well-known better branded
merchandise. Private brand merchandise represented approximately 8% of apparel
sales in fiscal 1995 and 15% of apparel sales in fiscal 1997.
EMPHASIZE CUSTOMER SERVICE
The Company places great emphasis on providing a high level of customer
service to distinguish its stores from the competition and to create customer
loyalty. The Company accomplishes this through its well-trained and experienced
sales and support associates and by offering services such as free gift wrap,
The Bon-Ton proprietary credit card, frequent-purchaser clubs and in-store
alterations.
FOCUS ON GROWTH IN EXISTING STORES IN SMALLER SECONDARY MARKETS
The Company believes growth opportunities are available through positioning
better branded merchandise in additional existing Bon-Ton stores in smaller
secondary markets. The Company will continue to focus on improving its
merchandise mix in these stores and upgrading these stores by refixturing and
remodeling in order to increase store productivity and enhance The Bon-Ton's
image as an upscale retail destination. In 1997, the Company increased the
square footage at three locations, increasing the size of existing merchandise
categories and adding new merchandise categories. In addition, the Company has
identified 25 of its 64 stores for potential expansion. Over the next three to
five years, the Company anticipates expanding the square footage of its more
productive stores by adding up to 400,000 square feet.
4
<PAGE>
GROW BY OPENING NEW STORES AND THROUGH ACQUISITIONS
The Company opened a new 60,000 square foot store in the Jamestown, New York
market in March 1998. The Company has preliminarily identified approximately 50
secondary markets which meet The Bon-Ton's demographic and competitive criteria
for opening new stores. The Company anticipates opening several new stores in
the next three to five years, adding up to 600,000 square feet. The Company
also intends to consider opportunities for growth through acquisitions of
department store companies or their real estate assets if and when such
opportunities arise. These acquisitions may or may not be in lieu of new store
openings.
BACKGROUND AND HISTORY
In 1994, the Company doubled its number of stores with three acquisitions
involving 35 stores, including 19 stores from Hess's Department Stores, Inc.
("Hess"), the ten stores of Adam, Meldrum & Anderson Co., Inc. ("AM&A") based
in Buffalo, New York and the six stores of C.E. Chappell & Sons, Inc.
("Chappell's") based in Syracuse, New York. In 1995 and 1996, the Company
entered the Rochester and Elmira, New York markets with four acquired stores
and the opening of one additional store. In addition, the Company closed ten
stores between March 1995 and January 1997 to eliminate mall or market
duplication resulting from such acquisitions or to close underperforming
stores. The Company is closing its Rome, Georgia store in April 1998. All of
the Company's stores operate as "The Bon-Ton."
The Company was incorporated in Pennsylvania in 1996 and is the successor to
S. Grumbacher & Son, a family business which was founded in 1898. The Company's
executive offices are located at 2801 East Market Street, York, Pennsylvania
17402 and its telephone number is (717) 757-7660.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company......................... 2,500,000 shares(1)
By the Selling Shareholders............ 1,500,000 shares
Total.................................. 4,000,000 shares
Common Stock to be outstanding after this
offering................................ 11,424,697 shares(1)(2)
Use of proceeds by the Company........... For expansion and upgrading of
existing stores, opening new stores,
working capital and for general
corporate purposes. Pending such
uses, the proceeds will be used to
reduce indebtedness under the Credit
Facility (as defined herein). The
Company will receive no proceeds
from the sale of shares of Common
Stock offered hereby by certain
shareholders of the Company (the
"Selling Shareholders"). See "Use of
Proceeds."
Nasdaq National Market symbol............ BONT
</TABLE>
- --------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Excludes (i) an aggregate of 1,531,777 shares of Common Stock reserved for
issuance under the Company's equity incentive plans, of which 1,064,302 are
issuable upon the exercise of stock options outstanding as of March 25,
1998 with a weighted average exercise price of $ 8.00; (ii) 2,989,853
shares of the Company's Class A Common Stock, $0.01 par value per share
("Class A Common Stock" and, with the Common Stock, the "Common Shares")
each of which is convertible into one share of Common Stock; and (iii)
250,000 shares of Common Stock issuable upon the exercise of stock options
and 250,000 restricted shares of Common Stock to be issued to Heywood
Wilansky, the Company's President and Chief Executive Officer, subject to
approval by the Company's shareholders.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------
STATEMENT OF OPERATIONS
DATA: 1993 1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales(1)........... $336,733 $494,908 $607,357 $626,482 $656,399
Gross profit(2)........ 130,191 194,994 219,410 230,919 242,553
Income (loss) from
operations(3)(4)...... 17,548 26,668 (6,247) 26,447 29,170
Interest expense, net.. 4,042 5,475 8,722 14,687 13,202
Income (loss) before
taxes................. 13,506 21,193 (14,969) 11,760 15,968
Income (loss) before
accounting
change/extraordinary
item.................. 8,779 13,630 (9,203) 6,811 9,698
Net income
(loss)(5)(6).......... $ 10,279 $ 13,630 $ (9,203) $ 6,811 $ 9,252
Per share amounts--
Basic:
Net income (loss)
before accounting
change/extraordinary
item................. $ 0.80 $ 1.24 $ (0.83) $ 0.62 $ 0.87
Effect of accounting
change/extraordinary
item................. 0.14 -- -- -- (0.04)
-------- -------- -------- -------- --------
Net income (loss)..... $ 0.94 $ 1.24 $ (0.83) $ 0.62 $ 0.83
Basic shares
outstanding........... 10,935 10,955 11,044 11,064 11,122
Diluted:
Net income (loss)
before accounting
change/extraordinary
item................. $ 0.79 $ 1.23 $ (0.83) $ 0.61 $ 0.85
Effect of accounting
change/extraordinary
item................. 0.14 -- -- -- (0.04)
-------- -------- -------- -------- --------
Net income (loss)..... $ 0.93 $ 1.23 $ (0.83) $ 0.61 $ 0.81
Diluted shares
outstanding........... 11,051 11,041 11,044 11,106 11,377
<CAPTION>
JANUARY 31, 1998
------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(7)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital........ $123,078 $123,078
Total assets........... 352,686 352,686
Long-term debt,
including capital
leases................ 123,384 86,675
Shareholders' equity... 124,394 161,103
<CAPTION>
FISCAL YEAR
------------------------------------------------------
SELECTED OPERATING DATA: 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Comparable stores sales
growth(8)............. (0.6)% 6.1% 0.2% 4.2% 6.5%
Comparable stores
data(9):
Sales per selling
square foot........... $ 157 $ 163 $ 160 $ 138 $ 143
Selling square footage
(in thousands)........ 1,850 2,185 2,278 4,153 4,511
Capital expenditures
(in thousands)........ $ 8,935 $ 18,532 $ 43,587 $ 9,730 $ 10,978
Number of stores:
Beginning of year...... 36 35 69 68 64
Additions.............. 1 35 4 1 --
Closings............... (2) (1) (5) (5) --
-------- -------- -------- -------- --------
End of year............ 35 69 68 64 64
</TABLE>
- --------------------
(1) Fiscal 1995 includes the 53 weeks ended February 3, 1996.
(2) Fiscal 1995 includes a $3.5 million charge related to inventory liquidation
associated with the elimination of certain vendors and other merchandise
changes.
(3) Reflects expenses related to the hiring of the Chief Executive Officer and
the gain recognized on the pension termination in fiscal years 1995 and
1996, respectively.
(4) Fiscal 1995 reflects a $5.7 million restructuring charge for a store
closing and work force reduction reserve.
(5) Fiscal 1997 reflects a loss of $446,000, net of tax, resulting from the
early extinguishment of the Company's term loan and revolving credit
facility.
(6) Fiscal 1993 reflects an extraordinary gain of $1.5 million, net of tax,
resulting from a change in accounting for income taxes.
(7) Adjusted to reflect the sale of the Common Stock offered by the Company and
the use of the estimated net proceeds therefrom. See "Use of Proceeds."
(8) Fiscal 1996 sales are compared to the 52 weeks ended January 27, 1996.
Comparable store sales growth is calculated based upon the comparison of
sales for stores open for the entire current and prior fiscal years.
(9) Selling square footage and sales per square foot are based upon the square
footage of selling space of stores open for the entire current and prior
fiscal years.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Common Stock offered by this Prospectus. Certain statements contained herein
under "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
including those concerning the Company's strategy and the Company's growth
plans, contain certain forward-looking statements concerning the Company's
operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
Factors that could cause such differences include, but are not limited to,
those discussed under "Risk Factors."
RISKS ASSOCIATED WITH MERCHANDISING STRATEGY
The Company's merchandising strategy is designed to position the Company as
the premier fashion retailer in its smaller secondary markets. The execution
of this strategy requires significant investment by the Company to increase
and realign its inventories to higher price points and to upgrade, remodel and
refixture stores. In addition, communicating the Company's new image to
customers and educating customers about the Company's new product offerings is
a gradual process that will require increased advertising. There can be no
assurance that the Company will be successful, particularly during any
economic downturns in its markets, in migrating its traditional customers to
higher price point merchandise or in attracting new customers. During this
positioning process, the Company expects to experience, among other things,
excess inventories, higher markdowns and lower gross margins with respect to
its new merchandise. Such conditions, if sustained, would have a material
adverse effect on the Company's business. In addition, the failure of the
Company's merchandising strategy in a number of its markets could result in a
material adverse change in the Company's business. There can be no assurance
that the Company will continue to experience growth in comparable store sales.
RISKS ASSOCIATED WITH EXPANSION
The Company's strategy involves remodeling and/or expanding existing stores
or acquiring or opening new stores. The Company's success in achieving future
growth through expanding existing stores or opening new stores will be
dependent upon the Company's ability to identify, finance, obtain and
construct or refurbish suitable store sites and, where applicable, hire
appropriate store personnel. In addition, the Company may consider
acquisitions or new store openings in new geographic areas which cannot be
serviced by the Company's current distribution system or which will require
publicizing The Bon-Ton name in markets where the Company is not currently
known. Future acquisitions will be dependent upon the Company's ability to
identify, negotiate and finance acquisitions on acceptable terms and integrate
acquired stores into its existing operations. There can be no assurance that
the Company will be able to remodel or expand existing stores or acquire, open
or operate new stores on a timely or profitable basis or that comparable store
sales will increase in the future. The failure by the Company's management to
effectively implement an expansion strategy could have a material adverse
effect on the business and operations of the Company.
COMPETITION
The Bon-Ton faces competition for customers from traditional department
stores, specialty stores and catalogue and other retailers and faces
competition for suitable store locations from other department stores and
other large retailers. In a number of its markets, the Company competes for
customers with national department stores which are better established in such
markets than the Company and which offer a mix of better branded merchandise
that is similar to the Company's offerings. In other markets, the Company
faces potential competition from national chains that to date have not entered
such markets and from national chains which have stores in the Company's
markets but currently do not carry better branded merchandise similar to that
carried by the Company. In all markets, the Company generally competes for
customers with department stores that offer moderately priced goods. Many of
the Company's competitors are units of large national or regional chains that
have substantially greater financial and other resources than the Company.
Some of the Company's competitors
7
<PAGE>
may have greater leverage with vendors of better merchandise than does the
Company, which may allow such competitors to obtain such merchandise more
easily or on better terms than the Company. Competition with The May
Department Store Company ("The May Company"), in particular, increased during
fiscal 1994 and 1995 as a result of The Bon-Ton's entry into certain markets
in which The May Company stores are located and The May Company's entry into
certain markets in which The Bon-Ton's stores are located. Currently, The
Bon-Ton competes directly with The May Company in a significant number of The
Bon-Ton's geographic markets. In several of the Company's markets, the
Company's stores compete with other department stores in the immediate
vicinity which are larger and/or have a superior location in the relevant mall
or local shopping area. There can be no assurance that existing or new
competitors will not begin to carry, or increase their offering of, better
branded merchandise, or that the Company will be able to successfully compete
in individual markets against department stores with such competitive
advantages. Either of these circumstances could have a material adverse effect
on the Company's business. See "Business--Competition."
ECONOMIC AND MARKET CONDITIONS; SEASONALITY
The Bon-Ton's stores are situated in secondary markets that are largely
dependent upon their respective local economies. The retail business is
dependent upon the level of consumer spending, which will be adversely
affected by an economic downturn or a decline in consumer confidence. An
economic downturn in either Pennsylvania or New York would have a material
adverse effect on the Company's business.
The Company's success depends in part upon its ability to anticipate and
respond to changing consumer preferences and fashion trends in a timely
manner. Any sustained failure by the Company to identify and respond to such
emerging trends in lifestyle and consumer preferences could have a material
adverse effect on the Company's business.
The Company's business is seasonal and its quarterly sales and profits
traditionally have been lower during the first three quarters of the fiscal
year and higher during the fourth quarter of the fiscal year. In addition,
working capital requirements fluctuate during the year, increasing
substantially in October and November in anticipation of the holiday season,
which requires significantly higher inventory levels. Any substantial decrease
in sales for the last three months of the calendar year could have a material
adverse effect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a large extent on its executive
management team, including the Company's President and Chief Executive
Officer, Heywood Wilansky. The loss of the services of any key member of its
senior management team could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to retain its executive officers and
key personnel or attract additional qualified members to its management team
in the future. See "Business--The Company" and "Management."
DEPENDENCE ON VENDOR RELATIONSHIPS
The Company's business is dependent to a significant degree upon close
relationships with vendors and the Company's ability to purchase brand name
merchandise at competitive prices. The loss of key vendor support could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to acquire brand name merchandise at competitive prices or on competitive
terms in the future. For example, certain merchandise that is high profile and
in high demand may be allocated by vendors based upon the vendor's internal
criteria which are beyond the Company's control. See "Business--Merchandising"
and "--Purchasing and Distribution."
LEVERAGE AND RESTRICTIVE COVENANTS
The Company has a significant amount of outstanding indebtedness. As of
January 31, 1998, the Company had outstanding indebtedness of $121.7 million
in principal amount (excluding capital leases, trade payables,
8
<PAGE>
accrued liabilities and unused commitments under the Company's revolving
credit facility (the "Credit Facility")). The Company's leverage poses several
risks to the Company, including the risks that: (i) a substantial portion of
the Company's cash flow from operations will be dedicated to the payment of
interest on the Company's indebtedness; (ii) the Company's leveraged position
may impede its ability to obtain financing in the future for working capital,
capital expenditures and general corporate purposes, including acquisitions;
(iii) the Company's leveraged financial position may make it more vulnerable
to economic downturns and may limit its ability to withstand competitive
pressures; (iv) the Company will be vulnerable to increases in interest rates
with respect to indebtedness under the Credit Facility, which bears interest
at variable rates, and with respect to the third party interests in
receivables under the Company's accounts receivable program, which bear
interest at variable rates; and (v) the Company's flexibility in planning for
or reacting to changes in market conditions may be limited. In addition, the
Credit Facility imposes operating and financial restrictions on the Company.
Such restrictions limit, among other things, the Company's ability to incur
additional indebtedness, grant additional liens, make dividend payments and
make capital expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
EFFECT OF YEAR 2000 ON MANAGEMENT INFORMATION AND CONTROL SYSTEM
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming century change in the year 2000. If not corrected,
many computer applications could fail or create erroneous results when
processing year 2000 data. The Company's business may be adversely affected if
the Company and/or other organizations with which the Company does business
are unsuccessful in completing in a timely manner the conversion to
applications that can process year 2000 dates. See "Business--Management
Information and Control System."
CONSUMER CREDIT RISKS
Proprietary Credit Card Portfolio. Sales under The Bon-Ton's proprietary
credit card program represent a significant portion of the Company's business,
accounting for approximately 50% of the Company's net sales for fiscal 1997.
In recent years, there have been substantial increases in the rate of charge-
offs on the Company's accounts receivable. To date, aggregate increases in
finance charge revenue and late fee income have more than offset the increases
in charge-offs. However, further deterioration in the quality of the Company's
accounts receivable portfolio or any adverse changes in laws regulating the
granting or servicing of credit (including late fees and the finance charge
applied to outstanding balances) could have a material adverse effect on the
Company's business and financial condition. There can be no assurance that the
rate of charge-offs on the Company's accounts receivable portfolio will not
increase further or that increases in finance charge revenue and late fee
income will continue to offset any such increases in charge-offs.
Accounts Receivable Program. The Company currently securitizes substantially
all of the receivables derived from its proprietary credit card accounts.
Under the accounts receivable program, the Company causes such receivables to
be transferred to a special purpose entity which from time to time issues
interests in such receivables. There can be no assurance that receivables will
continue to be generated by credit card holders or that new credit card
accounts will continue to be established at the rate historically experienced
by the Company. Any decline in the generation of receivables or in the rate of
cardholder payments on accounts could have a material adverse effect on the
Company's financial condition and results of operations. See Note 4 of the
Notes to the Company's Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CONTROL BY CURRENT SHAREHOLDERS
M. Thomas Grumbacher, trusts for the benefit of members of the Grumbacher
family and The Grumbacher Family Foundation (collectively, the "Grumbacher
Family") upon completion of the offering will collectively
9
<PAGE>
own 1,960,972 issued and outstanding shares of Common Stock and all of the
2,989,853 issued and outstanding shares of the Company's Class A Common Stock.
The Class A Common Stock is entitled to ten votes per share and the Common
Stock is entitled to one vote per share. The Grumbacher Family's ownership of
Common Shares upon completion of the offering will constitute 34.3% of the
outstanding Common Shares and represent 77.1% of the combined voting power of
the outstanding Common Shares. Accordingly, the Grumbacher Family will
continue to control the ability to determine the outcome of shareholder votes,
including votes with respect to corporate transactions requiring the approval
of shareholders and the election of the Company's Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,424,697 shares of
Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, 9,288,998 shares, including the 4,000,000 shares sold in the
Offering, will be freely transferable by persons other than affiliates of the
Company without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"). The remaining 2,135,699
outstanding shares of Common Stock are "restricted securities" as that term is
defined in Rule 144 under the Securities Act, all of which are eligible for
sale in the public market in compliance with Rule 144. In addition, the
Company has outstanding 2,989,853 shares of Class A Common Stock, all of which
are owned by the Grumbacher Family and each of which is convertible into one
share of Common Stock. Any shares of Common Stock acquired by the Grumbacher
Family upon conversion of shares of Class A Common Stock would be freely
tradeable, subject to the limitations under Rule 144 applicable to affiliates
of the Company. The Company and its directors and executive officers, the
Selling Shareholders and certain other shareholders of the Company holding in
the aggregate 2,632,301 shares of Common Stock and all 2,951,490 outstanding
shares of Class A Common Stock have agreed not to sell, transfer or otherwise
dispose of any Common Stock or Class A Common Stock for a period of 90 days
after the date of this Prospectus without the consent of the Underwriters,
except for issuances of Common Stock upon the exercise of outstanding stock
options or otherwise pursuant to the Company's equity incentive plans. The
sale or issuance or the potential for sale or issuance of any such Common
Stock could have an adverse effect on the market price for the Common Stock.
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for
future sale would have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of the Common Stock in the public
market following the offering, or the perception that such sales could occur,
could have an adverse effect of prevailing market prices for the Common Stock.
See "Shares Eligible for Future Sale" and "Underwriting."
RESTRICTIONS ON PAYMENT OF DIVIDENDS ON COMMON STOCK
The Company intends to retain its earnings to finance the growth and
development of its business and does not expect to pay any cash dividends in
the foreseeable future. The Credit Facility contains restrictions on the
Company's ability to pay dividends or make other distributions. See "Dividend
Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby, after deducting the estimated underwriting discounts and
commissions and offering expenses, assuming a public offering price of $15 3/4
per share (the last reported sale price of the Common Stock on the Nasdaq
National Market on March 30, 1998), are expected to be approximately $36.7
million ($45.6 million if the Underwriters' over-allotment option is exercised
in full). The proceeds will be used for expansion and upgrading of existing
stores, opening new stores, working capital and for general corporate
purposes. Pending such uses, the net proceeds will be used to temporarily
reduce indebtedness under the Credit Facility ($88.9 million outstanding at
January 31, 1998) which bears interest determined under various interest rate
options (8.11% for fiscal 1997) and which terminates on April 15, 2000. A
portion of the net proceeds may also be used to fund the acquisition of
companies which own existing stores or their real estate assets, if and when
such opportunities arise. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has not paid cash dividends since its initial public offering in
September 1991 and does not anticipate paying any cash dividends in the
foreseeable future. The Company intends to retain its earnings, if any, for
the operation and expansion of its business. The payment and rate of future
dividends, if any, are subject to the discretion of the Board of Directors of
the Company and will depend upon the Company's earnings, financial condition,
capital requirements, contractual restrictions under its current indebtedness
and other factors. The Credit Facility contains restrictions on the Company's
ability to pay dividends and make other distributions.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the Nasdaq National Market under the symbol
"BONT." The following table sets forth for the periods indicated the high and
low sales prices for the Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK
---------------
HIGH LOW
<S> <C> <C>
FISCAL 1996
First Quarter............................................... $ 8 1/4 $ 4 7/8
Second Quarter.............................................. 6 7/8 5
Third Quarter............................................... 6 3/4 5 1/8
Fourth Quarter.............................................. 7 3/8 4 7/8
FISCAL 1997
First Quarter............................................... $ 7 3/8 $ 5 5/8
Second Quarter.............................................. 9 1/8 6 1/4
Third Quarter............................................... 15 7 7/8
Fourth Quarter.............................................. 17 1/2 11 3/4
FISCAL 1998
First Quarter (through March 30, 1998)...................... $17 3/4 $13 3/4
</TABLE>
On March 30, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $15 3/4 per share. As of March 30, 1998, there were
approximately 300 record holders of shares of Common Stock and five record
holders of shares of Class A Common Stock.
11
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of January 31, 1998 and as adjusted as of that date to give effect
to the sale by the Company of 2,500,000 shares of Common Stock in this
offering and the application of the estimated net proceeds from this offering,
assuming a public offering price of $15 3/4 per share (the last reported sale
price of the Common Stock on the Nasdaq National Market on March 30, 1998), as
described in "Use of Proceeds." The following table should be read in
conjunction with the Consolidated Financial Statements of the Company and the
related Notes thereto.
<TABLE>
<CAPTION>
JANUARY 31, 1998
------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
Short-term debt and capital leases.................... $ 935 $ 935
======== ========
Long-term debt and capital leases(2).................. $123,384 $ 86,675
Shareholders' equity:
Common Stock authorized 40,000,000 shares at $0.01
par value; issued and outstanding 8,847,333 shares;
11,347,333 as adjusted............................. 88 113
Class A Common Stock authorized 20,000,000 shares at
$0.01 par value; issued and outstanding 2,989,853
shares............................................. 30 30
Additional paid-in capital.......................... 62,585 99,269
Deferred compensation............................... (2,010) (2,010)
Retained earnings................................... 63,701 63,701
-------- --------
Total shareholders' equity............................ 124,394 161,103
-------- --------
Total capitalization.................................. $247,778 $247,778
======== ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the sale of Common Stock offered by the Company and
the use of the net proceeds therefrom. See "Use of Proceeds."
(2) See Note 2 of the Notes to the Company's Consolidated Financial Statements
for a description of the Company's long-term debt.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected financial data included in the following table should be read
in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus. The
statements of operations data and the balance sheet data have been derived
from the Company's audited financial statements.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND STORE
DATA)
STATEMENT OF OPERATIONS DA-
TA:
Net sales(1).............. $336,733 $494,908 $607,357 $626,482 $656,399
Other income, net......... 2,597 2,581 2,266 2,430 2,349
Gross profit(2)........... 130,191 194,994 219,410 230,919 242,553
Selling, general and ad-
ministrative expenses.... 108,647 162,442 207,058 197,315 202,850
Depreciation and amortiza-
tion..................... 6,593 8,465 11,895 12,758 12,882
Unusual (income) ex-
pense(3)................. -- -- 3,280 (3,171) --
Restructuring charges(4).. -- -- 5,690 -- --
-------- -------- -------- -------- --------
Income (loss) from opera-
tions.................... 17,548 26,668 (6,247) 26,447 29,170
Interest expense, net..... 4,042 5,475 8,722 14,687 13,202
-------- -------- -------- -------- --------
Income (loss) before tax-
es....................... 13,506 21,193 (14,969) 11,760 15,968
Income tax provision (ben-
efit).................... 4,727 7,563 (5,766) 4,949 6,270
-------- -------- -------- -------- --------
Income (loss) before ac-
counting
change/extraordinary
item..................... 8,779 13,630 (9,203) 6,811 9,698
Extraordinary item, net of
tax(5)................... -- -- -- -- (446)
Cumulative accounting
change, net of tax(6).... 1,500 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)......... $ 10,279 $ 13,630 $ (9,203) $ 6,811 $ 9,252
======== ======== ======== ======== ========
Per share amounts--
Basic:
Net income (loss) before
accounting
change/extraordinary
item..................... $ 0.80 $ 1.24 $ (0.83) $ 0.62 $ 0.87
Effect of accounting
change/extraordinary
item..................... 0.14 -- -- -- (0.04)
-------- -------- -------- -------- --------
Net income (loss)......... $ 0.94 $ 1.24 $ (0.83) $ 0.62 $ 0.83
Basic shares outstanding.. 10,935 10,955 11,044 11,064 11,122
Diluted:
Net income (loss) before
accounting
change/extraordinary
item..................... $ 0.79 $ 1.23 $ (0.83) $ 0.61 $ 0.85
Effect of accounting
change/extraordinary
item..................... 0.14 -- -- -- (0.04)
-------- -------- -------- -------- --------
Net income (loss)......... $ 0.93 $ 1.23 $ (0.83) $ 0.61 $ 0.81
Diluted shares outstand-
ing...................... 11,051 11,041 11,044 11,106 11,377
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital........... $ 70,688 $ 62,539 $ 90,758 $102,853 $123,078
Total assets.............. 190,431 270,228 331,173 341,252 352,686
Long-term debt, including
capital leases........... 34,741 60,521 127,893 128,098 123,384
Shareholders' equity...... 98,551 112,447 104,174 111,485 124,394
SELECTED OPERATING DATA:
Comparable stores sales
growth(7)................ (0.6)% 6.1% 0.2% 4.2% 6.5%
Comparable stores data(8):
Sales per selling square
foot..................... $ 157 $ 163 $ 160 $ 138 $ 143
Selling square footage (in
thousands)............... 1,850 2,185 2,278 4,153 4,511
Capital expenditures...... $ 8,935 $ 18,532 $ 43,587 $ 9,730 $ 10,978
Number of stores:
Beginning of year......... 36 35 69 68 64
Additions................. 1 35 4 1 --
Closings.................. (2) (1) (5) (5) --
-------- -------- -------- -------- --------
End of year............... 35 69 68 64 64
</TABLE>
13
<PAGE>
- ---------------------
(1) Fiscal 1995 reflects the 53 weeks ended February 3, 1996.
(2) Fiscal 1995 includes a $3.5 million charge related to inventory
liquidation associated with the elimination of certain vendors and other
merchandise changes.
(3) Reflects expenses related to the hiring of the Chief Executive Officer and
the gain recognized on the pension termination in fiscal years 1995 and
1996, respectively.
(4) Includes a $5.7 million restructuring charge for a store closing and work
reduction reserve.
(5) Expense resulting from the early extinguishment of the Company's term loan
and revolving credit facility.
(6) Change in accounting for income taxes.
(7) Fiscal 1996 sales are compared to the 52 weeks ended January 27, 1996.
Comparable store sales growth is calculated based upon the comparison of
sales for stores open for the entire current and prior fiscal years.
(8) Selling square footage and sales per square foot are based upon the square
footage of selling space of stores open for the entire current and prior
fiscal years.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus.
OVERVIEW
The Bon-Ton is a leading operator of quality fashion department stores
offering moderate and better apparel, home furnishings, cosmetics, accessories
and shoes in secondary markets. The Company's strategy focuses on being the
premier fashion retailer in smaller markets that demand, but often have
limited access to, better branded merchandise. In many of its markets, The
Bon-Ton is the primary destination for branded fashion merchandise from top
designers such as Calvin Klein, Liz Claiborne, Nautica, Ralph Lauren and Tommy
Hilfiger. The Bon-Ton operates 64 stores, with 35 stores in Pennsylvania, 24
stores in New York, three stores in Maryland, and one store in each of West
Virginia and New Jersey.
The Bon-Ton provides an in-depth selection of high-quality, well-known
branded merchandise at competitive prices in upscale shopping environments.
None of The Bon-Ton's stores are located in major metropolitan markets, and
most are located in smaller secondary markets. The Bon-Ton's strategic focus
is on smaller secondary markets that are served primarily by moderate-price
competitors offering a more limited selection of better branded fashion
merchandise.
RESULTS OF OPERATIONS
The following table summarizes the changes in selected operating indicators,
illustrating the relationship of various income and expense items to net sales
for each fiscal year presented:
<TABLE>
<CAPTION>
PERCENT OF NET SALES
FISCAL YEAR
-----------------------
1995 1996 1997
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Other income, net................................... 0.4 0.4 0.4
Costs and expenses (percent of net sales):
Costs of merchandise sold......................... 63.9 63.1 63.0
Selling, general and administrative............... 34.1 31.5 30.9
Depreciation and amortization..................... 2.0 2.1 2.0
Unusual (income) expense.......................... 0.5 (0.5) --
Restructuring charges............................. 0.9 -- --
------ ------ ------
Income (loss) from operations....................... (1.0) 4.2 4.4
Interest expense, net............................... 1.4 2.3 2.0
------ ------ ------
Income (loss) before income taxes................... (2.4) 1.9 2.4
Income tax provision (benefit)...................... (0.9) 0.8 1.0
------ ------ ------
Income (loss) before extraordinary item............. (1.5) 1.1 1.5
Extraordinary loss, net of tax...................... -- -- 0.1
------ ------ ------
Net income (loss)................................... (1.5)% 1.1% 1.4%
====== ====== ======
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales. Net sales were $656.4 million for the fifty-two weeks ended
January 31, 1998, an increase of $29.9 million, or 4.8%, over the fifty-two
week period ended February 1, 1997. Comparable store sales for the same period
increased 6.5%. Strong sales performances were achieved in fiscal 1997 in
better ladies' sportswear,
15
<PAGE>
men's collections, men's designer denim, Club X (junior department),
children's better collections and men's and ladies' special sizes. The sales
increases in these categories reflect the results of the Company's merchandise
realignment from a predominately moderate mix to an improved balance of
moderate and better merchandise and a larger selection of sizes, colors and
styles.
Other income, net. Net other income, which is comprised mainly of income
from leased departments, remained constant at 0.4% of net sales for fiscal
1997.
Costs and expenses. Gross margin dollars for fiscal 1997 increased $11.6
million over fiscal 1996 as a result of the sales volume increase and an
improvement in the gross margin rate. Gross profit as a percentage of net
sales increased slightly from 36.9% in fiscal 1996 to 37.0% for fiscal 1997.
The increase in the margin rate was primarily attributable to the continued
improvement in the Company's shrinkage rate as a result of concerted inventory
loss prevention efforts and a decrease in the markdown rate, partially offset
by a strategic reduction in the cumulative markup percentage and reduced
margins on the better merchandise mix.
Selling, general and administrative expenses for fiscal 1997 were $202.9
million, or 30.9% of net sales, as compared to $197.3 million, or 31.5% of net
sales, in the prior year. The percentage decrease in fiscal 1997 was primarily
attributable to the increased sales volume, a $4.0 million improvement in the
profitability of the Company's credit operations in fiscal 1997 and reduced
advertising costs, partially offset by the expense of sales growth programs,
including additional personnel costs, and general inflation costs.
Depreciation and amortization decreased slightly to 2.0% of net sales in
fiscal 1997 from 2.1% of net sales in fiscal 1996. The decrease primarily
reflects the increased sales volume in fiscal 1997.
Fiscal 1996 results were affected by the recognition of $3.2 million in pre-
tax unusual income as the result of terminating the pension plan associated
with one of the Company's 1994 acquisitions.
Income (loss) from operations. Income from operations in fiscal 1997
amounted to $29.2 million, or 4.4% of net sales, as compared to $26.4 million,
or 4.2% of net sales, in fiscal 1996. The improvement was primarily
attributable to the increase in current year sales and gross margin combined
with selling, general and administrative expenses increasing at a rate less
than sales.
Interest expense, net. Net interest expense decreased $1.5 million to $13.2
million, or 2.0% of net sales, in fiscal 1997 from $14.7 million, or 2.3% of
net sales, in the prior fiscal period. The decrease was primarily attributable
to lower average borrowing levels, partially offset by slightly higher
borrowing costs.
Extraordinary item. The Company recorded an expense of $446,000, net of tax,
related to the early extinguishment of the Company's term loan and revolving
credit facility in fiscal 1997.
Net income (loss). Net income in fiscal 1997 amounted to $9.3 million, or
1.4% of net sales, as compared to $6.8 million, or 1.1% of net sales, in
fiscal 1996.
The decrease in the effective tax rate to 39.3% in fiscal 1997 from 42.1% in
fiscal 1996 was primarily a result of the nondeductibility of the Federal
excise tax of $1.1 million relating to the pension plan termination in fiscal
1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales. Net sales were $626.5 million for the fifty-two weeks ended
February 1, 1997, an increase of 4.1% over the fifty-two week period ended
January 27, 1996. Comparable store sales for the fifty-two week period
increased 4.2%. Net sales for the fifty-two weeks ended February 1, 1997
increased 3.1% versus the fifty-three weeks ended February 3, 1996. Solid
performances were posted in the ladies' apparel, shoes, home and intimate
apparel merchandise categories, all of which showed sales gains above the
Company average. The strong showing in these categories reflects the results
of the Company's merchandise realignment from a predominately moderate mix to
an improved balance of moderate and better merchandise and a larger selection
of sizes, colors and styles.
16
<PAGE>
Other income, net. Net other income, which consisted mainly of income from
leased departments, remained constant at 0.4% of net sales for fiscal 1996.
Costs and expenses. Gross margin dollars increased $11.5 million over fiscal
1995 as a result of the sales volume increase and the improvement in the gross
margin rate. Gross profit as a percentage of net sales increased from 36.1%
for fiscal 1995 to 36.9% for fiscal 1996. The increase in margin rate was
primarily attributable to a significant improvement in the Company's shrinkage
rate as a result of concerted inventory loss prevention efforts, partially
offset by a strategic reduction in the cumulative markup percentage.
Additionally, fiscal 1995 results were adversely impacted by a $3.5 million
one-time charge relating to inventory liquidation associated with the
Company's elimination of certain vendors and other merchandising strategies.
Selling, general and administrative expenses for fiscal 1996 decreased $9.7
million to 31.5% of net sales from 34.1% of net sales in the prior year. The
rate decrease was primarily attributable to expense control efforts initiated
at the end of fiscal 1995 and applied throughout fiscal 1996 at corporate and
store levels and the absence of $2.2 million in store pre-opening costs
incurred in fiscal 1995. The cost containment initiatives, established in
fiscal 1996, were partially offset by an increase in the Company's advertising
expense. Technological advances in the Company's merchandise handling and
distribution processes resulted in payroll savings at the corporate level. The
store expense rate improved over the prior year, most notably due to the
continued productivity improvements in 1996.
Depreciation and amortization increased slightly to 2.1% of net sales in
fiscal 1996 from 2.0% of net sales in fiscal 1995. The increase was primarily
a result of recognizing a full year of depreciation on the three Rochester
stores and the one store in Elmira, New York opened in late 1995 and asset
additions relating to the August 1996 opening of the Company's fourth store in
the Rochester market.
Fiscal 1996 results were affected by the one-time pre-tax income recognition
of $3.2 million as the result of terminating the pension plan associated with
one of the Company's 1994 acquisitions. Fiscal 1995 results were adversely
impacted by one-time expenses and restructuring charges. Unusual expenses
amounting to $3.3 million were recorded in October 1995 related to the hiring
of the Company's Chief Executive Officer. Restructuring charges amounting to
$5.7 million were recorded in January 1996; $5.0 million was attributable to
costs related to the expected closure of unprofitable locations with the
remainder related to a workforce reduction. Five store locations were closed
in fiscal 1996; costs expended and charged against this reserve through year-
end for these closings were $1.5 million. It is anticipated that the remaining
portion of the restructuring charges, for items such as noncancellable lease
costs, will be expended through the end of 2005.
Income (loss) from operations. Income from operations in fiscal 1996
amounted to $26.4 million, or 4.2% of net sales, as compared to a loss from
operations in fiscal 1995 of $6.2 million, or 1.0% of net sales. The
significant improvement was primarily attributable to an increase in the
fiscal 1996 gross margin combined with a decrease in selling, general and
administrative expenses, the $3.2 million gain recognized on the pension
termination and non-reoccurrence of the unusual expense and restructuring
charges incurred in fiscal 1995.
Interest expense, net. Net interest expense increased $6.0 million to $14.7
million, or 2.3% of net sales, in fiscal 1996 from $8.7 million, or 1.4% of
net sales, in the prior fiscal period. The increase was attributable to higher
average borrowing levels over the prior year, primarily to fund inventory
increases and $9.7 million of capital improvements.
Net income (loss). Net income in fiscal 1996 amounted to $6.8 million, or
1.1% of net sales, as compared to a net loss of $9.2 million, or 1.5% of net
sales, in fiscal 1995.
The increase in the effective tax rate to 42.1% in fiscal 1996 from 38.5% in
fiscal 1995 was primarily attributable to certain expenses relating to
executive compensation and a Federal excise tax of $1.1 million relating to
the pension plan termination in fiscal 1996, both of which were not deductible
for tax reporting purposes.
17
<PAGE>
CHANGES IN ACCOUNTING POLICIES
In the fourth quarter of fiscal 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
The statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock. SFAS
No. 128 simplifies the standards for computing EPS previously found in
Accounting Principles Board Opinion No. 15, "Earnings Per Share," and makes
them comparable to international EPS standards. It replaces the presentation
of primary and fully diluted EPS with a presentation of basic and diluted EPS,
respectively. SFAS No. 128 also requires the dual presentation of basic and
diluted EPS on the face of the income statement and requires a reconciliation
of the numerator and the denominator of the basic EPS computation to the
numerator and the denominator of the diluted EPS calculation. In accordance
with this statement, the Company has restated all EPS calculations presented
in these financial statements and the notes thereto to reflect the
requirements of SFAS No. 128.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed without consideration for the
impact of the upcoming century change in the year 2000. If not corrected,
applications which are not year 2000 compliant may fail or create erroneous
results when processing year 2000 information. The Company has completed an
assessment of the potential effects of the year 2000 century change and has
established procedures to coordinate the identification, evaluation and
implementation of changes to the established systems and applications
necessary to achieve a year 2000 date conversion. All internally developed
systems, which represent approximately 69% of installed applications, have
been modified to process year 2000 dates. The remaining systems are
commercially supplied software packages maintained by third party vendors and
are scheduled to be upgraded to a year 2000 version or replaced over the next
18 months. All installed systems require testing, which is planned over the
next two years. The cost to complete the conversion, including internal
personnel costs, is estimated to be $1.1 million. The Company is communicating
with major suppliers, financial institutions and service providers with which
it does business to coordinate the conversion effort. The Company's operations
may be adversely affected if the Company or other organizations with which the
Company does business are unsuccessful in completing the conversion in a
timely manner.
SEASONALITY AND INFLATION
The Company's business, like that of most retailers, is subject to seasonal
fluctuations, with the major portion of sales and income realized during the
latter half of each fiscal year, which includes the back-to-school and holiday
seasons. See Note 13 of Notes to Consolidated Financial Statements for the
Company's quarterly results for fiscal 1997 and 1996. Selling, general and
administrative expenses are typically higher as a percentage of net sales
during the first half of each fiscal year.
Because of the seasonality of the Company's business, results for any
quarter are not necessarily indicative of the results that may be achieved for
a full fiscal year. In addition, quarterly results of operations depend upon
the timing and amount of revenues and costs associated with the opening,
closing and remodeling of existing stores.
The Company does not believe inflation had a material effect on operating
results during the past three years. However, there can be no assurance that
the Company's business will not be affected by inflationary adjustments in the
future.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes material measures of the Company's liquidity
and capital resources (dollars in millions):
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
<S> <C> <C> <C>
Working capital........................ $90.8 $102.9 $123.1
Current ratio.......................... 1.93:1 2.03:1 2.22:1
Funded debt to total capitalization.... 0.55:1 0.55:1 0.49:1
Unused availability under lines of
credit................................ $36.0 $22.0 $17.5
</TABLE>
18
<PAGE>
The Company's primary sources of working capital are cash flow from
operations, borrowings under its revolving credit facility and proceeds from
its accounts receivable facility. The Company had working capital of $90.8
million, $102.9 million and $123.1 million at the end of fiscal 1995, 1996 and
1997, respectively. The increase in working capital in fiscal 1997 was
principally attributable to an increase in merchandise inventories due to the
change in merchandise mix and a greater selection of sizes, colors and styles.
It also reflected the inventory required to support the increased sales volume
and the increase in accounts receivable as a result of the Company's increased
sales. The increase in working capital was partially offset by a decrease in
other current assets due to the pension asset termination in fiscal 1996,
increased payable levels consistent with increased inventory and an increase
in income taxes payable reflecting the Company's profit in fiscal 1997. The
Company's business follows a seasonal pattern and working capital fluctuates
with seasonal variations. Historically, the Company's working capital is at
its lowest levels from February through July and then increases very sharply
through November when it reaches its highest level.
To support the anticipated working capital requirements of the Company
during the next three years, the Company entered into a new asset based
borrowing agreement in April 1997. The terms of the new financing provide for
a secured revolving credit facility of up to $200.0 million (the "Credit
Facility"). The amount available for borrowing under the Credit Facility is
based on eligible inventory and selected fixed assets and real estate. The
Credit Facility provides the Company with additional borrowing capacity during
peak inventory periods and contains restrictive covenants, including a minimum
trade support ratio, a minimum fixed charge coverage ratio and limitations on
dividends, additional incurrence of debt and capital expenditures. As a result
of this transaction, the Company incurred an extraordinary charge of $446,000,
net of tax, relating to the early extinguishment of its existing term loan and
revolving credit facility. In addition, the Company completed a sale and
leaseback transaction on two of its owned properties in April 1997 which
generated net proceeds of $10.8 million. These proceeds were utilized to repay
certain indebtedness and to fund ongoing working capital requirements. The
leaseback terms under this agreement provide that the Company lease the
properties over a primary term of 20 years.
Net cash used in operating activities amounted to $14.2 million, $1.2
million and $7.7 million in fiscal 1995, 1996 and 1997, respectively. Net
operating outflows in fiscal 1997 primarily resulted from increases in working
capital over prior year levels, partially offset by depreciation and
amortization and net income in the current year. The major components of the
working capital increase were a higher level of merchandise inventories and
customer accounts receivable principally attributable to the increased sales
volume, partially offset by a decrease in other assets primarily relating to
the pension asset terminated in fiscal 1996 and increases in accounts payable,
accrued expenses and income taxes payable.
Net cash used in investing activities amounted to $48.4 million and $8.9
million in fiscal 1995 and 1996, respectively, while net cash provided by
investing activities amounted to $21.9 million in fiscal 1997. The net cash
inflow in fiscal 1997 primarily reflects proceeds received from the additional
sale of $22.0 million of proprietary credit card receivables under the
Company's accounts receivable facility and proceeds from a sale and leaseback
arrangement of $10.8 million, partially offset by capital expenditures of
$11.0 million that are primarily related to the construction of a new store in
Jamestown, New York, expansion and remodeling of existing stores and
expenditures for fixtures and displays. On February 17, 1998, the Company sold
its vacant facility in Lancaster, Pennsylvania. The net proceeds of $1.2
million were used to fund additional working capital requirements.
Net cash provided by financing activities amounted to $67.9 million and $9.7
million in fiscal 1995 and 1996, respectively, while net cash used in
financing activities was $11.6 million in fiscal 1997. The net cash outflow in
fiscal 1997 was primarily attributable to the net repayment on the Company's
long-term debt, partially offset by proceeds from stock options that were
exercised by employees.
19
<PAGE>
The Company currently anticipates that its capital expenditures for fiscal
1998 will be approximately $16.0 million. The expenditures will be directed
toward fixturing and leasehold improvements in the Company's stores, including
the new store in Jamestown, New York that opened in March 1998, and
information system enhancements.
Aside from planned capital expenditures, the Company's primary cash
requirements will be to service debt and finance working capital increases
during peak selling seasons. The Company anticipates that its cash balances
and cash flows from operations, supplemented by borrowings under the Credit
Facility and proceeds from its accounts receivable facility, will be
sufficient to satisfy its operating cash requirements.
20
<PAGE>
BUSINESS
THE COMPANY
The Bon-Ton is a leading operator of quality fashion department stores
offering moderate and better apparel, home furnishings, cosmetics, accessories
and shoes in secondary markets. The Company's strategy focuses on being the
premier fashion retailer in smaller markets that demand, but often have
limited access to, better branded merchandise. In many of its markets, The
Bon-Ton is the primary destination for branded fashion merchandise from top
designers such as Calvin Klein, Liz Claiborne, Nautica, Ralph Lauren and Tommy
Hilfiger. The Bon-Ton operates 64 stores, with 35 stores in Pennsylvania, 24
stores in New York, three stores in Maryland, and one store in each of West
Virginia and New Jersey.
The Bon-Ton provides an in-depth selection of high-quality, well-known
branded merchandise at competitive prices in upscale shopping environments.
None of The Bon-Ton's stores are located in major metropolitan markets, and
most are located in smaller secondary markets. The Bon-Ton's strategic focus
is on smaller secondary markets that are served primarily by moderate-price
competitors offering a more limited selection of better branded fashion
merchandise.
Since 1995, the Company has strengthened the quality and depth of management
by hiring a new chief executive officer and seven additional senior
executives, all of whom have extensive experience with major department
stores. This management team has pursued a series of key initiatives to
generate growth. These initiatives include:
-- shifting its merchandise mix to include a higher proportion of better
branded apparel;
--offering an extended choice of merchandise in sizes, colors and styles;
--strengthening its relationship with key vendors;
--intensifying the selection of its private brands;
--expanding and upgrading stores in selected smaller markets; and
-- enhancing customer service through frequent purchaser clubs and
promoting The Bon-Ton proprietary credit card.
As a result of these initiatives, The Bon-Ton has achieved comparable store
sales growth which ranks among the highest in the department store industry in
each of the last six fiscal quarters, compared to the same period in the prior
fiscal year, as shown in the following table:
<TABLE>
<CAPTION>
FISCAL 1996 COMPARABLE STORE SALES GROWTH
<S> <C>
Third Quarter 3.2%
Fourth Quarter 9.2%
<CAPTION>
FISCAL 1997
<S> <C>
First Quarter 5.1%
Second Quarter 6.9%
Third Quarter 7.1%
Fourth Quarter 6.5%
</TABLE>
BUSINESS STRATEGY
The Company's business strategy is to position itself as the premier fashion
retailer in its targeted smaller markets. Key elements of the strategy are
summarized below.
PURSUE NICHE AS PREMIER FASHION RETAILER
The Bon-Ton carves out and maintains a niche in smaller secondary markets by
offering a higher proportion of better to moderate merchandise in an upscale
environment with superior customer service. Moderate-price competitors in
these markets generally offer a more limited selection of quality brands or do
not carry the same better brands as The Bon-Ton.
21
<PAGE>
Realign merchandise mix and increase selection. The Bon-Ton is shifting its
apparel merchandise mix to incorporate an improved balance of moderate and
better merchandise. Mechandise categories in which sales of better goods have
increased significantly from fiscal 1995 to fiscal 1997 include misses
sportswear (31% of category sales to 36% of category sales), petites (21% to
30%) and men's sportswear (18% to 36%). The Bon-Ton also is increasing its
selection of sizes, colors and styles in key merchandise categories. By
offering better brands in addition to moderately priced goods, The Bon-Ton not
only attracts new customers who shop for better brands but also provides its
traditional core customers (households with annual incomes of $30,000--
$75,000) with a broader selection of merchandise.
Enhance relationships with higher-quality vendors. The Company has reduced
its vendor base from approximately 2,400 in 1994 to 1,350 in 1997, resulting
in improved relations with and increased support from its vendors in the form
of enhanced purchasing opportunities and greater advertising subsidies. In
addition, The Bon-Ton intends to increase significantly the number of vendor
shops featuring merchandise from key vendors such as Calvin Klein, Nautica,
Ralph Lauren, Tommy Hilfiger and Tommy Hilfiger Jeans. In vendor shops,
merchandise is grouped and positioned in preferred floor locations and
enhanced with distinctive, vendor-specific fixturing, signage and displays.
Differentiate with private brands. The Bon-Ton positions its private brand
merchandise as quality fashion apparel at competitive prices. These private
brands, which include Andrea Viccaro, Jenny Buchanan, Susquehanna Trail
Outfitters and Susquehanna Blues, differentiate The Bon-Ton from its
competitors. In 1996, the Company expanded its private brand program with
better sportswear, utilizing manufacturers of well-known better branded
merchandise. Private brand merchandise represented approximately 8% of apparel
sales in fiscal 1995 and 15% of apparel sales in fiscal 1997.
EMPHASIZE CUSTOMER SERVICE
The Company places great emphasis on providing a high level of customer
service to distinguish its stores from the competition and to create customer
loyalty. The Company accomplishes this through its well-trained and
experienced sales and support associates and by offering services such as free
gift wrap, The Bon-Ton proprietary credit card, frequent-purchaser clubs and
in-store alterations.
FOCUS ON GROWTH IN EXISTING STORES IN SMALLER SECONDARY MARKETS
The Company believes growth opportunities are available through positioning
better branded merchandise in additional existing Bon-Ton stores in smaller
secondary markets. The Company will continue to focus on improving its
merchandise mix in these stores and upgrading these stores by refixturing and
remodeling in order to increase store productivity and enhance The Bon-Ton's
image as an upscale retail destination. In 1997, the Company increased the
square footage at three locations, increasing the size of existing merchandise
categories and adding new merchandise categories. In addition, the Company has
identified 25 of its 64 stores for potential expansion. Over the next three to
five years, the Company anticipates expanding the square footage of its more
productive stores by adding up to 400,000 square feet.
GROW BY OPENING NEW STORES AND THROUGH ACQUISITIONS
The Company opened a new 60,000 square foot store in the Jamestown, New York
market in March 1998. The Company has preliminarily identified approximately
50 secondary markets which meet The Bon-Ton's demographic and competitive
criteria for opening new stores. The Company anticipates opening several new
stores in the next three to five years, adding up to 600,000 square feet. The
Company also intends to consider opportunities for growth through acquisitions
of department store companies or their real estate assets if and when such
opportunities arise. These acquisitions may or may not be in lieu of new store
openings.
MERCHANDISING
The Bon-Ton stores offer moderate and better fashion apparel, home
furnishings, cosmetics, accessories, shoes and other items. The Company's
sales of apparel constituted 63% of sales in fiscal year 1997. The chart below
illustrates the sales by product category for fiscal 1997:
22
<PAGE>
SALES BY PRODUCT CATEGORY
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------
1995 1996 1997
<S> <C> <C> <C>
Women's clothing........................................ 27.5% 27.4% 28.0%
Men's clothing.......................................... 17.5 17.7 17.8
Home.................................................... 11.8 12.0 12.2
Cosmetics............................................... 9.9 9.8 9.7
Children's clothing..................................... 8.0 7.4 7.0
Accessories............................................. 8.0 7.9 7.3
Junior's clothing....................................... 5.6 5.5 5.5
Intimate apparel........................................ 5.0 5.3 5.0
Shoes................................................... 4.4 4.7 5.0
Fine Jewelry............................................ 1.6 1.7 2.0
Beauty Salon............................................ 0.7 0.6 0.5
----- ----- -----
Total................................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The Company strives to be a fashion leader in the markets it serves, to
advertise and stock new merchandise and to carry a full range of quality
vendors and private brand merchandise at competitive prices. The Company
carries a number of highly recognized brand names, including Calvin Klein,
Cole.Haan, Estee Lauder, Jones New York, Kenneth Cole, Liz Claiborne, Nautica,
Nine West, Ralph Lauren, Steve Madden, Tommy Hilfiger, Tommy Hilfiger Jeans
and Via Spiga, and within these brands chooses collections which balance
fashion, price and selection.
The Company continues to implement its strategy of shifting the merchandise
mix from predominantly moderate to a higher proportion of better brands and
assessing each store to determine the appropriate product mix for the market
it serves. As part of this process, the Company has revised its inventory
strategy to carry a deeper selection from fewer, select vendors. By offering
expanded product lines from major national brand vendors, the Company seeks to
promote its quality image and attract customers to its stores.
The Company also is placing greater emphasis on vendor shops within its
stores from key vendors such as Calvin Klein, Nautica, Ralph Lauren, Tommy
Hilfiger and Tommy Hilfiger Jeans. The Company increased the number of vendor
shops from approximately 119 in 1995 to 234 in 1997. In such vendor shops,
merchandise is grouped and positioned in preferred floor locations to provide
enhanced visibility with distinctive, vendor-specific fixturing, signage and
displays. The Company's vendors seek to capitalize on the value of the
Company's customer base and are willing to make a financial commitment through
enhanced purchasing opportunities, increased advertising subsidies and
financial contributions to support enhanced presentation and fixturing.
Complementing its branded merchandise, the Company's exclusive private brand
merchandise provides fashion at competitive pricing under names such as Andrea
Viccaro, Jenny Buchanan, Susquehanna Trail Outfitters and Susquehanna Blues.
The Bon-Ton views its private brand merchandise as a strategic addition to its
strong array of highly recognized, quality national brands and as an
opportunity to increase brand exclusiveness, customer loyalty and competitive
differentiation. In 1996, the Company enhanced its private brand program by
supplementing its existing lines with better sportswear, utilizing
manufacturers which produce better goods for more widely-recognized brands.
The Company believes the combination of nationally recognized brands and
private brand merchandise differentiates the Company's stores from their
competitors. Private brand merchandise represented approximately 8% of apparel
sales in fiscal 1995 and 15% of apparel sales in fiscal 1997.
MARKETING
The Bon-Ton seeks to attract new customers and to maintain customer loyalty
with frequent-shopper clubs such as "Club X," which was created for the
Company's junior customers. Through its "retail-tainment" program, the Company
promotes in-store events such as fashion shows, wardrobe seminars and cooking
demonstrations in selected markets, and tie-ins with local charitable and
cultural organizations.
23
<PAGE>
The Company attracts customers by offering services such as free gift wrap,
special order capability and in-store alterations. In addition, through its
"Certified Value" program, the Company maintains everyday value prices on
staple items such as turtlenecks, T-shirts, shorts and denim within major
product groups. To increase merchandise turnover, the Company systematically
marks down slow-selling merchandise that is no longer current.
The Company conducts its advertising and promotional programs through
newspaper advertisements, direct mail and, to a lesser extent, local
television and radio. The Company maintains an in-house advertising group that
produces substantially all of its print advertising. The effectiveness of the
Company's direct mail efforts has been greatly enhanced through database
management systems. By accurately identifying the predictors of response to
its direct mail pieces, the Company now has the ability to rank, score and
select customers with event-specific information.
Management believes that because proprietary credit card customers tend to
be repeat customers and have higher purchasing levels per store visit, The
Bon-Ton proprietary credit card is an important element in customer loyalty
and provides a productive tool for customer segmentation and database
marketing. The Company's customers may pay for purchases with The Bon-Ton
proprietary credit card, Visa, Mastercard, American Express, cash or check. In
fiscal 1997 approximately 50% of the Company's net sales were purchased with
The Bon-Ton proprietary credit card.
The following table sets forth the percentage of total sales generated by
payment type:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------
TYPE OF PAYMENT 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
The Bon-Ton Credit Card............................. 54% 54% 55% 51% 50%
Visa, Mastercard, AmEx.............................. 12 14 16 20 22
Cash, Check......................................... 34 32 29 29 28
</TABLE>
During fiscal 1996 and 1997, the Company issued 255,000 and 273,000 Bon-Ton
credit cards, respectively, for newly opened accounts.
THE BON-TON STORES
The Bon-Ton stores vary in size from approximately 45,000 to 160,000 gross
square feet, with 42 of such stores at less than 90,000 gross square feet. All
but two of The Bon-Ton stores are anchor tenants in shopping malls or in, or
adjacent to, strip shopping centers. All of the Company's stores are operated
as "The Bon-Ton."
As part of The Bon-Ton's merchandising strategy, the Company has upgraded
the appearance of its stores to reflect its commitment to be the leading
provider of better apparel in its markets. The Bon-Ton has aggressively
pursued strategic vendor partnerships and shop concepts to enhance its
merchandise presentation. The Company has worked closely with vendors such as
Calvin Klein, Liz Claiborne, Nautica, Ralph Lauren, Tommy Hilfiger, Waterford
and several major shoe vendors to upgrade the appearance of its selling floor
through distinctive fixturing. Continuing the strategy to emphasize its
exclusive lines, The Bon-Ton has supported its private brands with fixturing,
signage and visual enhancements in newly created shops. In addition to the
Company's corporate visual merchandising staff, each store has at least one
associate responsible for visual presentation. The Company continually
evaluates all aspects of its visual merchandising program to provide an
aesthetically pleasing atmosphere for its customers.
The Company utilizes prototype store layouts based primarily on the
Company's estimate of the size of the potential market. Store layouts are
customized based on the actual size and configuration of the individual
stores. The stores typically utilize a "race track" configuration (an oval
aisle encircling a central core), and the Company plans the aisle layouts to
provide a more pleasing visual experience. The Company attempts to arrange its
products to provide a logical flow from department to department and
continually monitors its product layouts in an attempt to make shopping easier
and to maximize sales per square foot.
24
<PAGE>
The cost of opening a new store varies substantially depending on the size
of the store, the amount of new construction involved, whether the store is
owned or leased and other factors. Leased stores are typically built by the
developer at the developer's expense and fixtured by the Company at its
expense. In both leased and owned stores, the developer may make some level of
contribution to the Company's cost.
The following table provides certain information regarding the Company's
stores:
<TABLE>
<CAPTION>
APPROXIMATE
GROSS SQUARE YEAR OPENED
MARKET LOCATION FEET OR ACQUIRED
<S> <C> <C> <C>
PENNSYLVANIA
Allentown South Mall 111,000 1994
Bethlehem Westgate Mall 107,100 1994
Bloomsburg Columbia Mall 46,100 1988
Butler Clearview Mall 63,600 1982
Carlisle Carlisle Plaza Mall 59,900 1977
Chambersburg Chambersburg Mall 55,600 1985
Doylestown Doylestown Shopping Center 55,500 1994
Easton Palmer Park Mall 120,200 1994
Greensburg Westmoreland Mall 99,900 1987
Hanover North Hanover Mall 67,600 1971
Harrisburg Camp Hill 145,200 1987
Colonial Park Shopping Center 136,500 1987
Indiana Indiana Mall 60,400 1979
Johnstown The Galleria 80,900 1992
Lancaster Park City Center 144,800 1992
Lebanon Lebanon Plaza Mall 53,700 1994
Lewistown Central Business District 46,700 1972
Oil City Cranberry Mall 45,200 1982
Pottsville Schuylkill Mall 61,100 1987
Quakertown Richland Mall 88,100 1994
Reading Berkshire Mall 159,400 1987
Scranton Keyser Oak Plaza 57,600 1980
State College Nittany Mall 70,200 1994
Stroudsburg Stroud Mall 87,000 1994
Sunbury Susquehanna Valley Mall 60,200 1978
Trexlertown Trexler Mall 54,000 1994
Uniontown Uniontown Mall 71,000 1976
Warren Warren Mall 50,000 1980
Washington Franklin Mall 78,100 1987
Williamsport Lycoming Mall 60,100 1986
Wilkes-Barre Midway Shopping Center 66,000 1987
Wyoming Valley Mall 159,500 1987
York York Galleria 128,200 1989
Queensgate Shopping Center 85,100 1962
West Manchester Mall 80,200 1981
NEW YORK
Binghamton Oakdale Mall 80,000 1981
Buffalo Northtown Plaza 100,800 1994
Walden Galleria 150,000 1994
Eastern Hills Mall 151,200 1994
McKinley Mall 97,200 1994
Sheridan/Delaware Plaza 124,100 1994
Southgate Plaza 100,500 1994
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
GROSS SQUARE YEAR OPENED
MARKET LOCATION FEET OR ACQUIRED
<S> <C> <C> <C>
NEW YORK (CONT'D)
Elmira Arnot Mall 74,800 1995
Ithaca Pyramid Mall 52,400 1991
Jamestown Chautauqua Mall 60,000 1998
Lockport Lockport Mall 82,000 1994
Massena St. Lawrence Centre 51,000 1994
Niagara Falls Summit Park Mall 88,100 1994
Olean Olean Mall 73,000 1994
Rochester The Mall at Greece Ridge Center 144,600 1996
The Marketplace Mall 100,000 1995
Irondequoit Mall 102,600 1995
Eastview Mall 118,900 1995
Saratoga Springs Wilton Mall 71,700 1993
Syracuse Carousel Center 80,000 1994
Camillus Mall 64,700 1994
Great Northern Mall 98,400 1994
Shoppingtown Mall 70,100 1994
Watertown Salmon Run Mall 50,200 1992
MARYLAND
Cumberland Country Club Mall 60,900 1979
Frederick Frederick Towne Mall 77,900 1972
Hagerstown Valley Mall 100,000 1974
WEST VIRGINIA
Martinsburg Martinsburg Mall 65,800 1994
NEW JERSEY
Phillipsburg Phillipsburg Mall 65,000 1994
</TABLE>
ACQUISITIONS
The Company doubled its size in fiscal 1994 through the acquisition of 35
stores from three regional department store chains. In July 1994, The Bon-Ton
purchased AM&A, a department store company with ten stores located in and
around the greater Buffalo, New York area, and substantially remodeled and
repositioned such stores. Fiscal 1996 represented the former AM&A stores'
first full year of operation as The Bon-Ton stores, uninterrupted by remodels
or liquidations. In September 1994, the Company acquired 19 stores and a
326,000 square foot distribution center from Hess, a leading department store
chain in secondary markets in Pennsylvania. No major store remodeling or
repositioning was required to integrate the Hess stores into The Bon-Ton store
network. In October 1994, the Company acquired certain assets of Chappell's, a
department store company with six stores headquartered in Syracuse, New York,
to further complement its market position in upstate New York. Results for
fiscal year 1995 reflect investments in converting these stores. Four of the
six former Chappell's stores were remodeled and upgraded in fiscal 1996 and
completed a full year of uninterrupted operation as The Bon-Ton stores in
1997.
In March 1995, the Company acquired three vacant department stores in
Rochester, New York and leased a store in Elmira, New York. These stores
opened to the public in November 1995. Also in November 1995, the Company
acquired an additional vacant store in Rochester which opened in August 1996,
completing its entry into this market. In March 1998, the Company opened a
60,000 square foot store in the Jamestown, New York market.
26
<PAGE>
CLOSURES
As the Company integrated its acquisitions, management performed a full
review of operating assets and identified stores that it classified as
overlapping or as underperforming assets. In March 1995, the Company closed
downtown stores located in Lancaster, Pennsylvania and Buffalo, New York. In
January 1996, the Company closed its downtown Allentown, Pennsylvania store
and two former Hess stores located in malls which already contained The
Bon-Ton stores. The Company also closed two more overlapping stores and three
underperforming stores in January 1997 and is closing its Rome, Georgia store
in April 1998. As part of its commitment to improve return on assets, the
Company continues to review underperforming stores and evaluate not only store
performance but also the impact of future closures on each market. No further
store closures are planned at this time.
The following table sets forth the total of The Bon-Ton stores at the
beginning and end of each of the last five fiscal years, including the number
of additional stores from acquisitions and the opening of new stores and the
number of store closures:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning of year................................. 36 35 69 68 64
Additions........................................ 1 35 4 1 0
Closings......................................... (2) (1) (5) (5) 0
--- --- --- --- ---
End of year....................................... 35 69 68 64 64
</TABLE>
PURCHASING AND DISTRIBUTION
The Bon-Ton's strategy is to build relationships with its top vendors,
creating working alliances that will be mutually beneficial to the vendor and
the Company. The Company has reduced its total number of vendors by 44% since
1994 and, as of January 1998, the Company purchases merchandise from
approximately 1,350 domestic and foreign manufacturers and suppliers, with
relatively little concentration in any one supplier.
The Company purchases certain of its private brand merchandise through
Frederick Atkins, Inc. ("Atkins"), an association of major retailers that
provides its members with group purchasing opportunities. The Company's
membership in Atkins also entitles it to receive current information about
marketing and operating trends.
The Company employs four general merchandise managers and 12 divisional
merchandise managers who direct 58 buyers. The Company's planner/distributor
department, utilized more typically by larger department store chains,
relieves the Company's buying staff from responsibility for planning and
allocation decisions among stores and merchandise categories, thereby
permitting buyers to focus on their primary responsibilities of trend
identification, merchandise selection, product development and marketing. This
specialized planner /distributor staff also provides detailed and efficient
analysis and planning with respect to allocation of merchandise among stores
and lines of business. The Company believes that its planner/distributor
system results in more efficient merchandise allocations and faster
merchandise replenishments and turnovers, thereby increasing sales.
The Company operates two automated distribution centers: a 143,700 square
foot facility in York, Pennsylvania and a 326,000 square foot facility in
Allentown, Pennsylvania. The Company utilizes an incentive program based upon
engineered standards to continually improve the productivity of its
distribution center workers. The distribution centers currently operate on one
shift; however, by adding second shifts, the Company believes that the
capacity of the distribution centers can be at least doubled. There is
substantial space for additional expansion at the York and Allentown sites and
additional truck docks in place not currently used in Allentown.
MANAGEMENT INFORMATION AND CONTROL SYSTEM
General. The Company operates a proprietary management information and
control system with the capability to track inventory from the distribution
centers to the point-of-sale and to generate financial reports by
27
<PAGE>
multiple categories. The Company currently operates seven primary system
modules: Merchandising; Financial; Point-of-Sale; Purchase Order Management;
Financial Transfer; Receiving; and Planning & Allocation. The Company utilizes
the information generated from these modules to execute timely decisions in
relation to the management of its business on a daily, weekly and monthly
basis.
The Company is in the process of enhancing its management information and
control system to utilize advance shipping information through an electronic
data interchange in order to expedite the flow of merchandise through the
distribution centers. The Company believes that this system will provide
improved productivity and better in-stock availability. The Company also plans
to modernize its in-store systems over the next several years to improve
operating efficiencies. The use of radio frequency for barcode scanning will
streamline price change processing, re-ticketing, price audits and signage for
promotional events, and an upgrade to the point-of-sale system, including an
updated gift registry system, is planned to further enhance customer service
and inventory management.
Effects of Year 2000. Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming century change in the year
2000. If not corrected, many computer applications could fail or create
erroneous results when processing year 2000 data.
The Company has completed an assessment of the potential effects of the year
2000 century change and has established a central office to coordinate the
identification, evaluation and implementation of changes to the Company's
systems and applications necessary to achieve a year 2000 date conversion. All
internally developed systems, which represent 69% of installed applications,
have been modified to process year 2000 dates. The remaining systems are
commercially supplied software packages maintained by third party vendors and
are scheduled to be upgraded to a year 2000 version or replaced over the next
18 months. All installed systems require testing, which is planned over the
next two years. The cost to complete the conversion, including internal
personnel costs, is estimated to be $1.1 million. The Company is communicating
with major suppliers, financial institutions and service providers to
coordinate the conversion effort.
PROPRIETARY CREDIT CARD OPERATIONS AND RECEIVABLES SECURITIZATION
All phases of The Bon-Ton proprietary credit card operation are handled by
the Company except statement mailing and the processing of customer mail
payments, which processing is performed pursuant to a retail lockbox agreement
with a bank. Decisions whether to issue a credit card to an applicant are made
on the basis of a credit scoring system. According to the National Retail
Federation, net write-offs as a percentage of credit sales for the retail
industry ranged from 1.06% to 5.09% in 1996. The Company's bad debt expense is
in the lower end of this range.
In June 1995, the Company established The Bon-Ton Receivables Partnership,
LP ("BTRLP"), a limited partnership created for the purpose of selling
securitized credit card receivables. Under the securitization agreement, the
Company may have outstanding at any one time up to $150 million of securitized
credit card receivables on a limited recourse basis. The agreement requires
that BTRLP typically hold a 15% participation interest in receivables sold. In
fiscal 1996 and 1997, the Company reported securitization income, which
represents the spread between finance charge yield and the cost of financing
receivables, reduced by a provision for bad debt, of $6.2 million and $8.4
million, respectively. The impact of the proprietary credit card program on
net income is significantly less than the amount of the aforementioned
securitization income, as operating expenses associated with the credit
division are excluded from the calculation of securitization income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of the Notes to the Consolidated Financial Statements.
COMPETITION
The Bon-Ton faces competition for customers from traditional department
stores such as J.C. Penney and Company, Inc. ("J.C. Penney"), Federated
Department Stores Inc. ("Federated"), The May Company and
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<PAGE>
Sears, Roebuck and Co. ("Sears"), from regional department stores such as
Boscov's and from specialty stores and catalogue and other retailers. In
addition, the Company faces competition for store locations from other
department stores and other large retailers. In a number of its markets, the
Company competes for customers with national department store chains which are
better established in such markets than the Company and which offer a similar
mix of better branded merchandise as the Company. In other markets, the
Company faces potential competition from national chains that to date have not
entered such markets and from national chains which have stores in the
Company's markets but currently do not carry similar better branded goods as
the Company. In all markets, the Company generally competes for customers with
department stores offering moderately priced goods. Many of the Company's
competitors are units of large national or regional chains that may have
substantially greater financial and other resources than the Company. Some of
the Company's competitors have greater leverage with vendors of better
merchandise than the Company, which may allow such competitors to obtain such
merchandise more easily or on better terms than the Company. Competition with
The May Company, in particular, increased during fiscal 1994 and 1995 as a
result of The Bon-Ton's entry into certain markets in which The May Company
stores are located and The May Company's entry into certain markets in which
The Bon-Ton's stores are located. Currently, The Bon-Ton competes directly
with The May Company in a significant number of The Bon-Ton's geographic
markets. In several of the Company's markets, the Company's stores compete
with other department stores in the immediate vicinity which are larger and/or
have a superior location in the relevant mall or local shopping area.
The Company believes it compares favorably with its competitors with respect
to quality, depth and breadth of merchandise, prices for comparable quality
merchandise, customer service and store environment. The Company also believes
its knowledge of smaller secondary markets in particular, developed over its
many years of operation, and its focus on secondary markets as its primary
area of operation, give it an advantage that cannot be readily duplicated.
ASSOCIATES
As of January 31, 1998, the Company had approximately 2,600 full-time and
6,000 part-time associates. The Company also employs additional part-time
clerks and cashiers during peak periods. None of the Company's associates are
represented by a labor union. Management believes that the Company's
relationship with its associates is good.
PROPERTIES
The Company leases 56 of its stores and owns eight stores, three of which
are subject to ground leases. The Company leases a total of 154,600 square
feet for its executive and administrative offices which are located at or near
the York Mall in York, Pennsylvania. The Company also leases the land (but
owns the building) for its 143,700 square foot distribution center in York,
Pennsylvania and leases its 326,000 square foot distribution center in
Allentown, Pennsylvania.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Heywood Wilansky........ 50 President, Chief Executive Officer and Director
M. Thomas ("Tim") 58 Chairman of the Board and Director
Grumbacher.............
Michael L. Gleim........ 55 Vice Chairman, Chief Operating Officer and
Director
Douglas G. Lamm......... 51 Executive Vice President, Softlines Merchandise
James H. Baireuther..... 51 Senior Vice President, Chief Financial Officer
Robert W. Bennet........ 41 Senior Vice President, General Merchandise
Manager
Jack Boonshaft.......... 55 Senior Vice President, Stores
J. Rick Cusick.......... 40 Senior Vice President, General Merchandise
Manager
H. Stephen Evans........ 48 Senior Vice President, Real Estate, Legal and
Governmental Affairs
Elizabeth R. Feher...... 37 Senior Vice President, General Merchandise
Manager
William T. Harmon....... 43 Senior Vice President, Sales Promotion, Marketing
and Strategic Planning
Theodore C. Johnson, 64 Senior Vice President, Human Resources
Jr.....................
Cheryl Jan Ladnier...... 49 Senior Vice President, Product Development,
Fashion Merchandising and Special Events
Patrick J. McIntyre..... 53 Senior Vice President, Chief Information Officer
Ryan J. Sattler......... 53 Senior Vice President, Operations
Stephen M. Sloane....... 51 Senior Vice President, General Merchandise
Manager
Stephanie Stough........ 46 Senior Vice President, Merchandise Planning &
Control
Samuel J. Gerson........ 57 Director
Roger S. Hillas......... 70 Director
Lawrence J. Ring........ 49 Director
Leon D. Starr........... 79 Director
Leon F. Winbigler....... 72 Director
</TABLE>
Heywood Wilansky joined the Company in August 1995 as President, Chief
Executive Officer and a director. Prior to joining the Company, Mr. Wilansky
was employed by The May Company for more than 19 years. From 1992 to August
1995, he was President and Chief Executive Officer of the Foley's division of
The May Company, and from 1991 to 1992, he was President and Chief Executive
Officer of the Filene's division of The May Company. Prior to that, he was
with the Hecht's and Lord & Taylor divisions of The May Company.
M. Thomas Grumbacher joined the Company in 1961 and has been Chairman of the
Board since August 1991. From 1977 to 1989, he was President and from 1985 to
1995 he was Chief Executive Officer of the Company.
Michael L. Gleim joined the Company in 1989 as Executive Vice President and
Chief Administrative Officer. He became Senior Executive Vice President and a
director in 1991, and Vice Chairman and Chief Operating Officer in December
1995. Prior to joining the Company, Mr. Gleim was employed by Federated for
more than 25 years.
Douglas G. Lamm joined the Company as Senior Vice President, General
Merchandise Manager in October 1995. He was appointed Executive Vice
President, Softlines Merchandise in February 1998. Prior to joining the
Company, Mr. Lamm owned a chain of women's large size apparel boutiques from
1988 to 1995, and from 1984 to 1988 was Senior Vice President and General
Merchandise Manager at Venture Stores, Inc. in St. Louis.
30
<PAGE>
James H. Baireuther joined the Company as Senior Vice President and Chief
Financial Officer in June 1996. From September 1994 until he joined the
Company, Mr. Baireuther served in the same capacity for DAC Vision ("DAC") in
Garland, Texas, a manufacturer and distributor of optical supplies, parts and
contact lenses. Prior to joining DAC, Mr. Baireuther was Executive Vice
President and Chief Financial Officer for Eye Care Centers of America, a
retail optical superstore chain and wholly-owned subsidiary of Sears. From
1969 until 1989, he held a variety of corporate positions with Sears,
including Director of Mergers and Acquisitions, Manager of Corporate Financial
Analysis and Controller.
Robert W. Bennet joined the Company in March 1993 as Divisional Vice
President, Divisional Merchandise Manager. He was named Senior Vice President,
General Merchandise Manager in February 1998. Prior to joining the Company, he
was associated with Famous-Barr, a division of The May Company, for 14 years,
where he held a variety of merchandising positions.
Jack Boonshaft joined the Company in January 1996 as Vice President, Stores'
Merchandising, and was named Senior Vice President, Stores in February 1998.
Prior to joining the Company, Mr. Boonshaft was employed by Hecht's, a
division of The May Company, where his last position was Regional Vice
President, Stores, in which position he served for ten years.
J. Rick Cusick joined the Company in October 1996 as Divisional Vice
President, Divisional Merchandise Manager. He was named Senior Vice President,
General Merchandise Manager in July 1997. Prior to joining the Company, Mr.
Cusick was employed by Marshall's from September 1995 to February 1996 where
he held the position of Divisional Vice President, Divisional Merchandise
Manager. From 1980 to 1995, Mr. Cusick held a variety of merchandising
positions with Filene's, Foley's and The Broadway.
H. Stephen Evans joined the Company as Senior Vice President, Real Estate in
1991. He was named Senior Vice President, Real Estate, Legal and Governmental
Affairs in 1993. Prior to joining the Company, Mr. Evans was employed by J.C.
Penney from 1978 to 1991 where he served most recently as Senior Regional Real
Estate Representative from 1986 to 1991 in Pittsburgh, Pennsylvania.
Elizabeth R. Feher joined the Company as Divisional Vice President,
Divisional Merchandise Manager in October 1994. She was promoted to Senior
Vice President, General Merchandise Manager in February 1998. Ms. Feher was
previously associated with Hess where she served as Vice President,
Merchandise Manager for over six years.
William T. Harmon joined the Company in June 1997 as Senior Vice President,
Sales Promotion, Marketing and Strategic Planning. Prior to joining the
Company, Mr. Harmon was with Foley's from December 1992 to June 1997, last
serving as Senior Vice President, Merchandising Planning. Mr. Harmon had
previously served as Vice President/Assistant to the President for Filene's
for more than three years and was employed by McKinsey & Company for seven
years.
Theodore C. Johnson joined the Company in 1988 as Senior Vice President,
Human Resources. Prior to joining the Company, Mr. Johnson was associated with
the Higbee Company, a department store company based in Cleveland, Ohio, where
he served most recently as Senior Vice President- Human Resources for more
than five years.
Cheryl Jan Ladnier joined the Company as Senior Vice President, Sales
Promotion and Marketing in December 1993 and was subsequently named Senior
Vice President, Marketing and Corporate Communications. In May 1997, Ms.
Ladnier was named Senior Vice President, Product Development, Fashion
Merchandising and Special Events. From January 1993 until October 1993, Ms.
Ladnier served as Corporate Vice President, Public Relations with Neiman
Marcus in Dallas, Texas. Prior to January 1993, she was associated with The
May Company for 14 years.
Patrick J. McIntyre joined the Company as Senior Vice President, Chief
Information Officer in June 1997. Prior to joining the Company, Mr. McIntyre
was associated with The Cato Corporation, a woman's specialty
31
<PAGE>
apparel retailer, where he served as Senior Vice President, Chief Information
Officer for more than eight years. Prior to his association with The Cato
Corporation, Mr. McIntyre held similar positions with the Higbee Company,
Burdine's Department Store and Kaufmann's.
Ryan J. Sattler joined the Company as Vice President, Distribution and
Operations in 1986 and was promoted to Senior Vice President, Operations in
1990. Mr. Sattler previously served as Vice President, Director of Gimbels
Midwest Department Stores in Milwaukee, Wisconsin from 1983 to 1986.
Stephen M. Sloane joined the Company in February 1997 as Senior Vice
President, General Merchandise Manager for the Home merchandise area. Prior to
joining the Company, Mr. Sloane held senior merchandise manager positions with
Dick's Clothing and Sporting Goods, McRae's and Foley's during the preceding
five years. Additionally, he has held a variety of positions at Hecht's and
Woodward and Lothrop in Washington, DC.
Stephanie Stough joined the Company in March 1987 as Director of Merchandise
Planning and Control. In February 1991, she was promoted to Vice President,
Merchandise Planning and Control. In May 1997, she was promoted to Senior Vice
President, Merchandise Planning and Control.
Samuel J. Gerson has been a director of the Company since 1996. Mr. Gerson
has been Chairman and Chief Executive Officer of Filene's Basement since 1984.
Prior to that, he was President and Chief Operating Officer of The Gap and
President and Chief Executive Officer of The Denver, a division of Associated
Dry Goods Co. Mr. Gerson is a director of Filene's Basement Corp. and ASAHI
America, Inc., a trustee associate of Boston College and is chairman of the
Urban League of Eastern Massachusetts.
Roger S. Hillas has been a director of the Company since 1991. Mr. Hillas
was Chairman and Chief Executive Officer of Meritor Savings Bank until
December 1992. Mr. Hillas has been retired since such time. He served as
Chairman and Chief Executive Office of Provident National Bank from 1974 to
1988 and Chairman of PNC Financial Corp. from 1985 to 1988. Mr. Hillas is a
director of Consolidated Rail Corporation, P.H. Glatfelter Company and Toll
Brothers, Inc.
Lawrence S. Ring has been a director of the Company since 1997. Dr. Ring has
been Professor of Business Administration at The College of William and Mary's
Graduate School of Business Administration in Williamsburg, Virginia for more
than five years, and conducts an international consulting and executive
education practice. Dr. Ring is a director of Sportmart, Inc.
Leon D. Starr has been a director of the Company since 1991. Mr. Starr has
been a management consultant to department and specialty stores since 1984.
Prior thereto, he held various positions with Allied Stores Corporation for
over 35 years.
Leon F. Winbigler has been a director of the Company since 1991. Mr.
Winbigler served as Chairman and Chief Executive Officer of Mercantile Stores
Company, Inc. for 15 years before retiring in 1989. He is a member of the
advisory board of Liberty Mutual Insurance Company.
32
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the Company's last three fiscal years,
the compensation paid or accrued by the Company for those years to the
Company's Chief Executive Officer and to each of the other four most highly
compensated executive officers of the Company in fiscal 1997 (collectively,
the "Named Executives"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- -----------------------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL ANNUAL STOCK UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($)(1) OPTIONS(#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Heywood Wilansky ....... 1997 800,000 264,000 872,423(2) -- 99,000 1,065,260(3)
President and Chief 1996 800,000 200,000 948,778 -- 104,800 --
Executive Officer 1995 353,846 841,500 117,803 1,687,500 250,000 --
Michael L. Gleim ....... 1997 414,417 132,000 9,848(4) -- 49,600 291,147(3)
Vice Chairman and Chief 1996 414,417 -- 4,530 -- 52,400 --
Operating Officer 1995 311,923 -- 20,628 117,500 56,600 --
M. Thomas Grumbacher ... 1997 350,000 87,120 7,931(5) -- 43,300 --
Chairman of the Board 1996 351,923 -- 2,175 -- 45,800 --
of
Directors 1995 450,000 -- 675 -- 25,000 --
Douglas G. Lamm(6) ..... 1997 254,808 -- (7) 9,406(8) 89,982 -- --
Executive Vice 1996 244,984 -- 1,302 -- -- --
President,
Softlines Merchandise 1995 79,279 -- -- -- 20,000 10,000
James H. Baireuther(9) 1997 224,808 42,000 6,367(10) -- -- 85,306(11)
.......................
Senior Vice President 1996 135,785 -- 381 -- 20,000 25,234
and Chief Financial
Officer
</TABLE>
- ---------------------
(1) Such awards were made pursuant to the Option Plan or the MIP (as defined
below). See "Equity Incentive Plans." Mr. Wilansky's award vests in three
equal annual installments beginning August 21, 1998. Mr. Gleim's award
will be fully vested on December 15, 1998. Mr. Lamm's award will vest in
conjunction with his bonus payouts or, if none, at the end of fiscal 2007.
At January 31, 1998, the aggregate number of Restricted Shares held by
Messrs. Wilansky, Gleim and Lamm, and the market value of such shares,
were as follows: Mr. Wilansky, 250,000 shares with a market value of
$3,500,000; Mr. Gleim, 6,666 shares with a market value of $93,324; and
Mr. Lamm, 14,691 shares with a market value of $205,674.
(2) Includes loan forgiveness in the amount of $375,000, $230,709 for club
membership fees paid by the Company for Mr. Wilansky, $200,000 for the
purchase of an annuity in Mr. Wilansky's name, imputed interest of $48,796
on a loan by the Company to Mr. Wilansky and Company contributions to its
Retirement Savings/Profit Sharing Plan in the amount of $7,256.
(3) Consists of value realized upon exercise of stock options.
(4) Includes premiums on excess life insurance in the amount of $2,592 and
Company contributions to its Retirement Savings/Profit Sharing Plan in the
amount of $7,256.
(5) Consists of premiums on excess life insurance in the amount of $675 and
Company contributions to its Retirement Savings/Profit Sharing Plan in the
amount of $7,256.
(6) Mr. Lamm joined the Company in 1995.
(7) The amount of Mr. Lamm's fiscal 1997 bonus is not yet calculable.
(8) Includes premiums on excess life insurance in the amount of $2,150 and
Company contributions to its Retirement Savings/Profit Sharing Plan in the
amount of $7,256.
(9) Mr. Baireuther joined the Company in 1996.
(10) Includes Company contributions to its Retirement Savings/Profit Sharing
Plan in the amount of $4,783 and premiums on excess life insurance in the
amount of $1,584.
(11) Consists of relocation expenses of $80,240 and imputed interest of $5,066
on a loan by the Company to Mr. Baireuther.
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<PAGE>
STOCK OPTION GRANTS
The following table contains information concerning the grant of stock
options to each of the Named Executives during fiscal 1997. The Company does
not have any plan pursuant to which stock appreciation rights may be granted.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM ($) (1)
OPTIONS TO EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL 1997 ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Heywood Wilansky........ 99,000(2) 33.40 7.25 3/6/2007 451,389 1,143,909
Michael L. Gleim........ 24,800(2) 8.37 7.25 3/6/2007 113,075 286,555
24,800(3) 8.37 7.25 3/6/2007 113,075 286,555
M. Thomas Grumbacher.... 43,300(2) 14.61 7.25 3/6/2007 197,426 500,316
Douglas G. Lamm......... -- -- -- -- -- --
James H. Baireuther..... -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Illustrates value that might be realized upon exercise of options
immediately prior to the expiration of their term, assuming specified
compounded rates of appreciation on the Common Stock over the term of the
options. Assumed rates of appreciation are not necessarily indicative of
future stock performance.
(2) The options vest on March 6, 2000 only upon the Company meeting pre-
established goals for (a) return on investment and (b) for total
shareholders' return on the Common Stock as compared to a group of other
retailers, each measured during the three-year period of 1997 to 1999.
Fifty percent of the options vest upon the attainment of each goal.
(3) One-third of the options vest on each of March 6, 1998, 1999 and 2000.
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth information related to the stock options
exercised by the Named Executives in fiscal 1997 and the number and value of
stock options of each of the Named Executives at January 31, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL 1997
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
JANUARY 31, 1998 (#) AT JANUARY 31, 1998 ($)(1)
------------------------- -----------------------------
SHARES ACQUIRED VALUE
ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Heywood Wilansky........ 166,667 1,065,260 -- 287,133 -- 2,097,714
Michael L. Gleim........ 25,076 291,147 106,649 117,667 672,754 817,443
M. Thomas Grumbacher.... -- -- -- 114,100 -- 721,700
Douglas G. Lamm......... -- -- 10,000 10,000 63,750 63,750
James H. Baireuther..... -- -- 5,000 15,000 38,125 114,375
</TABLE>
- ---------------------
(1) In-the-money options are options having a per share exercise price below
$14.00, the last reported sale price of shares of Common Stock on the
Nasdaq National Market on January 30, 1998 (the last trading day in fiscal
1997). The amounts shown are the amounts by which the product of such
closing price and the number of shares purchasable upon the exercise of
such in-the-money options exceeds the aggregate exercise price of such
shares.
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<PAGE>
COMPENSATION OF DIRECTORS
The Company compensates each of its directors who is neither an employee nor
a consultant to the Company at an annual rate of $20,000 plus $2,000 for
attendance at each board meeting ($400 for participation in a meeting held via
teleconference) and $1,000 for attendance at each board committee meeting
($400 for participation in a meeting held via teleconference). In addition,
each such director shall receive an annual grant of options to purchase 1,000
shares of Common Stock. The Company compensates each non-employee director who
is a consultant to the Company at one-half of the cash compensation of a non-
employee director who is not serving as a consultant, and each such director
shall receive an annual grant of options to purchase 500 shares of Common
Stock. Leon D. Starr is a non-employee director who has rendered consulting
services to the Company since 1984 and received approximately $65,000 in
consulting fees from the Company in fiscal 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, the Compensation Committee of the Board of Directors of the Company
(the "Committee") was composed of Roger B. Hillas, Leon F. Winbigler and
Samuel J. Gerson. None of the executive officers of the Company served on the
board of directors or compensation committee of any entity whose executive
officers served either on the Company's Board of Directors or the Committee.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Heywood Wilansky,
President and Chief Executive Officer, effective February 1, 1998 (the
"Employment Agreement"), which expires January 31, 2003, pursuant to which Mr.
Wilansky is entitled to receive an annual base salary of at least $1.0 million
and is eligible for an annual cash bonus based on the performance of the
Company according to criteria established by the Compensation Committee under
the terms of a cash bonus plan established for this purpose. The maximum bonus
attainable under the cash bonus plan is 100% of Mr. Wilansky's base salary.
The Employment Agreement provides that the remaining $375,000 due on a loan
previously made by the Company to Mr. Wilansky will be forgiven on April 30,
1999 provided his employment with the Company is not terminated prior to that
date by the Company for Cause (as defined in the Employment Agreement) or by
Mr. Wilansky for any reason other than following a Change of Control (as
defined in the Employment Agreement). The Employment Agreement also provides
that the Company will award Mr. Wilansky an additional 250,000 shares of
Common Stock and options to purchase an additional 250,000 shares of Common
Stock at an option price of $8.00 per share following the adoption by the
Company of a Performance Based Stock Incentive Plan established for this
purpose. Mr. Wilansky's ownership in the shares vests in three annual
installments on the third, fourth and fifth anniversaries of the effective
date of the Employment Agreement and the options vest on the first, second and
third anniversaries of the effective date of the Employment Agreement provided
that Mr. Wilansky meets certain performance goals. The Employment Agreement
provides that in the event the Company discharges Mr. Wilansky without Cause,
Mr. Wilansky shall continue to receive his base salary and medical benefits
for the greater of the remaining term of the Employment Agreement or one year
from termination of employment and his bonus compensation for the year in
which he is discharged determined on a pro-rata basis taking into account the
number of days worked during the year up to his termination of employment. In
addition, Mr. Wilansky shall be entitled to immediate vesting of his
restricted stock awards and options and retirement benefits.The Company's
obligation to continue Mr. Wilansky's base salary is subject to Mr. Wilansky's
obligation to mitigate damages by seeking employment and is subject to a
limited offset on the basis of Mr. Wilansky's subsequent earnings. In the
event that Mr. Wilansky voluntarily terminates his employment following a
Change of Control, he shall be entitled to his base salary in monthly
installment payments for the remaining term of the Employment Agreement,
subject to certain potential taxation-related limitations on the value of such
payments, and to immediate vesting of his restricted stock awards and options.
The Employment Agreement contains a covenant against competition for at least
one year after termination of his employment or as long as Mr. Wilansky is
entitled to receive severance pay, and the Company's obligation to pay certain
amounts to Mr. Wilansky following his termination ceases if the covenant
against competition is broken. In addition to the other compensation provided
pursuant to the Employment Agreement, the Company has agreed to establish a
supplemental retirement plan for Mr. Wilansky which will provide supplemental
retirement income of approximately $300,000 per year commencing when he
reaches age 55 or following his retirement or other
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<PAGE>
termination of employment after reaching age 55. The Company believes that the
present value of the aggregate cost of this supplemental retirement plan over
time, assuming an interest rate of 6%, is approximately $2.8 million.
The Company has entered into an employment agreement with Michael L. Gleim,
Vice Chairman and Chief Operating Officer, which expires January 31, 1999,
pursuant to which Mr. Gleim is entitled to receive an annual salary of at
least $400,000 and is eligible for an annual bonus to be determined by the
Committee. The agreement provides that in the event the Company discharges Mr.
Gleim without cause or Mr. Gleim resigns for good reason (each as defined in
the agreement), Mr. Gleim shall continue to receive his base salary and other
benefits for the greater of the remaining term of the agreement or one year
from termination of employment.
The Company has entered into a severance agreement with certain of its
executive officers other than Messrs. Grumbacher, Wilansky and Gleim which
provides for certain payments to be made by the Company in the event the
executive officer is terminated without cause (as defined in such agreement).
Pursuant to such agreements, the Company shall pay such executive officers the
equivalent of one year's base salary following the date of termination.
Executive officers who have been employed by the Company less than one year as
of the date of termination shall be entitled to the equivalent of six months'
base salary following such termination.
EQUITY INCENTIVE PLANS
STOCK OPTION AND RESTRICTED STOCK PLAN
The Company's Amended and Restated 1991 Stock Option and Restricted Stock
Plan (the "Option Plan") provides for the grant of options ("Options") to
purchase shares of Common Stock and awards ("Awards") of shares of Common
Stock subject to substantial risks of forfeiture ("Restricted Shares") to the
Company's employees, directors, consultants and advisors. Under the Option
Plan, Options and Awards presently can be granted for up to an aggregate of
1,900,000 shares of Common Stock. If any shares subject to any Option or Award
are forfeited, or an Option is terminated without the issuance of shares, the
shares subject to such Option or Award will again be available for grant
pursuant to the Option Plan. The Option Plan is currently administered by the
Committee, which determines the terms and conditions of each Option or Award.
Options granted under the Option Plan may be either incentive stock options
("ISOs") or non-qualified stock options. ISOs are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. Unless an Option is specifically designated
at the time of grant as an ISO, Options granted under the Option Plan are non-
qualified options. The exercise price of an ISO may not be less than the fair
market value of a share of Common Stock on the date the Option is granted. The
maximum number of shares of Common Stock for which options may be granted to
any single optionee in any fiscal year is 500,000 shares. Options generally
terminate ten years from the date of grant but may terminate earlier upon the
termination of the optionee's employment or service with the Company or in the
event there is a Change of Control of the Company, as defined in the Option
Plan.
The Committee administers Awards under the Option Plan and determines the
period, which generally will extend for at least six months from the date of
the Award, during which the recipient may not sell, transfer, pledge or assign
("Restrictions") Restricted Shares. The Committee will determine the rights
that recipients will have with respect to Restricted Shares, including the
right to vote the Restricted Shares and the right to receive dividends paid
with respect to the Restricted Shares. In the event a grantee terminates
employment with the Company or its affiliates for any reason other than death
or disability, all Restricted Shares remaining subject to Restrictions will be
forfeited by the grantee.
Notwithstanding any other provision of the Option Plan, in the event of a
Change of Control of the Company (which is defined as including certain
changes in the ownership or corporate structure of the Company, as well as a
liquidation of the Company or any other event that may be defined by the
Company's Board of Directors as constituting a Change of Control), the
Committee may take whatever action with respect to Options and Awards
outstanding as it deems necessary or desirable, including acceleration of the
expiration or termination date or the date of exercisability of an Option or
removing any Restrictions from or imposing any additional Restrictions on any
outstanding Awards.
36
<PAGE>
LONG-TERM INCENTIVE PLAN FOR PRINCIPALS
The Bon-Ton Stores, Inc. Long-Term Incentive Plan for Principals (the "LTI
Plan") is a performance-based compensation plan established by the Board of
Directors of the Company. The LTI Plan provides for grants of "Performance
Awards" of cash bonuses, Options and Awards, or combinations thereof, to
certain eligible employees based on the achievement by the Company of certain
performance goals during three- to five-year performance cycles which commence
on an annual basis. The LTI Plan is currently administered by the Committee,
and the participants under the LTI Plan are the principal employees of the
Company as designated by the Committee from time to time. With respect to the
performance cycles that commenced as of February 4, 1996 and February 2, 1997,
the participants were Heywood Wilansky, M. Thomas Grumbacher and Michael L.
Gleim. No additional grants of Performance Awards for future performance
cycles will be granted under the LTI Plan.
MANAGEMENT INCENTIVE PLAN
The Company's Management Incentive Plan (the "MIP") provides for the
granting of cash bonuses and/or shares of Common Stock to participants based
on a combination of Company performance and the participant's individual
performance. The MIP is currently administered by the Committee. All employees
at the level of divisional vice president and above, exclusive of participants
in the LTI Plan, and certain other managerial employees are eligible to
participate in the MIP. Bonus payouts are discretionary and no bonus payouts
may be made if the Company fails to achieve established performance goals. MIP
participants may elect to receive a portion of their MIP bonus in shares of
Common Stock ("Restricted MIP Shares") which Shares are issued in the name of
the participant but are restricted and are not eligible for resale until bonus
awards for such participant are made. All such resale restrictions will lapse
after the end of fiscal year 2005, whether or not such Restricted MIP Shares
have been awarded pursuant to a bonus award. In addition, the Committee may
accelerate the vesting of the unvested Restricted MIP shares. In the event of
the death, disability or retirement of a participant or a Change of Control of
the Company, the Committee may vest a pro-rata portion of a participant's
Restricted MIP Shares.
37
<PAGE>
CERTAIN TRANSACTIONS
The Company leases its Oil City, Pennsylvania and Butler, Pennsylvania
stores from M. Thomas Grumbacher, the Company's Chairman of the Board and
principal shareholder. Mr. Grumbacher is the ground tenant under leases from
the owners of the respective shopping centers. These leases between the
Company and Mr. Grumbacher were entered into on January 1, 1981 and February
17, 1981, respectively. The aggregate rental payments during fiscal 1997 for
the Oil City store and the Butler store to Mr. Grumbacher were $223,500 and
$264,000, respectively. The Oil City and Butler leases also require payment of
a percentage rent (1% of sales in excess of $5.3 million with respect to Oil
City and 1% of sales in excess of $7.0 million with respect to Butler), which
Mr. Grumbacher passes through to the ground lessor. Both leases terminate on
July 31, 2006 and provide the Company with five five-year renewal options.
Additionally, the Company leases the land for its York Galleria store from
MBM Land Associates Limited Partnership ("MBM"), a partnership of which Mr.
Grumbacher, through a wholly-owned corporation, and certain trusts established
for the benefit of his three children, are the partners. The lease expires on
September 30, 2019, and provides the Company with six five-year renewal
options. Rental payments by the Company during fiscal 1997 pursuant to this
lease aggregated $63,000.
The Company also leases a portion of the property on which its distribution
center is located from MBM. The remainder is leased from Mr. Grumbacher.
Aggregate annual rental payments under these leases are $162,000 until January
1, 2001. During fiscal 1997, Mr. Grumbacher and MBM received rental payments
from the Company under such leases aggregating $126,767 and $35,233,
respectively. Each of the leases terminates on May 31, 2017, and provides the
Company with two-five year renewal options at the then fair market rental
value.
Total lease payments by the Company to Mr. Grumbacher and affiliated
entities for fiscal 1997 were $712,500.
In 1995, in connection with his employment by the Company, Heywood Wilansky,
President and Chief Executive Officer of the Company, received a non-interest
bearing loan from the Company in the principal amount of $750,000, which loan
was to be forgiven in two installments of $375,000 each in December 1997 and
April 1999 provided that Mr. Wilansky remained employed by the Company. One
such installment was forgiven in December 1997, and $375,000 in principal
amount of such loan remains outstanding.
In November 1996, the Company extended to James H. Baireuther, Senior Vice
President and Chief Financial Officer, an interest-free relocation loan in the
amount of $85,000 in connection with his employment by the Company. Such loan
was repaid when due in January 1998.
In January 1998, the Company extended to Patrick J. McIntyre, Senior Vice
President, Chief Information Officer, a relocation loan in the amount of
$65,000 due and payable in January 1999, which shall bear no interest if
timely repaid, in connection with his employment by the Company.
In fiscal 1997, Leon D. Starr, a director of the Company, received
approximately $65,000 in consulting fees from the Company. The Company
anticipates that it will pay Mr. Starr approximately $65,000 in consulting
fees in fiscal 1998.
38
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the Common Stock and Class A Common Stock of (i) the Selling
Shareholders; (ii) each person who was known to the Company to be a beneficial
owner of more than 5% of the Common Stock or the Class A Common Stock; (iii)
each director of the Company; (iv) Heywood Wilansky, President and Chief
Executive Officer of the Company, and each of the other Named Executives; and
(v) all of the Company's directors and executive officers as a group, as of
March 25, 1998 and as adjusted to reflect the sale of 1,500,000 shares of
Common Stock by the Selling Shareholders and 2,500,000 shares of Common Stock
by the Company in the offering:
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK(1)
-------------------- -----------------------------------------------------------------------
SHARES SHARES TO BE
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
NAME AND ADDRESS OF ----------------------------- SHARES BEING -------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT OFFERED NUMBER PERCENT
<S> <C> <C> <C> <C> <C> <C> <C>
M. Thomas
Grumbacher(2)(3)....... 2,444,616(4) 81.8% 5,141,811(5) 57.6% 998,000(6) 4,084,084(7) 35.8%
David J. Kaufman(8)..... 545,237(9) 18.2% 1,397,191(10) 15.7% 0(11) 1,097,964(12) 9.6%
Nancy T. Grumbacher..... -- -- 270,450(13) 3.0% 0(14) 210,723(15) 1.8%
Mary Jo Grumbacher(16).. 545,237(9) 18.2% 1,251,741(17) 14.0% 25,000(18) 991,741(19) 8.7%
David J. Kaufman and
Mary Jo Grumbacher, as
Trustees for the M.
Thomas Grumbacher Trust
for the benefit of Max
Aaron Grumbacher(20)... 181,745 6.1% 375,579(21) 4.2% 86,667 288,912(21) 2.5%
David J. Kaufman and
Mary Jo Grumbacher, as
Trustees for the M.
Thomas Grumbacher Trust
for the benefit of
Matthew Reed
Grumbacher(20)......... 181,745 6.1% 375,579(21) 4.2% 86,667 288,912(21) 2.5%
David J. Kaufman and
Mary Jo Grumbacher, as
Trustees for the M.
Thomas Grumbacher Trust
for the benefit of Beth
Anne Grumbacher(20).... 181,745 6.1% 375,579(21) 4.2% 86,666 288,913(21) 2.5%
David J. Kaufman and
Nancy T. Grumbacher, as
Trustees for the M.
Thomas Grumbacher Trust
for the benefit of Max
Aaron Grumbacher(22)... -- -- 16,250 * 6,833 9,417 *
David J. Kaufman and
Nancy T. Grumbacher, as
Trustees for the M.
Thomas Grumbacher Trust
for the benefit of
Matthew Reed
Grumbacher(22)......... -- -- 16,250 * 6,833 9,417 *
David J. Kaufman and
Nancy T. Grumbacher, as
Trustees for the M.
Thomas Grumbacher Trust
for the benefit of Beth
Anne Grumbacher(22).... -- -- 12,950 * 6,834 6,116 *
The Grumbacher Family
Foundation............. -- -- 225,000 2.5% 39,227 185,773 1.6%
Mercersburg Academy..... 157,273 1.8% 157,273 0 *
Brinson Holdings, -- -- 711,181(23) 8.0% 0 711,181 6.2%
Inc. ..................
209 South LaSalle
Street
Chicago, IL 60604-1295
Dimensional Fund -- -- 491,400(24) 5.5% 0 491,400 4.3%
Advisors, Inc. ........
1299 Ocean Avenue
Santa Monica, CA 90401
Heywood Wilansky........ -- -- 364,467(25) 4.1% 0 364,467 3.2%
Samuel J. Gerson........ -- -- 2,000(26) * 0 2,000 *
Michael L. Gleim........ -- -- 198,152(27) 2.2% 0 198,152 1.7%
Roger S. Hillas......... -- -- 4,000(26) * 0 4,000 *
Lawrence J. Ring........ -- -- 2,000(26) * 0 2,000 *
Leon D. Starr........... -- -- 48,080 * 0 48,080 *
Leon F. Winbigler....... -- -- 3,000(26) * 0 3,000 *
Douglas G. Lamm......... -- -- 49,691(28) * 0 49,691 *
James H. Baireuther..... -- -- 15,800(29) * 0 15,800 *
All directors and
executive officers as a
group (22 persons)..... 2,444,616 81.8% 6,021,596(30) 65.5% 998,000(6) 4,963,869 43.5%
Total shares of Common
Stock being offered by
Selling Shareholders.. 1,500,000
</TABLE>
39
<PAGE>
- ---------------------
* Less than one percent.
(1) Each share of Class A Common Stock is convertible at any time into one
share of Common Stock. Accordingly, the number of shares of Common Stock
for any person owning Class A Common Stock includes the number of shares of
Common Stock issuable upon conversion of all shares of Class A Common Stock
beneficially owned by such person. Also, in accordance with Rule 13d-
3(d)(1) under the Exchange Act, the total number of shares of Common Stock
outstanding for purposes of calculating percentage ownership of a person or
group owning Class A Common Stock includes the number of shares of Class A
Common Stock beneficially owned by such person or group.
(2) M. Thomas Grumbacher is the Chairman of the Board of the Company.
(3) The address of M. Thomas Grumbacher is c/o the Company, 2801 East Market
Street, York, PA 17402.
(4) Includes 38,363 shares of Class A Common Stock held by a trust for the
benefit of a child of Mr. Grumbacher, of which Mr. Grumbacher is the sole
trustee. Does not include an aggregate of 545,237 shares of Class A Common
Stock held by other trusts for the benefit of Mr. Grumbacher's three
children of which David J. Kaufman and Mary Jo Grumbacher are the co-
trustees. Mr. Grumbacher disclaims beneficial ownership of all shares
referred to in this note.
(5) Includes 225,000 shares of Common Stock held by The Grumbacher Family
Foundation, a charitable foundation of which Mr. Grumbacher, Mr.
Grumbacher's spouse Nancy T. Grumbacher, and David J. Kaufman are the
directors. Also includes 40,915 shares of Common Stock held by a trust for
the benefit of a child of Mr. Grumbacher, of which Mr. Grumbacher is the
sole trustee, and 45,450 shares of Common Stock held by trusts for the
benefit of Mr. Grumbacher's three children of which Nancy T. Grumbacher
and David J. Kaufman are the co-trustees. Does not include an aggregate of
545,237 shares of Class A Common Stock and 581,504 shares of Common Stock
held by other trusts for the benefit of Mr. Grumbacher's three children of
which David J. Kaufman and Mary Jo Grumbacher are the co-trustees. Mr.
Grumbacher disclaims beneficial ownership of all shares referred to in
this note.
(6) Excludes 39,227 shares of Common Stock offered by The Grumbacher Family
Foundation of which Mr. Grumbacher, Mr. Grumbacher's spouse, Nancy T.
Grumbacher, and David J. Kaufman are the directors and 20,500 shares of
Common Stock offered by trusts for the benefit of Mr. Grumbacher's three
children, of which Nancy T. Grumbacher and David J. Kaufman are the co-
trustees. Mr. Grumbacher disclaims beneficial ownership of all shares
referred to in this note.
(7) Includes 185,773 shares of Common Stock held by The Grumbacher Family
Foundation, a charitable foundation of which Mr. Grumbacher, Mr.
Grumbacher's spouse Nancy T. Grumbacher, and David J. Kaufman are the
directors. Also includes 40,915 shares of Common Stock held by a trust for
the benefit of a child of Mr. Grumbacher, of which Mr. Grumbacher is the
sole trustee, and 24,950 shares of Common Stock held by trusts for the
benefit of Mr. Grumbacher's three children of which Nancy T. Grumbacher and
David J. Kaufman are the co-trustees. Does not include an aggregate of
545,237 shares of Class A Common Stock and 321,500 shares of Common Stock
held by other trusts for the benefit of Mr. Grumbacher's three children of
which David J. Kaufman and Mary Jo Grumbacher are the co-trustees. Mr.
Grumbacher disclaims beneficial ownership of all shares referred to in this
note.
(8) The address of Mr. Kaufman is c/o Wolf, Block, Schorr and Solis-Cohen LLP,
Twelfth Floor Packard Building, 111 South 15th Street, Philadelphia, PA
19102.
(9) Consists of 545,237 shares of Class A Common Stock held by trusts for the
benefit of M. Thomas Grumbacher's three children, of which Mr. Kaufman and
Mary Jo Grumbacher are the co-trustees. Mr. Kaufman and Mary Jo Grumbacher
each disclaim beneficial ownership of these shares.
(10) Includes 225,000 shares of Common Stock held by The Grumbacher Family
Foundation, a charitable foundation of which Mr. Kaufman, Nancy T.
Grumbacher and M. Thomas Grumbacher are the directors, 45,450 shares of
Common Stock held by trusts for the benefit of M. Thomas Grumbacher's
three children, of which Mr. Kaufman and Nancy T. Grumbacher are the co-
trustees and an aggregate of 545,237 shares of Class A Common Stock and
581,504 shares of Common Stock held by trusts for the benefit of M.
Thomas Grumbacher's three children, of which Mr. Kaufman and Mary Jo
Grumbacher are the co-trustees. Mr. Kaufman disclaims beneficial
ownership of all shares referred to in this note.
(11) Excludes 260,000 shares of Common Stock offered by trusts held for the
benefit of M. Thomas Grumbacher's three children, of which Mr. Kaufman
and Mary Jo Grumbacher are the co-trustees, 20,500 shares of Common Stock
offered by trusts for the benefit of M. Thomas Grumbacher's three
children, of which Mr. Kaufman and Nancy T. Grumbacher are the co-
trustees, and 39,227 shares of Common Stock offered by The Grumbacher
Family Foundation, of which Mr. Kaufman, M. Thomas Grumbacher and Nancy
T. Grumbacher are the directors. Mr. Kaufman disclaims beneficial
ownership of all shares referred to in this note.
(12) Includes 185,773 shares of Common Stock held by The Grumbacher Family
Foundation, a charitable foundation of which Mr. Kaufman, Nancy T.
Grumbacher and M. Thomas Grumbacher are the directors, 24,950 shares of
Common Stock held by trusts for the benefit of M. Thomas Grumbacher's
three children, of which Mr. Kaufman and Nancy T. Grumbacher are the co-
trustees and an aggregate of 545,237 shares of Class A Common Stock and
321,500 shares of Common Stock held by trusts for the benefit of M.
Thomas Grumbacher's three children, of which Mr. Kaufman and Mary Jo
Grumbacher are the co-trustees. Mr. Kaufman disclaims beneficial
ownership of all shares referred to in this note.
(13) Consists of 45,450 shares of Common Stock held in trusts for the benefit
of M. Thomas Grumbacher's three children, of which Nancy T. Grumbacher
and David J. Kaufman are the co-trustees, and 225,000 shares of Common
Stock held by The Grumbacher Family Foundation, a charitable foundation
of which Nancy T. Grumbacher, M. Thomas Grumbacher and David J. Kaufman
are the directors. Nancy T. Grumbacher disclaims beneficial ownership of
the shares referred to in this note.
(14) Excludes 20,500 shares of Common Stock offered by trusts for the benefit
of M. Thomas Grumbacher's three children, of which Nancy T. Grumbacher
and David J. Kaufman are the co-trustees and 39,227 shares of Common
Stock offered by The Grumbacher Family Foundation, of which Nancy T.
Grumbacher, M. Thomas Grumbacher and David J. Kaufman are the directors.
Nancy T. Grumbacher disclaims beneficial ownership of all shares referred
to in this note.
40
<PAGE>
(15) Consists of 24,950 shares of Common Stock held in trusts for the benefit
of M. Thomas Grumbacher's three children, of which Nancy T. Grumbacher
and David J. Kaufman are the co-trustees, and 185,773 shares of Common
Stock held by The Grumbacher Family Foundation, a charitable foundation
of which Nancy T. Grumbacher, M. Thomas Grumbacher and David J. Kaufman
are the directors. Nancy T. Grumbacher disclaims beneficial ownership of
the shares referred to in this note.
(16) The address of Mary Jo Grumbacher is 174 Eleventh Avenue, San Francisco,
CA 94118.
(17) Includes an aggregate of 545,237 shares of Class A Common Stock and
581,504 shares of Common Stock held by trusts for the benefit of M.
Thomas Grumbacher's three children, of which Mary Jo Grumbacher and David
J. Kaufman are the co-trustees. Mary Jo Grumbacher disclaims beneficial
ownership of the shares referred to in this note.
(18) Excludes 260,000 shares of Common Stock offered by trusts for the benefit
of M. Thomas Grumbacher's three children, of which Mary Jo Grumbacher and
David J. Kaufman are the co-trustees. Mary Jo Grumbacher disclaims
beneficial ownership of the shares referred to in this note.
(19) Includes an aggregate of 545,237 shares of Class A Common Stock and
321,500 shares of Common Stock held by trusts for the benefit of M.
Thomas Grumbacher's three children, of which Mary Jo Grumbacher and David
J. Kaufman are the co-trustees. Mary Jo Grumbacher disclaims beneficial
ownership of the shares referred to in this note.
(20) Such trust was created under an Indenture of Trust of M. Thomas
Grumbacher dated March 9, 1989.
(21) Includes 181,745 shares of Class A Common Stock held by such trust.
(22) Such trust was created under an Indenture of Trust of M. Thomas
Grumbacher dated June 21, 1993.
(23) Based solely on a review of a Schedule 13G dated February 10, 1998 filed
with the Securities and Exchange Commission. Such shares are held by
Brinson Partners, Inc. and Brinson Trust Company, which are subsidiaries
of Brinson Holdings, Inc.
(24) Based solely on a review of a Schedule 13G dated February 10, 1998 filed
with the Securities and Exchange Commission. Such shares are owned by
advisory clients of Dimensional Fund Advisors Inc. Dimensional Fund
Advisors Inc. disclaims beneficial ownership of all such shares.
(25) Includes 250,000 Restricted Shares issued pursuant to the Option Plan but
excludes 250,000 restricted shares to be awarded subject to shareholder
approval.
(26) Includes options to purchase 1,000 shares of Common Stock.
(27) Includes options to purchase 126,416 shares of Common Stock and 6,666
Restricted Shares issued pursuant to the Option Plan.
(28) Includes 14,691 Restricted MIP Shares issued pursuant to the MIP and
25,000 Restricted Shares issued pursuant to the Option Plan.
(29) Includes options to purchase 5,000 shares of Common Stock.
(30) Includes 281,666 Restricted Shares issued pursuant to the Option Plan,
options to purchase 267,541 shares of Common Stock and 54,182 Restricted
MIP Shares issued pursuant to the MIP.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 40,000,000
shares of Common Stock, (ii) 20,000,000 shares of Class A Common Stock and
(iii) 5,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). Prior to this offering, there were 8,924,697 shares of
Common Stock and 2,989,853 shares of Class A Common Stock issued and
outstanding. Upon the closing of this offering, 11,424,697 shares of Common
Stock will be issued and outstanding and 2,989,853 shares of Class A Common
Stock will be issued and outstanding, all of which shares of Class A Common
Stock will be owned by the Grumbacher Family. There are currently no shares of
Preferred Stock outstanding.
The following summary description relating to the Company's capital stock
sets forth the material terms of the capital stock, but does not purport to be
complete. A description of the Company's capital stock is contained in the
Company's Articles of Incorporation (the "Articles of Incorporation"), which
are filed as an exhibit to the Registration Statement of which this Prospectus
is a part. Reference is made to such exhibit for a detailed description of the
provisions thereof summarized below.
COMMON STOCK AND CLASS A COMMON STOCK
Voting, Dividend and Other Rights. The voting powers, preferences and
relative rights of the Common Stock and the Class A Common Stock are identical
in all respects, except that (i) at every meeting or action by consent in
writing of the shareholders, the holders of Common Stock are entitled to one
vote per share and holders of Class A Common Stock are entitled to ten votes
per share; (ii) stock dividends on Common Stock may be paid only in shares of
Common Stock and stock dividends on Class A Common Stock may be paid in shares
of Class A Common Stock or (with the majority approval of the holders of the
Class A Common Stock) Common Stock; (iii) in the case of any combination or
reclassification of the Common Stock, shares of Class A Common Stock shall
also be combined or reclassified so as to maintain the relationship of the
number of shares of Common Stock outstanding to the number of shares of Class
A Common Stock outstanding; and (iv) shares of Class A Common Stock have
certain conversion rights and are subject to certain restrictions on ownership
and transfer described below under "Conversion Rights and Restrictions on
Transfer of Class A Common Stock." Except as described above, issuances of
additional shares of Class A Common Stock (except in connection with stock
splits, combinations, reclassifications and stock dividends) and modifications
of the terms of the Class A Common Stock require the approval of a majority of
the holders of the Common Stock and Class A Common Stock, voting as separate
classes. Except as described above or as required by law, holders of Common
Stock and Class A Common Stock vote together as a single class on all matters
presented to the shareholders for their vote or approval, including, without
limitation, the election of directors. The shareholders are not entitled to
vote cumulatively for the election of directors. Shareholders may act without
a meeting upon written consent of shareholders who would have been entitled to
cast the minimum number of votes that would be necessary to authorize the
action at a meeting at which all shareholders entitled to vote thereon were
present and voting.
After the sale of the Common Stock offered hereby, the outstanding shares of
Common Stock will equal 79.3% of the total Common Shares outstanding and will
represent approximately 27.6% of the combined voting power of the Common
Shares, and the outstanding shares of Class A Common Stock will equal 20.7% of
the total Common Shares outstanding and will represent approximately 72.4% of
the combined voting power of the Common Shares. The holders of the Class A
Common Stock, in particular M. Thomas Grumbacher, will have sufficient voting
power to determine the outcome of any matter submitted to the shareholders for
approval, including the power to determine the outcome of all corporate
transactions and the election of directors.
Each share of Common Stock and Class A Common Stock is entitled to receive
dividends and other distributions in cash, stock or property of the Company
if, as and when declared by the Board of Directors of the Company out of
assets or funds legally available therefor. The Common Stock and Class A
Common Stock share equally, on a share-for-share basis, in any dividends
declared by the Board of Directors, provided that in the
42
<PAGE>
event of a dividend of shares or other equity interests of a corporation or
other entity, if the equity interests consist of two classes, one of which is
entitled to one vote per interest and the other of which is entitled to ten or
fewer votes per interest, the Board of Directors may distribute the interests
with multiple votes to the holders of Class A Common Stock provided that the
multiple-vote interests distributed are in the same proportion to the single
vote interests distributed as the number of shares of Class A Common Stock are
to the shares of Common Stock.
In the event of a merger or consolidation to which the Company is a party,
each share of Common Stock and Class A Common Stock will be entitled to
receive the same consideration, except that in the event of a merger,
consolidation, division or exchange in which holders of Class A Common Stock
will receive in exchange for their Class A Common Stock shares equity
interests of the surviving, resulting or exchanging entity, such holders of
Class A Common Stock shall be entitled to receive equity interests having
substantially similar relative designations, preferences, qualifications,
privileges, limitations, restrictions and rights as those of the Class A
Common Stock.
Shareholders of the Company have no preemptive or other rights to subscribe
for additional shares. Subject to any rights of holders of any Preferred
Stock, all holders of Common Shares, regardless of class, are entitled to
share equally on a share-for-share basis in any assets available for
distribution to shareholders on liquidation, dissolution or winding up of the
Company. No Common Shares are subject to redemption or a sinking fund. The
Company may not subdivide or combine shares of either class of Common Shares
without at the same time proportionally subdividing or combining shares of the
other class of Common Shares.
Conversion Rights and Restrictions on Transfer of Class A Common Stock. The
Common Stock has no conversion rights. However, at the option of the holder,
each share of Class A Common Stock is convertible at any time and from time to
time into one share of Common Stock.
Shares of Class A Common Stock may not be transferred except to (i) M.
Thomas Grumbacher, (ii) certain family members of Mr. Grumbacher, (iii) trusts
primarily for the benefit of such family members, (iv) certain entities
controlled by Mr. Grumbacher or certain members of his family or (v) the
estate of the holder of such Class A Common Stock (collectively, "Permitted
Transferees"). Upon any sale or transfer of ownership or voting rights to a
transferee other than a Permitted Transferee or to the extent an entity no
longer remains a Permitted Transferee, such shares of Class A Common Stock
will automatically convert into an equal number of shares of Common Stock. In
addition, holders of the Class A Common Stock have entered into a
shareholders' agreement pursuant to which each such shareholder (other than M.
Thomas Grumbacher) has granted to M. Thomas Grumbacher (or, if applicable, Mr.
Grumbacher's personal representative) a right of first refusal to acquire any
shares of Class A Common Stock proposed to be transferred. Accordingly, no
trading market is expected to develop in the Class A Common Stock and the
Class A Common Stock will not be listed or traded on any exchange or in any
market.
Effects of Disproportionate Voting Rights. The disproportionate voting
rights of the Common Stock and Class A Common Stock could have an adverse
effect on the market price of the Common Stock. Such disproportionate voting
rights may make the Company a less attractive target for a takeover than it
otherwise might be, or render more difficult or discourage a merger proposal,
a tender offer or a proxy contest, even if such actions were favored by
shareholders of the Company other than the holders of Class A Common Stock.
Accordingly, such disproportionate voting rights may deprive holders of Common
Stock of an opportunity to sell their shares at a premium over prevailing
market prices, since takeover bids frequently involve purchases of stock
directly from shareholders at such a premium price.
PREFERRED STOCK
The Company has authorized 5,000,000 shares of Preferred Stock. No shares of
Preferred Stock have been issued and the Company does not presently
contemplate the issuance of such shares. The Board of Directors is empowered
by the Articles of Incorporation to designate and issue from time to time one
or more classes or
43
<PAGE>
series of Preferred Stock without any action of the shareholders. The Board of
Directors may authorize issuances in one or more classes or series, and may
fix and determine the relative rights, preferences and limitations of each
class or series so authorized. Such action could adversely affect the voting
power of the holders of the Common Stock or the Class A Common Stock or could
have the effect of discouraging or making difficult any attempt by a person or
group to obtain control of the Company.
ANTI-TAKEOVER PROVISIONS
Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL"), which is applicable to the Company, may have an
anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a shareholder might consider in his or her best
interest, including those attempts that might result in a premium over the
market price for the shares held by shareholders. In general, Subchapter F of
Chapter 25 of the BCL delays for five years and imposes conditions upon
"business combinations" between an "interested shareholder" and the Company,
unless prior approval of the Board of Directors is given. The term "business
combination" is defined broadly to include various merger, consolidation,
division, exchange or sale transactions, including transactions utilizing the
Company's assets for purchase price amortization or refinancing purposes. An
"interested shareholder," in general, would be a beneficial owner of shares
entitling that person to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, New York, New York.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering the Company will have 11,424,697 shares
of Common Stock outstanding (assuming no exercise of the Underwriters'
overallotment option), and 1,064,302 shares of Common Stock will be reserved
for issuance upon the exercise of outstanding stock options pursuant to the
Company's stock option plans. Of the outstanding shares of Common Stock,
9,288,998 shares, including all of the shares of Common Stock sold in this
offering, will be freely tradeable without restriction or registration under
the Securities Act. The remaining 2,135,699 shares of Common Stock outstanding
as of the date of this Prospectus are "restricted securities" as defined by
Rule 144 of the Securities Act and may not be resold in a public distribution
except in compliance with the registration requirements of the Securities Act
or pursuant to a valid exemption from registration (including pursuant to Rule
144).
In general, under Rule 144 a person who has beneficially owned for at least
one year shares of Common Stock that are treated as restricted securities,
including an "affiliate" as that term is defined in the Securities Act, is
entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock, or the average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale, subject to certain requirements
concerning availability of public information and manner and notice of sale.
In addition, affiliates must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirements, in order to
sell shares of Common Stock that are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two year holding period may resell such shares without
compliance with the foregoing requirements. All of the 2,135,699 restricted
shares of Common Stock have been issued for more than two years and will be
eligible for sale under Rule 144(k) if their holders qualify for non-affiliate
status.
In addition to the 9,288,998 shares of Common Stock which upon completion of
this offering will be freely tradeable without restriction or registration
under the Securities Act, the Company has outstanding 2,989,853 shares of
Class A Common Stock, all of which are owned by the Grumbacher Family. Each
share of Class A Common Stock is convertible into one share of Common Stock.
See "Description of Capital Stock--Common Stock and Class A Common Stock--
Conversion Rights and Restrictions on Transfer of Class A Common Stock." Any
shares of Common Stock acquired by the Grumbacher Family upon conversion of
shares of Class A Common Stock would be freely tradeable, subject to the
limitations under Rule 144 under the Securities Act applicable to affiliates
of the Company.
Upon the completion of this offering, it is expected that there will be
1,064,302 shares of Common Stock issuable upon exercise of options granted
under the Company's stock option plans, approximately 387,165 of which are
currently vested and the remainder of which will vest at various times through
2001.
The Company, the Selling Shareholders, the executive officers and directors
of the Company and certain shareholders of the Company holding in the
aggregate 2,632,301 shares of Common Stock have agreed that, for a period of
90 days after the date of this Prospectus, they will not, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation,
register the sale of, offer to sell, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for any shares of Common Stock, subject to certain
limited circumstances.
45
<PAGE>
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, a
syndicate of underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation and NationsBanc Montgomery
Securities LLC are acting as representatives, have severally agreed to
purchase from the Company and the Selling Shareholders an aggregate of
4,000,000 shares of Common Stock. The number of shares of Common Stock that
each Underwriter has agreed to purchase is set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...............
NationsBanc Montgomery Securities LLC.............................
---------
Total........................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the shares of Common Stock offered hereby are subject
to approval of certain legal matters by their counsel and to certain other
conditions. If any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, the Underwriters are
obligated to purchase all such shares (other than those covered by the over-
allotment option described below).
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the shares of Common Stock to the
public initially at the price to the public set forth on the cover page of
this Prospectus and to certain dealers (who may include the Underwriters) at
such price, less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After the public offering
of the shares, the price to the public, the concession and the discount to
dealers may be changed by Donaldson, Lufkin & Jenrette Securities Corporation
and NationsBanc Montgomery Securities LLC.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 600,000 additional
shares of Common Stock at the initial price to the public less underwriting
discounts and commissions, solely to cover over-allotments. To the extent that
the Underwriters exercise such option, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's commitment as indicated in the
preceding table.
In the Underwriting Agreement, the Company, the Selling Shareholders and the
Underwriters have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
46
<PAGE>
The Company, the Selling Shareholders, the executive officers and directors
of the Company and certain shareholders of the Company have each agreed that
they will not, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, register the sale of, sell, offer to sell,
grant any option to purchase or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or in any manner transfer all or a portion of the economic
consequences associated with the ownership of Common Stock, for a period of 90
days after the date of this Prospectus. See "Shares Eligible for Future Sale."
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate short covering transactions and penalty bids in accordance with
Regulation M under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchase of shares of the Common Stock in the open market
after distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the shares of Common Stock originally
sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions.
The rules of the Securities and Exchange Commission (the "Commission")
generally prohibit the Underwriters and other members of the selling group
from making a market in the Common Stock during the "cooling off" period
immediately preceding the commencement of sales in this offering. The
Commission has, however, adopted an exemption from these rules that permits
passive market marking under certain conditions. These rules permit an
Underwriter or other member of the selling group to continue to make a market
in the Common Stock subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with this offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to those exemptions, certain Underwriters and other members of the
selling group intend to engage in passive market making in the Common Stock
during the cooling off period.
At the request of the Company, the Underwriters have agreed to pay to Tanner
& Co., Inc. ("Tanner") a fee related to its acting as a financial advisor to
the Company in connection with this offering in an amount equal to 15% of the
aggregate Underwriting Discounts and Commissions set forth on the cover page
of this Prospectus. Tanner is not acting as an underwriter or a dealer with
respect to the Common Stock offered hereby.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company and the Selling Shareholders by Wolf, Block, Schorr and Solis-Cohen
LLP, Philadelphia, Pennsylvania. A retired partner of that firm is a trustee
of trusts for the benefit of certain members of the Grumbacher Family that
upon completion of the offering will own 1,097,964 shares of Common Stock and
545,237 shares of Class A Common Stock. Certain legal matters will be passed
upon for the Underwriters by Gibson, Dunn & Crutcher LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedule included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
47
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy and information statements
and other information with the Commission. Such reports, proxy and information
statements and other information are available for inspection without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549-1004, as well as the Regional Offices of
the Commission at Seven World Trade Center, 13th Floor, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661-2511. Copies of such materials may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates. The Commission maintains a Web
site, located at http://www.sec.gov, that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission. The Common Stock is
quoted on the Nasdaq National Market, and reports, proxy and information
statements and other information concerning the Company may also be inspected
at the offices of the Nasdaq National Market, 1735 K Street, N.W. Washington,
DC 20006-1506.
The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement," which term shall include any amendments thereto)
under the Securities Act with the Commission with respect to the Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission, and to which reference is hereby made. For further information,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to contents of any
contract or other document referred to herein are not necessarily complete
and, where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions
of such exhibit, to which reference is hereby made.
48
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997... F-3
Consolidated Statements of Operations for the Years Ended January 31,
1998, February 1, 1997 and February 3, 1996.............................. F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
January 31, 1998, February 1, 1997 and February 3, 1996.................. F-5
Consolidated Statements of Cash Flows for the Years Ended January 31,
1998, February 1, 1997 and February 3, 1996.............................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of The Bon-Ton Stores, Inc.:
We have audited the accompanying consolidated balance sheets of The Bon-Ton
Stores, Inc. (a Pennsylvania corporation) and subsidiaries as of January 31,
1998 and February 1, 1997 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three fiscal
years in the period ended January 31, 1998. 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 The Bon-Ton
Stores, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended January 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, PA
March 4, 1998
F-2
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 9,109 $ 6,516
Trade and other accounts receivable, net of allowance
for doubtful accounts of $1,977 and $2,769 in 1997
and 1996, respectively.............................. 28,485 16,306
Merchandise inventories.............................. 177,783 161,191
Prepaid expenses and other current assets............ 8,835 18,389
-------- --------
Total current assets............................... 224,212 202,402
-------- --------
Property, fixtures and equipment at cost, less
accumulated depreciation and amortization............. 108,568 117,716
Other assets........................................... 19,906 21,134
-------- --------
Total assets....................................... $352,686 $341,252
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 55,478 $ 51,626
Accrued payroll and benefits......................... 9,457 7,135
Accrued expenses..................................... 25,649 25,209
Current portion of long-term debt.................... 556 9,763
Current portion of obligations under capital leases.. 379 351
Deferred income taxes................................ 1,227 1,628
Income taxes payable................................. 8,388 3,837
-------- --------
Total current liabilities.......................... 101,134 99,549
-------- --------
Long-term debt, less current maturities................ 121,121 125,620
Obligations under capital leases, less current
maturities............................................ 2,263 2,478
Deferred income taxes.................................. 365 1,174
Other long-term liabilities............................ 3,409 946
-------- --------
Total liabilities.................................. 228,292 229,767
-------- --------
Commitments and contingencies (Note 7)
Shareholders' equity:
Common Stock--authorized 40,000,000 shares at $0.01
par value; issued and outstanding shares of
8,847,333 and 8,349,699 in 1997 and 1996,
respectively........................................ 88 83
Class A Common Stock--authorized 20,000,000 shares at
$0.01 par value; issued and outstanding shares of
2,989,853 in 1997 and 1996.......................... 30 30
Additional paid-in capital........................... 62,585 58,182
Deferred compensation................................ (2,010) (1,259)
Retained earnings.................................... 63,701 54,449
-------- --------
Total shareholders' equity......................... 124,394 111,485
-------- --------
Total liabilities and shareholders' equity......... $352,686 $341,252
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
Net sales.................................. $ 656,399 $ 626,482 $ 607,357
Other income, net.......................... 2,349 2,430 2,266
---------- ---------- ----------
658,748 628,912 609,623
---------- ---------- ----------
Costs and expenses:
Costs of merchandise sold................ 413,846 395,563 387,947
Selling, general and administrative...... 202,850 197,315 207,058
Depreciation and amortization............ 12,882 12,758 11,895
Unusual (income) expense (Note 15)....... -- (3,171) 3,280
Restructuring charges (Note 16).......... -- -- 5,690
---------- ---------- ----------
Income (loss) from operations.............. 29,170 26,447 (6,247)
Interest expense, net...................... 13,202 14,687 8,722
---------- ---------- ----------
Income (loss) before income taxes.......... 15,968 11,760 (14,969)
Income tax provision (benefit)............. 6,270 4,949 (5,766)
---------- ---------- ----------
Income (loss) before extraordinary item.... 9,698 6,811 (9,203)
Extraordinary item
--loss on early extinguishment of debt,
net of income tax benefit of $251....... (446) -- --
---------- ---------- ----------
Net income (loss).......................... $ 9,252 $ 6,811 $ (9,203)
========== ========== ==========
Per share amounts--
Basic:
Net income (loss) before extraordinary
item.................................... $ 0.87 $ 0.62 $ (0.83)
Effect of extraordinary item............. (0.04) -- --
---------- ---------- ----------
Net income (loss)........................ $ 0.83 $ 0.62 $ (0.83)
========== ========== ==========
Basic shares outstanding.................. 11,122,000 11,064,000 11,044,000
Diluted:
Net income (loss) before extraordinary
item.................................... $ 0.85 $ 0.61 $ (0.83)
Effect of extraordinary item............. (0.04) -- --
---------- ---------- ----------
Net income (loss)........................ $ 0.81 $ 0.61 $ (0.83)
========== ========== ==========
Diluted shares outstanding................ 11,377,000 11,106,000 11,044,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A ADDITIONAL
COMMON COMMON PAID-IN DEFERRED RETAINED
STOCK STOCK CAPITAL COMPENSATION EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at January 28,
1995................... $ 51 $ 59 $55,827 $ (331) $56,841 $112,447
Net loss................ -- -- -- -- (9,203) (9,203)
Issuance of stock under
Stock Award Plans...... 3 -- 1,771 (1,774) -- --
Deferred compensation
amortization........... -- -- -- 293 -- 293
Exercised stock
options................ -- -- 643 -- -- 643
Cancellation of
Restricted Shares...... -- -- (44) 38 -- (6)
Conversion of Class A
Common Stock to Common
Stock.................. 29 (29) -- -- -- --
---- ---- ------- ------- ------- --------
Balance at February 3,
1996................... 83 30 58,197 (1,774) 47,638 104,174
Net income.............. -- -- -- -- 6,811 6,811
Deferred compensation
amortization........... -- -- -- 505 -- 505
Cancellation of
Restricted Shares...... -- -- (15) 10 -- (5)
---- ---- ------- ------- ------- --------
Balance at February 1,
1997................... 83 30 58,182 (1,259) 54,449 111,485
Net income.............. -- -- -- -- 9,252 9,252
Issuance of stock under
Stock Award Plans...... 2 -- 2,094 (1,256) -- 840
Deferred compensation
amortization........... -- -- -- 505 -- 505
Exercised stock
options................ 3 -- 2,314 -- -- 2,317
Cancellation of
Restricted Shares...... -- -- (5) -- -- (5)
---- ---- ------- ------- ------- --------
Balance at January 31,
1998................... $ 88 $ 30 $62,585 $(2,010) $63,701 $124,394
==== ==== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ 9,252 $ 6,811 $ (9,203)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization........... 12,882 12,758 11,895
Bad debt and other noncash charges...... 700 924 229
Stock compensation expense.............. 1,345 505 293
Gain on sale of property, fixtures and
equipment.............................. (17) (407) (144)
Cancellation of Restricted Shares....... (5) (5) (6)
(Increase) decrease in other long-term
assets................................. (80) 320 825
Deferred income taxes................... (1,210) 4,116 6,709
Decrease in other long-term
liabilities............................ (523) (476) (2,686)
Extraordinary loss on debt
extinguishment......................... 697 -- --
Loss from restructuring activities...... -- -- 5,690
Restructuring payments.................. (580) (1,252) (413)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable.............................. (34,879) 216 7,728
Increase in merchandise inventories...... (16,592) (19,450) (21,087)
Decrease (increase) in prepaid expenses
and other current assets................ 9,554 (4,827) (4,118)
Decrease (increase) in income taxes
receivable.............................. -- 8,549 (8,549)
Increase (decrease) in accounts payable.. 3,852 (3,542) 13,138
Increase (decrease) in accrued expenses.. 3,343 (6,823) (9,365)
Increase (decrease) in income taxes
payable................................. 4,551 1,334 (5,185)
--------- --------- ---------
Total adjustments...................... (16,962) (8,060) (5,046)
--------- --------- ---------
Net cash used in operating activities.. (7,710) (1,249) (14,249)
Cash flows from investing activities:
Capital expenditures, net................. (10,978) (9,730) (43,587)
Proceeds from sale of property, fixtures
and equipment............................ 17 855 278
Purchase of accounts receivable........... -- -- (30,138)
Proceeds from sale of accounts receivable,
net...................................... 22,000 -- 25,000
Proceeds from sale and leaseback
arrangement.............................. 10,841 -- --
--------- --------- ---------
Net cash provided by (used in)
investing activities.................. 21,880 (8,875) (48,447)
Cash flows from financing activities:
Payments on long-term debt and capital
lease obligations........................ (320,996) (233,826) (301,738)
Proceeds from issuance of long-term debt.. 307,102 220,125 369,000
Proceeds from issuance of mortgages....... -- 23,400 --
Exercised stock options................... 2,317 -- 643
--------- --------- ---------
Net cash (used in) provided by
financing activities.................. (11,577) 9,699 67,905
Net increase (decrease) in cash and
cash equivalents...................... 2,593 (425) 5,209
Cash and cash equivalents at beginning of
period.................................... 6,516 6,941 1,732
--------- --------- ---------
Cash and cash equivalents at end of
period.................................... $ 9,109 $ 6,516 $ 6,941
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA)
The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on
January 31, 1996 as the successor of a company established on January 31, 1929
and currently operates, through its subsidiaries, 64 retail department stores
located in Pennsylvania, New York, Maryland, West Virginia and New Jersey.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Bon-Ton
Stores, Inc. and its wholly-owned subsidiaries (the "Company"). All
intercompany transactions have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions which affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearer to January 31 of the
following calendar year, and consisted of fifty-two weeks for fiscal years
1997 and 1996, and fifty-three weeks for fiscal year 1995. Fiscal years 1997,
1996 and 1995 ended on January 31, 1998, February 1, 1997 and February 3,
1996, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with an
original maturity of three months or less when purchased to be cash
equivalents. Cash equivalents are generally overnight money market
investments.
MERCHANDISE INVENTORIES
For both financial reporting and tax purposes, merchandise inventories are
determined by the retail method, using a LIFO (last-in, first-out) cost basis.
The estimated cost to replace inventories was $180,083 and $161,945 as of
January 31, 1998 and February 1, 1997, respectively.
PROPERTY, FIXTURES AND EQUIPMENT: DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property, fixtures and equipment are
computed using the straight-line method based upon the following average
estimated service lives (or remaining lease terms):
<TABLE>
<S> <C>
Buildings................................................. 20 to 40 years
Leasehold improvements.................................... 15 years
Fixtures and equipment.................................... 5 to 10 years
</TABLE>
No depreciation is recorded until property, fixtures and equipment are
placed into service. Property, fixtures and equipment not placed into service
are classified as construction in progress.
The Company capitalizes interest costs incurred as a result of the
construction of any new facilities or major improvements. The amount of
interest capitalized is limited to that incurred during the construction
period.
F-7
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Repair and maintenance costs are charged to operations as incurred. Property
retired or sold is removed from the asset and accumulated depreciation
accounts and the resulting gain or loss is reflected in income.
The costs of major remodeling and improvements on leased stores are
capitalized as leasehold improvements. Leasehold improvements are generally
amortized over the shorter of the lease term or the useful life of the asset.
Capital leases are recorded at the lower of fair market value or the present
value of future minimum lease payments. Capital leases are amortized over the
primary term.
STORE OPENING AND CLOSING COSTS
The Company follows the practice of accounting for store opening costs
incurred prior to opening a new retail unit as a current period expense. When
the decision to close a retail unit is made, the Company provides for
estimated future net lease obligations after store operations cease;
nonrecoverable investments in property, fixtures and equipment; and other
expenses directly related to discontinuance of operations. The estimates are
based upon historical information along with certain assumptions about future
events. Changes in the assumptions for store closing costs for such items as
the estimated period of future lease obligations and the amounts actually
realized relating to the recorded value of property, fixtures and equipment
could cause these estimates to change in the near term.
ADVERTISING
Advertising production costs are expensed the first time the advertisement
is run. Media placement costs are expensed in the period the advertising
appears. Total advertising expenses included in selling, general and
administrative expense for fiscal years 1997, 1996 and 1995 were $27,095,
$28,747 and $25,377, respectively. Prepaid expenses and other current assets
include prepaid advertising costs of $687 and $756 at January 31, 1998 and
February 1, 1997, respectively.
LEASED DEPARTMENT SALES
The Company leases space in several of its stores and receives compensation
based on a percentage of sales made in these departments. Other income, net
includes leased department rental income of approximately $2,502, $2,719 and
$2,607 in fiscal 1997, 1996 and 1995, respectively.
REVOLVING CHARGE ACCOUNTS
Finance charge income on customers' revolving charge accounts is reflected
as a reduction of selling, general and administrative expenses. The finance
charge income earned by the Company, before considering the costs of
administering and servicing the revolving charge accounts, for fiscal years
1997, 1996 and 1995 was $25,019, $19,502 and $21,869, respectively (see Note
4).
STOCK-BASED COMPENSATION
The Company follows Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which provides for
a fair value based method of accounting for grants of equity instruments to
employees or suppliers in return for goods or services. As permitted under
SFAS No. 123, the Company has elected to continue to account for compensation
costs under the provisions prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." The Company has included
pro forma disclosures of net income (loss) and basic and diluted earnings
(loss) per share in Note 11 as if the fair value based method had been applied
in measuring compensation cost.
F-8
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
NET INCOME (LOSS) PER SHARE
In the fourth quarter of fiscal 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128, which supersedes Accounting Principles Board Opinion No. 15,
"Earnings per Share," requires dual presentation of Basic and Diluted earnings
per share ("EPS") on the face of the statement of operations. Basic EPS is
computed by dividing reported earnings available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
EPS is computed assuming the conversion of all dilutive securities, such as
options and restricted stock. The effect of the adoption of SFAS No. 128 was
immaterial to the financial statements of the Company. In accordance with SFAS
No. 128, all prior period per share amounts have been restated to reflect the
new calculation and presentation. The statement requires a reconciliation of
the numerators and denominators used in the Basic and Diluted EPS
calculations. The numerator, net income (loss), is identical in both
calculations. The following table presents a reconciliation of the shares
outstanding for the respective calculations, as well as the calculated EPS for
each period presented on the accompanying Consolidated Statements of
Operations. The EPS shown in the reconciliation represents EPS before the
impact of extraordinary items.
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- -----------------
SHARES EPS SHARES EPS SHARES EPS
<S> <C> <C> <C> <C> <C> <C>
Basic Calculation.......... 11,122,000 $0.87 11,064,000 $0.62 11,044,000 $(0.83)
Dilutive Securities--
Restricted Shares........ 72,000 10,000 --
Options.................. 183,000 32,000 --
---------- ----- ---------- ----- ---------- ------
Diluted Calculation........ 11,377,000 $0.85 11,106,000 $0.61 11,044,000 $(0.83)
========== ===== ========== ===== ========== ======
</TABLE>
RECLASSIFICATIONS
To conform to the 1997 presentation, store pre-opening expenses incurred in
1995 of $2,191 were reclassified from unusual (income) expense to selling,
general and administrative expenses on the Consolidated Statements of
Operations.
ACCOUNTING FOR LONG-LIVED ASSETS
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). This statement requires
recognition of impairment losses for long-lived assets whenever events or
changes in circumstances result in the carrying amount of the assets exceeding
the sum of the expected future undiscounted cash flows associated with such
assets. The measurement of the impairment losses to be recognized is based on
the difference between the fair values and the carrying amounts of the assets.
SFAS No. 121 also requires any long-lived assets held for sale be reported at
the lower of carrying amount or the fair value less selling cost. The adoption
of this statement had no effect on the consolidated financial results of the
Company.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). Under SFAS No. 125, a transfer of financial assets in which the
transferor surrenders control over those assets is accounted for as a sale to
the extent consideration other than beneficial interests in the transferred
assets is received in exchange. It also requires that servicing assets and
other retained interests in the transferred assets be measured by allocating
the previous carrying amount between assets sold, if
F-9
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
any, and retained interests, if any, based on their relative fair value at the
date of transfer. The adoption of this statement on January 1, 1997 did not
have a material effect on the consolidated financial results of the Company
for fiscal 1997 or fiscal 1996.
2. DEBT:
Debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
Revolving credit agreement--principal payable April
15, 2000; interest payable periodically at varying
rates (8.11% for fiscal year 1997)................. $ 88,900 $ 37,000
Term loan........................................... -- 65,000
Mortgage notes payable--principal payable in varying
monthly installments through June 2016 plus
interest at a fixed rate of 9.62%; secured by land
and buildings...................................... 21,918 22,306
Mortgage note payable--principal and interest in
monthly installments of $68 through January 2001,
with a balloon payment in February 2001; interest
11.00%; secured by buildings....................... 6,359 6,465
Mortgage notes payable--principal payable February
1, 2012; interest payable monthly at various rates;
secured by a building.............................. 4,500 4,500
Other notes payable................................. -- 112
-------- --------
Total debt.......................................... 121,677 135,383
Less: current maturities............................ 556 9,763
-------- --------
Long-term debt...................................... $121,121 $125,620
======== ========
</TABLE>
In April 1997, the Company entered into a three-year revolving credit
agreement with several financial institutions, replacing the Company's
previous $86,250 term loan and $85,000 revolving credit agreement. The new
agreement provides for a borrowing base, with subjective elements, determined
upon eligible inventory and selected fixed assets and real estate, up to an
aggregate principal amount of $200,000. As of January 31, 1998, the Company
borrowed $88,900 with $17,500 of borrowings remaining available under this
agreement. The interest charged under this agreement, based on LIBOR or an
index rate plus an applicable margin, is determined by a formula based on the
Company's interest coverage ratios (defined as the ratio of earnings before
interest, taxes, depreciation and amortization (EBITDA) to interest expense).
In connection with the repayment of the previous term loan and revolving
credit agreement, the Company recognized a one-time extraordinary after-tax
charge of $446, or $0.04 per share in fiscal 1997.
In May 1996, the Company entered into a $23,400, twenty-year mortgage
agreement, secured by its four stores in Rochester, New York. The net proceeds
were used to repay debt and to fund ongoing working capital requirements.
The Company maintains an interest rate swap portfolio which allows the
Company to convert floating rate borrowings to fixed rates. The following
table indicates the notional amounts and the range of interest rates paid and
received by the Company as of January 31, 1998 and February 1, 1997:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
Fixed swaps (notional amount)........................ $60,000 $60,000
Range of receive rate.............................. 5.56%-6.24% 5.50%-6.24%
Range of pay rate.................................. 5.97%-8.06% 7.02%-8.06%
</TABLE>
F-10
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
The interest rate swap agreements will expire on various dates from January
29, 1999 to December 22, 2000. The net income or expense from the exchange of
interest rate payments is included in interest expense. The estimated fair
value, based on dealer quotes, of the interest rate swap agreements at January
31, 1998 and February 1, 1997 was a loss of $1,261 and $1,963, respectively,
and represents the amount the Company would pay if the agreements were
terminated as of such dates.
Several of the Company's loan agreements contain restrictive covenants,
including a minimum trade support ratio, a minimum fixed charge ratio and
limitations on dividends, additional incurrence of debt and capital
expenditures.
The fair value of the Company's debt, excluding interest rate swaps, is
estimated at $122,310 and $133,844 on January 31, 1998 and February 1, 1997,
respectively, and is based on an estimate of the rates available to the
Company for debt with similar features.
Debt maturities, as of January 31, 1998, are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 556
1999............................................................. 604
2000............................................................. 89,570
2001............................................................. 6,542
2002............................................................. 639
2003 and thereafter.............................................. 23,766
--------
$121,677
========
</TABLE>
3. INTEREST COSTS:
Interest and debt costs were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
Interest cost incurred................... $13,441 $14,955 $ 9,820
Interest income.......................... (234) (153) (437)
Capitalized interest, net................ (5) (115) (661)
------- ------- -------
Interest expense, net.................... $13,202 $14,687 $ 8,722
======= ======= =======
Interest paid............................ $12,887 $14,898 $10,441
======= ======= =======
</TABLE>
4. SALE OF RECEIVABLES:
The Company securitizes its private credit card portfolio through an
accounts receivable facility (the "Facility"). Under the securitization
agreement, which expires in January 2000 and is contingent upon the
receivables meeting certain performance criteria, the Company has the option
to sell through The Bon-Ton Receivables Partnership, LP ("BTRLP"), a wholly-
owned subsidiary of the Company, an undivided percentage interest in the
receivables, on a limited recourse basis. BTRLP assets of $27,979 and $15,413
as of January 31, 1998 and February 1, 1997, respectively, were included in
the accompanying Consolidated Balance Sheets and consist primarily of its
retained interest in receivables initially purchased from the Company and sold
under the Facility. The Company accounts for its undivided interest in the
receivables in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
F-11
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
The Company has not recognized any unrealized gains or losses on its
participation interest as the current carrying value of customers' revolving
charge accounts receivable is a reasonable estimate of fair value since the
average interest rates approximate current market origination rates. Creditors
of BTRLP have a claim on BTRLP's assets prior to any equity in BTRLP becoming
available to creditors of the Company.
In January 1998, the Company increased its accounts receivable facility to
$150,000 to increase the level of receivables it may sell to fund working
capital. In September 1996, the Company reduced the Facility to $120,000 based
on the Company's analysis of credit sales as a percentage of total sales and
the required level of working capital.
As of January 31, 1998 and February 1, 1997, credit card receivables were
sold under the above referenced agreement in the amount of $132,000 and
$110,000, respectively. BTRLP holds a participating interest in an undivided
ownership interest in the receivables sold. This interest is required to be
held under terms of the agreement to provide credit support against future
losses and is subject to lien. The amount subject to credit support amounted
to $21,071 and $19,764 at January 31, 1998 and February 1, 1997, respectively.
New receivables are sold on a continual basis to replenish the investors'
respective level of participation in receivables which have been repaid by the
credit card holders. The Company does not recognize a servicing asset or
liability, as the amount received for servicing the receivables is a
reasonable approximation of market rates and servicing costs.
The net impact on earnings in connection with the sale of receivables under
this agreement was not significant. However, under the terms of the sale
agreement, the Company receives securitization income equal to the excess of
the finance charges collected on the receivables over the rate paid in these
securitization transactions and credit losses which are payable under the
recourse provisions of these agreements. The Company also continues to service
the accounts. The rate paid may be based on variable or fixed rate pricing
alternatives at the option of the Company. Securitization income, before
consideration of servicing expenses, was approximately $8,410, $6,211 and
$5,205 in fiscal 1997, 1996 and 1995, respectively, and has been reported as
part of finance charge income. Although the Company receives positive
securitization cash flow, an interest-only strip has not been recorded due to
the short life of the receivables and to provide for credit losses under the
recourse provision of the Facility.
5. PURCHASE OF RECEIVABLES:
The Company purchased certain customer accounts receivable of Hess's
Department Stores, Inc. on February 24, 1995. The net investment in this
purchase was $30,138. The receivables were purchased from a finance company
which had an agreement with Hess's Department Stores, Inc. to acquire and
service their receivables.
F-12
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
6. PROPERTY, FIXTURES AND EQUIPMENT:
As of January 31, 1998 and February 1, 1997, property, fixtures and
equipment and the related accumulated depreciation and amortization consisted
of:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
Land................................................ $ 1,171 $ 1,409
Buildings and leasehold improvements................ 94,635 99,743
Furniture and equipment............................. 89,128 82,186
Buildings under capital leases...................... 5,052 5,052
-------- --------
189,986 188,390
Less: Accumulated depreciation and amortization..... 81,418 70,674
-------- --------
$108,568 $117,716
======== ========
</TABLE>
Property, fixtures and equipment with a net depreciated cost of
approximately $41,336 and $43,255 are pledged as collateral for secured loans
at January 31, 1998, and February 1, 1997, respectively.
Included in Land, Buildings and leasehold improvements is $2.6 million for a
vacant store owned by the Company located in Allentown, Pennsylvania. The
Company is currently negotiating for the sale of this property, however, at
this time, there is no binding contract for the sale. The Company will
continue to pursue opportunities to dispose of this property. The Company
believes the established reserves are adequate.
7. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company is obligated under capital and operating leases for a major
portion of its store properties. Certain leases provide for additional rental
payments based on a percentage of sales in excess of a specified base
(contingent rentals) and for payment by the Company of operating costs (taxes,
maintenance and insurance). Also, selling space has been licensed to other
retailers in many of the Company's leased facilities.
At January 31, 1998, future minimum lease payments under operating leases
and the present value of net minimum lease payments under capital leases are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL LEASES OPERATING LEASES
<S> <C> <C>
1998.......................................... $ 579 $ 15,445
1999.......................................... 579 14,780
2000.......................................... 579 12,863
2001.......................................... 579 11,427
2002.......................................... 300 10,405
2003 and thereafter........................... 800 62,841
------ --------
Total net minimum rentals..................... 3,416 $127,761
========
Less: Amount representing interest............ 774
------
Present value of net minimum lease payments,
of which $379 is due within one year......... $2,642
======
</TABLE>
Minimum rental commitments under operating leases detailed earlier are
reflected without reduction for rental income due in future years under
noncancellable subleases since the amounts are immaterial. Some of the store
leases contain renewal options ranging from two to thirty-five years. Included
in the minimum lease payments under operating leases are leased vehicles,
copiers and computer equipment, as well as related-party commitments with the
Company's majority shareholder and related entities of $713, $713, $715, $745,
$745 and $5,568 for fiscal 1998, 1999, 2000, 2001, 2002 and 2003 and
thereafter, respectively.
F-13
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Rental expense consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
Operating leases:
Buildings:
Minimum rentals........................... $13,898 $13,660 $13,580
Contingent rentals........................ 2,636 2,374 2,402
Fixtures and equipment..................... 1,332 750 2,265
Contingent rentals on capital leases....... 410 357 321
------- ------- -------
Totals.................................. $18,276 $17,141 $18,568
======= ======= =======
</TABLE>
CONTINGENCIES
The Company is party to legal proceedings and claims which arise during the
ordinary course of business. In the opinion of management, the ultimate
outcome of such litigation and claims will not have a material adverse effect
on the Company's financial position or results of its operations.
8. SHAREHOLDERS' EQUITY
The Company's capital structure consists of Common Stock with one vote per
share and Class A Common Stock with ten votes per share. In addition, the
Company has 5,000,000 shares of preferred stock authorized; however, none of
these shares have been issued.
Transfers of the Company's Class A Common Stock are restricted. Upon sale or
transfer of ownership or voting rights to other than permitted transferees, as
defined, such shares will convert to an equal number of shares of Common
Stock. During fiscal 1995, 2,935,317 shares of Class A Common Stock were
converted to an equal number of shares of Common Stock.
9. INCOME TAXES:
The Company accounts for income taxes according to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Under SFAS No. 109, deferred tax assets and liabilities are computed based on
the difference between the financial statement and income tax basis of assets
and liabilities using applicable current marginal tax rates.
Components of income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
Federal and State:
Current................................ $ 7,480 $ 833 $(12,475)
Deferred............................... (1,210) 4,116 6,709
------- ------ --------
Total.................................. $ 6,270 $4,949 $ (5,766)
======= ====== ========
</TABLE>
F-14
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Components of gross deferred tax assets and liabilities were comprised of
the following:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
<S> <C> <C>
Deferred tax assets:
Store closings..................................... $1,969 $ 1,535
Accrued expenses................................... 1,560 2,366
Restricted Shares.................................. 1,096 1,014
Sale and leaseback................................. 1,030 --
Bad debt reserve................................... 712 997
Loss carryforward.................................. 324 796
Capital leases..................................... 140 157
AMT credit carryforward............................ -- 833
Other.............................................. 168 166
Valuation allowance................................ (288) (169)
------ -------
Total gross deferred tax assets.................... $6,711 $ 7,695
====== =======
Deferred tax liabilities:
Fixed assets....................................... $4,740 $ 3,949
Inventory.......................................... 2,155 2,783
Pension asset...................................... -- 2,718
Other.............................................. 1,408 1,047
------ -------
Total gross deferred tax liabilities............... $8,303 $10,497
====== =======
</TABLE>
The loss carryforward at January 31, 1998 relates to the acquisition of
Adam, Meldrum & Anderson Co., Inc. and will expire in January 2009.
The valuation allowance relates to the deferred tax assets that result from
accrued expenses that are not deductible for tax purposes due to the
limitations arising from Section 162 of the Internal Revenue Code of 1986, as
amended ("IRC 162"), relating to deductions for executive compensation.
No other deferred tax assets have associated valuation allowances since
these tax benefits are realizable through the reversal of existing deferred
tax liabilities and future taxable income, exclusive of reversals of temporary
differences and carryforwards.
A reconciliation of the statutory federal income tax rate to the effective
tax rate for fiscal 1997, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
<S> <C> <C> <C>
Tax at statutory rate.................. 35.0% 35.0% (35.0)%
Tax credits............................ -- -- (4.0)
Refund of prior year income taxes...... -- -- (4.8)
Book expense in excess of IRC 162
limitation............................ 2.3 3.6 5.0
State income taxes, net of federal
benefit............................... 1.0 1.0 --
Excise tax on pension termination...... -- 3.4 --
Other, net............................. 1.0 (0.9) 0.3
---- ---- -----
Total................................ 39.3% 42.1% (38.5)%
==== ==== =====
</TABLE>
F-15
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
In fiscal 1997 and 1995, the Company made income tax payments of $2,194 and
$5,071, respectively. The Company received income tax refunds, net of
payments, of $8,641 in fiscal 1996.
10. EMPLOYEE BENEFIT PLANS:
The Company provides eligible employees with retirement benefits under a
401(k) salary reduction and profit sharing plan (the "Plan"). Employees are
eligible to participate in the Plan after they reach the age of 21, complete
one year of service and work at least 1,000 hours in any calendar year. Under
the 401(k) provisions of the Plan, the majority of eligible employees may
contribute up to 20% of their compensation to the Plan. Company matching
contributions, not to exceed 5% of eligible employees' compensation, are at
the discretion of the Company's Board of Directors. Company matching
contributions under the 401(k) provisions of the Plan become fully vested for
eligible employees after three years of service. Contributions to the Plan
under the profit sharing provisions are at the discretion of the Company's
Board of Directors. These profit sharing contributions become fully vested
after five years of service. The Company contributed $1,350 in fiscal 1997 and
$1,200 in fiscal 1996 under the profit sharing provisions of the Plan. No
contributions were made under the profit sharing provisions for fiscal 1995.
In addition to the above plans, the Company maintains a non-qualified
compensation plan for a select group of management employees.
The Company's fiscal 1997, 1996 and 1995 expense under the aforementioned
benefit plans was $1,951, $1,932 and $395, respectively.
In December 1995, the Company merged the Adam, Meldrum and Anderson Co.,
Inc. Pension Plan into the Hess's Department Stores, Inc. Employees' Pension
Plan. These defined benefit pension plans (the "Merged Plan") covered
substantially all the former employees of Adam, Meldrum and Anderson Co., Inc.
and Hess's Department Stores, Inc., respectively. The Adam, Meldrum and
Anderson Co., Inc. Pension Plan was curtailed in fiscal 1992 by the former
owners. The Hess's Department Stores, Inc. Employees' Pension Plan was
overfunded at the time of the purchase of certain assets of Hess's Department
Stores, Inc. Due to the overfunded status of the Merged Plan an asset was
recorded in the purchase price allocation for the estimated net realizable
value of the overfunded plan at the expected termination date.
In April 1996, the Company began the termination process of the Merged Plan.
The participants' obligations were settled through an election by the
participants of either a lump sum payout or an annuity purchase. The
settlement of participants' obligations was completed in November 1996. As a
result of this settlement, the Company recorded a gain in fiscal 1996 of
$3,171, net of $1,132 Federal excise tax expense, to recognize the value of
assets to be reverted to the Company in excess of the asset established in
purchase accounting.
Completion of the funds reversion was completed in November 1997. Total
funds reverted to the Company amounted to $6,005, net of $1,132 Federal excise
taxes paid. Additionally, the Company also transferred $2,007 to the Company's
profit sharing plan of which $1,200 was used to fund the Company's 1996
contribution. The remaining balance in the Plan will partially fund the
Company's 1997 contribution of $1,350.
11. STOCK AWARD PLANS:
The Company's Amended and Restated 1991 Stock Option and Restricted Stock
Plan (the "Stock Plan"), as amended through June 17, 1997, provides for the
granting of the following options and awards to certain associates, officers,
directors, consultants and advisors: Common Stock options; performance-based
Common Stock options as part of a long-term incentive plan for selected
officers; and Common Stock awards subject to substantial risk of forfeiture
("Restricted Shares"). The maximum number of shares to be granted under the
F-16
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Stock Plan, less forfeitures, is 1,900,000 shares. In addition to the Stock
Plan, during 1991 the Board of Directors approved a Phantom Equity Replacement
Plan (the "Replacement Plan") to replace the Company's previous deferred
compensation arrangement that was structured as a phantom stock program.
The Company amended its Management Incentive Plan (the "MIP Plan") in 1997
to provide, at the election of each participant, for bonus awards to be
received in vested Restricted Shares in lieu of cash on the satisfaction of
applicable performance goals. The maximum number of shares to be granted under
the MIP Plan is 300,000.
Options granted under the Stock Plan, excluding Restricted Share awards, are
generally issued at the market price of the Company's stock on the date of
grant, vest over three to five years and have a ten-year term. Grants under
the Replacement Plan vest over approximately one to six years and have a
thirty-year term.
Compensation cost charged to operations, calculated using the intrinsic
value method as required by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," was $1,345, $505 and $293 in
fiscal 1997, 1996 and 1995, respectively. Had the Company recorded
compensation expense using the fair value based method as discussed in SFAS
No. 123, "Accounting for Stock-Based Compensation," net income (loss) and
earnings (loss) per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C>
Net income (loss)......................... As reported $9,252 $6,811 $(9,203)
Pro forma 8,416 5,987 (9,496)
Earnings (loss) per share
Basic................................... As reported $ 0.83 $ 0.62 $ (0.83)
Pro forma 0.76 0.54 (0.86)
Diluted................................. As reported $ 0.81 $ 0.61 $ (0.83)
Pro forma 0.74 0.54 (0.86)
</TABLE>
The Company used the Black-Scholes option pricing model to calculate the
fair value of the stock options at the grant date. The following assumptions
were used for 1997 calculations: risk-free interest rate--6.3%; expected
volatility--61.5%; expected life--7.2 years; expected dividend yield--0.0% and
for both 1996 and 1995 calculations: risk-free interest rate--6.4%; expected
volatility--65.0%; expected life--7 years; expected dividend yield--0.0%.
F-17
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
A summary of the options under the Stock Plan follows:
<TABLE>
<CAPTION>
PERFORMANCE- RESTRICTED
COMMON STOCK OPTIONS BASED OPTIONS SHARES
---------------------- ----------------- ----------
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER
OPTIONS PRICE OPTIONS PRICE OF SHARES
<S> <C> <C> <C> <C> <C>
FISCAL 1995
January 28, 1995.......... 401,976 $10.07 86,300 $ 7.25 21,528
Granted.................. 371,600 $ 7.26 33,300 $11.25 270,000
Exercised................ (68,868) $ 8.90 -- -- (7,176)
Forfeited................ (66,958) $ 9.91 (25,600) $ 7.25 (2,912)
----------- -------- ------- ------ -------
February 3, 1996.......... 637,750 $ 8.57 94,000 $ 8.67 281,440
=========== ======== ======= ====== =======
Options exercisable at
February 3, 1996......... 142,885 $11.26 -- -- --
Weighted average fair
value of options granted
during fiscal 1995....... $ 5.84 $ 7.89
FISCAL 1996
Granted.................. 131,286 $ 6.58 176,800 $ 6.13 --
Exercised................ -- -- -- -- (11,659)
Forfeited................ (17,216) $ 8.69 (60,700) $ 7.25 (1,456)
----------- -------- ------- ------ -------
February 1, 1997.......... 751,820 $ 8.22 210,100 $ 6.94 268,325
=========== ======== ======= ====== =======
Options exercisable at
February 1, 1997......... 328,653 $ 9.54 -- -- --
Weighted average fair
value of options granted
during fiscal 1996....... $ 4.40 $ 4.20
FISCAL 1997
Granted.................. 134,300 $ 6.86 167,100 $ 7.25 --
Exercised................ (243,759) $ 6.04 -- -- (10,955)
Forfeited................ (25,866) $10.32 -- -- (704)
----------- -------- ------- ------ -------
January 31, 1998.......... 616,495 $ 8.35 377,200 $ 7.08 256,666
=========== ======== ======= ====== =======
Options exercisable at
January 31, 1998......... 274,309 $10.03 -- -- --
Weighted average fair
value of options granted
during fiscal 1997....... $ 4.84 $ 4.95
</TABLE>
The exercised shares in the above summary for Restricted Shares represent
shares for which the restrictions have lapsed.
The range of exercise prices for the Common Stock options outstanding as of
January 31, 1998 was $5.88 to $13.00 with a weighted average contractual life
of 7.2 years. The range of exercise prices for the performance-based options
was $6.13 to $11.25, with a weighted average contractual life of 8.4 years.
F-18
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
A summary of the status of the Replacement Plan follows:
<TABLE>
<CAPTION>
NON-
DISCOUNT DISCOUNT
OPTIONS OPTIONS
<S> <C> <C>
Exercise Price.............................................. $ 3.25 $ 13.00
-------- -------
January 28, 1995............................................ 155,888 48,894
Exercised................................................. (10,239) --
Forfeited................................................. (3,071) (6,288)
-------- -------
February 3, 1996............................................ 142,578 42,606
Exercised................................................. -- --
Forfeited................................................. -- --
-------- -------
February 1, 1997............................................ 142,578 42,606
Exercised................................................. (57,309) --
Forfeited................................................. -- (5,054)
-------- -------
January 31, 1998............................................ 85,269 37,552
-------- -------
</TABLE>
As of January 31, 1998, February 1, 1997 and February 3, 1996, the
exercisable discounted options amounted to 83,411, 138,861 and 130,259,
respectively, and exercisable non-discounted options amounted to 36,122,
39,746 and 36,413, respectively.
The Company granted 202,300 Restricted Shares under the MIP Plan. No
Restricted Shares have vested or were forfeited during fiscal 1997.
Cancellation of options and shares in the above plans resulted primarily
from the termination of the employment of certain executives and voluntary
forfeitures by key executives.
12. ACQUISITIONS:
On March 6, 1995, the Company acquired three vacant department stores in
Rochester, New York for $14,565. After completing renovations, the stores
opened to the public on November 1, 1995. In addition, on November 13, 1995,
the Company acquired one department store in Greece Ridge, New York for
$3,670. This unit opened to the public on August 8, 1996 following major
remodeling.
F-19
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
13. QUARTERLY RESULTS (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-----------------------------------------------
MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31,
FISCAL 1997: 1997 1997 1997 1998
<S> <C> <C> <C> <C>
Net sales..................... $ 134,251 $ 137,994 $ 155,513 $ 228,641
Other income, net............. 491 472 457 929
---------- ---------- ---------- ----------
134,742 138,466 155,970 229,570
---------- ---------- ---------- ----------
Costs of merchandise sold..... 84,936 86,152 97,212 145,546
Selling, general and adminis-
trative expenses............. 46,002 47,457 51,064 58,327
Depreciation and amortiza-
tion......................... 3,166 3,196 3,500 3,020
---------- ---------- ---------- ----------
Income from operations........ 638 1,661 4,194 22,677
Interest expense, net......... 3,549 3,223 3,254 3,176
---------- ---------- ---------- ----------
Income (loss) before income
taxes........................ (2,911) (1,562) 940 19,501
Income tax provision (bene-
fit)......................... (1,108) (594) 367 7,605
---------- ---------- ---------- ----------
Income (loss) before extraor-
dinary item.................. (1,803) (968) 573 11,896
Extraordinary item--loss on
early extinguishment of debt,
net of income tax benefit of
$251......................... (446) -- -- --
---------- ---------- ---------- ----------
Net income (loss)............. $ (2,249) $ (968) $ 573 $ 11,896
========== ========== ========== ==========
Per share amounts--
Basic:
Net income (loss) before ex-
traordinary item............. $ (0.16) $ (0.09) $ 0.05 $ 1.06
Effect of extraordinary item.. (0.04) -- -- --
---------- ---------- ---------- ----------
Net income (loss)............. $ (0.20) $ (0.09) $ 0.05 $ 1.06
========== ========== ========== ==========
Basic shares outstanding...... 11,073,000 11,075,000 11,082,000 11,261,000
Diluted:
Net income (loss) before ex-
traordinary item............. $ (0.16) $ (0.09) $ 0.05 $ 1.00
Effect of extraordinary item.. (0.04) -- -- --
---------- ---------- ---------- ----------
Net income (loss)............. $ (0.20) $ (0.09) $ 0.05 $ 1.00
========== ========== ========== ==========
Diluted shares outstanding.... 11,073,000 11,075,000 11,493,000 11,867,000
</TABLE>
F-20
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
------------------------------------------------
MAY 4, AUGUST 3, NOVEMBER 2, FEBRUARY 1,
FISCAL 1996: 1996 1996 1996 1997
<S> <C> <C> <C> <C>
Net sales................. $ 129,320 $ 130,740 $ 148,374 $ 218,048
Other income, net......... 522 500 497 911
---------- ---------- ---------- ----------
129,842 131,240 148,871 218,959
---------- ---------- ---------- ----------
Costs of merchandise
sold..................... 80,518 81,276 93,514 140,255
Selling, general and ad-
ministrative expenses.... 46,615 46,172 48,497 56,031
Depreciation and amortiza-
tion..................... 3,048 3,025 3,256 3,429
Unusual income............ -- -- -- (3,171)(1)
---------- ---------- ---------- ----------
Income (loss) from opera-
tions.................... (339) 767 3,604 22,415
Interest expense, net..... 3,097 3,801 3,979 3,810
---------- ---------- ---------- ----------
Income (loss) before in-
come taxes............... (3,436) (3,034) (375) 18,605
Income tax provision (ben-
efit).................... (1,237) (1,088) (133) 7,407
---------- ---------- ---------- ----------
Net income (loss)......... $ (2,199) $ (1,946) $ (242) $ 11,198
========== ========== ========== ==========
Per share amounts--
Basic:
Net income (loss)......... $ (0.20) $ (0.18) $ (0.02) $ 1.01
========== ========== ========== ==========
Basic shares outstanding.. 11,062,000 11,064,000 11,064,000 11,067,000
Diluted:
Net income (loss)......... $ (0.20) $ (0.18) $ (0.02) $ 1.00
========== ========== ========== ==========
Diluted shares outstand-
ing...................... 11,062,000 11,064,000 11,064,000 11,235,000
</TABLE>
- ---------------------
(1) Gain recognized on the pension termination was $1.6 million or $0.14 per
share on an after-tax basis (see Note 10).
14. CHIEF EXECUTIVE OFFICER EMPLOYMENT:
In August 1995, the Company hired Mr. Heywood Wilansky as President and
Chief Executive Officer pursuant to a three year employment agreement. In
addition to a base salary, bonus eligibility, and other annual benefits and
perquisites, he received 250,000 Restricted Shares and an option to purchase
250,000 shares of Common Stock at $6.625 per share (the market price on
issuance date). The restricted shares, which as of the date of the grant had a
market value of $1,656, will vest at the rate of 33 1/3% per annum over three
years beginning at the third anniversary of the date of employment. The market
value of $1,656 is being amortized over the five-year vesting period. The
options will become exercisable at the rate of 33 1/3% per annum over three
years beginning on the first anniversary of the date of employment and
expiring upon the lapse of ten years from the date the options were granted.
Both the stock options and restricted shares were issued under the Stock Plan
(see Note 11). Should Mr. Wilansky leave the Company before vesting, these
benefits will be forfeited upon departure except in certain limited
circumstances. Mr. Wilansky also received a one-time signing bonus of $750 in
fiscal 1995.
The Company signed an agreement with Mr. Wilansky, effective February 1,
1998, to extend his employment as the Company's President and Chief Executive
Officer through January 31, 2003. This new agreement provides for increased
cash and stock-based compensation.
F-21
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
15. UNUSUAL (INCOME) EXPENSE:
In January 1997, the Company recorded unusual income of $3,171 before taxes,
which is presented separately as a component of income (loss) from operations
in the Consolidated Statements of Operations. The income relates to a $4,303
gain that was recognized on the termination of the Merged Plan. The gain was
partially offset by $1,132 for Federal excise tax that was paid when the
pension assets were reverted to the Company. The asset reversion occurred
during 1997 (see Note 10).
In October 1995, the Company recorded unusual expenses of $3,280 before
taxes. This is presented separately as a component of income (loss) from
operations in the Consolidated Statements of Operations. The charge is
comprised of relocation costs, employment agency fees, litigation costs and a
signing bonus associated with the hiring of the Chief Executive Officer (see
Note 14). The litigation cost related to actions brought by the Chief
Executive Officer's former employer, alleging violation of a non-compete
agreement between the Chief Executive Officer and the former employer. This
suit was settled in fiscal 1995.
16. RESTRUCTURING CHARGES:
In January 1996, the Company recorded a restructuring charge of $5,690
before taxes, which is presented separately as a component of income (loss)
from operations in the Consolidated Statements of Operations. The amount is
comprised of $5,000 relating to store closings and $690 for workforce
reductions. The $5,000 for store closings relates to stores that the Company
closed due to poor performance. The costs provided for these store closings
represented noncancellable lease costs after store operations cease, lease
cancellation costs and nonrecoverable investments in property, fixtures and
equipment. During 1996, the Company closed five locations, with combined sales
and net operating income of $12,600 and $293, respectively, for the 1996
fiscal year. The amounts incurred in fiscal 1997 and the remaining accrual for
store closing as of January 31, 1998 were $580 and $2,895, respectively. As of
February 1, 1997 the amounts incurred in fiscal 1996 and remaining accrual
were $1,525 and $3,475, respectively. It is anticipated that the remaining
costs will be expended through the end of 2005, and relate primarily to a
leased property located in Johnstown, Pennsylvania. The Company continues to
negotiate for the early termination of this lease. Currently, these
negotiations have not been successful. The Company believes the established
reserves are adequate. The $690 relating to workforce reductions consisted of
severance paid in connection with the elimination of approximately 700
positions. These positions were eliminated across all areas of the Company and
represented approximately 250 employees on a full-time equivalent basis. The
amounts paid during fiscal 1996 and 1995 for these workforce reductions were
$277 and $413, respectively. As of January 31, 1998 and February 1, 1997 there
was no accrual remaining.
17. SALE AND LEASEBACK ARRANGEMENT:
In April 1997, the Company sold the land, building and leasehold
improvements comprising its department store in Johnstown, Pennsylvania and
distribution center in Allentown, Pennsylvania and subsequently leased the
facilities back under a twenty-year lease. The lease has been accounted for as
an operating lease for financial reporting purposes. Annual payments under the
operating lease agreement are $1,270. The $10,841 of net proceeds received
from the sale were used to pay down debt by $8,208 and to provide additional
working capital. The gain associated with the sale, totaling $2,986, has been
deferred in other long-term liabilities and is being amortized on a straight-
line basis over the twenty-year lease term.
F-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITA-
TION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITA-
TION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 11
Dividend Policy.......................................................... 11
Price Range of Common Stock.............................................. 11
Capitalization........................................................... 12
Selected Consolidated Financial and Operating Data....................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 21
Management............................................................... 30
Certain Transactions..................................................... 38
Principal and Selling Shareholders....................................... 39
Description of Capital Stock............................................. 42
Shares Eligible for Future Sale.......................................... 45
Underwriting............................................................. 46
Legal Matters............................................................ 47
Experts.................................................................. 47
Available Information.................................................... 48
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 SHARES
[LOGO OF THE BON-TON APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY
SECURITIES LLC
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table presents an itemized estimate of all expenses in
connection with the issuance and distribution of the Common Stock, other than
underwriting discounts and commissions. All such expenses, except for the fees
of the Commission, National Association of Securities Dealers, Inc. ("NASD")
and Nasdaq National Market are estimated.
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------
<S> <C>
SEC Registration Fee............................................... $ 20,695
NASD Fee........................................................... 7,515
Nasdaq National Market Listing Fee................................. 17,500
Printing and Engraving Costs....................................... 110,000
Registrant's Counsel Fees and Expenses............................. 175,000
Accounting Fees and Expenses....................................... 100,000
Blue Sky Expenses and Counsel Fees................................. 5,000
Transfer Agent and Registrar Fees.................................. 10,000
Miscellaneous...................................................... 54,290
--------
Total............................................................ $500,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 1713 of Subchapter B of the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL"), provides that if the bylaws of a business
corporation so provide, no directors shall be personally liable for monetary
damages for any action or failure to act unless the director has breached or
failed to perform his or her duties under Subchapter B of Chapter 17 of the
BCL and the breach or failure to perform constitutes self-dealing, wilful
misconduct or recklessness. Such provision does not apply to the
responsibility or liability of a director with respect to any criminal statute
or for the payment of taxes. The Company's Bylaws ("Bylaws") contain
provisions which limit the liability of directors as described in Section
1713.
Subchapter D (Sections 1741 through 1750) of Chapter 17 of the BCL contains
provisions for mandatory and discretionary indemnification of a corporation's
directors, officers, employees and agents (collectively, "Representatives"),
and related matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors, officers and other Representatives under certain
prescribed circumstances against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with a threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party or threatened to be made a party by reason of his being
a Representative of the corporation or serving at the request of the
corporation as a Representative of another corporation, partnership, joint
venture, trust or other enterprise, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.
Section 1742 provides for indemnification with respect to derivative actions
similar to that provided by Section 1741. However, indemnification is not
provided under Section 1742 in respect of any claim, issue or matter as to
which a Representative has been adjudged to be liable to the corporation
unless and only to the extent that the proper court determines upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, a Representative is fairly and reasonably entitled
to indemnity for the expenses that the court deems proper.
II-1
<PAGE>
Section 1743 provides that indemnification against expenses is mandatory to
the extent that a Representative has been successful on the merits or
otherwise in defense of any such action or proceeding referred to in Section
1741 or 1742.
Section 1744 provides that unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of a
Representative is proper because the Representative met the applicable
standard of conduct, and such determination will be made by the board of
directors by a majority vote of a quorum of directors not parties to the
action or proceeding; if a quorum is not obtainable or if obtainable and a
majority of disinterested directors so directs, by independent legal counsel;
or by the shareholders.
Section 1745 provides that expenses incurred by a Representative in
defending any action or proceeding referred to in Subchapter D of Chapter 17
of the BCL may be paid by the corporation in advance of the final disposition
of such action or proceeding upon receipt of an undertaking by or on behalf of
the Representative to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation.
Section 1746 provides generally that except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter D of
Chapter 17 of the BCL shall not be deemed exclusive of any other rights to
which a Representative seeking indemnification or advancement of expenses may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding that office and that the corporation
may create a fund or otherwise secure or insure its indemnification
obligations, whether arising by law or otherwise.
Section 1747 grants a corporation the power to purchase and maintain
insurance on behalf of any Representative against any liability incurred by
him in his capacity as a Representative, whether or not the corporation would
have the power to indemnify him against that liability under Subchapter D of
Chapter 17 of the BCL.
Sections 1748 and 1749 apply the indemnification and advancement of expenses
provisions contained in Subchapter D of Chapter 17 of the BCL to successor
corporations resulting from consolidation, merger or division and to service
as a representative of a corporation with respect to an employee benefit plan.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter D of Chapter 17 of the BCL
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a Representative and shall inure to the benefit of
the heirs and personal representatives of such Representative.
The Company's Bylaws provide that the Company shall, to the fullest extent
permitted by Pennsylvania law, indemnify and hold harmless each director or
officer of the Company who was or is a party to, or is threatened to be made a
party to, or is otherwise involved in, any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
investigative or through arbitration (each being a "Proceeding"), for all
actions taken by him or her and for all failures to take action. Indemnitees
shall be indemnified and held harmless against all expense, liability and
loss, including without limitation attorneys' fees, judgments, fines, taxes,
penalties and amounts paid or to be paid in settlement, reasonably incurred or
suffered by such indemnitee in connection with a Proceeding; provided,
however, that no indemnification shall be made in any case where the act or
failure to act giving rise to the claim of indemnification is determined by a
court to have constituted willful misconduct or recklessness. Such right to
indemnification includes the right to have expenses incurred by the indemnitee
in defending any Proceeding to be paid by the corporation in advance of the
final disposition thereof, provided that if Pennsylvania law so requires such
payment shall only be made upon receipt from the indemnitee of an undertaking
to repay advanced amounts without interest if it is ultimately determined that
the indemnitee is not entitled to indemnification. The Bylaws further provide
that indemnification
II-2
<PAGE>
shall continue as to an indemnitee who has ceased to be a director or officer
and shall inure to the benefit of his or her heirs, executors and
administrators.
The Company's Bylaws authorize the Company to purchase and maintain
insurance to insure its indemnification obligations, whether arising under the
Bylaws or otherwise. The Company may create a fund or otherwise secure its
indemnification obligations which arise under the Bylaws, the Articles, by
agreement, vote of shareholders or directors, or otherwise. The Company has
purchased directors' and officers' liability insurance.
The Company's Bylaws provide that provisions relating to indemnification and
the advancement of expenses shall constitute a contract between the Company
and the indemnitee, and that any repeal or amendment of such provisions
adverse to such directors and officers shall apply only on a prospective basis
and shall not limit such rights with respect to any act or failure to act
prior to such repeal or amendment. Any such repeal or amendment which reduces
the limitation of liability or indemnification or advancement of expenses must
be adopted by the unanimous vote of the directors of the affirmative vote of a
majority of the votes that shareholders are entitled to cast in the election
of directors. The Company's Bylaws also provide in the event of a change in
Pennsylvania law which expands the liability of directors or limits rights of
indemnification or advancement of expenses, such rights to limitation of
liability, indemnification and advancement of expenses shall continue to the
fullest extent provided by law, and that if such change in law limits further
the liability of directors or provides broader rights to indemnification or
the advancement of expenses, the limitations of liability and rights to
indemnification and advancement of expenses shall be broadened to the extent
permitted by law.
The Underwriting Agreement provides for indemnification by the Underwriters
of directors, officers and controlling persons of the Company for certain
liabilities, including certain liabilities under the Securities Act, under
certain circumstances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following Exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
+1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3.1 to the Company's Report Form 8-B, File
0-19517).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Report on Form 8-B, File 0-19517).
+5 Opinion of Wolf, Block, Schorr and Solis-Cohen LLP.
10.1 Shareholders Agreement by and among the Company and the shareholders
named therein (incorporated by reference to Exhibit 10.3 to
Amendment No. 2 to the Company's Registration Statement on Form S-1,
File 33-42142).
*10.2(a) Employment Agreement between the Company and Heywood Wilansky
(incorporated by reference to Exhibit 99 to the Company's Current
Report on Form 8-K, dated March 26, 1998, File 0-19517).
+*10.2(b) The Bon-Ton Stores, Inc. Supplemental Executive Retirement Plan for
Heywood Wilansky.
+*10.2(c) The Bon-Ton Stores, Inc. Five Year Cash Bonus Plan for Heywood
Wilansky.
10.3(a) Credit Agreement among the Company, Adam, Meldrum & Anderson Co.,
Inc. and The Bon-Ton Stores of Lancaster, Inc., the Other Credit
Parties signatory thereto, the Lenders signatory thereto from time
to time, the First National Bank of Boston and General Electric
Capital Corporation (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
May 3, 1997).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
+10.3(b) First Amendment to Credit Agreement.
+10.3(c) Second Amendment to Credit Agreement.
+10.3(d) Third Amendment to Credit Agreement.
10.4(a) Lease Agreement by and between BT (PA) QRS 12-25, Inc. and The Bon-
Ton Department Stores, Inc. (incorporated by reference to Exhibit
10.2(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended May 3, 1997).
10.4(b) Guaranty and Suretyship Agreement by the Company (incorporated by
reference to Exhibit 10.2(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 3, 1997).
*10.5 Employment Agreement between the Company and Michael L. Gleim
(incorporated by reference to Exhibit 10.4 to the Company's Report
on Form 8-B, File 0-19517).
*10.6 Form of severance agreement between the Company and certain of its
executive officers (incorporated by reference to Exhibit 10.14 to
the Company's Report on Form 8-B, File 0-19517).
*10.7(a) Amended and Restated 1991 Stock Option and Restricted Stock Plan
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8, File 333-36633).
*10.7(b) The Company's Phantom Equity Replacement Stock Option Plan
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1, File 33-42142).
10.8 Ground Leases for distribution center located in York, Pennsylvania,
by and between The Bon-Ton Department Stores, Inc. and M. Thomas
Grumbacher, as amended (incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on Form S-1, File 33-42142).
10.9 Ground Lease for York Galleria, York, Pennsylvania by and between
The Bon-Ton Department Stores, Inc. and MBM Land Associates
(incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement on Form S-1, File 33-42142).
10.10(a) Sublease of Butler, Pennsylvania store by and between The Bon-Ton
Department Stores, Inc. and M. Thomas Grumbacher (incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement
on Form S-1, File 33-42142).
10.10(b) First Amendment to Butler, Pennsylvania sublease (incorporated by
reference to Exhibit 10.21 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, File 33-42142).
10.10(c) Corporate Guarantee with respect to Butler, Pennsylvania lease
(incorporated by reference to Exhibit 10.24 to Amendment No. 1 to
the Company's Registration Statement on Form S-1, File 33-42142).
10.11(a) Sublease of Oil City, Pennsylvania store by and between The Bon-Ton
Department Stores, Inc. and M. Thomas Grumbacher (incorporated by
reference to Exhibit 10.16 to the Company's Registration Statement
on Form S-1, File 33-42142).
10.11(b) First Amendment to Oil City, Pennsylvania sublease (incorporated by
reference to Exhibit 10.22 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, File 33-42142).
10.11(c) Corporate Guarantee with respect to Oil City, Pennsylvania lease
(incorporated by reference to Exhibit 10.26 to Amendment No. 1 to
the Company's Registration Statement on Form S-1, File 33-42142).
*10.12 The Company's Profit Sharing/Retirement Savings Plan, amended and
restated as of July 1, 1994 (incorporated by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1995).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
---------- -----------
<C> <S>
10.13 Receivables Purchase Agreement dated as of January 27, 1995 among
The Bon-Ton Receivables Corp., Falcon Asset Securitization
Corporation, The First National Bank of Chicago, and the other
financial institutions party thereto (incorporated by reference to
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995).
*10.14 Management Incentive Plan and Addendum to Management Incentive Plan
(incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 1, 1997).
*10.15 The Bon-Ton Stores, Inc. Long-Term Incentive Plan For Principals
(incorporated by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 1, 1997).
++10.16(a) Amended and Restated Receivables Purchase Agreement dated as of
June 12, 1995 among The Bon-Ton Receivables Corp., The Bon-Ton
Receivables Partnership, L.P., Falcon Asset Securitization
Corporation, The First National Bank of Chicago, and the other
financial institutions party thereto.
++10.16(b) Amendment dated as of June 30, 1995 to Amended and Restated
Receivables Purchase Agreement dated as of June 12, 1995.
+21 Subsidiaries of the Company.
++23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included within
Exhibit 5 hereto).
24 Power of Attorney (included on the signature page to this
Registration Statement).
+27 Financial Data Schedules.
</TABLE>
- ---------------------
+ Previously filed.
++ Filed herewith.
* Constitutes a management contract or compensatory plan or arrangement.
(b) FINANCIAL STATEMENT SCHEDULES.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 14 of the
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF YORK,
COMMONWEALTH OF PENNSYLVANIA, ON APRIL 6, 1998.
The Bon-Ton Stores, Inc.
By: /s/ Heywood Wilansky
---------------------------------
HEYWOOD WILANSKY PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Heywood Wilansky
- ------------------------------------- President, Chief April 6, 1998
HEYWOOD WILANSKY Executive Officer
and Director
Chairman of the
/s/ M. Thomas Grumbacher* Board of Directors April 6, 1998
- -------------------------------------
M. THOMAS GRUMBACHER
Vice Chairman, Chief
/s/ Michael L. Gleim* Operating Officer April 6, 1998
- ------------------------------------- and Director
MICHAEL L. GLEIM
Director
/s/ Samuel J. Gerson* April 6, 1998
- -------------------------------------
SAMUEL J. GERSON
Director
/s/ Roger S. Hillas* April 6, 1998
- -------------------------------------
ROGER S. HILLAS
/s/ Lawrence J. Ring* Director April 6, 1998
- -------------------------------------
LAWRENCE J. RING
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director
/s/ Leon D. Starr* April 6, 1998
- ------------------------------------
LEON D. STARR
Director
/s/ Leon F. Winbigler* April 6, 1998
- ------------------------------------
LEON F. WINBIGLER
Senior Vice
/s/ James H. Baireuther* President, Chief April 6, 1998
- ------------------------------------ Financial Officer
JAMES H. BAIREUTHER and Chief
Accounting Officer
* By: /s/ Heywood Wilansky
------------------------------------
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Bon-Ton Stores, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of The Bon-Ton Stores, Inc. included in
this registration statement and have issued our report thereon dated March 4,
1998. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in item 16(b) is
the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Philadelphia, PA
March 4, 1998
II-9
<PAGE>
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
THE BON-TON STORES, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- ---------- -------- ---------- ----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS OTHER END OF
CLASSIFICATION OF PERIOD & EXPENSES INCREASE DEDUCTIONS PERIOD
-------------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended February 3,
1996:
Allowance for doubtful
accounts............... $2,294 $4,043(1) $604(4) $(3,828)(2) $3,113
Reserve for store
closing................ $7,133 $5,000(5) $-- $(2,563)(3) $9,570
Year ended February 1,
1997:
Allowance for doubtful
accounts............... $3,113 $5,018(1) $-- $(5,362)(2) $2,769
Reserve for store
closing................ $9,570 $ -- $-- $(2,586)(3) $6,984
Year ended January 31,
1998:
Allowance for doubtful
accounts............... $2,769 $3,549(1) $-- $(4,341)(2) $1,977
Reserve for store
closing................ $6,984 $ -- $-- $(1,513)(3) $5,471
</TABLE>
- ---------------------
(1) Provision for loss on credit sales.
(2) Uncollectible accounts, written off, net of recoveries.
(3) Cash payments for store closing expenses, net of monies received from asset
liquidation.
(4) Represents reserves associated with the purchase of the Hess's Department
Store's Inc. accounts receivable.
(5) Represents reserves relating to stores that the Company committed to close
due to poor performance.
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
+1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3.1 to the Company's Report Form 8-B, File
0-19517).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Report on Form 8-B, File 0-19517).
+5 Opinion of Wolf, Block, Schorr and Solis-Cohen LLP.
10.1 Shareholders Agreement by and among the Company and the shareholders
named therein (incorporated by reference to Exhibit 10.3 to
Amendment No. 2 to the Company's Registration Statement on Form S-1,
File 33-42142).
*10.2(a) Employment Agreement between the Company and Heywood Wilansky
(incorporated by reference to Exhibit 99 to the Company's Current
Report on Form 8-K, dated March 26, 1998, File 0-19517).
+*10.2(b) The Bon-Ton Stores, Inc. Supplemental Executive Retirement Plan for
Heywood Wilansky.
+*10.2(c) The Bon-Ton Stores, Inc. Five Year Cash Bonus Plan for Heywood
Wilansky.
10.3(a) Credit Agreement among the Company, Adam, Meldrum & Anderson Co.,
Inc. and The Bon-Ton Stores of Lancaster, Inc., the Other Credit
Parties signatory thereto, the Lenders signatory thereto from time
to time, the First National Bank of Boston and General Electric
Capital Corporation (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
May 3, 1997).
+10.3(b) First Amendment to Credit Agreement.
+10.3(c) Second Amendment to Credit Agreement.
+10.3(d) Third Amendment to Credit Agreement.
10.4(a) Lease Agreement by and between BT (PA) QRS 12-25, Inc. and The Bon-
Ton Department Stores, Inc. (incorporated by reference to Exhibit
10.2(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended May 3, 1997).
10.4(b) Guaranty and Suretyship Agreement by the Company (incorporated by
reference to Exhibit 10.2(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 3, 1997).
*10.5 Employment Agreement between the Company and Michael L. Gleim
(incorporated by reference to Exhibit 10.4 to the Company's Report
on Form 8-B, File 0-19517).
*10.6 Form of severance agreement between the Company and certain of its
executive officers (incorporated by reference to Exhibit 10.14 to
the Company's Report on Form 8-B, File 0-19517).
*10.7(a) Amended and Restated 1991 Stock Option and Restricted Stock Plan
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8, File 333-36633).
*10.7(b) The Company's Phantom Equity Replacement Stock Option Plan
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1, File 33-42142).
10.8 Ground Leases for distribution center located in York, Pennsylvania,
by and between The Bon-Ton Department Stores, Inc. and M. Thomas
Grumbacher, as amended (incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on Form S-1, File 33-42142).
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
10.9 Ground Lease for York Galleria, York, Pennsylvania by and between
The Bon-Ton Department Stores, Inc. and MBM Land Associates
(incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement on Form S-1, File 33-42142).
10.10(a) Sublease of Butler, Pennsylvania store by and between The Bon-Ton
Department Stores, Inc. and M. Thomas Grumbacher (incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement
on Form S-1, File 33-42142).
10.10(b) First Amendment to Butler, Pennsylvania sublease (incorporated by
reference to Exhibit 10.21 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, File 33-42142).
10.10(c) Corporate Guarantee with respect to Butler, Pennsylvania lease
(incorporated by reference to Exhibit 10.24 to Amendment No. 1 to
the Company's Registration Statement on Form S-1, File 33-42142).
10.11(a) Sublease of Oil City, Pennsylvania store by and between The Bon-Ton
Department Stores, Inc. and M. Thomas Grumbacher (incorporated by
reference to Exhibit 10.16 to the Company's Registration Statement
on Form S-1, File 33-42142).
10.11(b) First Amendment to Oil City, Pennsylvania sublease (incorporated by
reference to Exhibit 10.22 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, File 33-42142).
10.11(c) Corporate Guarantee with respect to Oil City, Pennsylvania lease
(incorporated by reference to Exhibit 10.26 to Amendment No. 1 to
the Company's Registration Statement on Form S-1, File 33-42142).
*10.12 The Company's Profit Sharing/Retirement Savings Plan, amended and
restated as of July 1, 1994 (incorporated by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1995).
10.13 Receivables Purchase Agreement dated as of January 27, 1995 among
The Bon-Ton Receivables Corp., Falcon Asset Securitization
Corporation, The First National Bank of Chicago, and the other
financial institutions party thereto (incorporated by reference to
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995).
*10.14 Management Incentive Plan and Addendum to Management Incentive Plan
(incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 1, 1997).
*10.15 The Bon-Ton Stores, Inc. Long-Term Incentive Plan For Principals
(incorporated by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 1, 1997).
++10.16(a) Amended and Restated Receivables Purchase Agreement dated as of
June 12, 1995 among The Bon-Ton Receivables Corp., The Bon-Ton
Receivables Partnership, L.P., Falcon Asset Securitization
Corporation, The First National Bank of Chicago, and the other
financial institutions party thereto.
++10.16(b) Amendment dated as of June 30, 1995 to Amended and Restated
Receivables Purchase Agreement dated as of June 12, 1995.
+21 Subsidiaries of the Company.
++23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included within
Exhibit 5 hereto).
24 Power of Attorney (included on the signature page to this
Registration Statement).
+27 Financial Data Schedules.
</TABLE>
- ---------------------
+ Previously filed.
++ Filed herewith.
* Constitutes a management contract or compensatory plan or arrangement.
2
<PAGE>
EXHIBIT 10.16(a)
================================================================================
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
Dated as of June 12, 1995
Among
THE BON-TON RECEIVABLES CORP. and
THE BON-TON RECEIVABLES PARTNERSHIP, L.P.
as Sellers
and
FALCON ASSET SECURITIZATION CORPORATION
and
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as Investors
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchase Facility............................................1
Section 1.2. Making Purchases.............................................2
Section 1.3. Selection of Tranche Periods and Discount Rates..............2
Section 1.4. Percentage Evidenced by Receivable Interests.................3
Section 1.5. Dividing or Combining Receivable Interests...................4
Section 1.6. Reinvestment Purchases.......................................4
Section 1.7. Liquidation Settlement Procedures............................4
Section 1.8. Deemed Collections...........................................5
Section 1.9. Discount; Payments and Computations, Etc.....................5
Section 1.10. Seller Interest..............................................6
Section 1.11. Characterization.............................................6
Section 1.12. Assumption by TBTR Partnership...............................7
ARTICLE II
LIQUIDITY FACILITY
Section 2.1. Transfer to Investors........................................7
Section 2.2. Transfer Price Reduction Discount............................7
Section 2.3. Payments to FALCON...........................................7
Section 2.4. Limitation on Commitment to Purchase from FALCON.............8
Section 2.5. Defaulting Investors.........................................8
Section 2.6. Seller's Extinguishment......................................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties as to the Seller..............9
Section 3.2. Representations and Warranties as to GP, Inc................13
ARTICLE IV
CONDITIONS OF PURCHASES
Section 4.1. Conditions Precedent to Effectiveness of this Agreement and
Initial Purchase............................................15
Section 4.2. Conditions Precedent to All Purchases and Reinvestments.....15
Section 4.3. Conditions Precedent to Initial Purchase Following the
Merger......................................................15
-i-
<PAGE>
ARTICLE V
COVENANTS
Section 5.1. Affirmative Covenants of Seller.............................16
Section 5.2. Negative Covenants of Seller................................20
Section 5.3. Affirmative Covenants of GP, Inc............................22
Section 5.4. Negative Covenants of GP, Inc...............................24
Section 5.5. Covenants of TBTR Partnership...............................25
ARTICLE VI
ADMINISTRATION AND COLLECTION
Section 6.1. Designation of Collection Agent.............................26
Section 6.2. Duties of Collection Agent..................................26
Section 6.3. Collection Notices..........................................27
Section 6.4. Responsibilities of the Seller..............................28
Section 6.5. Reports.....................................................28
ARTICLE VII
TERMINATION EVENTS
Section 7.1. Termination Events..........................................28
Section 7.2. Payment Default on Other Indebtedness.......................30
ARTICLE VIII
INDEMNIFICATION
Section 8.1. Indemnities by the Seller...................................30
Section 8.2. Increased Cost and Reduced Return...........................32
Section 8.3. Other Costs and Expenses....................................33
Section 8.4. Allocations.................................................34
ARTICLE IX
THE AGENT
Section 9.1. Authorization and Action....................................34
Section 9.2. Delegation of Duties........................................34
Section 9.3. Exculpatory Provisions......................................35
Section 9.4. Reliance by Agent...........................................35
Section 9.5. Non-Reliance on Agent and Other Purchasers..................35
Section 9.6. Reimbursement and Indemnification...........................36
Section 9.7. Agent in its Individual Capacity............................36
Section 9.8. Successor Agent.............................................36
-ii-
<PAGE>
ARTICLE X
ASSIGNMENTS; PARTICIPATIONS
Section 10.1. Assignments....................................................36
Section 10.2. Participations.................................................37
ARTICLE XI
MISCELLANEOUS
Section 11.1. Waivers and Amendments.........................................38
Section 11.2. Notices........................................................39
Section 11.3. Ratable Payments...............................................39
Section 11.4. Protection of Ownership Interests of the Purchasers............39
Section 11.5. Confidentiality................................................40
Section 11.6. Bankruptcy Petition............................................41
Section 11.7. Limitation of Liability........................................41
Section 11.8. CHOICE OF LAW..................................................41
Section 11.9. CONSENT TO JURISDICTION........................................41
Section 11.10. WAIVER OF JURY TRIAL...........................................42
Section 11.11. Integration; Survival of Terms.................................42
Section 11.12. Counterparts; Severability.....................................42
Section 11.13. First Chicago Roles............................................43
Section 11.14. Amendment and Restatement......................................43
-iii-
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
This Amended and Restated Receivables Purchase Agreement dated as of
June 12, 1995 is among The Bon-Ton Receivables Corp., a Delaware corporation
("TBTR Corp."), The Bon-Ton Receivables Partnership, L.P. a Pennsylvania limited
partnership ("PITBTR Partnership"), the Investors, Falcon Asset Securitization
Corporation ("FALCON") and The First National Bank of Chicago, as Agent. Unless
defined elsewhere herein, capitalized terms used in this Agreement shall have
the meanings assigned to such terms in Exhibit I hereto.
PRELIMINARY STATEMENTS
A. This Agreement amends and restates that certain Receivables
Purchase Agreements (the "Earlier Agreement") dated as of January 27, 1995 among
TBTR Corp., the Investors, FALCON and the Agent. TBTR Corp. may merge with and
into TBTR Partnership, at which time, by reason of such merger, TBTR Corp. would
cease to have a separate legal existence.
B. TBTR Partnership has agreed, upon giving effect to the Merger, to
be the "Sellers" and "Collection Agent" hereunder, to assume all of the
obligations and liabilities of TBTR Corp. as "Sellers" hereunder to the
Investors, FALCON and the Agent, and to continue to perform all such obligations
and liabilities in the place of TBTR Corp. and otherwise as Seller and
Collection Agent in accordance with the terms of this Agreement.
C. The Seller, whether TBTR Corp. or TBTR Partnership, desires to
transfer and assign Receivable Interests to the Purchasers from time to time.
D. FALCON may, in its absolute and sole discretion, purchase
Receivables Interests from the Sellers from time to time.
E. The Investors shall, at the request of the Seller, purchase
Receivable Interests from time to time. In addition, the Investors have agreed
to provide a liquidity facility to FALCON.
F. The First National Bank of Chicago has been requested and is
willing to act as Agent on behalf of FALCON and the Investors in accordance with
the terms hereof.
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchase Facility.
-----------------
(a) Upon the terms and subject to the conditions hereof, the Seller
may, at its option, sell and assign Receivable Interests to the Agent for the
benefit of the Purchasers.
<PAGE>
FALCON may, at its option, instruct the Agent to purchase on behalf of FALCON
or, if FALCON shall decline to purchase, the Investors shall be deemed to have
instructed the Agent to purchase on behalf of the Investors, Receivable
Interests offered by the Seller for sale and assignment from time to time during
the period from the date hereof to but not including the Facility Termination
Date. Effective on the payment of the applicable Purchase Price in respect of
each Incremental Purchase, the Seller assigns, transfers and conveys to the
Agent for the benefit of the relevant Purchaser or Purchasers, and the Agent
thereby acquires all of the Seller's right, title and interest in and to the
Receivable Interests arising from such Incremental Purchase.
(b) The Seller may, upon at least five days' notice to the Agent,
terminate in whole or reduce in part ratably among the Investors the unused
portion of the Purchase Limit; provided that each partial reduction of the
Purchase Limit shall be in an amount not less than $5,000,000.
Section 1.2. Making Purchases. The Seller shall provide the Agent
----------------
with at least three Business Days' prior notice (a "Purchase Notice") of each
Incremental Purchase. Each Purchase Notice shall, except as set forth below, be
irrevocable and shall specify the requested Purchase Price (which shall not be
less than $1,000,000) and date of purchase, together with the duration of the
initial Tranche Period and the initial Discount Rate related thereto. Following
receipt of a Purchase Notice, the Agent will determine whether FALCON agrees to
make the purchase. If FALCON declines to make a proposed purchase, the Seller
may cancel the Purchase Notice or the Incremental Purchase of the Receivable
Interests will be made by the Investors. On the date of each Incremental
Purchase, upon satisfaction of the applicable conditions precedent set forth in
Article IV, FALCON or each Investor, as applicable, shall deposit to the
Facility Account, in immediately available funds, no later than 12:00 noon
(Chicago time), an amount equal to (i) in the case of FALCON, the aggregate
Purchase Price of the Receivable Interests FALCON is then purchasing or (ii) in
the case of an Investor, such . Investor's Pro Rata Share of the aggregate
Purchase Price of the Receivable Interests the Investors are then purchasing.
Section 1.3. Selection of Tranche Periods and Discount Rates.
-----------------------------------------------
(a) Each Receivable Interest shall at all times have an associated
amount of Capital, a Discount Rate and Tranche Period applicable to it. Not
less than $1,000,000 of Capital may be allocated to any single Receivable
Interest with respect to which a LIBO Rate applies. The Seller shall request
Discount Rates and Tranche Periods for the Receivable Interests of the
Purchasers. The Seller may select the CP Rate, with the concurrence of the
Agent, or the Base Rate for the Receivable Interests of FALCON and the LIBO Rate
or the Base Rate for the Receivable Interests of the Investors. The Seller
shall by 12:00 noon (Chicago time), (i) at least three Business Days prior to
the expiration of any, then existing Tranche Period with respect to which the
LIBO Rate is being requested as a new Discount Rate, (ii) at least two Business
Days prior to the expiration of any then existing Tranche Period with respect to
which the CP Rate is being requested as a new Discount Rate and (iii) at least
one Business Day prior to the expiration of any Tranche Period with respect to
which the Base Rate is being requested as
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<PAGE>
a new Discount Rate, give the Agent irrevocable notice of the new Tranche Period
and Discount Rate for the Receivable Interest associated with such expiring
Tranche Period. If the Seller fails to request a new Discount Rate and/or a new
Tranche Period for any Receivable Interest pursuant to the terms of this Section
1.3, the Discount Rate shall be the CP Rate or the Base Rate, int he Agent's
sole discretion, and the applicable Tranche Period shall be a period of one day
commencing on the last day of the then expiring Tranche Period for such
Receivable Interest. Until the Seller gives notice to the Agent of another
Discount Rate, the initial Discount Rate for any Receivable Interest transferred
to the Investors pursuant to Section 2.1 shall be the Base Rate and the Tranche
Period for such Receivable Interest shall be a period of five days commencing on
the day that such Receivable Interest is transferred to such Investors.
(b) If any Investor notifies the Agent that it has determined that
funding its Pro Rata Share of the Receivable Interests of the Investors at a
LIBO Rate would, by reason of any Regulatory Change after the date hereof,
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or that (i) deposits of a type and maturity appropriate
to match fund its Receivable Interests at such LIBO Rate are not available or
(ii) such LIBO Rate does not accurately reflect the cost of acquiring or
maintaining a Receivable Interest at such LIBO Rate, then the Agent shall
suspend the availability of such LIBO Rate and require the Seller to select a
new Discount Rate for any Receivable Interest accruing Discount at such LIBO
Rate.
(c) Notwithstanding any other provision herein to the contrary, from
and after the occurrence, and during the continuance, of a Default Pricing
Event, until the Aggregate Unpaids have been indefeasibly paid in full, the
Discount Rate applicable to all Receivable Interests shall be a rate per annum
equal to the Base Rate plus 2%. "Default Pricing Event" shall mean (i) any
---------------------
Termination Event of the type described in Section 7.1 (a) (ii) (other than a
Termination Event arising thereunder in respect of any payment due under Article
VIII) or Section 7.1(c), and (ii) any other Termination Event, provided that
--------
under this clause (ii) the Agent shall have declared (by written notice given to
the Seller) the existence of such Termination Event and a period of five days
shall have elapsed.
Section 1.4. Percentage Evidenced by Receivable Interests.
--------------------------------------------
(a) Each Receivable Interest shall be initially computed on its date
of purchase. Thereafter, until its Liquidation Day, each Receivable Interest
shall be automatically recomputed (or deemed to be recomputed) on each day prior
to its Liquidation Day. The variable percentage represented by any Receivable
Interest as computed (or deemed recomputed) as of the close of business on the
day immediately preceding its Liquidation Day shall remain constant at all times
after such Liquidation Day.
(b) If any Receivable Interest would otherwise be reduced or
increased on any day on account of newly arising Collections or Receivables, the
Agent may prevent that reduction by notifying the Collection Agent on such day
that the Net Receivables Balance for such Receivable Interest will include only
the number or portion of Receivables or Collections
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<PAGE>
arising on such day as shall cause the percentage evidenced by such Receivable
Interest to remain constant. The remainder of the Receivables, Collections or
portion thereof arising on such day shall be treated as arising on the next
succeeding Business Day.
Section 1.5. Dividing or Combining Receivable Interests. The Seller
------------------------------------------
or the Agent may, upon notice to and consent by the other received at least
three Business Days prior to the end of a Tranche Period for any Receivable
Interest, take any of the following actions with respect to such Receivable
Interest: (i) divide the Receivable Interest into two or more Receivable
Interests having aggregate Capital equal to the Capital of such divided
Receivable Interest, (ii) combine the Receivable Interest with another
Receivable Interest with a Tranche Period ending on the same day, creating a new
Receivable Interest having Capital equal to the Capital of the two Receivable
Interests combined or (iii) combine the Receivable Interest with a Receivable
Interest to be purchased on such day by such Purchaser, creating a new
Receivable Interest having Capital equal to the Capital of the two Receivable
Interests combined, provided that, a Receivable Interest of FALCON may not be
-------- ----
combined with a Receivable Interest of the Investors.
Section 1.6. Reinvestment Purchases. At any time that any
----------------------
Collection or Collections are received by the Collection Agent after the initial
purchase of a Receivable Interest hereunder and on or prior to the Liquidation
Day of such Receivable Interest, the Seller hereby requests and the Purchasers
hereby agree to make, simultaneously with such receipt, a reinvestment (each a
"Reinvestment") with that portion of each and every Collection received by the
Collection Agent that is allocable to such Receivable Interest, such that after
giving effect to such Reinvestment, the amount of the Capital of such Receivable
Interest immediately after any such receipt and corresponding Reinvestment shall
be equal to the amount of the Capital immediately prior to such receipt.
Section 1.7. Liquidation Settlement Procedures. On the Liquidation
---------------------------------
Day of a Receivable Interest and on each day thereafter, the Collection Agent
shall set aside and hold in trust for the holder of such Receivable Interest,
the percentage evidenced by such Receivable Interest of Collections received on
such day. On the last day of each Tranche Period of a Receivable Interest after
the occurrence of its Liquidation Day, the Collection Agent shall remit to the
Agent's account the amounts set aside pursuant to the preceding sentence,
together with any remaining amounts set aside pursuant to Section 1.8 prior to
such day, but not to exceed the sum of (i) the accrued Discount for such
Receivable Interest, (ii) the Capital of such Receivable Interest, and (iii) the
aggregate of all other amounts then owed hereunder by Seller to the Purchasers.
If there shall be insufficient funds on deposit for the Collection Agent to
distribute funds in payment in full of the aforementioned amounts, the
Collection Agent shall distribute funds first, to reimbursement of the Agent's
costs of collection and enforcement of this Agreement, second, in reduction of
the Capital of the Receivable Interests, third, in payment of all accrued
Discount for the Receivable Interests and fourth, in payment of all other
amounts payable to the Purchasers. Collections allocated to the Receivable
Interests of the Investors shall be shared ratably by the Investors in
accordance with their Pro Rata Shares. Collections applied to the payment of
fees, expenses, Discount and all other amounts payable by the Seller to the
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Agent and the Purchasers hereunder shall be allocated ratably among the Agent
and the Purchasers in accordance with such amounts owing to each of them.
Following the date on which the Aggregate Unpaids are reduced to zero, the
Collection Agent shall pay to Seller any remaining Collections set aside and
held by the Collection Agent pursuant to this Section 1.7.
Section 1.8. Deemed Collections. If on any day the Outstanding
------------------
Balance of, or Finance Charges in respect of, a Receivable is either (x) reduced
as a result of any defective or rejected goods or services, any cash discount or
any adjustment by the Seller, the Collection Agent (if then any Person
designated by the Seller as Collection Agent) or the Originator (or, if other
than the Originator, the originator of such Receivable), or (y) reduced or
cancelled as a result of a setoff in respect of any claim by any Person (whether
such claim arises out of the same or a related transaction or an unrelated
transaction and whether such claim relates to the Seller, the Originator (or, if
other than the Originator, the originator of such Receivable) or any Affiliate
thereof), the Seller shall be deemed to have received on such day a Collection
of such Receivable in the amount of such reduction or cancellation. If on any
day any of the representations or warranties in Article III are no longer true
with respect to a Receivable, the Seller shall be deemed to have received on
such day a Collection of such Receivable in full. If the Seller receives any
Collections or if the Seller is deemed to have received Collections pursuant to
this Section 1.8 or otherwise, the Seller shall within one Business Day pay such
Collections or deemed Collections to the Collection Agent and, at all times
prior to such payment, such Collections shall be held in trust by the Seller,
for the exclusive benefit of the Purchasers and the Agent.
Section 1.9. Discount; Payments and Computations, Etc.
----------------------------------------
(a) Discount shall accrue for each Receivable Interest for each day
occurring during the Tranche Period for such Receivable Interest. On the last
day of each Tranche Period the Seller shall pay to the Agent an amount equal to
the accrued and unpaid Discount for such Tranche Period.
(b) Notwithstanding any limitation on recourse contained in this
Agreement, the Seller shall pay to the Agent, for the account of the relevant
Purchasers, such fees as set forth in the Fee Letter (which fees shall be
sufficient, the Investors agree among themselves, to pay the "Investor Fees"),
all amounts payable as Discount, all amounts payable pursuant to Article VIII,
if any, all Collection Agent costs, if any, payable pursuant to Section 6.2, any
and all issuing and paying agent fees and commissions of placement agents and
commercial paper dealers in respect of Commercial Paper issued to fund any
Receivable Interest of FALCON hereunder, and on demand therefor, any Early
Collection Fee.
(c) All amounts to be paid or deposited by any Person hereunder shall
be paid or deposited in accordance with the terms hereof no later than 12:00
noon (Chicago time) on the day when due in immediately available funds; if such
amounts are payable to a Purchaser they shall be paid to the Agent, for the
account of such Purchaser, at One First National Plaza, Chicago, Illinois 60670
until otherwise notified by the Agent. Upon notice to the Seller, the
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<PAGE>
Agent may debit the Facility Account for all amounts due and payable hereunder.
All computations of Discount and per annum fees hereunder and under the Fee
Letter shall be made on the basis of a year of 360 days for the actual number of
days elapsed (including the first but excluding the last day). All per annum
fees shall be payable monthly in arrears on the first day of each month. If any
amount hereunder shall be payable on day which is not a Business Day, such
amount shall be payable on the next succeeding Business Day.
Section 1.10. Seller Interest. The Seller shall ensure that the
---------------
aggregate Receivable Interests of the Purchasers shall at no time exceed 100%.
If on the Liquidation Day of a Receivable Interest, the aggregate Receivable
Interests of the Purchasers exceeds 100%, the Seller shall immediately pay to
the Agent an amount to be applied to reduce the Capital of the Receivable
Interests, such that after giving effect to such payment the aggregate
Receivable Interest equals or is less than 100%. Such amount shall be applied
ratably to the reduction of the Capital of the Receivable Interests. Any
amounts received by the Investors pursuant to the preceding sentence shall be
applied ratably in accordance with their Pro Rata Shares. The Seller hereby
grants to the Agent for the ratable benefit of the Purchasers a security
interest in all of its interest in the Receivables, Related Security,
Collections and proceeds thereof to secure payment of the Aggregate Unpaids,
including its indemnity obligations under Article VIII and all other obligations
owed hereunder to the Purchasers.
Section 1.11. Characterization.
----------------
(a) It is the intention of the parties hereto that each purchase
hereunder shall constitute an absolute and irrevocable sale, which purchase
shall provide the applicable Purchaser with the full benefits of ownership of
the applicable Receivables Interest. Except as specifically provided in this
Agreement, each sale of a Receivables Interest hereunder is made without
recourse to the Seller; provided, however, that (i) the Seller shall be liable
-------- -------
to each Purchaser and the Agent for all representations, warranties and
covenants made by the Seller pursuant to the terms of this Agreement, and (ii)
such sale does not constitute and is not intended to result in an assumption by
any Purchaser or the Agent or any assignee thereof of any obligation of the
Seller or the Originator or any other person arising in connection with the
Receivables, the Related Security, the related Contracts and the Accounts, or
any other obligations of the Seller or the Originator.
(b) If the conveyance by the Seller to the Purchasers of interests in
Receivables hereunder shall be characterized as a secured loan and not a sale,
it is the intention of the parties hereto that this Agreement shall constitute a
security agreement under applicable law, and that the Seller shall have granted
to the Agent for the ratable benefit of the Purchasers a duly perfected security
interest in all of the Seller's right, title and interest in, to and under the
Receivables, the Collections, each Collection Account, all Related Security, all
payments on or with respect to such Receivables, all other rights relating to
and payments made in respect of the Receivables, and all proceeds of any thereof
prior to all other liens on and security interests therein. After a Termination
Event, the Agent and the Purchasers shall have, in addition to the rights and
remedies which they may have under this Agreement, all other rights and remedies
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<PAGE>
provided to a secured creditor after default under the UCC and other applicable
law, which rights and remedies shall be cumulative.
Section 1.12. Assumption by TBTR Partnership. Effective immediately
------------------------------
upon the occurrence of the Merger, and without any further notice or action of
any type on the part of any Person, (i) TBTR Partnership assumes and accepts,
and agrees to perform and observe all and singular, the covenants, agreements,
terms and conditions, obligations, appointments, duties and liabilities of TBTR
Corp. hereunder and under each of the other Transaction Documents, (ii) TBTR
Partnership assumes and accepts any and all liability of TBTR Corp. accrued,
occurring or otherwise existing under the Earlier Agreement, this Agreement or
any of the other Transaction Documents prior to the occurrence of the Merger,
whether relating to TBTR Corp. in its capacity as "Seller" or "Collection Agent"
or otherwise existing, and (iii) TBTR Partnership shall then become and, subject
to the terms and conditions of this Agreement, thereafter be and serve as the
"Seller" and the "Collection Agent" for all purposes under this Agreement.
ARTICLE II
LIQUIDITY FACILITY
Section 2.1. Transfer to Investors. Each Investor hereby agrees,
---------------------
subject to Section 2.4, that immediately upon written notice from FALCON
delivered on or prior to the Liquidity Termination Date, it shall acquire by
assignment from FALCON, without recourse or warranty, its Pro Rata Share of one
or more of the Receivable Interests of FALCON as specified by FALCON. Each
Investor shall promptly pay to the Agent at an account designated by the Agent,
for the benefit of FALCON, its Acquisition Amount. Unless an Investor has
notified the Agent that it does not intend to pay its Acquisition Amount, the
Agent may assume that such payment has been made and may, but shall not be
obligated to, make the amount of such payment available to FALCON in reliance
upon such assumption. Effective upon the receipt by FALCON of the FALCON
Transfer Price, FALCON thereupon sells and assigns to the Agent for the ratable
benefit of the Investors, and the Agent thereby purchases and assumes from
FALCON, the Receivable Interests of FALCON which are the subject of any transfer
pursuant to this Article II.
[REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
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<PAGE>
Section 2.4. Limitation on Commitment to Purchase from FALCON.
------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, no Investor shall
have any obligation to purchase any Receivable Interest from FALCON, pursuant to
Section 2.1 or otherwise, if:
(i) FALCON shall have voluntarily commenced any proceeding or filed
any petition under any bankruptcy, insolvency or similar law seeking the
dissolution, liquidation or reorganization of FALCON or taken any corporate
action for the purpose of effectuating any of the foregoing; or
(ii) involuntary proceedings or an involuntary petition shall have
been commenced or filed against FALCON by any Person under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or
reorganization of FALCON and such proceeding or petition shall have not
been dismissed.
Section 2.5. Defaulting Investors. If one or more Investors
--------------------
defaults in its obligation to pay its Acquisition Amount pursuant to Section 2.1
(each such Investor shall be called a "Defaulting Investor" and the aggregate
amount of such defaulted obligations being herein called the "FALCON Transfer
Price Deficit"), then upon notice from the Agent, each Investor other than the
Defaulting Investors (a "Non-Defaulting Investor") shall promptly pay to the
Agent, in immediately available funds, an amount equal to the lesser of (x) such
Non-Defaulting Investor's proportionate share (based upon the relative
Commitments of the Non-Defaulting Investors) of the FALCON Transfer Price
Deficit and (y) the unused portion of such Non-Defaulting Investor's Commitment.
A Defaulting Investor shall forthwith upon demand pay to the Agent for the
account of the Non-Defaulting Investors all amounts paid by each Non-Defaulting
Investor on behalf of such Defaulting Investor, together with interest thereon,
for each day from the date a payment was made by a Non-Defaulting Investor until
the date such Non-Defaulting Investor has been paid such amounts in full, at a
rate per annum equal to the Federal Funds Effective Rate plus 2%. In addition,
without prejudice to any other rights that FALCON may have under applicable law,
each Defaulting Investor shall pay to FALCON forthwith upon demand, the
difference between such Defaulting Investor's unpaid Acquisition Amount and the
amount paid with respect thereto by the Non-Defaulting Investors, together with
interest thereon, for each day from the date of the Agent's request for such
Defaulting Investor's Acquisition Amount pursuant to Section 2.1 until the date
the requisite amount is paid to FALCON in full, at a rate per annum equal to the
Federal Funds Effective Rate plus 2%.
Section 2.6. Seller's Extinguishment. The Seller shall have the
-----------------------
right, on five (5) Business Days' written notice to the Agent, at any time
following the reduction of the Capital to a level that is less than five percent
(5%) of the original Purchase Limit, to repurchase from the Purchasers all, and
not part, of the then outstanding Receivable Interests. The purchase price in
respect thereof shall be an amount equal to the Aggregate Unpaids through the
date of such
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<PAGE>
repurchase, payable in immediately available funds. Such repurchase shall be
without representation, warranty or recourse of any kind by, on the part of or
against any Purchaser or Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties as to the Seller. Each
-----------------------------------------------
of the Seller and GP, Inc. hereby represents and warrants to the Purchasers
that:
(a) Existence and Power. TBTR Corp., at all times prior to the
-------------------
Merger, is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. TBTR Partnership is a limited
partnership duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania. Each of TBTR Corp., at all times prior to
the Merger, and TBTR Partnership has all corporate and partnership power and all
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is conducted.
(b) No Conflict. The execution, delivery and performance by TBTR
-----------
Corp. and TBTR Partnership of this Agreement and each other Transaction Document
to which it is a party, and each Seller's use of the proceeds of purchases made
hereunder, are within its corporate or partnership powers, have been duly
authorized by all necessary corporate and partnership action, do not contravene
or violate (i) its certificate of incorporation, by-laws, partnership agreement
or certificate of limited partnership, as applicable, (ii) any law, rule or
regulation applicable to it, (iii) any restrictions under any agreement,
contract or instrument to which it is a party or by which it or any of its
property is bound, or (iv) any order, writ, judgment, award, injunction or
decree binding on or affecting it or its property, and do not result in the
creation or imposition of any Adverse Claim on assets of the Seller or its
Subsidiaries (except created hereunder); and no transaction contemplated hereby
requires compliance with any bulk sales act or similar law. This Agreement and
each other Transaction Document to be executed and delivered by TBTR Corp. or
TBTR Partnership hereunder has been duly executed and delivered by it.
(c) Governmental Authorization. Other than the filing of the
--------------------------
financing statements required hereunder, no authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
TBTR Corp. or TBTR Partnership of this Agreement, any Collections Notice or any
other Transaction Document to be delivered in connection herewith.
(d) Binding Effect. This Agreement, each Collections Notice and each
--------------
of the other Transaction Documents to which TBTR Corp. or TBTR Partnership is a
party constitutes the legal, valid and binding obligation of such Person
enforceable against such Person in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or other similar laws relating to or limiting creditors' rights generally.
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<PAGE>
(e) Accuracy of Information. All information heretofore furnished by
-----------------------
TBTR Corp. or TBTR Partnership to the Agent or the Purchasers for purposes of or
in connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by TBTR Corp. or TBTR Partnership to
the Purchasers will be, true and accurate in every material respect, on the date
such information is stated or certified and does not and will not contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
(f) Use of Proceeds. No proceeds of any Purchase will be used
---------------
(i) for a purpose which violates, or would be inconsistent with, Regulation G,
T, U or X promulgated by the Board of Governors of the Federal Reserve System
from time to time or (ii) to acquire any security in any transaction which is
subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(g) Title to Receivables Purchased from the Originator. Each
--------------------------------------------------
Receivable transferred by the Originator has been purchased by the Seller from
the Originator in accordance with the terms of the Transfer Agreement, and the
Seller has thereby irrevocably obtained legal and equitable title to, and has
the legal right to sell, such Receivable and the Related Security and such
Receivable has been transferred to the Seller free and clear of any Adverse
Claim. Without limiting the foregoing, there has been duly filed all financing
statements or other similar instruments or documents necessary under the UCC of
all appropriate jurisdictions (or any comparable law) to perfect the Seller's
ownership interest in such Receivable.
(h) Good Title; Perfection. Immediately prior to each purchase
----------------------
hereunder, the Seller shall be the legal and beneficial owner of the Receivables
and Related Security with respect thereto, free and clear of any Adverse Claim,
except as created by this Agreement and the documents entered into in connection
herewith. This Agreement is effective to, and shall, upon each purchase
hereunder, transfer to the relevant Purchaser or Purchasers (and such Purchaser
or Purchasers shall acquire from the Seller) a valid and perfected first
priority undivided percentage ownership interest in each Receivable existing or
hereafter arising and in the Related Security and Collections with respect
thereto, free and clear of any Adverse Claim, except as created by this
Agreement and the documents entered into in connection herewith.
(i) Places of Business. The principal places of business and chief
------------------
executive office of each of TBTR Corp. and TBTR Partnership and the offices
where such Person as the Seller keeps all its Records are located at the
address(es) listed on Exhibit II or such other locations notified to the Agent
in accordance with Section 5.2(a) in jurisdictions where all action required by
Section 5.2(a) has been taken and completed. The Federal Employer
Identification Number for each of TBTR Corp. and TBTR Partnership is correctly
set forth on Exhibit II.
(j) Collection Accounts. With respect to Collections and the
-------------------
Collection Accounts:
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<PAGE>
(i) the Seller has caused the originator and the Collection Agent
to instruct all Obligors to pay all Collections directly to a Lock-Box;
provided that Obligors may elect to make payments at a store location of
--------
the originator;
(ii) the Originator has agreed to cause each of its stores (A) to
deposit all In-Store Collections with a local bank within one Business Day
of its receipt thereof, and (B) on the same day as such deposit, to
initiate a remittance to the Concentration Account (through the automated
clearinghouse system or by wire transfer) of all such In-Store Collections;
the originator has agreed to remit to the "Sub-Servicer" under the Transfer
Agreement, on the date of receipt of any such In-Store Collections in the
Concentration Account, all of such Collections; the Seller agrees to cause
such Sub-Servicer thereupon to remit the same to the Collection Agent (or
shall disburse the same in the manner and to such Persons as the Collection
Agent shall otherwise direct in accordance with the terms and provisions of
this Agreement); and the Collection Agent, if it receives any of the same,
shall apply such Collections in accordance with Article VI and the other
terms and provisions of this Agreement; provided, however, that neither the
-------- -------
Seller nor the Originator shall be in breach of its obligations under
clause (A) above if an amount not to exceed 5% of the aggregate In-Store
Collections during any month shall fail to be deposited within one Business
Day of the receipt thereof so long as all such In-Store Collections are
deposited within two Business Days of receipt;
(iii) all Collections in the Lock-Boxes are deposited, on the same
Business Day received, directly into a Lock-Box Account and the Seller
shall thereupon make the same available to the Collection Agent for
application in accordance with Article VI and the other terms and
provisions of this Agreement;
(iv) all Lock-Boxes, Lock-Box Accounts and Concentration Accounts as
of the date hereof, together with the account numbers thereof and the names
and addresses of all banks maintaining the same, are listed on Exhibit III
and, with respect to each Collection Account established after the date
hereof, the Seller has provided notice thereof to the Agent and otherwise
complied with all requirements set forth in Section 5.2(b) with respect
thereto;
(v) a Collection Account Agreement in respect of each Collection
Account, in the appropriate form, has been duly executed and delivered by
the applicable Collection Bank, the Originator and the Seller, and such
Collection Account Agreement remains in full force and effect.
The Seller has not granted any Person, other than the Agent as contemplated by
this Agreement, dominion and control of any Collection Account, or the right to
take dominion and control of any Collection Account at a future time or upon the
occurrence of a future event.
(k) Material Adverse Effect. Since September 30, 1994, no event
-----------------------
has occurred which would have a Material Adverse Effect.
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(1) Names. Neither TBTR Corp. nor TBTR Partnership has used any
-----
trade names or assumed names other than (i) on, or at any time during the five
year period prior to, the date of this Agreement, those listed on Exhibit II and
(ii) after the date of this Agreement any other name in respect of which the
Seller shall have complied with Section 5.2(a).
(m) Actions, Suits. There are no actions, suits or proceedings
--------------
pending, or to the knowledge of TBTR Corp. or TBTR Partnership threatened,
against or affecting TBTR Corp. or TBTR Partnership, the Originator or any
Subsidiary of the Originator, or any of the foregoing's respective properties,
in or before any court, arbitrator or other body, which are reasonably likely to
(i) adversely affect the collectibility of a material portion of the
Receivables, (ii) materially adversely affect the financial condition of TBTR
Corp., TBTR Partnership, the Originator or any Subsidiary of the Originator or
(iii) materially adversely affect the ability of TBTR Corp. or TBTR Partnership
to perform its obligations under the Transaction Documents; neither TBTR Corp.
nor TBTR Partnership, nor the Originator nor any Subsidiary of the Originator is
in default with respect to any order of any court, arbitrator or governmental
body.
(n) Credit and Collection Policies. With respect to each Receivable,
------------------------------
the Collection Agent has complied in all material respects with the Credit and
Collection Policy.
(o) Payments to Originator. The Seller shall have given reasonably
----------------------
equivalent value to the Originator in consideration for each transfer to the
Seller of Receivables and Related Security under the Transfer Agreement and each
such transfer shall not have been made for or on account of an antecedent debt
owed by the Originator to the Seller and no such transfer is or may be voidable
under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. (S)(S) 101 et
--
seq.), as amended.
- ----
(p) Ownership of the Seller. Prior to giving effect to the Merger,
-----------------------
the Originator owns all of the issued and outstanding capital stock of TBTR
Corp. The Originator owns all of the issued and outstanding capital stock of GP,
Inc. Such capital stock in each such case is validly issued, fully paid and
nonassessable and there are no options, warrants or other rights to acquire
securities of TBTR Corp. or GP, Inc. GP, Inc. is the sole general partner in
TBTR Partnership. The Originator is the sole limited partner in TBTR
Partnership. There are no options, warrants or other rights to acquire any
partnership interests in TBTR Partnership. GP, Inc. and the Originator each
holds its partnership interest in TBTR Partnership free and clear of any Adverse
Claim.
(q) Not an Investment Company. Neither TBTR Corp. nor TBTR
-------------------------
Partnership is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended from time to time, or any successor statute.
(r) Merger. From and after the effective date for the Merger
------
specified in the Notice of Merger issued by TBTR Partnership pursuant to Section
4.3, the following statements shall be true and accurate:
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(i) TBTR Corp. has merged with and into TBTR Partnership in
compliance with all applicable law. The Merger, and the taking of all
action necessary to consummate the Merger, were within the partnership
powers of TBTR Partnership and the corporate powers of TBTR Corp. at the
time of the Merger, have been duly authorized by all necessary partnership
and corporate action, did not and do not contravene or violate (A) TBTR
Corp's certificate or articles of incorporation or by-laws or TBTR
Partnership's certificate of limited partnership or partnership agreement,
(B) any law, rule or regulation applicable to TBTR Corp. or TBTR
Partnership, (C) any restrictions under any agreement, contract or
instrument to which either TBTR Partnership or TBTR Corp. is a party or by
which it or any of its property is bound, or (D) any order, writ, judgment,
award, injunction or decree binding on or affecting TBTR Partnership or
TBTR Corp. or any of their respective properties, and do not result in the
creation or imposition of any Adverse Claim on assets of TBTR Partnership
or TBTR Corp. (except as may be created hereunder). The Merger does not
require compliance with any bulk sales act or similar law.
(ii) All corporate, partnership and other action necessary to effect
the Merger has been taken, and no authorization or approval or other action
by, and no notice to or filing with, any governmental authority or
regulatory body is required for the consummation of the Merger, other than
such filings as have already been made.
(iii) TBTR Partnership is successor by merger to all right, title and
interest in and to all assets, properties, and interests in property of
TBTR Corp., and the Seller has assumed all obligations and liabilities of
TBTR Corp. of every kind and nature, including, without limitation, all of
the obligations and liabilities of TBTR Corp. to the Investors, FALCON and
the Agent under this Agreement. TBTR Corp. has, by reason of the Merger,
ceased to have a separate legal existence.
Section 3.2. Representations and Warranties as to GP, Inc. GP, Inc.
--------------------------------------------
hereby represents and warrants to the Purchasers that:
(a) Corporate Existence and Power. GP, Inc. is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation, and has all corporate power and all governmental licenses,
authorizations, consents and approvals required to carry on its business in each
jurisdiction in which its business is conducted.
(b) No Conflict. The execution, delivery and performance GP, Inc. of
-----------
this Agreement and each other Transaction Document, in each case for itself and
on behalf of the Seller, are within its corporate powers, have been duly
authorized by all necessary corporate action, do not contravene or violate (i)
its certificate or articles of incorporation or by-laws, (ii) any law, rule or
regulation applicable to it, (iii) any restrictions under any agreement,
contract or instrument to which it is a party or by which it or any of its
property is bound, or (iv) any order, writ, judgment, award, injunction or
decree binding on or affecting it or its property, and do not result in the
creation or imposition of any Adverse Claim on its assets. This Agreement and
each
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other Transaction Document to be executed and delivered by GP, Inc., on its
own behalf and on behalf of the Seller, has been duly executed and delivered by
GP, Inc.
(c) Governmental Authorization. No authorization or approval or
--------------------------
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
GP, Inc. of this Agreement or any other Transaction Document to be delivered by
it, whether on its own behalf or on behalf of the Seller, in connection
herewith.
(d) Binding Effect. This Agreement and each of the other Transaction
--------------
Documents to which GP, Inc., for itself or on behalf of the Seller, is a party
constitutes the legal, valid and binding obligation of GP, Inc., enforceable
against GP, Inc. in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or limiting creditors, rights generally.
(e) Accuracy of Information. All information heretofore furnished by
-----------------------
GP, Inc. to the Agent or the Purchasers for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by GP, Inc. to the Purchasers will be, true and
accurate in every material respect, on the date such information is stated or
certified and does not and will not contain any material misstatement of fact or
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading.
(f) Places of Business. The principal place of business and chief
------------------
executive office of GP, Inc. are located at the address listed on Exhibit II.
GP, Inc.'s Federal Employer Identification Number is correctly set forth on
Exhibit II.
(g) Names. GP, Inc. has not at any time used any corporate name,
-----
trade name or assumed name other than "BTRGP, Inc."
(h) Actions, Suits. There are no actions, suits or proceedings
--------------
pending, or to the knowledge of GP, Inc., threatened, against or affecting GP,
Inc. or any of its properties, in or before any court, arbitrator or other body,
which are reasonably likely to materially adversely affect the financial
condition of GP, Inc. or the ability of GP, Inc. or the Seller to perform its
obligations under the Transaction Documents; GP, Inc. is not in default with
respect to any order of any court, arbitrator or governmental body.
(i) Not an Investment Company. GP, Inc. is not an "investment
-------------------------
company" within the meaning of the Investment Company Act of 1940, as amended
from time to time, or any successor statute.
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<PAGE>
ARTICLE IV
CONDITIONS OF PURCHASES
Section 4.1. Conditions Precedent to Effectiveness of this Agreement
-------------------------------------------------------
and Initial Purchase. The effectiveness of this Agreement and the initial
- --------------------
purchase of a Receivable Interest under this Agreement is subject to the
condition precedent that the Agent shall have received counterparts of this
Agreement duly executed by each of the parties hereto.
Section 4.2. Conditions Precedent to All Purchases and
-----------------------------------------
Reinvestments. Each purchase of a Receivable Interest (other than pursuant to
Section 2.1) and each Reinvestment shall be subject to the further conditions
precedent that (a) in the case of each such purchase, the Collection Agent shall
have delivered to the Agent on or prior to the date of such purchase, in form
and substance satisfactory to the Agent, all Monthly Reports as and when due
under, Section 6.5; (b) on the date of each such purchase or Reinvestment, the
following statements shall be true both before and after giving effect to such
purchase or Reinvestment (and acceptance of the proceeds of such purchase or
Reinvestment shall be deemed a representation and warranty by the Seller that
such statements are then true):
(i) the representations and warranties set forth in Article III are
correct in all material respects on and as of the date of such purchase or
Reinvestment as though made on and as of such date;
(ii) no event has occurred and is continuing, or would result from
such purchase or Reinvestment, that will constitute a Termination Event,
and no event has occurred and is continuing, or would result from such
purchase or Reinvestment, that would constitute a Potential Termination
Event; and
(iii) the Liquidity Termination Date shall not have occurred, the
aggregate Capital of all Receivable Interests does not exceed the Purchase
Limit and the aggregate Receivable Interests does not exceed 100%;
and (c) the Agent shall have received such other approvals, opinions or
documents as it shall have reasonably requested prior to the date of such
purchase and which relate to assurances sought by the Agent or any Investor in
light of the occurrence of any Regulatory Change or the occurrence of any other
event or condition the effect of which is to increase the risk in any material
respect that any of the foregoing conditions shall not have been satisfied at
the time of such purchase.
Section 4.3. Conditions Precedent to Initial Purchase Following the
------------------------------------------------------
Merger. The consent of the Purchasers and the Agent to the Merger, and the
- ------
initial Incremental Purchase or Reinvestment to occur following the Merger, is
subject to the additional conditions precedent that (a) the Agent shall have
received prior written notice (the "Notice of Merger") from TBTR Partnership
advising of the effective date of the Merger and accompanied by a certified copy
of the articles of merger to be filed on such effective date, (b) the Agent
shall have received each of
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<PAGE>
the documents listed on Schedule A hereto, duly executed and delivered by the
respective parties thereto, and dated such effective date, and (c) on such
effective date, after giving effect to the Merger, the statements set forth in
Section 3.1(r) shall be true and correct. The issuance by TBTR Partnership of
the Notice of Merger shall be deemed a representation and warranty by TBTR
Partnership that each of the statements set forth in Section 3.1(r) shall be
true and correct of such effective date and shall be deemed a reaffirmation by
TBTR Partnership of each of its agreements and obligations under Section 1.12.
ARTICLE V
COVENANTS
Section 5.1. Affirmative Covenants of Seller. Until the date on
-------------------------------
which the Aggregate Unpaids have been indefeasibly paid in full, the Seller
hereby covenants that:
(a) Financial Reporting. The Seller will maintain, for itself and
-------------------
each of its Subsidiaries, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to the
Agent:
(i) Annual Reporting. Within 90 days after the close of each of its
----------------
fiscal years, financial statements for such fiscal year certified by its
chief financial officer.
(ii) Compliance Certificate. Together with the financial statements
----------------------
required hereunder, a compliance certificate in substantially the form of
Exhibit IV signed by the Seller's comptroller or chief financial officer
(or the officer of GP, Inc. performing such services for the Seller) and
dated the date of such annual financial statement.
(iii) Statements and Reports. Promptly upon the furnishing thereof
----------------------
to the partners of the Seller, copies of all financial statements, reports
and similar statements so furnished.
(iv) S.E.C. Filings. Promptly upon the filing thereof, copies of all
--------------
registration statements and annual, quarterly, monthly or other regular
reports which the Seller or any of its Subsidiaries files with the
Securities and Exchange Commission.
(v) Change in Credit and Collection Policy. At least 30 days prior
--------------------------------------
to the effectiveness of any material change in or amendment to the Credit
and Collection Policy, a copy of the Credit and Collection Policy then in
effect and a notice indicating such change or amendment.
(vi) Other Information. Such other information (including non-
-----------------
financial information) as the Agent may from time to time reasonably
request.
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<PAGE>
(b) Notices. The Seller will notify the Agent in writing of any of
-------
the following immediately upon learning of the occurrence thereof, describing
the same and, if applicable, the steps being taken with respect thereto:
(i) Termination Events or Potential Termination Events. The
--------------------------------------------------
occurrence of each Termination Event or each Potential Termination Event,
by a statement of the comptroller or senior financial officer of the Seller
(or the officer of GP, Inc. performing such services for the Seller).
(ii) Judgment. The entry of any judgment or decree against the
--------
Seller or any of its Subsidiaries if the aggregate amount of all judgments
and decrees then outstanding against the Seller and its Subsidiaries (which
judgments and decrees are not covered by insurance, the carrier of which
shall have acknowledged such coverage) exceeds $5,000,000.
(iii) Litigation. The institution of any litigation, arbitration
----------
Proceeding or governmental proceeding which could be reasonably likely to
have a material adverse effect on the Seller or any Subsidiary or the
collectibility of the Receivables.
(c) Compliance with Laws. The Seller will comply in all respects
--------------------
with all applicable laws, rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject.
(d) Audits. The Seller will furnish to the Agent from time to time
------
such information with respect to it and the Receivables as the Agent may
reasonably request. The Seller shall, from time to time during regular business
hours as requested by the Agent upon reasonable notice, permit the Agent, or its
agents or representatives, (i) to examine and make copies of and abstracts from
all Records in the possession or under the control of the Seller relating to
Receivables and the Related Security, including, without limitation, the related
Contracts, and (ii) to visit the offices and properties of the Seller for the
purpose of examining such materials described in clause (ii) above, and to
discuss matters relating to the Seller's financial condition or the Receivables
and the Related Security or the Seller's performance hereunder or the Seller's
performance under the Contracts with any of the officers or employees of the
Seller having knowledge of such matters. Prior to the occurrence of a
Termination Event, the Agent shall be limited to two material audits during any
12 month period.
(e) Keeping and Marking of Records and Books.
----------------------------------------
(i) The Seller will maintain and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records evidencing Receivables in the event of the destruction of the
originals thereof), and keep and maintain all documents, books, records and
other information reasonably necessary or advisable for the collection of
all Receivables (including, without limitation, records adequate to permit
the immediate identification of each new Receivable and all
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<PAGE>
Collections of and adjustments to each existing Receivable). The Seller
will give the Agent notice of any material change in the administrative and
operating procedures referred to in the previous sentence.
(ii) The Seller will (a) at all times, mark its master data
processing records and other books and records relating to the Receivable
Interests with a legend, acceptable to the Agent, describing the Receivable
Interests (and shall advise the Agent in writing upon the completion of
such project) and (b) upon the request of the Agent (x) mark each Contract
with a legend describing the Receivable Interests and (y) deliver to the
Agent all Contracts (including, without limitation, all multiple originals
of any such Contract) relating to the Receivables.
(f) Credit and Collection Policy. The Seller will timely and fully
----------------------------
(i) perform and comply in all material respects with all provisions, covenants
and other promises required to be observed by it under the Contracts related to
the Receivables, and (ii) comply in all material respects with the Credit and
Collection Policy in regard to each Receivable and the related Contract. The
Seller will pay when due, and will cause (i) each of its partners to pay when
due all taxes arising in connection with income of the Seller and the existence
and maintenance of the continued good standing of the Seller and (ii) the
Originator to pay when due any taxes (including, without limitation, any sales
taxes) payable in connection with the creation or transfer of Receivables in the
manner contemplated herein.
(g) Purchase of Receivables from the Originator. With respect to
-------------------------------------------
each Receivable purchased by the Seller from the Originator, the Seller shall
take all actions necessary to vest legal and equitable title to such Receivable
and the Related Security irrevocably in the Seller, including, without
limitation, the filing of all financing statements or other similar instruments
or documents necessary under the UCC of all appropriate jurisdictions (or any
comparable law) to perfect the Seller's interest in such Receivable and such
other action to perfect, protect or more fully evidence the interest of the
Seller as the Agent may reasonably request.
(h) Ownership Interest. The Seller shall take all necessary action
------------------
to establish and maintain a valid and perfected first priority undivided
percentage ownership interest in the Receivables and the Related Security and
Collections with respect thereto, to the full extent contemplated herein, in
favor of the Agents and the Purchasers, including, without limitation, taking
such action to perfect, protect or more fully evidence the interest of the
Agents and the Purchasers hereunder as the Agent may reasonably request.
(i) Payment to the Originator. With respect to any Receivable
-------------------------
purchased by the Seller from the Originator, such sale shall be effected under,
and in strict compliance with the terms of, the Transfer Agreement, including,
without limitation, the terms relating to the amount and timing of payments to
be made to the Originator in respect of the purchase price for such Receivable.
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<PAGE>
(j) Performance and Enforcement of Transfer Agreement. The Seller
-------------------------------------------------
shall timely perform the obligations required to be performed by the Seller, and
vigorously enforce the rights and remedies accorded to the Seller, under the
Transfer Agreement.
(k) Purchasers' Reliance. The Seller acknowledges that the
--------------------
Purchasers are entering into the transactions contemplated by this Agreement in
reliance upon the Seller's identity as a separate legal entity from the
Originator and GP, Inc. Therefore, from and after the date of execution and
delivery of this Agreement, the Seller shall take all reasonable steps
including, without limitation, all steps that any Purchaser may from time to
time reasonably request to maintain the Seller's identity as a separate legal
entity and to make it manifest to third parties that the Seller is an entity
with assets and liabilities distinct from those of the Originator and GP, Inc.
and any Affiliates thereof and not just a division of the Originator or GP, Inc.
Without limiting the generality of the foregoing and in addition to the other
covenants set forth herein, the Seller shall:
(i) conduct its own business in its own name and require that all
full-time employees of the Seller identify themselves as such and not as
employees of the Originator or GP, Inc. (including, without limitation, by
means of providing appropriate employees with business or identification
cards identifying such employees as the Seller's employees);
(ii) compensate all employees, consultants and agents directly, from
the Seller's bank accounts, for services provided to the Seller by such
employees, consultants and agents and, to the extent any employee,
consultant or agent of the Seller is also an employee, consultant or agent
of the Originator or GP, Inc., allocate the compensation of such employee,
consultant or agent between the Seller and the Originator (or GP, Inc. as
applicable) on a basis which reflects the services rendered to the Seller
and the Originator (or GP, Inc. as applicable);
(iii) clearly identify its offices (by signage or otherwise) as its
offices;
(iv) have a separate telephone number, which will be answered only
in its name and separate stationery, invoices and checks in its own name;
(v) conduct all transactions with the Originator and GP, Inc.
strictly on an arm's-length basis, allocate all overhead expenses
(including, without limitation, telephone and other utility charges) for
items shared between the Seller and the Originator or GP, Inc. on the basis
of actual use to the extent practicable and, to the extent such allocation
is not practicable, on a basis reasonably related to actual use;
(vi) at all times have at least one member of the Board of Directors
of GP, Inc. (an "Independent Director") be a Person who is not (A) a
--------------------
director, officer or employee of the Originator, the Seller or any
affiliate thereof, (B) a person related to any officer or director of the
Originator or the Seller, (C) a holder (directly or indirectly) of more
than
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<PAGE>
5% of any voting securities (or other equity interests) of the Originator
or the Seller, or (D) a person related to a holder (directly or indirectly)
of more than 5% of any voting securities (or other equity interests) of the
Originator or the Seller;
(vii) observe all partnership formalities as a distinct entity, and
ensure that all partnership actions are duly authorized by GP, Inc. as its
sole general partner;
(viii) maintain the Seller's books and records separate from those of
the Originator and GP, Inc. and otherwise readily identifiable as its own
assets rather than assets of the Originator or GP, Inc.;
(ix) prepare its financial statements separately from those of the
Originator and GP, Inc. and insure that any consolidated financial
statements of the Originator that include the Seller have detailed notes
clearly stating that the Seller is a separate legal entity and that its
assets will be available first and foremost to satisfy the claims of its
own creditors;
(x) except as herein specifically otherwise provided, not commingle
funds or other assets of the Seller with those of the Originator or GP,
Inc. and not maintain bank accounts or other depository accounts to which
the Originator or GP Inc. is an account party, into which the Originator
or GP, Inc. makes deposits or from which the Originator or GP, Inc. has the
power to make withdrawals;
(xi) not permit the Originator or GP, Inc. to pay any of the
Seller's operating expenses (except pursuant to allocation arrangements
that comply with the requirements of subparagraphs (ii) and (v) above); and
(xii) not permit the Seller to be named as an insured on the
insurance policy covering the property of the Originator or GP, Inc. or
enter into an agreement with the holder of such policy whereby in the event
of a loss in connection with such property, proceeds are paid to the
Seller.
(l) Collections by the Originator. The Seller shall cause the
-----------------------------
Originator to remit all Collections received by the Originator to a Collection
Account not later than the Business Day immediately after receipt of such
Collections by the Originator and, at all times prior to such remittance, cause
such Collections shall be held in trust by the Originator, for the exclusive
benefit of the Purchasers and the Agent.
Section 5.2. Negative Covenants of Seller. Until the date on which
----------------------------
the Aggregate Unpaids have been indefeasibly paid in full, the Seller hereby
covenants that:
(a) Name Change, Offices, Records and Books of Accounts. The Seller
will not change its name, identity or structure (within the meaning of Section
9-402(7) of any applicable enactment of the UCC) or relocate its chief executive
office or any office where
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<PAGE>
Records are kept unless it shall have: (i) given the Agent at least 45 days
prior notice thereof and (ii) delivered to the Agent all financing statements,
instruments and other documents requested by the Agent in, connection with such
change or relocation.
(b) Change in Payment Instructions to Obligors. The Seller will not
------------------------------------------
add or terminate any bank as a Collection Bank, or make any change in its
instructions to Obligors regarding payments to be made on the Receivables,
unless in the case of the proposed addition or termination of any bank as a
Collection Bank the Agent shall have received, at least 10 days before the
proposed effective date therefor, (i) written notice of such addition or
termination and (ii) with respect to the addition of a Collection Bank or a
Collection Account, a fully executed Collection Account Agreement; provided,
--------
however, that the Seller may make changes in instructions to Obligors regarding
- -------
payments if such new instructions require such Obligor to make payments to an
existing Lock-Box Account.
(c) Sales, Liens, Etc. Except as otherwise provided herein, the
-----------------
Seller shall not sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, or create or suffer to exist
any Adverse Claim upon (including, without limitation, the filing of any
financing statement) or with respect to, any Receivable or Related Security or
Collections in respect thereof, or upon or with respect to any Contract under
which any Receivable arises, or any Collection Account or assign any right to
receive income in respect thereof, and the Seller shall defend the right, title
and interest of the Purchasers in, to and under any of the foregoing property,
against all claims of third parties claiming through or under the Seller or the
originator.
(d) Change in Business or Credit and Collection Policy. The Seller
--------------------------------------------------
shall not make any material change in the character of its business or in its
Credit and Collection Policy, which change would, in either case, be reasonably
likely to impair the collectibility of any of the Receivables or decrease the
credit quality of any new Receivables. The Seller shall not engage in any
business or activity of any kind or enter into any transaction or indenture,
mortgage, instrument, agreement, contract, lease or other undertaking other than
the transactions contemplated and authorized by this Agreement and the Transfer
Agreement.
(e) Extension or Amendment of Receivables. Except as otherwise
-------------------------------------
permitted pursuant to Section 6.2(c), the Seller, acting as Collection Agent or
otherwise, shall not extend, amend or otherwise modify the terms of any
Receivable, or amend, modify or waive any term or condition of any Contract
under which such Receivable arises.
(f) Amendments to Transfer Agreement. The Seller shall not (i)
--------------------------------
cancel or terminate the Transfer Agreement, (ii) give any consent, waiver,
directive or approval under the Transfer Agreement, (iii) waive any default or
breach under the Transfer Agreement, or otherwise grant any indulgence
thereunder, or (iv) amend, supplement or otherwise modify any of the terms of
the Transfer Agreement.
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<PAGE>
(g) Other Agreements. The Seller shall not enter into or be a party
----------------
to any agreement or instrument other than this Agreement, the Transfer Agreement
and the "Revolving Note" (as defined in the Transfer Agreement) and other than
to incur ordinary operating expenses in the conduct of, or in order to qualify
to do business for purposes of, its limited business affairs as expressly
contemplated in Section 5.1(k).
(h) Amendments to Organizational Documents. The Seller shall not
--------------------------------------
amend its certificate of incorporation or by-laws, in the case of TBTR Corp., or
its partnership agreement or certificate of limited partnership, in the case of
TBTR Partnership, in any respect that would impair its ability to comply with
the terms or provisions of any of the Transaction Documents, including, without
limitation, Section 5.1(k) of this Agreement.
(i) Indebtedness. The Seller shall not create, incur, guarantee,
------------
assume or suffer to exist any indebtedness or other liabilities, whether direct
or contingent, other than (i) as a result of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business, (ii) the incurrence of obligations under this Agreement or
the Transfer Agreement between the Seller and the Originator to make payment for
the purchase of Receivables under such Transfer Agreement and (iii) the
incurrence of operating expenses in the ordinary course of business of the type
otherwise contemplated in this Agreement.
(j) Merger. The Seller shall not merge or consolidate with or into,
------
or convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions, and except as otherwise contemplated herein) all
or substantially all of its assets (whether now owned or hereafter acquired) to,
or acquire all or substantially all of the assets of, any Person; provided that,
subject to satisfaction of the conditions precedent set forth in Section 4.3,
the Seller may consummate the Merger.
Section 5.3. Affirmative Covenants of GP, Inc. From and after the
--------------------------------
Merger, until the date on which the Aggregate Unpaids have been indefeasibly
paid in full, GP, Inc. hereby covenants that:
(a) Financial Reporting. It will furnish to the Agent:
-------------------
(i) Annual Reporting. Within 90 days after the close of each of its
----------------
fiscal years, financial statements for such fiscal year certified by its
chief financial officer.
(ii) Other Information. Such other information (including non-
-----------------
financial information) as the Agent may from time to time reasonably
request.
(b) Compliance by the Seller. It will cause the Seller to comply
------------------------
with each term, covenant and agreement on the Seller's part to be performed
hereunder (including, without limitation, Section 5.1(k) hereof) and under each
other Transaction Document, and the payment
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<PAGE>
and performance of all obligations and liabilities of the Seller hereunder and
under each other Transaction Document.
(c) Compliance with Laws. It will comply in all respects with all
--------------------
applicable laws, rules, regulations, orders, writs, judgments, injunctions,
decrees or awards to which it may be subject, and will pay all taxes when the
same shall become due.
(d) Audits. It will furnish to the Agent from time to time such
------
information with respect to it and the Receivables as the Agent may reasonably
request. GP, Inc. shall, from time to time during regular business hours as
requested by the Agent upon reasonable notice, permit the Agent, or its agents
or representatives, (i) to examine and make copies of and abstracts from all
Records in the possession or under the control of GP, Inc. relating to
Receivables and the Related Security, including, without limitation, the related
Contracts, and (ii) to visit the offices and properties of GP, Inc. for the
purpose of examining such materials described in clause (i) above, and to
discuss matters relating to the financial condition of GP, Inc. or the
Receivables and the Related Security or the Seller's or GP, Inc.'s performance
hereunder or the Seller's performance under the Contracts with any of the
officers or employees of GP, Inc. having knowledge of such matters.
(e) Separate Identity. GP, Inc. acknowledges that the Purchasers
-----------------
are entering into the transactions contemplated by this Agreement in reliance
upon (x) the Seller's identity as a separate legal entity from the originator
and from GP, Inc. and (y) GP, Inc.'s identity as a separate legal entity from
the Originator. Therefore, from and after the date of execution and delivery of
this Agreement, GP, Inc. shall take all reasonable steps including, without
limitation, all steps that any Purchaser may from time to time reasonably
request to maintain its identity as a separate legal entity and to make it
manifest to third parties that it is an entity with assets and liabilities
distinct from those of the Seller and the originator and any Affiliates thereof
and that it is not just a division of the Originator. Without limiting the
generality of the foregoing and in addition to the other covenants set forth
herein, GP, Inc. shall:
(i) conduct its own business in its own name and require that all
full-time employees of GP, Inc. identify themselves as such and not as
employees of the Originator (including, without limitation, by means of
providing appropriate employees with business or identification cards
identifying such employees as GP, Inc.'s employees and by providing
stationery in the name of GP, Inc. for business correspondence);
(ii) compensate all employees, consultants and agents directly, from
GP, Inc.'s bank accounts, for services provided to GP, Inc. by such
employees, consultants and agents and, to the extent any employee,
consultant or agent of GP, Inc. is also an employee, consultant or agent of
the Originator, allocate the compensation of such employee, consultant or
agent between GP, Inc. and the Originator on a basis which reflects the
services rendered to GP, Inc. and the originator;
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<PAGE>
(iii) conduct all transactions with the Originator strictly on an
arm's-length basis, allocate all overhead expenses (including, without
limitation, telephone and other utility charges) for items shared between
GP, Inc. and the originator on the basis of actual use to the extent
practicable and, to the extent such allocation is not practicable, on a
basis reasonably related to actual use;
(iv) at all times have at least one member of its Board of Directors
who is not (A) a director, officer or employee of the Originator or the
Seller or any affiliate thereof (other than GP, Inc.), (B) a person related
to any officer or director of the Originator or the Seller, (C) a holder
(directly or indirectly) of more than 5% of any voting securities of the
Originator or the Seller, or (D) a person related to a holder (directly or
indirectly) of more than 5% of any voting securities of the Originator or
the Seller;
(v) observe all corporate formalities as a distinct entity, and
ensure that all corporate actions are duly authorized by unanimous vote of
its Board of Directors;
(vi) maintain its books and records separate from those of the
Originator and the Seller and otherwise readily identifiable as its own
assets rather than assets of the Originator or the Seller;
(vii) prepare its financial statements separately from those of the
Originator and the Seller and insure that any consolidated financial
statements of the Originator that include GP, Inc. have detailed notes
clearly stating that GP, Inc. is a separate corporate entity and that its
assets will be available first and foremost to satisfy the claims of its
creditors;
(viii) not commingle funds or other assets of GP, Inc. with those of
the Originator or the Seller and not maintain bank accounts or other
depository accounts to which the Originator or the Seller is an account
party, into which the Originator or the Seller makes deposits or from which
the Originator or the Seller has the power to make withdrawals;
(ix) not permit the Originator or the Seller to pay any of GP,
Inc.'s operating expenses (except pursuant to allocation arrangements that
comply with the requirements of subparagraphs (ii) and (iii) above); and
(x) not permit itself to be named as an insured on the insurance
policy covering the property of the Originator or the Seller or enter into
an agreement with the holder of such policy whereby in the event of a loss
in connection with such property, proceeds are paid to GP, Inc..
Section 5.4. Negative Covenants of GP, Inc. From and after the
-----------------------------
Merger, until the date on which the Aggregate Unpaids have been indefeasibly
paid in full, GP, Inc. hereby covenants that:
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(a) Name Change, Offices, Records and Books of Accounts. It will
---------------------------------------------------
not change its name, identity or corporate structure (within the meaning of
Section 9-402(7) of any applicable enactment of the UCC) or relocate its chief
executive office or any office where Records are kept unless it shall have given
the Agent at least 45 days prior notice thereof.
(b) Sales, Liens, Etc. It shall not sell, assign (by operation of
-----------------
law or otherwise) or otherwise dispose of, or grant any option with respect to,
or create or suffer to exist any Adverse Claim upon (including, without
limitation, the filing of any financing statement) or with respect to, any of
its assets, properties or interests in property or assign any right to receive
income in respect thereof.
(c) Change in Business or Credit and Collection Policy. It shall
--------------------------------------------------
not make any material change in the character of its business. It shall not
engage in any business or activity of any kind or enter into any transaction
other than the transactions contemplated and authorized by this Agreement and
the Transfer Agreement. It shall not enter into or be a party to any agreement
or instrument other than this Agreement, the Transfer Agreement and the
"Revolving Note" (as defined in the Transfer Agreement) and other than to incur
ordinary operating expenses in the conduct of, or in order to qualify to do
business for purposes of, its limited business affairs as expressly contemplated
in Section 5.3(e).
(d) Amendments to Corporate Documents. GP, Inc. shall not amend its
---------------------------------
certificate of incorporation or by-laws in any respect that would impair its
ability to comply with the terms or provisions of any of the Transaction
Documents, including, without limitation, Section 5.3(e) of this Agreement.
(e) Indebtedness. GP, Inc. shall not create, incur, guarantee,
------------
assume or suffer to exist any indebtedness or other liabilities, whether direct
or contingent, other than (i) as a result of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business, and (ii) the incurrence of operating expenses in the
ordinary course of business of the type otherwise contemplated in this
Agreement.
(f) Merger; Ownership of the Seller. GP, Inc. shall not merge or
-------------------------------
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions, and except as
otherwise contemplated herein) all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all of the
assets of, any Person. GP, Inc. shall not permit any Person other than itself
to become or be a general partner in the Seller, and shall not permit any Person
other than the Originator to become or be a limited partner in the Seller.
Section 5.5. Covenants of TBTR Partnership. At all times prior to
-----------------------------
the earlier to occur of (i) the occurrence of the Merger, and (ii) the date on
which the Aggregate Unpaids have been indefeasibly paid in full, TBTR
Partnership shall do all things necessary, and conduct itself in a manner, such
that at the time it becomes the "Seller" and the "Collection Agent" hereunder
TBTR Partnership shall be in full compliance with, and capable of continuing to
comply with,
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each of the representations, warranties and covenants of the Seller and the
Collection Agent hereunder.
ARTICLE VI
ADMINISTRATION AND COLLECTION
Section 6.1. Designation of Collection Agent.
-------------------------------
(a) The servicing, administration and collection of the Receivables
shall be conducted by such Person (the "Collection Agent") so designated from
time to time in accordance with this Section 6.1. The Seller is hereby
designated as, and hereby agrees to perform the duties and obligations of, the
Collection Agent pursuant to the terms of this Agreement. The Agent may at any
time designate as Collection Agent any Person to succeed the Seller or any
successor Collection Agent.
(b) The Seller is permitted to delegate, and the Seller hereby
advises the Purchasers and the Agent that it has delegated, to the Originator,
as subservicer of the Collection Agent, all of its duties and responsibilities
as Collection Agent hereunder. The Originator has delegated certain of its
duties and responsibilities as more particularly described on Schedule B hereto.
Notwithstanding the foregoing, (i) the Seller shall be and remain primarily
liable to the Agent and the Purchasers for the full and prompt performance of
all duties and responsibilities of the Collection Agent hereunder and (ii) the
Agent and the Purchasers shall be entitled to deal exclusively with the Seller
in matters relating to the discharge by the Collection Agent of its duties and
responsibilities hereunder, and the Agent and the Purchasers shall not be
required to give notice, demand or other communication to any Person other than
the Seller in order for communication to the Collection Agent and its respective
delegatees and subservicers in respect thereof to be accomplished. The Seller,
at all times that it is the Collection Agent, shall be responsible for providing
its delegatees and subservicers with any notice given under this Agreement.
Without the prior written consent of the Required Investors, the Seller shall
not be permitted to delegate any of its duties or responsibilities as Collection
Agent to any Person other than the Originator, and the Originator shall not be
permitted to further delegate to any other Person any of the duties or
responsibilities of the Collection Agent delegated to it by the Seller.
Section 6.2. Duties of Collection Agent.
--------------------------
(a) The Collection Agent shall take or cause to be taken all such
actions as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy.
(b) The Collection Agent shall administer the Collections in
accordance with the procedures described herein and in Article I. The Collection
Agent shall set aside and hold in trust for the account of the Seller and the
Purchasers their respective shares of the Collections of Receivables in
accordance with Section 1.7. The Collection Agent shall upon the request of
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the Agent after the occurrence of a Liquidation Day, segregate, in a manner
acceptable to the Agent, all cash, checks and other instruments received by it
from time to time constituting Collections from the general funds of the
Collection Agent or the Seller prior to the remittance thereof in accordance
with Section 1.7. If the Collection Agent shall be required to segregate
Collections pursuant to the preceding sentence, the Collection Agent shall
segregate and deposit with a bank designated by the Agent such allocable share
of Collections of Receivables set aside for the Purchasers on the first Business
Day following receipt by the Collection Agent of such Collections, duly endorsed
or with duly executed instruments of transfer.
(c) The Collection Agent, may, in accordance with the Credit and
Collection Policy, extend the maturity of any Receivable or adjust the
Outstanding Balance of any Receivable as the Collection Agent may determine to
be appropriate to maximize Collections thereof; provided, however, that such
-------- -------
extension or adjustment shall not alter the status of such Receivable as a
Delinquent Receivable or Defaulted Receivable or limit the rights of the Agent
or the Purchasers under this Agreement. Notwithstanding anything to the
contrary contained herein, the Agent shall have the absolute and unlimited right
to direct the Collection Agent to commence or settle any legal action with
respect to any Receivable or to foreclose upon or repossess any Related
Security.
(d) The Collection Agent shall hold in trust for the Seller and the
Purchasers, in accordance with their respective Receivable Interests, all
Records that evidence or relate to the Receivables, the related Contracts and
Related Security or that are otherwise necessary or desirable to collect the
Receivables and shall, as soon as practicable upon demand of the Agent, deliver
or make available to the Agent all such Records, at a place selected by the
Agent. The Collection Agent shall, as soon as practicable following receipt
thereof, turn over to the Seller (i) that portion of Collections of Receivables
representing the Seller's undivided fractional ownership interest therein, less,
in the event the Seller is not the Collection Agent, all reasonable out-of-
pocket costs and expenses of the Collection Agent of servicing, administering
and collecting the Receivables, and (ii) any cash collections or other cash
proceeds received with respect to Indebtedness not constituting Receivables.
The Collection Agent shall, from time to time at the request of any Purchaser,
furnish to the Purchasers (promptly after any such request) a calculation of the
amounts set aside for the Purchasers pursuant to Section 1.7.
(e) Any payment by an Obligor in respect of any indebtedness owed
by it to the Seller shall, except as otherwise specified by such Obligor or
otherwise required by contract or law and unless otherwise instructed by the
Agent, be applied as a Collection of any Receivable of such Obligor (starting
with the oldest such Receivable) to the extent of any amounts then due and
payable thereunder before being applied to any other receivable or other
obligation of such Obligor.
Section 6.3. Collection Notices.
------------------
(a) The Agent is authorized at any time to date and to deliver to
the Collection Banks, the notice attached to the Collection Notices. The Seller
hereby transfers to the Agent for
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the benefit of the Purchasers, effective when the Agent delivers such notice,
the exclusive ownership and control of the Collection Accounts. In case any
authorized signatory of the Seller whose signature appears on a Collection
Notice shall cease to have such authority before the delivery of such notice,
such Collection Notice shall nevertheless be valid as if such authority had
remained in force. The Seller hereby authorizes the Agent, and agrees that the
Agent shall be entitled to (i) endorse the Seller's name on checks and other
instruments representing Collections, (ii) enforce the Receivables, the related
Contracts and the Related Security and (iii) take such action as shall be
necessary or desirable to cause all cash, checks and other instruments
constituting Collections of Receivables to come into the possession of the Agent
rather than the Seller.
(b) The Agent may at any time, on written notice to the Seller,
direct that the Seller, and the Seller thereupon shall, direct the Originator to
(i) cease accepting In-Store Collections at individual cash registers within a
store, (ii) accept all In-Store Collections at a single collection point within
each store, and otherwise segregate, record and maintain the separateness of all
In-Store Collections from all other cash and payment items handled or located at
such store, and (iii) remit on a daily basis from each store location all In-
Store Collections (in the form received) to such location or locations as the
Agent may in its sole discretion direct, including, without limitation, to a
deposit account at any bank selected by the Agent (which may be a separate
deposit account at the bank where any store, in the ordinary course, deposits
its Collections) or to a concentration location (which may entail daily delivery
by overnight courier by each store to such location of such store's In-Store
Collections). The Seller shall take all actions necessary, or that the Agent may
reasonably request, to implement any alternative handling procedures required
under this Section 6.3(b) for In-Store Collections.
Section 6.4. Responsibilities of the Seller. Anything herein to the
------------------------------
contrary notwithstanding, the exercise by the Agent and the Purchasers of their
rights hereunder shall not release the Collection Agent or the Seller from any
of their duties or obligations with respect to any Receivables or under the
related Contracts. The Purchasers shall have no obligation or liability with
respect to any Receivables or related Contracts, nor shall any of them be
obligated to perform the obligations of the Seller.
Section 6.5. Reports. On the 15th day of each month and at such
-------
times as the Agent shall request, the Collection Agent shall prepare and forward
to the Agent a Monthly Report. At such times as the Agent shall request, the
Collection Agent shall prepare and forward to the Agent a listing by Obligor of
all Receivables together with an aging of such Receivables.
ARTICLE VII
TERMINATION EVENTS
Section 7.1. Termination Events. The occurrence of any one or more
------------------
of the following events shall constitute a Termination Event:
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(a) (i) the Collection Agent (if then any Person designated by the
Seller as the Collection Agent) or the Seller shall fail to perform or observe
any term, covenant or agreement hereunder (other than as referred to in clause
(ii) of this Section 7.1(a)) and such failure shall remain unremedied for ten
--------------
(10) Business Days after the earlier to occur of knowledge thereof on the part
of the Collection Agent or the Seller or notice thereof given by the Agent to
the Seller or (ii) the Collection Agent (if then any Person designated by the
Seller as the Collection Agent), the Originator, the Seller or GP, Inc. shall
fail to make any payment or deposit to be made by it hereunder or under the Fee
Letter when due and such failure shall remain unremedied for one (1) Business
Day.
(b) Any representation, warranty, certification or statement made
by the Seller, TBTR Partnership (whether or not then the Seller) or GP, Inc. in
this Agreement or in any other document delivered pursuant hereto or by the
Originator under the Transfer Agreement shall prove to have been incorrect in
any material respect when made or deemed made.
(c) (i) The Seller, GP, Inc. (at any time following the Merger),
the Originator or any of their respective Subsidiaries shall generally not pay
its debts as such debts become due or shall admit in writing its inability to
pay its debts generally or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Seller, the
Originator or any of their respective Subsidiaries seeking to adjudicate it
bankrupt or insolvent, or seeking liquidation, dissolution, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for it or any
substantial part of its property or (ii) any judicial or nonjudicial dissolution
of the Seller shall occur, or an event of withdrawal (at any time following the
Merger) with respect to GP, Inc. as the, general partner in the TBTR Partnership
shall occur or (iii) the Seller, GP, Inc. (at any time following the Merger),
the Originator or any of their respective Subsidiaries shall take any corporate
or partnership action to authorize any of the actions set forth in clause (i) or
clause (ii) above in this subsection (c).
(d) (i) The Seller, TBTR Partnership (whether or not then the
Seller), GP, Inc. or the Originator shall fail to observe or perform any
covenant, condition or provision of the Transfer Agreement, and such failure
shall have continued beyond any applicable cure period thereunder, or (ii) the
Seller or the Originator, as applicable, shall have waived or relinquished its
rights under the Transfer Agreement with respect to any such failure or (iii)
the Originator for any reason shall cease to sell, or the Seller for any reason
shall cease to buy, "Receivables" under the Transfer Agreement.
(e) Excess Spread shall be less than 2% on an annualized basis for
three (3) consecutive months.
(f) (i) The Originator shall cease to own directly 100% of shares
of the outstanding capital stock of GP, Inc. entitled to vote generally for the
election of directors of
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such corporation, (ii) GP, Inc. shall cease to own directly all of the general
partnership interests in the Seller, (iii) the Originator shall cease to own
directly all of the limited partnership interests in the Seller or (iv) a Change
of Control shall occur.
(g) As at the end of any fiscal month, (i) the average Delinquency
Ratio in respect of the three fiscal months then most recently ended shall
exceed 3.5% or (ii) the average Loss-to-Liquidation Ratio in respect of the
three fiscal months then most recently ended shall exceed 3.5%.
(h) Following the occurrence of the Merger, any Person shall assert
the invalidity or unenforceability of the Merger in any proceeding at law or in
equity.
Section 7.2. Payment Default on Other Indebtedness. In the event
-------------------------------------
that any Material Entity shall fail to make any payment when due (whether at
scheduled maturity, by acceleration, when declared to be due and payable or
otherwise) in respect of any Indebtedness outstanding (individually or in the
aggregate) in a principal amount of $2,500,000 or more at any time that a Person
affiliated with or designated by the Seller is then the Collection Agent, and
such failure shall remain unremedied for three (3) days, the Agent may demand
that the Seller thereupon seek and obtain the services of a new Collection Agent
satisfactory to the Agent. For this purpose, "Material Entity" means The Bon-
---------------
Ton Stores, Inc., The Bon-Ton National Corp., The Bon-Ton Trade Corp., The Bon-
Ton Stores of Lancaster, Inc., Adam, Meldrum & Anderson Co., Inc. and any other
Person controlling, controlled by or under common control with The Bon-Ton
Stores, Inc. and representing not less than 5% of the net worth of the
consolidated group of which The Bon-Ton Stores, Inc. comprises a part.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. Indemnities by the Seller. Without limiting any other
-------------------------
rights which the Agent or any Purchaser may have hereunder or under applicable
law, the Seller hereby agrees to indemnify the Agent and each Purchaser and
their respective officers, directors, agents and employees (each an "Indemnified
Party") from and against any and all damages, losses, claims, taxes,
liabilities, costs, expenses and for all other amounts payable, including
reasonable attorneys' fees (which attorneys may be employees of the Agent or
such Purchaser) and disbursements (all of the foregoing being collectively
referred to as "Indemnified Amounts") awarded against or incurred by any of them
arising out of or as a result of this Agreement or the acquisition, either
directly or indirectly, by a Purchaser of an interest in the Receivables,
excluding, however:
(i) Indemnified Amounts to the extent final judgment of a court of
competent jurisdiction holds such Indemnified Amounts resulted from gross
negligence or willful misconduct on the part of the Indemnified Party
seeking indemnification;
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(ii) recourse for Receivables that are uncollectible or uncollected
(whether on account of the insolvency, bankruptcy or lack of
creditworthiness of the related obligor or otherwise); provided that the
--------
foregoing shall not negate, impair or otherwise modify any (or the effect
of any) of the representations, warranties, covenants or other agreements
of the Seller contained in this Agreement; or
(iii) taxes imposed by the jurisdiction in which such Indemnified
Party's principal executive office is located, on or measured by the
overall net income of such Indemnified Party to the extent that the
computation of such taxes is consistent with the Intended Characterization;
provided, however, that nothing contained in this sentence shall limit the
- -------- -------
liability of the Seller or the Collection Agent or limit the recourse of the
Purchasers to the Seller or Collection Agent for amounts otherwise specifically
provided to be paid by the Seller or the Collection Agent under the terms of
this Agreement. Without limiting the generality of the foregoing
indemnification, the Seller shall indemnify the Agent and the Purchasers for
Indemnified Amounts (including, without limitation, losses in respect of
uncollectible receivables, regardless of whether reimbursement therefor would
constitute recourse to the Seller or the Collection Agent) relating to or
resulting from:
(i) any representation or warranty made by the Seller, TBTR
Partnership (whether or not then the Seller) GP, Inc. or the Collection
Agent (or any officers of the Seller or the Collection Agent) under or in
connection with this Agreement, any Monthly Report or any other information
or report delivered by the Seller, TBTR Partnership (whether or not then
the Seller) GP, Inc. or the Collection Agent pursuant hereto, which shall
have been false or incorrect when made or deemed made;
(ii) the failure by the Seller or the Collection Agent to comply with
any applicable law, rule or regulation with respect to any Receivable or
Contract related thereto, or the nonconformity of any Receivable or
Contract included therein with any such applicable law, rule or regulation;
(iii) any failure of the Seller, TBTR Partnership (whether or not
then the Seller) GP, Inc. or the Collection Agent to perform its duties or
obligations in accordance with the provisions of this Agreement;
(iv) any products liability or similar claim arising out of or in
connection with merchandise, insurance or services which are the subject of
any Contract;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or the
related Contract not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its
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terms), or any other claim resulting from the sale of the merchandise or
service related to such Receivable or the furnishing or failure to furnish
such merchandise or services;
(vi) any Receivable which is treated as or represented by the
Seller to be an Eligible Receivable (including, without limitation, for
purposes of computing the Net Receivables Balance at any time) which is not
at the date thereof an Eligible Receivable;
(vii) the commingling of Collections of Receivables at any time with
other funds;
(viii) any investigation, litigation or proceeding related to or
arising from this Agreement, the transactions contemplated hereby, the use
of the proceeds of a purchase, the ownership of the Receivable Interests,
the Merger or any other investigation, litigation or proceeding relating to
the Seller in which any Indemnified Party becomes involved as a result of
any of the transactions contemplated hereby; excluding, however, any
---------
investigation, litigation or proceeding that relates solely to the
compliance or noncompliance by any Purchaser with any state or federal laws
applicable to such Purchaser because of such Purchaser's regulatory status
or any contractual restriction (other than the Transaction Documents)
binding on such Purchaser;
(ix) any inability to litigate any claim against any Obligor in
respect of any Receivable as a result of such Obligor being immune from
civil and commercial law and suit on the grounds of sovereignty or
otherwise from any legal action, suit or proceeding; and
(xi) any Termination Event described in Section 7.1(c).
The Seller shall be given notice of any claim for indemnified liabilities and,
in the case of any litigation or proceeding brought by any Person that is not a
party to this Agreement which litigation or proceeding is reasonably likely to
give rise to a claim hereunder for indemnification, the Seller shall be afforded
a reasonable opportunity to participate in the defense, compromise or settlement
thereof.
Section 8.2. Increased Cost and Reduced Return.
---------------------------------
(a) If any Funding Source shall be charged any fee, expense or
increased cost on account of any Regulatory Change after the date hereof: (i)
which subjects any Funding Source to any tax of any kind whatsoever with respect
to this Agreement, any Funding Agreement or a Funding Source's obligations under
a Funding Agreement, or on or with respect to the Receivables, or changes the
basis of taxation of payments to any Funding Source of any amounts payable under
any Funding Agreement (excluding net income taxes and franchise or gross
receipts taxes (imposed in lieu of net income taxes) imposed on the Funding
Source as a result of a present or former connection between the jurisdiction of
the government or taxing authority imposing such tax and such Funding Source or
any political subdivision or taxing
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authority thereof or therein) or (ii) which imposes, modifies or deems
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of a Funding Source, or credit extended by
a Funding Source pursuant to a Funding Agreement, (iii) which imposes any
requirement regarding capital adequacy in respect of such Funding Source (or any
corporation controlling such Funding Source), and the effect thereof is to
reduce the rate of return on such Funding Source's or such corporation's capital
as a consequence of obligations existing hereunder to a level below which could
have been achieved but for such Regulatory Change (taking into consideration
such Funding Source's or such corporation's policies with respect to capital
adequacy) by an amount deemed by such Funding Source to be material, or (iv)
which imposes any other condition the result of which is to increase the cost to
a Funding Source of performing its obligations under a Funding Agreement, or to
reduce the rate of return on a Funding Source's capital as a consequence of its
obligations under a Funding Agreement, or to reduce the amount of any sum
received or receivable by a Funding Source under a Funding Agreement or to
require any payment calculated by reference to the amount of interests or loans
held or interest received by it, then, within five Business Days following
demand by the Agent, the Seller shall pay to the Agent, for the benefit of the
relevant Funding Source, such amounts charged to such Funding Source or to
compensate such Funding Source for such reduction.
(b) Each Funding Source shall be required to use reasonable efforts in
order to avoid or to minimize, as the case may be, the payment by the Seller of
any additional amount under Section 8.2(a)(iii); provided, however, that no
----------
Funding Source shall be obligated to incur any expense, cost or other amount in
connection with utilizing such reasonable efforts.
Section 8.3. Other Costs and Expenses. The Seller shall pay to the
------------------------
Agent and FALCON on demand all reasonable costs and out-of-pocket expenses in
connection with the preparation, execution, delivery and administration of this
Agreement, the transactions contemplated hereby and the other documents to be
delivered hereunder, including without limitation, the reasonable cost of
FALCON's auditors auditing the books, records and procedures of the Seller,
reasonable fees and out-of-pocket expenses of legal counsel for FALCON and the
Agent (which such counsel may be employees of FALCON or the Agent) with respect
thereto and with respect to advising FALCON and the Agent as to their respective
rights and remedies under this Agreement. The Seller shall pay to the Agent on
demand any and all reasonable costs and expenses of the Agent and the
Purchasers, if any, including reasonable counsel fees and expenses in connection
with the enforcement of this Agreement and the other documents delivered
hereunder and in connection with any restructuring or workout of this Agreement
or such documents, or the administration of this Agreement following a
Termination Event. The Seller shall reimburse FALCON on demand for all other
reasonable costs and expenses incurred by FALCON or any shareholder of FALCON
("Other Costs"), including, without limitation, the cost of auditing FALCON's
books by certified public accountants, the cost of rating the Commercial Paper
by independent financial rating agencies, and the reasonable fees and out-of-
pocket expenses of counsel for FALCON or any counsel for any shareholder of
FALCON with respect to advising FALCON or such shareholder as to matters
relating to FALCON's operations. Notwithstanding the foregoing, the Seller
shall not be liable to the Agent or Falcon in respect of the costs and out-of-
pocket expenses incurred in connection with any audit
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conducted under Section 5.1(d) of this Agreement conducted prior to the
occurrence of any Termination Event to the extent that the aggregate amount of
such costs and expenses during any 12 month period shall exceed $25,000. After
the occurrence and during the continuance of a Termination Event, the foregoing
limitation on audit costs shall not apply. The Seller shall make each such
reimbursement for costs and expenses, and shall make each other payment required
under this Section 8.3, within five Business Days following demand by the Agent
therefor.
Section 8.4. Allocations. FALCON shall allocate the liability for
-----------
Other Costs among the Seller and other Persons with whom FALCON has entered into
agreements to purchase interests in receivables ("Other Sellers"). If any Other
Costs are attributable to the Seller and not attributable to any other Seller,
the Seller shall be solely liable for such Other Costs. However, if Other Costs
are attributable to Other Sellers and not attributable to the Seller, such Other
Sellers shall be solely liable for such Other Costs. All allocations to be made
pursuant to the foregoing provisions of this Article VIII shall be made by
FALCON in its sole discretion and shall be binding on the Seller and the
Collection Agent.
ARTICLE IX
THE AGENT
Section 9.1. Authorization and Action. Each Purchaser hereby
------------------------
designates and appoints First Chicago to act as its agent hereunder and under
each other Transaction Document, and authorizes the Agent to take such actions
as agent on its behalf and to exercise such powers as are delegated to the Agent
by the terms of this Agreement and the other Transaction Documents together with
such powers as are reasonably incidental thereto. The Agent shall not have any
duties or responsibilities, except those expressly set forth herein or in any
other Transaction Document, or any fiduciary relationship with any Purchaser,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Agent shall be read into this Agreement or any
other Transaction Document or otherwise exist for the Agent. In performing its
functions and duties hereunder and under the other Transaction Documents, the
Agent shall act solely as agent for the Purchasers and does not assume nor shall
be deemed to have assumed any obligation or relationship of trust or agency with
or for the Seller or any of its successors or assigns. The Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement, any other Transaction Document or
applicable law. The appointment and authority of the Agent hereunder shall
terminate upon the indefeasible payment in full of all Aggregate Unpaids. Each
Purchaser hereby authorizes the Agent to execute each of the Uniform Commercial
Code financing statements on behalf of such Purchaser (the terms of which shall
be binding on such Purchaser).
Section 9.2. Delegation of Duties. The Agent may execute any of its
--------------------
duties under this Agreement and each other Transaction Document by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
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Section 9.3. Exculpatory Provisions. Neither the Agent nor any of
----------------------
its directors, officers, agents or employees shall be (i) liable to the
Purchasers for any action lawfully taken or omitted to be taken by it or them
under or in connection with this Agreement or any other Transaction Document
(except for its, their or such Person's own gross negligence or willful
misconduct), or (ii) responsible in any manner to any of the Purchasers for any
recitals, statements, representations or warranties made by the Seller contained
in this Agreement, any other Transaction Document or any certificate, report,
statement or other document referred to or provided for in, or received under or
in connection with, this Agreement, or any other Transaction Document or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement, or any other Transaction Document or any other document
furnished in connection herewith or therewith, or for any failure of the Seller
to perform its obligations hereunder or thereunder, or for the satisfaction of
any condition specified in Article IV, or for the perfection, priority,
condition, value or sufficiency or any collateral pledged in connection
herewith. The Agent shall not be under any obligation to any Purchaser to
ascertain or to inquire as to the observance or performance of any of the
agreements or covenants contained in, or conditions of, this Agreement or any
other Transaction Document, or to inspect the properties, books or records of
the Seller. The Agent shall not be deemed to have knowledge of any Termination
Event or Potential Termination Event unless the Agent has received notice from
the Seller or a Purchaser.
Section 9.4. Reliance by Agent. The Agent shall in all cases be
-----------------
entitled to rely, and shall be fully protected in relying, upon any document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Seller),
independent accountants and other experts selected by the Agent. The Agent
shall in all cases be fully justified in failing or refusing to take any action
under this Agreement or any other Transaction Document unless it shall first
receive such advice or concurrence of FALCON or the Required Investors or all of
the Purchasers, as applicable, as it deems appropriate and it shall first be
indemnified to its satisfaction by the Purchasers, provided that unless and
--------
until the Agent shall have received such advice, the Agent may take or refrain
from taking any action, as the Agent shall deem advisable and in the best
interests of the Purchasers. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, in accordance with a request of FALCON or
the Required Investors or all of the Purchasers, as applicable, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Purchasers.
Section 9.5. Non-Reliance on Agent and Other Purchasers. Each
------------------------------------------
Purchaser expressly acknowledges that neither the Agent, nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of the Seller,
shall be deemed to constitute any representation or warranty by the Agent. Each
Purchaser represents and warrants to the Agent that it has and will,
independently and without reliance upon the Agent or any other Purchaser and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Seller
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and made its own decision to enter into this Agreement, the other Transaction
Documents and all other documents related hereto or thereto.
Section 9.6. Reimbursement and Indemnification. The Investors agree
---------------------------------
to reimburse and indemnify the Agent and its officers, directors, employees,
representatives and agents ratably according to their Pro Rata Shares, to the
extent not paid or reimbursed by the Seller (i) for any amounts for which the
Agent, acting in its capacity as Agent, is entitled to reimbursement by the
Seller hereunder and (ii) for any other expenses incurred by the Agent, in its
capacity as Agent and acting on behalf of the Purchasers, in connection with the
administration and enforcement of this Agreement and the other Transaction
Documents.
Section 9.7. Agent in its Individual Capacity. The Agent and its
--------------------------------
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Seller or any Affiliate of the Seller as though the
Agent were not the Agent hereunder. With respect to the acquisition of
Receivable Interests pursuant to this Agreement, the Agent shall have the same
rights and powers under this Agreement as any Purchaser and may exercise the
same as though it were not the Agent, and the terms "Investor," "Purchaser,"
"Investors" and "Purchasers" shall include the Agent in its individual capacity.
Section 9.8. Successor Agent. The Agent may, upon thirty days,
---------------
notice to the Seller and the Purchasers, and the Agent will, upon the direction
of all of the Purchasers (other than the Agent, in its individual capacity)
resign as Agent. If the Agent shall resign, then the Required Investors during
such five-day period shall appoint from among the Purchasers a successor agent.
If for any reason no successor Agent is appointed by the Required Investors
during such five-day period, then effective upon the termination of such five
day period, the Purchasers shall perform all of the duties of the Agent
hereunder and under the other Transaction Documents and the Seller shall make
all payments in respect of the Aggregate Unpaids directly to the applicable
Purchasers and for all purposes shall deal directly with the Purchasers. After
the effectiveness of any retiring Agent's resignation hereunder as Agent, the
retiring Agent shall be discharged from its duties and obligations hereunder and
under the other Transaction Documents and the provisions of this Article IX and
Article VIII shall continue in effect for its benefit with respect to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement and under the other Transaction Documents.
ARTICLE X
ASSIGNMENTS; PARTICIPATIONS
Section 10.1. Assignments.
-----------
(a) TBTR Corp., TBTR Partnership, GP, Inc. and each Investor hereby
agree and consent to the complete or partial assignment by FALCON of all of its
rights under, interest in, title to and obligations under this Agreement to the
Investors pursuant to Section 2.1 or to any other Person, and upon such
assignment, FALCON shall be released from its obligations so assigned. Further,
TBTR Corp., TBTR Partnership, GP, Inc. and each Investor hereby agree that
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any assignee of FALCON of this Agreement or all or any of the Receivable
Interests of FALCON shall have all of the rights and benefits under this
Agreement as if the term "FALCON" explicitly referred to such party, and no such
assignment shall in any way impair the rights and benefits of FALCON hereunder.
The Seller shall not have the right to assign its rights or obligations under
this Agreement.
(b) Any Investor may at any time and from time to time assign to one
or more Persons ("Purchasing Investors") all or any part of its rights and
obligations under this Agreement pursuant to an assignment agreement, in a form
satisfactory to the Agent (the "Assignment Agreement") executed by such
Purchasing Investor and such selling Investor. The consent of the Seller (which
consent shall not be unreasonably withheld) and FALCON shall be required prior
to the effectiveness of any such assignment. Each assignee of an Investor must
have a short-term debt rating of A-1 or better by Standard & Poor's Ratings
Group and P-1 by Moody's Investors Service, Inc. and must deliver to the Agent
an enforceability opinion in form and substance satisfactory to the Agent prior
to the effectiveness of any Assignment Agreement. Upon delivery of the executed
Assignment Agreement to the Agent, such selling Investor shall be released from
its obligations hereunder to the extent of such assignment. Thereafter the
Purchasing Investor shall for all purposes be an Investor party to this
Agreement and shall have all the rights and obligations of an Investor under
this Agreement to the same extent as if it were an original party hereto and no
further consent or action by the Seller, the Purchasers or the Agent shall be
required.
(c) Each of the Investors agrees that in the event the Investors
agrees that in the event that it shall cease to have a short-term debt rating of
A-1 or better by Standard & Poor's Corporation and P-1 by Moody's Investors
Service, Inc. (an "Affected Investor"), such Affected Investor shall be obliged,
at the request of FALCON or the Agent, to assign all of its rights and
obligations hereunder to (x) another Investor or (y) another financial
institution nominated by the Agent and acceptable to FALCON, and willing to
participate in this Agreement through the Liquidity Termination Date in the
place of such Affected Investor; provided that the Affected Investor receives
payment in full, pursuant to an Assignment Agreement, of an amount equal to such
Investor's Pro Rata Share of the Capital and Discount owing to the Investors and
all accruing but unpaid fees and other costs and expenses payable in respect of
its Pro Rata Share of the Receivable Interests.
Section 10.2. Participations. Any Investor may, in the ordinary
--------------
course of its business at any time sell to one or more Persons (each a
"Participant") participating interests in its Pro Rata Share of the Receivable
Interests of the Investors, its obligation to pay FALCON its Acquisition Amounts
or any other interest of such Investor hereunder. Notwithstanding any such sale
by an Investor of a participating interest to a Participant, such Investor's
rights and obligations under this Agreement shall remain unchanged, such
Investor shall remain solely responsible for the performance of its obligations
hereunder, and the Seller, FALCON and the Agent shall continue to deal solely
and directly with such Investor in connection with such Investor's rights and
obligations under this Agreement. Each Investor agrees that any agreement
between such Investor and any such Participant in respect of such participating
interest shall not
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restrict such Investor's right to agree to any amendment, supplement, waiver or
modification to this Agreement, except for any amendment, supplement, waiver or
modification described in clause (i) of Section 11.1(b).
ARTICLE XI
MISCELLANEOUS
Section 11.1. Waivers and Amendments.
----------------------
(a) No failure or delay on the part of the Agent, any Purchaser or
the Seller in exercising any power, right or remedy under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or remedy preclude any other further exercise thereof or the
exercise of any other power, right or remedy. The rights and remedies herein
provided shall be cumulative and nonexclusive of any rights or remedies provided
by law. Any waiver of this Agreement shall be effective only in the specific
instance and for the specific purpose for which given.
(b) No provision of this Agreement may be amended, supplemented,
modified or waived except in writing in accordance with the provisions of this
Section 11.1(b). FALCON, the Seller and the Agent, at the direction of the
Required Investors, may enter into written modifications or waivers of any
provisions of this Agreement, provided, however, that no such modification or
-------- -------
waiver shall:
(i) without the consent of each affected Purchaser, (A) extend the
Liquidity Termination Date or the date of any payment or deposit of
Collections by the Seller or the Collection Agent, (B) reduce the rate or
extend the time of payment of Discount (or any component thereof), (C)
reduce any fee payable to the Agent for the benefit of the Purchasers, (D)
except pursuant to Article X hereof change the amount of the Capital of any
Purchaser, an Investor's Pro Rata Share or an Investor's Commitment, (E)
amend, modify or waive any provision of the definition of Required
Investors or this Section 11.1 (b), (F) consent to or permit the assignment
or transfer by the Seller of any of its rights and obligations under this
Agreement, (G) change the definition of "Eligible Receivable," "Loss
Reserve," or "Loss Percentage," or (H) amend or modify any defined term (or
any defined term used directly or indirectly in such defined term) used in
clauses (A) through (G) above in a manner which would circumvent the
intention of the restrictions set forth in such clauses; or
(ii) without the written consent of the then Agent, amend, modify or
waive any provision of this Agreement if the effect thereof is to affect
the rights or duties of such Agent; or
(iii) without the written consent of GP, Inc., amend or modify any
provision set forth in Section 1.12, 5.3, or 5.5.
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<PAGE>
Notwithstanding the foregoing, (i) without the consent of the Investors, the
Agent may, with the consent of the Seller, amend this Agreement solely to add
additional Persons as Investors hereunder and (ii) without the consent of the
Seller, the Agent, the Required Investors and FALCON may enter into amendments
to modify any of the terms or provisions of Article II, Article IX (other than
Section 9.8 therein), Article X, Section 11.13 or any other provision of this
Agreement, provided that such amendment has no negative impact upon TBTR Corp.,
TBTR Partnership or GP, Inc.. Any modification or waiver made in accordance
with this Section 11.1 shall apply to each of the Purchasers equally and shall
be binding upon each party hereto.
Section 11.2. Notices.
-------
(a) Except as provided in subsection (b) below, all communications and
notices provided for hereunder shall be in writing (including bank wire,
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other parties hereto at their respective addresses or telecopy
numbers set forth on the signature pages hereof. All such communications and
notices shall, when mailed, telecopied, telegraphed, telexed or cabled, be
effective when received through the mails, transmitted by telecopy, delivered to
the telegraph company, confirmed by telex answerback or delivered to the cable
company, respectively, except that communications and notices to the Agent or
any Purchaser pursuant to Article I or II shall not be effective until received
by the intended recipient.
(b) The Seller hereby authorizes the Agent to effect purchases and
Tranche Period and Discount Rate selections based on telephonic notices made by
any Person whom the Agent in good faith believes to be acting on behalf of the
Seller. The Seller agrees to deliver promptly to the Agent a written
confirmation of each telephonic notice signed by an authorized officer of the
Seller. However, the absence of such confirmation shall not affect the validity
of such notice. If the written confirmation differs from the action taken by
the Agent, the records of the Agent shall govern absent manifest error.
Section 11.3. Ratable Payments. If any Purchaser, whether by setoff
----------------
or otherwise, has payment made to it with respect to any portion of the
Aggregate Unpaids owing to such Purchaser (other than payments received pursuant
to Section 8.2 or 8.3) in a greater proportion than that received by any other
Purchaser entitled to receive a ratable share of such Aggregate Unpaids, such
Purchaser agrees, promptly upon demand, to purchase for cash without recourse or
warranty a portion of the Aggregate Unpaids held by the other Purchasers so that
after such purchase each Purchaser will hold its ratable proportion of the
Aggregate Unpaids; provided that if all or any portion of such excess amount is
thereafter recovered from such Purchaser, such purchase shall be rescinded and
the purchase price restored to the extent of such recovery, but without
interest.
Section 11.4. Protection of Ownership Interests of the Purchasers.
---------------------------------------------------
(a) The Seller agrees that from time to time, at its expense, it will
promptly execute and deliver all instruments and documents, and take all
actions, that may be necessary,
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<PAGE>
or that the Agent may reasonably request, to perfect, protect or more fully
evidence the Receivable Interests, or to enable the Agent or the Purchasers to
exercise and enforce their rights and remedies hereunder in respect of the
Receivables, the Related Security and the Collections. The Agent may, or the
Agent may direct the Seller to, notify the Obligors of Receivables, at any time
and at the Seller's expense, of the ownership interests of the Purchasers under
this Agreement and may also direct that payments of all amounts due or that
become due under any or all Receivables be made directly to the Agent or its
designee. The Seller shall, at any Purchaser's request, withhold the identity of
such Purchaser in any such notification.
(b) If the Seller, GP, Inc. or the Collection Agent fails to perform
any of its obligations hereunder, the Agent or any Purchaser may (but shall not
be required to) perform, or cause performance of, such obligation. The Agent or
such Purchaser shall give the Seller, GP, Inc. or the Collection Agent, as
applicable, three Business Days' notice before taking any such action; provided
--------
that, if, in the reasonable judgment of the Agent, the giving of such notice or
any delay in taking the related action would materially adversely affect the
ability of the Agent or the Purchasers to exercise any of their rights
hereunder, or the Purchasers' interest in the Receivables generally or the
collectibility of the Receivables generally (or any material portion thereof),
the Agent or such Purchaser shall not be required to give such notice. The
Agent's or such Purchaser's costs and expenses incurred in connection with any
such action shall be payable by the Seller (if the Collection Agent that fails
to so perform is the Seller or an Affiliate thereof) as provided in Section 8.3,
as applicable. The Seller, GP, Inc. and the Collection Agent each irrevocably
authorizes the Agent at any time and from time to time in the sole discretion of
the Agent, and appoints the Agent as its attorney-in-fact, to act on behalf of
the Seller, GP, Inc. and the Collection Agent (i) to execute on behalf of the
Seller as debtor and to file financing statements necessary or desirable in the
Agent's sole discretion to perfect and to maintain the perfection and priority
of the interest of the Purchasers in the Receivables and (ii) to file a carbon,
photographic or other reproduction of this Agreement or any financing statement
with respect to the Receivables as a financing statement in such offices as the
Agent in its sole discretion deems necessary or desirable to perfect and to
maintain the perfection and priority of the interests of the Purchasers in the
Receivables. This appointment is coupled with an interest and is irrevocable.
Section 11.5. Confidentiality.
---------------
(a) The Seller, TBTR Partnership (whether or not then the Seller) and
GP, Inc. shall maintain and shall cause each of its employees and officers to
maintain the confidentiality of this Agreement and the other confidential
proprietary information with respect to the Agent and FALCON and their
respective businesses obtained by it or them in connection with the structuring,
negotiating and execution of the transactions contemplated herein, except that
TBTR Corp., TBTR Partnership, GP, Inc. and their respective officers and
employees may disclose such information to its external accountants and
attorneys and as required by any law, rule, regulation, direction, request or
order of any judicial, administrative or regulatory authority or proceedings
(whether or not having the force or effect of law).
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<PAGE>
(b) Anything herein to the contrary notwithstanding, each of TBTR
Corp., TBTR Partnership, and GP, Inc. hereby consents to the disclosure of any
nonpublic information with respect to it (i) to the Agent, the Investors or
FALCON by each other, (ii) by the Agent or the Purchasers to any prospective or
actual assignee or participant of any of them or (iii) by the Agent to any
rating agency, Commercial Paper dealer or provider of a surety, guaranty or
credit or liquidity enhancement to FALCON or any entity organized for the
purpose of purchasing, or making loans secured by, financial assets for which
First Chicago provides managerial services or acts as the administrative agent
and to any officers, directors, employees, outside accountants and attorneys of
any of the foregoing, provided that the recipients are advised of the
--------
confidential nature thereof. In addition, the Purchasers and the Agent may
disclose any such nonpublic information pursuant to any law, rule, regulation,
direction, request or order of any judicial, administrative or regulatory
authority or proceedings (whether or not having the force or effect of law).
Section 11.6. Bankruptcy Petition. TBTR Corp., TBTR Partnership, GP,
-------------------
Inc., the Agent and each Investor hereby covenants and agrees that, prior to the
date which is one year and one day after the payment in full of all outstanding
senior Indebtedness of FALCON, it will not institute against, or join any other
Person in instituting against, FALCON any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.
Section 11.7. Limitation of Liability. Except with respect to any
-----------------------
claim arising out of the willful misconduct, gross negligence or bad faith of
FALCON, the Agent or any Investor, no claim may be made by the Seller, the
Collection Agent or any other Person against FALCON, the Agent or any Investor
or their respective Affiliates, directors, officers, employees, attorneys or
agents for any special, indirect, consequential or punitive damages in respect
of any claim for breach of contract or any other theory of liability arising out
of or related to the transactions contemplated by this Agreement, or any act,
omission or event occurring in connection therewith; and the Seller hereby
waives, releases, and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
SECTION 11.8. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
ILLINOIS.
SECTION 11.9. CONSENT TO JURISDICTION. EACH OF TBTR CORP., TBTR
-----------------------
PARTNERSHIP AND GP, INC. 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 THIS AGREEMENT
OR ANY DOCUMENT EXECUTED BY TBTR CORP., TBTR PARTNERSHIP OR GP, Inc. PURSUANT TO
THIS AGREEMENT AND EACH OF TBTR CORP., TBTR PARTNERSHIP AND GP, Inc. HEREBY
IRREVOCABLY AGREES THAT ALL
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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 PURCHASER TO BRING PROCEEDINGS AGAINST TBTR CORP.,
TBTR PARTNERSHIP OR GP, Inc. IN THE COURTS OF ANY OTHER JURISDICTION. ANY
JUDICIAL PROCEEDING BY TBTR CORP., TBTR PARTNERSHIP OR GP, INC. AGAINST THE
AGENT OR ANY PURCHASER OR ANY AFFILIATE OF THE AGENT OR A PURCHASER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY TBTR CORP., TBTR
PARTNERSHIP OR GP, Inc. PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A
COURT IN CHICAGO, ILLINOIS.
SECTION 11.10. WAIVER OF JURY TRIAL. THE AGENT, TBTR CORP., TBTR
--------------------
PARTNERSHIP, GP, Inc. AND EACH PURCHASER HEREBY WAIVES TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO,
OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY TBTR CORP., TBTR
PARTNERSHIP OR GP, Inc. PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP
ESTABLISHED HEREUNDER OR THEREUNDER.
Section 11.11. Integration; Survival of Terms.
------------------------------
(a) This Agreement, the Collection Notices and the Fee Letter contain
the final and complete integration of all prior expressions by the parties
hereto with respect to the subject matter hereof and shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof
superseding all prior oral or written understandings.
(b) The provisions of Article VIII and Section 11.6 shall survive any
termination of this Agreement.
Section 11.12. Counterparts; Severability. This Agreement may be
--------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
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Section 11.13. First Chicago Roles. Each of the Investors
-------------------
acknowledges that First Chicago acts, or may in the future act, (i) as
administrative agent for FALCON, (ii) as issuing and paying agent for the
Commercial Paper, (iii) to provide credit or liquidity enhancement for the
timely payment for the Commercial Paper and (iv) to provide other services from
time to time for FALCON (collectively, the "First Chicago Roles") . Without
limiting the generality of this Section 11.13 each Investor hereby acknowledges
and consents to any and all First Chicago Roles and agrees that in connection
with any First Chicago Role, First Chicago may take, or refrain from taking, any
action which it, in its discretion, deems appropriate, including, without
limitation, in its role as administrative agent for FALCON, the giving of notice
to the Agent of a mandatory purchase pursuant to Section 2.1.
Section 11.14. Amendment and Restatement.
-------------------------
(a) This Agreement amends and restates in its entirety the Earlier
Agreement. Upon the effectiveness of this Agreement, the terms and provisions of
the Earlier Agreement shall, subject to this Section 11.14, be superseded in
-------------
their entirety by this Agreement. Notwithstanding the amendment and restatement
of the Earlier Agreement by this Agreement, the Seller shall continue to be
liable to the Investors, FALCON and the Agent with respect to agreements under
the Earlier Agreement to indemnify any of FALCON, the Agent or any Investor in
connection with events or conditions arising or existing prior to the effective
date of this Agreement, including, without limitation, such agreements under the
definition therein of "Capital" or set forth in Section 1.8, 1.9, Article VIII
------- ----------- --- ------------
or Section 11.4 thereof. This Agreement is given in substitution for the
------------
Earlier Agreement and not as payment of the obligations of the Seller
thereunder, and is in no way intended to constitute a novation of the Earlier
Agreement. Upon the effectiveness of this Agreement, each reference to the
Earlier Agreement in any other document, instrument or agreement executed and/or
delivered in connection therewith shall mean and be a reference to this
Agreement.
(b) Each Receivables Interest existing immediately prior to giving
effect to this Agreement shall continue in full force and effect after giving
effect to this Agreement and shall continue to have the Tranche Period then most
recently assigned thereto under the Earlier Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date
hereof.
THE BON-TON RECEIVABLES
CORPORATION
By: /s/ Robert E. Stern
------------------------------
Title: Secretary-Treasurer
2801 East Market Street
P.O. Box 2821
York, Pennsylvania 17405
Fax: (717) 751-3198
THE BON-TON RECEIVABLES
PARTNERSHIP, L.P.
By: BTRGP, INC.
Its General Partner
By: /s/ Robert E. Stern
------------------------------
Title: Secretary-Treasurer
2801 East Market Street
P.O. Box 2821
York, Pennsylvania 17405
Fax: (717) 751-3198
BTRGP, INC.
By: /s/ Robert E. Stern
------------------------------
Title: Secretary-Treasurer
2801 East Market Street
P.O. Box 2821
York, Pennsylvania 17405
Fax: (717) 751-3198
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<PAGE>
FALCON ASSET SECURITIZATION
CORPORATION
By: /s/ Mark R. Matthews
------------------------------
Authorized Signor
c/o The First National Bank
of Chicago, as Agent
Asset-Backed Markets, Suite 0597
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
INVESTORS:
Commitment
- ----------
$100,000,000 THE FIRST NATIONAL BANK OF CHICAGO
as an Investor and as Agent
By: /s/ Mark R. Matthews
------------------------------
Vice President
The First National Bank of Chicago
Asset-Backed Markets, Suite 0597
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
Total Commitments
- -----------------
$100,000,000
============
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<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT I DEFINITIONS
EXHIBIT II PRINCIPAL PLACE OF BUSINESS OF THE SELLER;
LOCATION(S) OF RECORDS; FEDERAL EMPLOYER
IDENTIFICATION NUMBERS
EXHIBIT III LOCK-BOXES; LOCK-BOX ACCOUNTS; CONCENTRATION
ACCOUNTS
EXHIBIT IV FORM OF COMPLIANCE CERTIFICATE
EXHIBIT V FORMS OF COLLECTION ACCOUNT AGREEMENTS
EXHIBIT VI CREDIT AND COLLECTION POLICY
EXHIBIT VII FORM OF CONTRACT(S)
EXHIBIT VIII FORM OF MONTHLY REPORT
SCHEDULE A LIST OF DOCUMENTS TO BE DELIVERED TO THE AGENT
PRIOR TO THE INITIAL PURCHASE FOLLOWING THE MERGER
SCHEDULE B COLLECTION ACTIVITIES DELEGATED BY COLLECTION
AGENT
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<PAGE>
EXHIBIT I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Account" means with respect to any Obligor, any type of charge
-------
account under or pursuant to which such Obligor is permitted to make purchases
of inventory, goods, insurance and/or services or leases goods or inventory, in
any such case on credit. Such term shall include, without limitation, a
revolving credit account.
"Acquisition Amount" means, on the date of any purchase from FALCON of
------------------
Receivable Interests pursuant to Section 2.1,
[REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
"Adjusted Liquidity Price" means, in determining the FALCON Transfer
------------------------
Price for any Receivable Interest, an amount equal to
[REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
where:
RI = the undivided percentage interest evidenced by such Receivable
Interest.
DC = the Deemed Collections.
NDR = the Outstanding Balance of all non-Defaulted Receivables.
Each of the foregoing shall be determined from the most recent Monthly Report
received from the Collection Agent.
"Adverse Claim" means a lien, security interest, charge or
-------------
encumbrance, or other right or claim in, of or on any Person's assets or
properties in favor of any other Person.
"Affiliate" means any Person directly or indirectly controlling,
---------
controlled by, or under direct or indirect common control with, another Person
or any Subsidiary of such other
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Person. Solely for purposes of the definition herein of "Eligible Receivable", a
Person shall be deemed to control another Person if the controlling Person owns
10% or more of any class of voting securities 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 First Chicago in its capacity as agent for the
-----
Purchasers pursuant to Article IX, and not in its individual capacity as an
Investor, and any successor Agent appointed pursuant to Article IX.
"Aggregate Unpaids" means, at any time, an amount equal to the sum of
-----------------
all accrued and unpaid Discount, Capital and all other amounts owed (whether due
or accrued) hereunder or under the Fee Letter to the Agent and the Purchasers at
such time.
"Agreement" means this Amended and Restated Receivables Purchase
---------
Agreement, as it may be amended or modified and in effect from time to time.
"Base Rate" means a rate per annum equal to the corporate base rate,
---------
prime rate or base rate of interest, as applicable, announced by the Reference
Bank from time to time, changing when and as such rate changes.
"Business Day" means any day on which banks are not authorized or
------------
required to close in New York, New York or Chicago, Illinois and The Depository
Trust Company of New York is open for business, and, if the applicable Business
Day relates to any computation or payment to be made with respect to the LIBO
Rate, any day on which dealings in dollar deposits are carried on in the London
interbank market.
"Capital" of any Receivable Interest means, at any time, the Purchase
-------
Price of such Receivable Interest (and after giving effect to any adjustments
contemplated in Section 1.5), minus the sum of the aggregate amount of
Collections and other payments received by the Agent which in each case are
applied to reduce such Capital; provided that such Capital shall be restored in
the amount of any Collections or payments so received and applied if at any time
the distribution of such Collections or payments are rescinded or must otherwise
be returned for any reason.
"Change of Control" means either (i) any change in ownership of any
-----------------
class of stock or capital stock generally of The Bon-Ton Stores, Inc. which
would result in a change or transfer in the power to control the election of a
majority of the board of directors or in other indicia of majority voting
control to persons or entities other than M. Thomas Grumbacher, his heirs or
devisees, or any trusts of which any such Person serves as sole trustee now or
hereafter established for any of his family members (Mr. Grumbacher, such
heirs, devisees and trusts being collectively, the "Grumbacher Interests") or
(ii) a decrease in the Grumbacher Interests' right to vote at shareholders'
meetings to an aggregate level less than 51%.
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<PAGE>
"Charged-Off Receivable" means a Receivable: (i) as to which the
----------------------
Obligor thereof has taken any action, or suffered any event to occur, of the
type described in Section 7.1(c) (as if references to the Seller therein refer
to such Obligor); (ii) as to which the Obligor thereof, if a natural person, is
deceased, (iii) which, consistent with the Credit and Collection Policy, would
be written off the Seller's books as uncollectible or (iv) which has been
identified by the Seller as uncollectible.
"Collection Account" means the Lock-Box Accounts, the Concentration
------------------
Accounts and any other account into which any Collections are initially
collected or deposited (an "Initial Deposit Account") or into which Collections
are initially concentrated following collection or deposit thereof in any
Initial Deposit Account.
"Collection Account Agreement" means (i) in the case of any actual or
----------------------------
proposed Lock-Box or Lock-Box Account, an agreement in substantially the form of
the "Lock-Box Agreement" set forth in Exhibit V hereto and (ii) in the case of
any actual or proposed Concentration Account, an agreement in substantially the
form of the "Custodial Agreement" set forth in Exhibit V hereto.
"Collection Agent" means at any time the Person (which may be the
----------------
Agent) then authorized pursuant to Article VI to service, administer and collect
Receivables.
"Collection Bank" means, at any time, any of the banks or other
---------------
financial institutions holding one or more Collection Accounts.
"Collections" means, with respect to any Receivable, all cash
-----------
collections and other cash proceeds in respect of such Receivable, including,
without limitation, all cash proceeds of Related Security with respect to such
Receivable and all amounts payable to the Purchasers by the Seller pursuant to
Section 1.8.
"Commercial Paper" means promissory notes of FALCON issued by FALCON
----------------
in the commercial paper market.
"Commitment" means, for each Investor, the commitment of such Investor
----------
to purchase its Pro Rata Share of Receivable Interests from (i) the Seller and
(ii) FALCON, such Pro Rata Share not to exceed, in the aggregate, the amount set
forth opposite such Investor's name on the signature pages of this Agreement, as
such amount may be modified in accordance with the terms hereof.
"Concentration Account" means any of (i) the "Concentration Account"
---------------------
identified on Exhibit III hereto or (ii) any other deposit account established
for the purpose of concentrating Collections received at the Lock-Box Account
(s) and directly at individual stores of the Originator and in respect of which
the Seller shall have complied (or shall have caused the Originator to comply)
with Sections 3.1 (j), 5.2 (b) and 5.2 (c) and the other terms and conditions of
this Agreement.
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<PAGE>
"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, take-or-pay contract or application for a letter of credit.
"Contract" means, with respect to any Receivable, any and all
--------
instruments, agreements, leases, invoices or other writings pursuant to which
such Receivable arises or which evidences such Receivable (including, without
limitation, all invoices, standard agreements with regard to the Account under
which such Receivable arises, and, to the extent they exist, credit slips and
sales contracts).
"CP Rate" means, the rate, requested by the Seller and agreed to by
-------
FALCON, equivalent to the rate (or if more than one rate, the weighted average
of the rates) at which Commercial Paper having a term equal to the relevant
Tranche Period may be sold by any placement agent or commercial paper dealer
reasonably selected by FALCON, as agreed between each such dealer or agent and
FALCON; provided, however, that if the rate (or rates) as agreed between any
-------- -------
such agent or dealer and FALCON is a discount rate (or rates), the "CP Rate" for
such Tranche Period shall be the rate (or if more than one rate, the weighted
average of the rates) resulting from FALCON's converting such discount rate (or
rates) to an interest-bearing equivalent rate per annum.
"Credit and Collection Policy" means the Originator's credit and
----------------------------
collection policies and practices relating to Contracts and Receivables existing
on the date hereof and summarized in Exhibit VI hereto, as modified from time to
time in accordance with this Agreement.
"Deemed Collections" means the aggregate of all amounts owing to
------------------
FALCON pursuant to Sections 1.8 and 8.1.
"Defaulted Receivable" means each Receivable arising from an Account
--------------------
as to which any payment, or any portion thereof, remains unpaid for 150 or more
days past the payment due date specified in the billing statement on which such
amount first appeared as due and payable.
"Delinquency Ratio" means, at any time, a percentage equal to (i) the
-----------------
aggregate Outstanding Balance of all Receivables that were Delinquent
Receivables at such time divided by (ii) the aggregate Outstanding Balance of
all Receivables at such time.
"Delinquent Receivable" means each Receivable arising from an Account
---------------------
as to which any payment, or any portion thereof, remains unpaid for more than 90
days past the
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payment due date specified in the billing statement on which such amount first
appeared as due and payable.
"Dilution Ratio" means, in respect of any fiscal month
--------------
[REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
"Dilution Reserve" means, for any Receivable Interest
----------------
[REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
"Dilutions" means, at any time, the aggregate amount of reductions in
---------
the Outstanding Balances of the Receivables as a result of any setoff, discount,
adjustment or otherwise, other than cash Collections on account of the
Receivables. The term "Dilutions" shall not include the writing off of a
Receivable in the ordinary course of business due to a failure on the part of
the Obligor thereon to pay (or a discharge of such Obligor in any insolvency or
bankruptcy proceeding) which failure is not related to any action or omission on
the part of, or any claim against, the Seller, the Originator or any of their
Affiliates.
"Discount" means, for each Receivable Interest for any Tranche Period
--------
DR x C x AD
----
360
where:
DR = the Discount Rate for such Receivable Interest for such Tranche
Period;
C = the Capital of such Receivable Interest during such Tranche
Period; and
AD = the actual number of days elapsed during such Tranche Period;
provided, that no provision of this Agreement shall require the payment or
permit the collection of Discount in excess of the maximum permitted by
applicable law; and provided, further, that Discount for any Tranche Period
-------- -------
shall not be considered paid by any distribution to the extent
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<PAGE>
that at any time all or a portion of such distribution is rescinded or must
otherwise be returned for any reason.
"Discount Rate" means, subject to Section 1.3(c), the LIBO Rate, the
-------------
CP Rate or the Base Rate, as applicable.
"Earlier Agreement" has the meaning assigned to that term in the
-----------------
Preliminary Statements.
"Early Collection Fee" means, for any Receivable Interest which has
--------------------
its Capital reduced, or its Tranche Period terminated prior to the date on which
it was originally scheduled to end, the excess, if any, of (i) the Discount that
would have accrued during the remainder of the Tranche Period subsequent to the
date of such reduction or termination on the Capital of such Receivable Interest
if such reduction or termination had not occurred, over (ii) the sum of (a) to
the extent all or a portion of such Capital is allocated to another Receivable
Interest, the Discount actually accrued during such period on such Capital for
the new Receivable Interest, and (b) to the extent such Capital is not allocated
to another Receivable Interest, the income, if any, actually received during
such period by the holder of such Receivable Interest from investing the portion
of such Capital not so allocated.
"Eligible Receivable" means, at any time, a Receivable:
-------------------
(i) the Obligor of which (a) is not an Affiliate of any of the
parties hereto; and (b) is not a government or a governmental subdivision
or agency,
(ii) the Obligor of which is not the Obligor of any Defaulted
Receivable or any Charged-Off Receivable,
(iii) which is not a Defaulted Receivable or a Charged-Off Receivable,
(iv) which is an account receivable representing all or part of the
sales price of merchandise, insurance or services within the meaning of
Section 3(c)(5) of the Investment Company Act of 1940, as amended,
(v) which is an "account" or "general intangible" within the meaning
of Section 9-106 of the UCC of all applicable jurisdictions,
(vi) which is denominated and payable only in United States dollars
in the United States,
(vii) which, together with the related Contract, is in full force and
effect and constitutes the legal, valid and binding obligation of the
related Obligor enforceable by the Seller against such Obligor in
accordance with its terms subject to no offset, counterclaim or other
defense,
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<PAGE>
(viii) which arises under a Contract which (A) does not require the
Obligor under such Contract to consent to the transfer, sale or assignment
of the rights and duties of the Seller or the Originator (or any other
originator) under such Contract and (B) does not contain a confidentiality
provision that purports to restrict the ability of any Purchaser to
exercise its rights under this Agreement, including, without limitation,
its right to review the Contract,
(ix) which is not subject to any right of rescission, set-off,
counterclaim, any other defense (including defenses arising out of
violations of usury laws) of the Obligor or any other Adverse Claim,
(x) as to which the Originator (or, if other than The Bon-Ton
Stores, Inc., the applicable originator) of such Receivable has satisfied
and fully performed all obligations on its part with respect to such
Receivable required to be fulfilled by it,
(xi) all right, title and interest to and in which has been validly
transferred by the Originator to the Seller under and in accordance with
the Transfer Agreement, and the Seller has good and marketable title
thereto free and clear of any Adverse Claim.
(xii) which has been posted to the applicable Account of the Obligor
thereon,
(xiii) (A) which does not arise from an Account which has been
classified by the Seller, the Originator or the Collection Agent as being
cancelled, counterfeit or fraudulent, and (B) if the card issued in
connection with the related Account has been lost or stolen, the Obligor
thereon has not asserted the occurrence of any unauthorized charges
thereon,
(xiv) which was created in compliance, and continues to be in
compliance, in each case, in all material respects with all laws
(including, without limitation, laws, rules and regulations relating to
truth in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) applicable to the
Seller and to the Originator (and, if other than the Originator, the
originator in respect of such Receivable) and pursuant to a Contract which
complies in all material respects with all such laws,
(xv) which satisfies all applicable requirements of the Credit and
Collection Policy, and
(xvi) which (A) arises in the ordinary course of business of the
Originator from an authorized use of an Account with the Originator in
connection with the purchase of goods or services of goods by the
applicable Obligor from the Originator, and (B) arises solely from the sale
or the provision of goods or services to the related Obligor by the
Originator, and not by any other Person (in whole or in part); provided
--------
that a Receivable
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<PAGE>
that meets the criteria set forth in this definition but for this clause
(xvi) shall nonetheless constitute an "Eligible Receivable" if:
(x) such Receivable arises from the purchase of goods or services
from a Person that is either (A) a wholly-owned Subsidiary of the
Originator, (B) a Person that has been merged into the Originator or
(C) a Person all or a substantial part of the assets in respect of
which the applicable Obligor is part of the associated "customer base"
have been acquired by the Originator,
(y) such Receivable arises from the purchase of goods or services
with the use of (A) an Account or (B) a charge account all the rights
and obligations of the issuer in connection with which Account have
been assigned to and assumed by the Originator, and
(z) the outstanding Balance of such Receivable, together with the
aggregate Outstanding Balance of all other Receivables that constitute
Eligible Receivables by reason of this proviso does not exceed an
amount equal to 25% of the Outstanding Balance of all Eligible
Receivables at such time;
provided, further, that any Receivable originated by Hess's Department
--------
Stores, Inc. (or originated by Citicorp Retail Services, Inc. in
connection with any credit card program made available by it to Hess's
Department Stores, Inc.) shall not be required to satisfy (or be included
in any calculation) under clause (y) or (z) above.
"ERISA " means the Employee Retirement Income Security Act of 1974, as
------
amended from time to time.
"Excess Spread" means, for any fiscal month, a per annum rate equal to
-------------
(i) the Portfolio Yield for such month, minus (ii) the weighted average Discount
-----
Rate applicable to the Receivable Interests of the Purchasers during such month,
minus (iii) 2%, minus (iv) all fees and expenses (expressed as a percentage of
- ----- -----
the Purchase Limit) then due and payable by the Seller to the Agent for its own
account or for the account of any Purchaser and/or Investor.
"Facility Account" means the Seller's Account No. 5256135 at First
----------------
Chicago.
"Facility Termination Date" means the earliest of (i) January 26,
-------------------------
2000, (ii) the date the Seller shall exercise its right to repurchase the
outstanding Receivables Interests pursuant to Section 2.6 and (iii) any date
following the occurrence, and during the continuance, of any Termination Event
which the Required Investors declare to be the Facility Termination Date.
"FALCON Residual" means the sum of the FALCON Transfer Price
---------------
Reductions.
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<PAGE>
"FALCON Transfer Price" means, with respect to the assignment by
---------------------
FALCON of one or more Receivable Interests to the Agent for the benefit of the
Investors pursuant to Section 2.1, the sum of (i) the lesser of (a) the
aggregate Capital of such Receivable Interests and (b) the aggregate Adjusted
Liquidity Price of such Receivable Interests and (ii) all accrued and unpaid
Discount for such Receivable Interests.
"FALCON Transfer Price Reduction" means in connection with the
-------------------------------
assignment of a Receivable Interest by FALCON to the Agent for the benefit of
the Investors, the positive difference, if any, between (i) the Capital of such
Receivable Interest and (ii) the Adjusted Liquidity Price for such Receivable
Interest.
"Federal Funds Effective Rate" means, for any period, fluctuating
----------------------------
interest rate per annum equal for each day during such period equal to (a) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Governments Securities; or (b) if such rate is not so
published for any day which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (Chicago time) for such day on such transactions
received by the Reference Bank from three federal funds brokers of recognized
standing selected by it.
"Fee Letter" means that certain letter agreement dated as of January
----------
27, 1995 between the Seller and the Agent, as the same may be amended or
modified and in effect from time to time.
"Finance Charges" means, with respect to a Contract, any finance,
---------------
interest, late payment charges or similar charges owing by an Obligor pursuant
to such Contract.
"First Chicago" means The First National Bank of Chicago in its
-------------
individual capacity and its successors.
"Fiscal" means, in reference to any period, such fiscal period of The
------
Bon-Ton Stores, Inc.
"Funding Agreement" means this Agreement and any agreement or
-----------------
instrument executed by any Funding Source with or for the benefit of FALCON.
"Funding Source" means (i) any Investor or (ii) any insurance company,
--------------
bank or other financial institution providing liquidity, credit enhancement or
back-up purchase support or facilities to FALCON.
"GP, Inc." means BTRGP, Inc., a ______________ corporation.
-------
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"Incremental Purchase" means a purchase of one or more Receivable
--------------------
Interests which increases the total outstanding Capital hereunder.
"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
interest rate swap, exchange or cap agreements, (vii) Contingent Obligations and
(viii) liabilities in respect of unfunded vested benefits under plans covered by
Title IV of ERISA.
"In-Store Collections" means any cash, instruments or other payment
--------------------
items remitted by any Obligor toward payment of any Receivable at any store
location of the Originator.
"Intended Characterization" means, for income tax purposes, the
-------------------------
characterization of the acquisition by the Purchasers of Receivable Interests as
a loan or loans by the Purchasers to the Seller secured by the Receivables, the
Related Security and the Collections.
"Investors" means the financial institutions listed on the signature
---------
pages of this Agreement under the heading "Investors" and their respective
successors and assigns.
"LIBO Rate" means the rate per annum equal to the sum of (i) (a) the
---------
rate at which deposits in U.S. Dollars are offered by the Reference Bank to
first-class banks in the London interbank market at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of the relevant Tranche
Period, such deposits being in the approximate amount of the Capital of the
Receivable Interest to be funded or maintained, divided by (b) one minus the
Reserve Requirement (expressed as a decimal) applicable to such Tranche Period
plus (ii) [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT] per annum. The
LIBO Rate shall be rounded, if necessary, to the next higher 1/16 of 1%.
"Liquidation Day" means, for any Receivable Interest, the earliest to
---------------
occur of (i) any Business Day so designated by the Agent on or at any time
following any day on which the conditions precedent set forth in Section 4.2 are
not satisfied, (ii) any Business Day so designated by the Seller or FALCON after
the occurrence of a Termination Event and (iii) the Business Day immediately
prior to the occurrence of a Termination Event set forth in Section 7.1(c).
"Liquidity Termination Date" means January 26, 2000.
--------------------------
"Lock-Box" means any of (i) the "Lock-Box" identified on Exhibit III
--------
hereto or (ii) any other lock-box established for the purpose of receiving and
processing Collections remitted by mail and in respect of which the Seller shall
have complied (or shall have caused the
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Originator to comply) with Sections 3.1(j), 5.2(b) and 5.2(c) and the other
terms and conditions of this Agreement.
"Lock-Box Account" means any of (i) the "Lock-Box Account" identified
----------------
on Exhibit III hereto or (ii) any other lock-box account established for the
purpose of receiving and processing Collections remitted to the Lock-Boxes and
in respect of which the Seller shall have complied (or shall have caused the
Originator to comply) with Sections 3.1(j), 5.2(b) and 5.2(c) and the other
terms and conditions of this Agreement.
"Loss Percentage" means, at any time, the greater of [REDACTED DUE TO
---------------
REQUEST FOR CONFIDENTIAL TREATMENT]
"Loss Reserve" means, for any Receivable Interest on any date, an
------------
amount equal to the Loss Percentage multiplied by the Capital of such Receivable
Interest as of the close of business of the Collection Agent on such date.
"Loss-to-Liquidation Ratio" means, as of the last day of any fiscal
-------------------------
month, a percentage equal to (i) the amount of Charged-Off Receivables which
became Charged-Off Receivables during such month, divided by (ii) the aggregate
amount of Collections during such month.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
financial condition or operations of the Seller or the Originator, (ii) the
ability of the Seller to perform its obligations under this Agreement, (iii) the
legality, validity or enforceability of this Agreement or any Collection Notice
relating to a Collection Account into which a material portion of Collections
are deposited, (iv) any Purchaser's interest in the Receivables generally or in
any significant portion of the Receivables, the Related Security or the
Collections with respect thereto, or (v) the collectibility of the Receivables
generally or of any material portion of the Receivables.
"Merger" means the merger of TBTR Corp. with and into TBTR
------
Partnership.
"Monthly Report" means a report, in substantially the form of Exhibit
--------------
VIII hereto (appropriately completed), furnished by the Collection Agent to the
Agent pursuant to Section 6.5.
"Net Receivables Balance" means, at any time, (i) the outstanding
-----------------------
Balance of Eligible Receivables at such time, reduced by (ii) the aggregate
amount by which the Outstanding Balance of all Eligible Receivables of all
Obligors that are natural persons not
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resident in the United States exceeds an amount equal to the product of (A) 1%
and (B) an amount equal to the average of the Outstanding Balance of Eligible
Receivables at the end of the two most recently ended fiscal months.
"Obligor" means a Person obligated to make payments pursuant to a
-------
Contract.
"Originator" means The Bon-Ton Stores, Inc., a Pennsylvania
----------
corporation.
"Outstanding Balance" of any Receivable at any time means the then
-------------------
outstanding principal balance thereof.
"Person" means an individual, partnership, corporation (including a
------
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Portfolio Yield" means for any period, a fraction expressed as a
---------------
percentage, the numerator of which is Finance Charges income for such period,
and the denominator of which is the average Outstanding Balance of Receivables
for such period.
"Potential Termination Event" means an event which, with the passage
---------------------------
of time or the giving of notice, or both, would constitute a Termination Event.
"Pro Rata Share" means, for each Investor, the Commitment of such
--------------
Investor divided by the Purchase Limit, adjusted as necessary to give affect to
the application of the terms of Section 2.5.
"Purchase Limit" means the aggregate of the Commitments of the
--------------
Investors hereunder, as reduced from time to time in accordance with the terms
of this Agreement.
"Purchase Price" means, with respect to any Incremental Purchase of a
--------------
Receivable Interest, the amount paid to the Seller for such Receivable Interest.
"Purchaser" means FALCON or an Investor, as applicable.
---------
"Receivable" means the indebtedness and other obligations owed to the
----------
Seller (without giving effect to any transfer or conveyance hereunder) whether
constituting an account, chattel paper, instrument or general intangible,
arising in connection with the sale or lease of goods or the rendering of
services under, with the use of or otherwise in connection with an Account and
includes, without limitation, the obligation to pay any Finance Charges with
respect thereto. Indebtedness and other rights and obligations arising from any
one transaction, including, without limitation, indebtedness and other rights
and obligations represented by an individual invoice, shall constitute a
Receivable separate from a Receivable consisting of the indebtedness and other
rights and obligations arising from any other transaction.
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"Receivable Interest" means, at any time, an undivided percentage
-------------------
ownership interest associated with a designated amount of Capital, Discount Rate
and Tranche Period selected pursuant to Section 1.3 in (i) all Receivables
arising prior to the time of the most recent computation or recomputation of
such undivided interest pursuant to Section 1.4, (ii) all Related Security with
respect to such Receivables, and (iii) all Collections with respect to, and
other proceeds of, such Receivables. The "percentage applicable" to each
Receivables Interest shall mean the following ratio (expressed as a percentage):
[REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
where:
C = the Capital of such Receivable Interest.
LR = the Loss Reserve.
DLR = the Dilution Reserve.
NRB = the Net Receivables Balance.
"Records" means, with respect to any Receivable, all Contracts and
-------
other documents, books, records and other information (including, without
limitation, computer programs, tapes, disks, punch cards, data processing
software and related property and rights) relating to such Receivable, any
Related Security therefor and the related Obligor.
"Reduction Percentage" means, for any Receivable Interest acquired by
--------------------
the Investors from FALCON [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
"Reference Bank" means First Chicago or such other Bank as the Agent
--------------
shall designate with the consent of the Seller.
"Regulatory Change" means the adoption of any applicable law, rule or
-----------------
regulation (including any applicable law, rule or regulation regarding capital
adequacy) or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency.
-59-
<PAGE>
"Required Investors" means, at any time, Investors with Commitments in
------------------
excess of 66-2/3% of the Purchase Limit.
"Related Security" means, with respect to any Receivable:
----------------
(i) all of the Seller's interest in the inventory and goods
(including returned or repossessed inventory and goods), if any, the sale
or lease of which gave rise to such Receivable, and all insurance contracts
with respect thereto,
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise, together with all financing statements signed by an Obligor
describing any collateral securing such Receivable,
(iii) all guaranties, insurance and other agreements or arrangements
of whatever character from time to time supporting or securing payment of
such Receivable whether pursuant to the Contract related to such Receivable
or otherwise,
(iv) all of the Seller's right, title and interest in, to and under
the Transfer Agreement,
(v) all service contracts and other contracts and agreements
associated with such Receivables,
(vi) all Records related to such Receivables, and
(vii) all proceeds of any of the foregoing.
"Reserve Requirement" means the maximum aggregate reserve requirement
-------------------
(including all basic, supplemental, marginal and other reserves) which is
imposed against the Reference Bank in respect of Eurocurrency liabilities, as
defined in Regulation D of the Board of Governors of the Federal Reserve System
as in effect from time to time.
"Section" means a numbered section of this Agreement, unless another
-------
document is specifically referenced.
"Seller" means (i) at all times prior to giving effect to the Merger,
------
TBTR Corp., and (ii) from and after giving effect to the Merger, TBTR
Partnership.
"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
-60-
<PAGE>
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Seller.
"TBTR Corp." means The Bon-Ton Receivables Corp., a Delaware
----------
corporation.
"TBTR Partnership" means-The Bon-Ton Receivables Partnership, L.P., a
----------------
Pennsylvania limited partnership.
"Termination Date" means, for any Receivable Interest, the Facility
----------------
Termination Date, and, solely with respect to a Receivable Interest of FALCON,
that Business Day so designated by the Seller or FALCON by notice to the other.
"Termination Event" has the meaning specified in Article VII.
-----------------
"Tranche Period" means, with respect to any Receivable Interest:
--------------
(a) if Discount for such Receivable Interest is calculated with
respect to the CP Rate, a period of days not to exceed 270 days commencing
on a Business Day requested by the Seller and agreed to by FALCON;
(b) if Discount for such Receivable Interest is calculated on the
basis of the LIBO Rate, a period of one, two or three months, or such other
period as may be mutually agreeable to the Agent and the Seller, commencing
on a Business Day selected by the Seller or the Agent pursuant to this
Agreement. Such Tranche Period shall end on the day in the applicable
succeeding calendar month which corresponds numerically to the beginning
day of such Tranche Period, provided, however, that if there is no such
numerically corresponding day in such succeeding month, such Tranche Period
shall end on the last Business Day of such succeeding month; and
(c) if Discount for such Receivable Interest is calculated on the
basis of the Base Rate, a period of days not to exceed 30 days commencing
on a Business Day selected by the Seller.
If any Tranche Period would end on a day which is not a Business Day, such
Tranche Period shall end on the next succeeding Business Day, provided, however,
--------
that in the case of Tranche Periods corresponding to the LIBO Rate, if such next
succeeding Business Day falls in a new month, such Tranche Period shall end on
the immediately preceding Business Day. In the case of any Tranche Period for
any Receivable Interest of which commences before the Termination Date and would
otherwise end on a date occurring after the Termination Date, such Tranche
Period shall end on the Termination Date. The duration of each Tranche Period
in respect of any Receivable Interest which commences after the Liquidation Day
for such Receivable Interest shall be of such duration as selected by the Agent.
-61-
<PAGE>
"Transaction Documents" means, collectively, this Agreement, the
---------------------
Transfer Agreement, the Fee Letter, each Collection Notice and all other
instruments, documents and agreements executed and delivered by the Seller in
connection with the transactions contemplated by any of the foregoing.
"Transfer Agreement" means that certain Transfer Agreement of even
------------------
date herewith between the Seller and the Originator, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"UCC" means the Uniform Commercial Code as from time to time in effect
---
in the specified jurisdiction.
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of Illinois, and not
specifically defined herein, are used herein as defined in such Article 9.
-62-
<PAGE>
Exhibit 10.16(b)
AMENDMENT
Dated as of June 30, 1995
to
AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT
Dated as of June 12, 1995
THIS AMENDMENT ("Amendment") dated as of June 30, 1995 is entered into
among THE BON-TON RECEIVABLES CORP. ("BT Corp"), THE BON-TON RECEIVABLES
PARTNERSHIP, L.P. ("BT LP," and BT Corp and BT LP together, the "Seller"),
BTRGP, INC. ("BTRGP"), FALCON ASSET SECURITIZATION CORPORATION ("Falcon"),
certain financial institutions, and THE FIRST NATIONAL BANK OF CHICAGO ("FNBC"),
as Agent (the "Agent").
PRELIMINARY STATEMENT. The Seller, BTRGP, Falcon, FNBC (as the
initial Investor thereunder), and the Agent have entered into an Amended and
Restated Receivables Purchase Agreement dated as of June 12, 1995 (the
"Agreement"), the terms defined therein being used herein as therein defined
unless otherwise defined herein), and now desire to (i) add additional financial
institutions as Investors under the Agreement (each, a "New Investor"), (ii)
modify the Commitments in connection with the introduction of the New Investors
and (iii) provide for a "Liquidity Fee" (as referred to below). The
undersigned agree, on the terms and conditions set forth below, to amend the
Agreement as hereinafter set forth.
SECTION 1. Amendments to the Agreement and Effect Thereof. The
----------------------------------------------
parties hereto, effective the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof, agree as follows:
---------
1.1 Each of the financial institutions denoted a "New Investor" on
the signature page hereto expressly assumes and agrees to perform and
observe all and singular the covenants, agreements, terms and conditions,
obligations, appointments, duties and liabilities of an Investor under the
Agreement.
1.2 Each New Investor shall be, and shall have all of the rights of,
an Investor under and for all purposes of the Agreement. Each reference in
the Agreement to the "Investors" shall include the New Investors.
1.3 The amount of each Investor's Commitment shall be the respective
amount set opposite such Investor's name on the signature pages to this
Agreement, as such amount may be modified from time to time in accordance
with the terms of the Agreement.
<PAGE>
1.4 Article II of the Agreement is hereby amended to add the
----------
following new Section 2.7 thereto:
"Section 2.7. Liquidity Fee. On the first Business Day of each
-------------
month, the Seller shall pay to the Agent, for the account of the
Investors in accordance with their Pro Rata Shares, a fee equal to
[REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT] per annum times
the average daily Purchase Limit in effect during the immediately
preceding calendar month."
1.5 Section 9.1 of the Agreement is hereby amended to add the
-----------
following sentence thereto immediately following the third sentence
thereof:
"As to any matters not expressly provided for by this Agreement
(including, without limitation, any enforcement or collection
activity), the Agent shall not be required to exercise any discretion
or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Required Investors."
1.5 Section 9.6 of the Agreement is hereby amended to add the
-----------
following proviso at the end thereof:
"provided, however, that the Investors shall have no liability
--------
under this Section 9.6 to reimburse the Agent in respect of any such
amount or expense that arises by reason of the gross negligence or
willful misconduct of the Agent."
1.7 Section 9.8 of the Agreement is hereby amended to delete the
-----------
first sentence thereof in its entirety and to substitute the following
therefor:
"The Agent may, upon thirty days' notice to the Seller and the
Purchasers, resign as Agent. In addition, the Agent will resign as
Agent upon the written direction of (i) if at such time FALCON shall
have any Receivable Interest hereunder, all of the Purchasers, and
(ii) if at such time FALCON shall not have any Receivable Interest
hereunder, the Required Investors."
1.8 Section 10.1(b) of the Agreement is hereby amended to delete the
---------------
second sentence thereof in its entirety and to substitute the following
therefor:
"The consent of the Seller (which consent shall not be
unreasonably withheld) and FALCON shall be required prior to the
effectiveness of any such assignment; provided that following the
--------
occurrence, and during the continuance, of a Termination Event, the
consent of the Seller to any such assignment shall not be required."
1.9 Section 11.1(b)(i) of the Agreement is hereby amended to delete
------------------
clause (H) thereof in its entirety and to substitute the following
therefor:
2
<PAGE>
"(H) except in the manner expressly provided herein, release the
Receivables Interest, or any other security interest or ownership
interest, of any Purchaser granted hereunder in the Receivables, the
Related Security and the Collections, or (I) amend or modify any
defined term (or any defined term used directly or indirectly in such
defined term) used in clauses (A) through (H) above in a manner which
would circumvent the intention of the restrictions set forth in such
clauses;"
1.10 Exhibit I to the Agreement is hereby amended to delete the figure
---------
".09" in the definition therein of "Adjusted Liquidity Price" and to
------------------------
substitute therefor the following figure:
[REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
1.11 Exhibit I to the Agreement is hereby further amended to add the
---------
following new definition thereto:
"Reinvestment" has the meaning assigned to such term in Section
------------
1.6."
1.12 Exhibit I to the Agreement is hereby further amended to delete
---------
the definition therein of "Required Investors" in its entirety and to
------------------
substitute the following new definition therefor:
"Required Investors" means, at any time, two or more Investors
------------------
with aggregate Commitments in excess of 66-2/3% of the Purchase
Limit."
1.13 Exhibit I to the Agreement is hereby further amended to delete
---------
clause (b) of the definition therein of "Tranch Period" in its entirety and
-------------
to substitute the following new clause (b) therefor:
"(b) if Discount for such Receivable Interest is calculated
on the basis of the LIBO Rate, a period of one, two or three months,
or such other period as may be mutually agreeable to the Required
Investors, the Agent and the Seller, commencing on a Business Day
selected by the Seller or the Agent pursuant to this Agreement. Such
Tranche Period shall end on the day in the applicable succeeding
calendar month which corresponds numerically to the beginning day of
such Tranche Period, provided, however, that if there is no such
numerically corresponding day in such succeeding month, such Tranche
Period shall end of the last Business Day of such succeeding month;
and"
SECTION 2. Conditions Precedent. This Amendment shall become effective
--------------------
upon receipt by the Agent of (i) counterparts of this Amendment executed by each
of the Sellers, BTRGP, Falcon, FNBC and each of the New Investors or, as to any
Investors, advice satisfactory to the Agent that such Investor has executed this
Amendment, (ii) the fee letter of even date
3
<PAGE>
herewith, duly executed by each of the Sellers, BTRGP and the Originator, and
the payment of all fees stated thereunder to be due on or prior to the effective
date of this Amendment, (iii) an opinion of Wolf, Block, Schorr and Solis-Cohen,
counsel to Seller, BTRGP and the Originators, in form and substance satisfactory
to the Agent and (iv) an opinion of counsel for each New Investors substantially
in the form of Exhibit A hereto.
SECTION 3. Covenants, Representation and Warranties of the Sellers and
-----------------------------------------------------------
BTRGP.
- -----
3.1 Upon the effectiveness of this Amendment, each of the Sellers and
BTRGP hereby reaffirm all covenants, representations and warranties made by such
party in the Agreement as amended hereby and agree that all such covenants,
representations and warranties shall be deemed to have been remade as of the
effective date of this Amendment.
SECTION 4. Representations of the New Investors.
------------------------------------
4.1 Each of the New Investors (i) confirms that it has received a
copy of the Agreement, together with copies of such other documents and
information as it has deemed appropriate to make its own analysis and decision
to enter into this Amendment and assume its obligations hereunder and under the
Agreement; (ii) agrees that it will, independently and without reliance upon the
Agent, Falcon, FNBC or any other Investor and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
decisions in taking or not taking action under the Agreement; (iii) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Agreement as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; and
(iv) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Agreement are required to be performed by
it as an Investor. Each New Investor that is not a Person organized under the
laws of a jurisdiction within the United States shall promptly following the
effectiveness of this Amendment, provide to the Agent the forms prescribed by
the Internal Revenue Service of the United States certifying as to such
Investor's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to the Investor under
the Agreement or such other documents as are necessary to indicate that all such
payments are subject to such rates at a rate reduced by an applicable tax
treaty.
SECTION 5. Reference to and Effect on the Agreement.
----------------------------------------
5.1 Upon the effectiveness of this Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like
import shall mean and be a reference to the Agreement, as amended hereby, and
each reference to the Agreement in any other document, instrument or agreement
executed and/or delivered in connection with the Agreement shall mean and be a
reference to the Agreement as amended hereby.
4
<PAGE>
5.2 Except as specifically amended above, the Agreement and all other
documents, instruments and agreements executed and/or delivered in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
5.2 The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of any Investor or the
Agent under the Agreement or any other document, instrument or agreement
executed in connection therewith, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
SECTION 6. Execution in Counterparts. This Amendment may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 7. Governing Law. This Amendment shall be governed by and
-------------
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Illinois.
SECTION 8. Headings. Section headings in this Amendment are
--------
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
THE BON-TON RECEIVABLES
CORP.
By: /s/ Robert E. Stern
------------------------------------
Title: Secretary - Treasurer
2801 East Market Street
P.O. Box 2821
York, Pennsylvania 17405
Fax: (717) 751-3198
THE BON-TON RECEIVABLES
PARTNERSHIP, L.P.
By: BTRGP, INC.
Its General Partner
By: /s/ Robert E. Stern
-------------------------------
Title: Secretary - Treasurer
2801 East Market Street
P.O. Box 2821
York, Pennsylvania 17405
Fax: (717) 751-3198
BTRGP, INC.
By: /s/ Robert E. Stern
------------------------------------
Title: Secretary - Treasurer
2801 East Market Street
P.O. Box 2821
York, Pennsylvania 17405
Fax: (717) 751-3198
6
<PAGE>
FALCON ASSET SECURITIZATION
CORPORATION
By: /s/ Mark R. Matthews
-----------------------------------
Authorized Signer
c/o The First National Bank
of Chicago, as Agent
Asset-Backed Markets, Suite 0597
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
Commitment
- ----------
$95,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
as an Investor and as Agent
By: /s/ Mark R. Matthews
-----------------------------------
Vice President
The First National Bank of Chicago
Asset-Backed Markets, Suite 0597
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
7
<PAGE>
Commitment: NEW INVESTORS:
- ----------
$15,000,000 NATWEST BANK N.A.
By: /s/ [SIGNATURE ILLEGIBLE]
-------------------------------------
Title: Vice President
Address: 10 Exchange Place
Jersey City, NJ 07302
$10,000,000 PNC BANK, N.A.
By: /S/ H. Todd Dissinger
-------------------------------------
Title: Vice President
Address: Land Title Building
Broad & Chestnut St.
Phila, PA 19101
$10,000,000 THE BANK OF NEW YORK
By: /s/ Peter H. Abdill
-------------------------------------
Title: Assistant Vice President
Address: 1 Wall Street, NY NY 10286
=========
$130,000,000 Total Commitments
8
<PAGE>
EXHIBIT A
to
AMENDMENT
Dated as of June 30, 1995
FORM OF COUNSEL OPINION FOR NEW INVESTOR
The First National Bank of Chicago
Asset-Backed Markets Division, Suite 0596
One First National Plaza
Chicago, Illinois 60670
Falcon Asset Securitization Corporation
c/o The First National Bank of Chicago
Asset Backed Markets Division, Suite 0596
One First National Plaza
Chicago, Illinois 60670
Re: Amended and Restated Receivables Purchase
Agreement dated as of June 12, 1995 with The Bon-Ton
Receivables Corp. and The Bon-ton Receivables
Partnership L.P., as amended June 30, 1995
----------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for the [NAME OF BANK] (the "Bank") in
connection with (i) that certain Amended and Restated Receivables Purchase
Agreement dated as of June 12, 1995 (the "Purchase Agreement"; terms defined
therein and not otherwise defined in this letter shall have the respective
meanings ascribed therein), among The Bon-Ton Receivables Corp. and The Bon-Ton
Receivables Partnership, L.P. (collectively, the "Seller"), Falcon Asset
Securitization Corporation ("Falcon"), certain financial institutions parties
thereto as "Investors" and The First National Bank of Chicago ("FNBC") as agent
for the Investors (the "Agent") and (ii) that certain Amendment to the Purchase
Agreement (the "Amendment"; the Purchase Agreement, as amended by the Amendment,
being the "Amended Purchase Agreement") dated as of June 30, 1995 among the
Seller, Falcon, the Agent and the Bank and certain other "new Investors".
Subject to the qualifications and limitations stated herein, we hereby
advise you that, in our opinion:
9
<PAGE>
1. The Bank is duly licensed and qualified to operate as a ________,
and is in good standing, under the laws of the State of ________ (the
"State")/1/.
2. Each of the Amendment and the Amended Purchase Agreement has been
duly authorized by all necessary corporation action, has been duly executed
and delivered by the Bank and, assuming due authorization, execution and
delivery by each of the other parties thereto, constitutes a legal, valid
and binding obligation of the Bank, enforceable against the Bank in
accordance with its terms.
3. No consent, authorization or approval of, or filing with, any
United States federal governmental authority or any governmental authority
of the Sate is required in connection with the execution, delivery or
performance by the Bank of the Amendment, or the performance by the Bank of
its obligations under the Amended Purchase Agreement.
4. The Bank has the corporate power and authority under United
States law and the law of the State to execute, deliver and perform the
Amendment and the Amended Purchase Agreement and the execution, delivery
and performance of the Amendment and the Amended Purchase Agreement by the
Bank does not conflict with, result in a breach of, or constitute a default
under any law, rule or regulation of the United States or of the State, or
any order or judgment applicable to the Bank.
Our opinion set forth in paragraph 2 above is subject to the
qualifications that the enforceability of the Bank's obligations under the
Amendment and the Amended Purchase Agreement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally or by general equitable principles
(regardless of whether such enforceability is considered in proceeding in equity
or at law).
Respectfully submitted,
- -----------------------------
/1/ Insert the state in which the booking office is located.
10
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Philadelphia, PA
April 3, 1998
