<PAGE>
As filed with the Securities and Exchange Commission on February 16, 1999
Registration Statement No. 333-66953
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
POST-EFFECTIVE
AMENDMENT NO. 1
To
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
BRADLEES, INC.
BRADLEES STORES, INC. and NEW HORIZONS OF YONKERS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Bradlees, Inc.-- Massachusetts 5311 Bradlees, Inc.--04-3156108
Bradlees Stores, Inc.-- Massachusetts (Primary Standard Industrial Bradlees Stores, Inc.--04-3220855
New Horizons of Yonkers, Inc.--Delaware Classification Code Number) New Horizons of Yonkers, Inc.--04-3172952
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
One Bradlees Circle
Braintree, Massachusetts 02184
(781) 380-3000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
PETER THORNER
Chairman of the Board and Chief Executive Officer
&
DAVID L. SCHMITT
Senior Vice President, General Counsel
Secretary and Clerk
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copy to:
RAYMOND C. ZEMLIN, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
(617) 570-1000
---------------
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective, which time is to be
determined by the Selling Securityholders. All of the Securities offered hereby
are offered for the account of the Selling Securityholders.
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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(d)
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,
please 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 Section 8(a), may
determine.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this Prospectus is not complete and may be changed. The +
+Selling Securityholders may not sell these securities until the Registration +
+Statement filed with the Securities and Exchange Commission is effective. +
+This Prospectus is not an offer to sell these securities and it is not +
+soliciting an offer to buy these securities in any State where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 16, 1999
PROSPECTUS
BRADLEES, INC.
7,267,424 Shares of Common Stock
BRADLEES STORES, INC.
$36,000,000 of 9% Convertible Notes
Bradlees, Inc. and its subsidiary companies operate discount department
stores in the Northeast through Bradlees, Inc.'s subsidiary, Bradlees Stores,
Inc. The Securities being offered by this Prospectus were issued by us under
the terms of our bankruptcy reorganization.
This Prospectus relates to:
. 7,267,424 shares of Common Stock of Bradlees, Inc.;
. $36,000,000 of 9% Convertible Notes issued by Bradlees Stores, Inc. and
the Common Stock issuable upon conversion of the Convertible Notes; and
. The guarantee by Bradlees, Inc. and New Horizons of Yonkers, Inc. of the
9% Convertible Notes.
We are registering these securities on behalf of the Selling Securityholders.
The Selling Securityholders received these securities, directly or indirectly,
pursuant to our Plan of Reorganization in exchange for the cancellation of
various indebtedness owed by us to them. We are not selling any of these
securities and we will not receive any proceeds from the sale of these
securities. The Selling Securityholders may offer these securities through
public or private transactions, on the Nasdaq National Market, at prevailing
prices or at privately negotiated prices. The registration of these securities
does not necessarily mean that any Selling Securityholder will actually sell
such securities.
The Common Stock offered by this Prospectus is listed on the Nasdaq National
Market on a "when issued" basis under the symbol "BRADV." On February 12, 1999,
the last reported sale price of our Common Stock was $5.50 per share.
Our principal executive offices are located at One Bradlees Circle,
Braintree, Massachusetts 02184. Our telephone number is (781) 380-3000.
-----------
Investing in these securities involves certain risks. See "Risk Factors"
beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this Prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
The date of this Prospectus is February , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 2
The Company.............................................................. 2
The Offering............................................................. 3
Summary Financial Data................................................... 5
RISK FACTORS.............................................................. 6
Economic and Industry Risks.............................................. 6
Competition............................................................. 6
Concentration in the Northeast.......................................... 6
Merchandising Strategy Must Successfully Evolve......................... 6
Labor Negotiations...................................................... 6
Financial Risks.......................................................... 7
High Leverage........................................................... 7
History of Losses....................................................... 7
Restrictions Imposed by the Terms of the BankBoston Facility............ 7
Risk to Continuing Operations if Covenants Not Met...................... 8
Limitations on Future Growth............................................ 8
Liquidity............................................................... 8
Assets Pledged as Collateral under the BankBoston Facility.............. 8
Post-Bankruptcy Risks.................................................... 9
Recent Emergence from Chapter 11 Proceedings............................ 9
Fresh Start Reporting May Make Future Financial Statements Difficult to
Compare................................................................ 9
Determination of Equity Value........................................... 9
Tax Consequences of the Plan of Reorganization; Potential Loss of
Certain Tax Attributes................................................. 9
Risks Related to the Securities.......................................... 10
Limited Market for Common Stock and Notes............................... 10
Restrictions on Common Stock Dividends.................................. 10
Future Stock Issuances Can Dilute Current Owners........................ 10
Guarantor Does not Have Significant Separate Assets..................... 11
Fraudulent Conveyance Matters........................................... 11
Miscellaneous Business Risks............................................. 11
Dependence on key personnel............................................. 11
Potential Year 2000 Liability........................................... 11
Change of Control not Restricted........................................ 12
Board of Directors May Change........................................... 12
THE COMPANY............................................................... 13
General.................................................................. 13
Background to Our Bankruptcy Reorganization.............................. 13
The Plan of Reorganization............................................... 13
USE OF PROCEEDS........................................................... 18
DIVIDEND POLICY........................................................... 18
CAPITALIZATION............................................................ 19
SELECTED FINANCIAL DATA................................................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 30
Results of Operations.................................................... 30
1997 Compared to 1996.................................................... 30
1996 Compared to 1995.................................................... 32
Year-to-Date 1998 Compared to Year-to-Date 1997.......................... 33
Liquidity and Capital Resources.......................................... 34
Year 2000 Readiness Disclosure........................................... 35
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
BUSINESS.................................................................... 37
Company Overview........................................................... 37
Employees and Collective Bargaining Arrangements........................... 38
Competition................................................................ 38
Patents, Trademarks and Licenses........................................... 39
Seasonality................................................................ 39
Credit Facility............................................................ 39
Further Information........................................................ 39
Facilities................................................................. 40
Legal Proceedings.......................................................... 40
MANAGEMENT.................................................................. 41
Directors and Executive Officers........................................... 41
Board of Directors of Bradlees, Inc. and Its Committees.................... 43
Board of Directors of Bradlees Stores, Inc................................. 44
Board of Directors of New Horizons of Yonkers, Inc. ....................... 44
Summary Compensation Table................................................. 45
Corporate Bonus Plan....................................................... 46
Enterprise Appreciation Incentive Plan..................................... 46
Management Emergence Bonus Plan............................................ 46
Severance Program.......................................................... 47
Stock Option Plan for Key Employees........................................ 47
Retirement Plans........................................................... 47
Compensation of Directors.................................................. 48
Employment Agreement with Peter Thorner.................................... 48
Compensation Committee Interlocks and Insider Participation................ 49
PRINCIPAL STOCKHOLDERS...................................................... 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 51
Other Transactions......................................................... 51
Company Policy............................................................. 51
SELLING SECURITY HOLDERS.................................................... 51
PLAN OF DISTRIBUTION ....................................................... 52
Type of Transactions....................................................... 52
Price of Transaction; Fees................................................. 52
SHARES ELIGIBLE FOR FUTURE SALE............................................. 53
TERMS OF OUTSTANDING INDEBTEDNESS........................................... 53
Credit Agreement........................................................... 53
CAP Notes.................................................................. 54
Cure Notes................................................................. 55
Tax Notes.................................................................. 55
Vendor Lien................................................................ 55
DESCRIPTION OF THE 9% CONVERTIBLE NOTES..................................... 55
General.................................................................... 55
Ranking.................................................................... 56
Redemption................................................................. 56
Limitations on Mergers and Consolidation................................... 57
Guarantee.................................................................. 57
Events of Default, Notice and Waiver....................................... 57
Modification of the Indenture.............................................. 59
Collateral................................................................. 59
Conversion................................................................. 60
Governing Law.............................................................. 61
The Trustee................................................................ 61
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Authentication............................................................. 61
DESCRIPTION OF CAPITAL STOCK................................................ 62
General.................................................................... 62
Authorized and Outstanding Capital Stock................................... 62
Certain Provisions of the Articles and By-laws of Bradlees, Inc............ 62
Massachusetts Anti-takeover Laws........................................... 64
Certain Provisions of the Articles and By-laws of Bradless Stores, Inc. ... 64
Transfer Agent and Registrar............................................... 65
Listing.................................................................... 65
LEGAL MATTERS............................................................... 65
EXPERTS..................................................................... 65
ADDITIONAL INFORMATION...................................................... 65
INDEX TO FINANCIAL STATEMENTS............................................... F-1
</TABLE>
(iii)
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this prospectus
under the captions "Prospectus Summary," "Risk Factors" and "The Company," and
elsewhere in this Prospectus are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934. When we use the words "anticipate," "assume,"
"believe," "estimate," "expect," "intend," and other similar expressions in
this Prospectus, they are generally intended to identify forward-looking
statements. In connection with such forward-looking statements, you should
consider that they involve known and unknown risks, uncertainties and other
factors which are, in some cases, beyond our control and which could materially
affect our actual results, performance or achievements. Factors that could
cause our actual results, performance or achievements to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, the following:
. international, national, regional and local economic and political
conditions;
. demographic changes;
. competition;
. unfavorable changes in interest rates;
. unfavorable weather conditions;
. loss of significant vendors;
. liability and other claims asserted against us;
. fluctuations in operating results;
. increased costs of key resources;
. continued acceptance of merchandising and marketing initiatives;
. changes in consumer spending and shopping habits;
. availability of new store sites;
. changes in import duties, tariffs and quotas;
. changes in business strategy; and
. the ability to attract and retain qualified personnel.
We disclaim any obligation to update any such factors or to publicly
announce the result of any revisions to any of these forward-looking statements
contained herein to reflect subsequent events or developments.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
It is not complete and may not contain all of the information that you should
consider before investing in the Securities. You should read the entire
Prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to those statements.
The Company
Background
Bradlees, Inc. and its subsidiary companies operate discount department
stores in the Northeast through Bradlees, Inc.'s subsidiary, Bradlees Stores,
Inc. (collectively, the "Company"), primarily in the Boston to Philadelphia
corridor. We have been active in the discount department store business for 40
years.
On June 23, 1995, we filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11"). On February 2, 1999, we completed
our reorganization and emerged from bankruptcy. In connection with our
reorganization, we took significant steps to improve our operations, including:
. Recruiting an experienced management team;
. Reintroducing basic convenience and commodity products that our customers
expect us to carry;
. Revising our pricing policies to increase customer traffic;
. Revising our marketing strategy to reduce costly and inefficient advertising
and promotional events; and
. Reducing costs by improving operating efficiencies.
Business Strategy
We are focusing on three key merchandise categories:
1. Moderately-priced basic and casual apparel;
2. Basic and fashion items for the home; and
3. Frequently purchased convenience and commodity products.
We believe we can strategically leverage our traditional strengths in the
fashion and quality of our apparel and decorative home product offerings while
driving customer traffic with selected hardlines merchandise.
The Reorganization
We were compelled to seek the protection of the Bankruptcy Court on June 23,
1995. While in Chapter 11, we continued to manage our affairs as a debtor-in-
possession.
On October 5, 1998, the first Amended Disclosure Statement relating to our
plan of reorganization was approved by the Bankruptcy Court (the "Plan of
Reorganization"). The Plan of Reorganization, as subsequently modified, was
confirmed by the Bankruptcy Court on January 27, 1999 and became effective on
February 2, 1999 (the "Effective Date").
In connection with our reorganization in bankruptcy and our related
operational restructuring, all of the equity interests in Bradlees, Inc. that
existed immediately prior to the Effective Date were canceled. In addition, we
canceled certain indebtedness that existed prior to our entering bankruptcy.
Our Plan of Reorganization provided that certain holders of this canceled
indebtedness receive an equity interest in the reorganized company and/or 9%
Convertible Notes issued by Bradlees Stores, Inc. which pay interest at the
rate of 9% per annum and are convertible into our common stock after one year.
In connection with the issuance of these securities, we are registering the
resale of the securities received by certain of our creditors under the Plan of
Reorganization. This Prospectus is part of the Registration Statement we agreed
to file. See "The Company--The Plan of Reorganization."
2
<PAGE>
The Offering
The principal terms of the Common Stock and 9% Convertible Notes
(collectively, the "Securities") are summarized below. For a more complete
description, see "Description of Capital Stock" and "Description of the 9%
Convertible Notes." The Selling Securityholders will receive all of the
proceeds from the sale of the Securities offered hereby. We will not receive
any proceeds from this Offering.
Common Stock:
<TABLE>
<C> <S>
Issuer........................ Bradlees, Inc.
Securities Offered (1)........ 7,267,424 shares of Common Stock.
Common Stock outstanding (2).. 10,225,711 shares of Common Stock.
Voting Rights................. Each share of Common Stock has one vote.
Listing....................... We have listed the common stock offered by this
Prospectus on the Nasdaq National Market.
Trading Symbol................ BRAD
</TABLE>
- --------
(1) Under the terms of the Plan of Reorganization, the number of shares issued
to the Selling Stockholders varies with the amount of general unsecured
claims allowed. The Securities Offered and Common Stock Outstanding assumes
that the amount of the general unsecured claims allowed are not less than
$225 million and the number of shares issued to the Selling Securityholders
is not more than 7,267,424. Excludes an indeterminate number of shares
issuable upon conversion of the 9% Convertible Notes. Since the number of
shares of Common Stock issuable upon conversion of the 9% Convertible Notes
varies as the market price of the Common Stock changes, it is impossible at
this time to determine how many shares may be issued upon conversion of the
9% Convertible Notes.
(2) Excluding 1,000,000 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants as of February 2, 1999 (the "Warrants")
and 750,000 shares of Common Stock issuable upon exercise of employee
options which we have agreed to issue under the Plan of Reorganization.
Also excludes all shares of Common Stock issuable upon conversion of the 9%
Convertible Notes.
9% Convertible Notes:
Issuer...................... Bradlees Stores, Inc.
Securities Offered..........
We agreed to issue not more than $40,000,000
aggregate principal amount of 9% Convertible
Notes, of which $36,000,000 was originally
registered pursuant to the Registration Statement
of which this prospectus is a part. On the
Effective Date, we made a pre-payment of $11.0
million on the 9% Convertible Notes and issued
$28,995,000 of 9% Convertible Notes. The
Registration Statement of which this prospectus
forms a part relates to $24,022,000 aggregate
principal amount of the 9% Convertible Notes
issued on the Effective Date after taking into
account the pre-payment.
Interest Rate...............
The 9% Convertible Notes bear interest at a rate
of 9% per annum. Interest has been accruing from
the date we issued the Notes and is payable semi-
annually in arrears on each January 1 and July 1,
commencing July 1, 1999.
Guarantors............. The 9% Convertible Notes will be guaranteed by
Bradlees, Inc., which owns all of the outstanding
capital stock of Bradlees Stores, Inc. and New
Horizons of Yonkers, Inc., a wholly-owned
subsidiary of Bradlees Stores, Inc. If Bradlees
Stores, Inc. cannot make payments on the 9%
Convertible Notes when they are due,
3
<PAGE>
Bradlees, Inc. and New Horizons of Yonkers, Inc.
must make them instead. The guarantee by
Bradlees, Inc. is subordinated to the guarantee
by Bradlees, Inc. of our credit facility and the
guarantee by New Horizons of Yonkers, Inc. is
subordinated to the guarantee by New Horizons of
Yonkers, Inc. of our credit facility.
Liens....................... The 9% Convertible Notes will be secured by (i) a
first priority lien on our leasehold interest in
our Yonkers, New York store, which we are seeking
to sell (and the net proceeds we receive upon its
disposition), (ii) under certain circumstances
and subject to certain limitations, first
priority liens on our leasehold interests in our
Danbury, Connecticut, Norwalk, Connecticut and
Saddle Brook, New Jersey stores, (as well as the
net proceeds we receive upon their
disposition(s), none of which we are currently
seeking to sell), and (iii) a first priority
pledge of all of the outstanding capital stock of
New Horizons of Yonkers, Inc. We have agreed with
the holders of the 9% Convertible Notes that if
we have not disposed of our leasehold interest in
our Yonkers, New York store by July 31, 1999, the
Trustee may market and sell such leasehold
interest and the Trustee may take title to all of
the outstanding capital stock of New Horizons of
Yonkers, Inc. In either such event, it is
expected that the Trustee or its representative
will continue to actively seek to sell such
leasehold interest. The net proceeds realized
upon a sale (by us, the Trustee or its
representative) of the Yonkers, New York
leasehold interest will be paid to the holders of
the 9% Convertible Notes as a prepayment. The
disposition of our leasehold interest in the
Yonkers, New York store is subject to Bankruptcy
Court approval. In addition, pursuant to the Plan
of Reorganization we have modified the
termination date and certain other provisions of
our lease for our Union Square, New York store in
exchange for a payment upon the Effective Date of
$11.0 million by the landlord. This payment was
applied as a pre-payment to the 9% Convertible
Notes.
Conversion.................. The 9% Convertible Notes will be convertible any
time after the first anniversary of the Effective
Date into shares of our Common Stock. The
conversion price will initially be the average
closing price of our Common Stock during the
twenty business days preceding the first
anniversary of the Effective Date.
Listing..................... We do not intend to apply for listing of the 9%
Convertible Notes on any securities exchange or
authorization for quotation on the NASDAQ system.
We do not expect that an active trading market
will develop for the 9% Convertible Notes.
4
<PAGE>
Summary Financial Data
(In thousands, except per share data)
The summary financial data set forth below presents historical and pro forma
financial information of the Company. The financial information for the thirty-
nine weeks ended October 31, 1998 and November 1, 1997 was derived from the
unaudited condensed consolidated financial statements of the Company which, in
the opinion of management, include all adjustments, consisting only of normal
adjustments necessary for a fair presentation of the results for the periods.
The results for the thirty-nine weeks ended October 31, 1998 are not
necessarily indicative of the results to be expected for the full year. Fiscal
year 1997 refers to the 52 weeks ended January 31, 1998, fiscal year 1996
refers to the 52 weeks ended February 1, 1997 and fiscal year 1995 refers to
the 53 weeks ended February 3, 1996. The summary information should be read in
conjunction with the financial statements and related notes thereto appearing
elsewhere in this Prospectus, "Unaudited Pro Forma Condensed Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Fiscal Year 39 Weeks Ended
---------------------------------------------- --------------------------------
1997 October 31, 1998
---------------------- -------------------
Pro Pro November 1,
Historical Forma(a) 1996 1995 Historical Forma(a) 1997
---------- ---------- ---------- ---------- ---------- -------- -----------
(in thousands, except ratio and per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net Sales............... $1,344,444 $1,294,748 $1,561,718 $1,780,768 $906,385 $903,074 $895,220
Gross margin............ 396,357 384,457 434,067 491,691 271,002 270,163 269,699
Operating expenses(b)... 401,578 373,281 530,757 612,102 296,180 282,768 308,666
Operating income
(loss)................. (5,221) 11,176 (96,690) (120,411) (25,178) (12,605) (38,967)
Loss before income
taxes.................. (22,557) (18,525) (218,759) (311,946) (34,583) (33,794) (48,480)
Income tax benefit...... - - - 104,533 - - -
Net loss................ $ (22,557) $ (18,525) $ (218,759) $ (207,413) $(34,583) $(33,794) $(48,480)
Loss per share:
Basic and diluted...... $ (1.98) $ (1.81) $ (19.17) $ (18.17) $ (3.06) $ (3.30) $ (4.26)
Shares used for
computation:
Basic and diluted...... 11,365 10,226 11,412 11,416 11,311 10,226 11,382
Ratio of earnings to
fixed charges(c)....... - - - - - - -
</TABLE>
<TABLE>
<CAPTION>
October 31, 1998
--------------------
January 31, Pro
1998 Historical Forma(a)
----------- ---------- --------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital(d)........................ $ 46,151 $ 10,836 $(17,509)
Total assets.............................. 595,166 661,410 596,002
Long-term debt, less current
maturities(d)............................ 27,073 26,211 60,562
Total stockholders equity (deficiency).... $(285,950) $(320,532) $ 85,000(e)
</TABLE>
- --------
(a) Pro forma information gives effect to the consummation of the Plan,
including adjustments for fresh-start reporting. Pro forma condensed
consolidated statement of operations data for fiscal year 1997 and the
thirty-nine week period ended October 31, 1998 is presented as if the Plan
was consummated on February 1, 1997, and the balance sheet data at October
31, 1998 is presented as if the Plan was consummated on such date. See
"Unaudited Pro Forma Condensed Consolidated Financial Information." These
amounts are presented for informational purposes only and do not purport to
represent what the Company's financial position or results of operations
would have been if consummation of the Plan had actually occurred on such
dates.
(b) Net of other income.
(c) For the periods presented above, earnings were insufficient to cover fixed
charges by the amount of the respective loss before income taxes. As used
herein, "earnings" consists of income (loss) before taxes plus fixed
charges less capitalized interest. "Fixed charges" consist of interest
expense including amortization of debt issuance costs, capitalized interest
and a portion of rent expense which is deemed to be representative of an
interest factor.
(d) Excluding liabilities subject to settlement under the reorganization case.
(e) See "Risk Factors--Post Bankruptcy Risks--Determination of Equity Value."
5
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this Prospectus before deciding to invest in any of the Securities being
offered by the Selling Securityholders.
Economic and Industry Risks
Competition
The discount retail business is highly competitive, and many of our
competitors have greater resources than we do. We compete against national
companies, such as Wal-Mart Stores, Inc., Target Stores and K-Mart Corp. and
regional companies, such as Caldor Corp. and Ames Department Stores. Caldor
Corp., which has been in bankruptcy since 1995, announced on January 22, 1999
that it intends to close all of its stores and liquidate its assets. Caldor
Corp. is currently conducting going-out-of-business sales in certain markets in
which we operate stores. In the near term it is likely that these sales will
create pressure on the sales of Bradlees' stores in these markets. In addition,
as Caldor Corp. liquidates its assets, new competitors may purchase the Caldor
stores. It is uncertain at this time what competitive impact may result from
Caldor's liquidation of assets. Consumers choose among these companies based
upon a number of factors, including price, location, product quality,
merchandise selection, advertising and service. Other factors in the
competition for consumers are generally beyond our control. These factors
include:
. consumer preferences;
. changes in style; and
. population trends.
If we fail to compete successfully, customer traffic could be reduced, which
would negatively impact sales and profits. In addition, while we believe that
we are pursuing the proper merchandising and marketing strategies that will
allow us to compete effectively in our operating areas, we can not make
assurances that these strategies will further improve our performance, or that
such strategies will remain valid in the future.
Concentration in the Northeast
Our stores are located exclusively in the Northeast. This makes us more
susceptible to local and regional economic downturns than some of our
competitors who are nationally diversified. As with our other competitors, we
are also subject to a national economic downturn. Any economic downturn
affecting us might cause consumers to reduce their spending, impacting our
sales. In addition, our business is seasonal in nature, with a significant
portion of our sales occurring in the fourth quarter, which includes the
pivotal holiday selling season. If sales for the holiday selling season decline
because of a regional or national economic downturn, or for any other reason,
our sales and profits will be negatively impacted.
In addition, the Northeast is generally a more expensive area of the country
in which to own and operate stores. Since we are concentrated in the Northeast,
we face higher average costs of operating stores than our national competitors.
Merchandising Strategy Must Successfully Evolve
Our profitability is dependent upon the success of our merchandising
strategy which is to focus on three key merchandise categories: moderately-
priced basic and casual apparel; basic and fashion items for the home; and
frequently purchased convenience and commodity products. We believe we can
strategically leverage our traditional strengths in the fashion and quality of
our apparel and decorative home product offerings while driving customer
traffic with selected hardlines merchandise. There can be no assurance that
this strategy will be successful and, in the future, we must anticipate, gauge
and appropriately revise this strategy to meet changing consumer demands.
6
<PAGE>
Labor Negotiations
Unlike many of our competitors, the majority of our work force is unionized.
We cannot predict the effect, if any, that any future collective bargaining
agreements with these unions will have on our operations or financial
performance.
Financial Risks
High Leverage
After giving effect to the reduction in our outstanding debt pursuant to the
Plan of Reorganization, we have a reduced, but nevertheless substantial, amount
of debt. Our pro forma consolidated ratio of total debt to total capitalization
as of October 31, 1998 was approximately 0.72:1. See "Capitalization." We have
a $270 million financing facility with BankBoston, N.A. as Administrative Agent
and Issuing Bank (the "BankBoston Facility") under which we are allowed to
borrow for general corporate purposes, working capital and inventory purchases.
If we are unable to generate sufficient cash flow from operations in the
future, or if we fail to satisfy the financial covenants contained in the
BankBoston Facility, we could face default on the BankBoston Facility and other
financing agreements.
The leveraged nature of our capital structure will have several important
effects on our operations, including the following: (i) we continue to have
significant cash requirements for debt service; (ii) because our indebtedness
under the BankBoston Facility bears interest at a floating rate, to the extent
we have not hedged our interest rate exposure, we are sensitive to any increase
in prevailing interest rates; (iii) funds available for capital expenditures
will be limited; and (iv) our ability to meet our debt service obligations (and
to satisfy the financial covenants contained therein) may be impaired. Our
ability to meet such obligations in the future will be dependent upon our
future performance which, in turn, will be subject to general economic
conditions and to financial, business and other factors affecting our
operations, including factors beyond our control. See "Business-Credit
Facility."
Our ability to repay such indebtedness at maturity or otherwise may depend
upon our ability either to refinance or extend such indebtedness, to repay such
indebtedness with proceeds of other capital transactions, such as the issuance
of additional equity, or to sell assets. There can be no assurance that such
refinancing or extension will be available on reasonable terms or at all, that
additional equity will be issued, or that a sale of assets will occur. The
inability to repay such indebtedness could have a material adverse effect on
us.
History of Losses
We experienced significant losses from operations in fiscal years 1996 and
1995. In the long term, our ability to continue operations is dependent upon
our ability to achieve profitable results of operations and positive cash
flows. Although improvements have been made each year since fiscal year 1996,
we have continued to incur net losses. For the 39 weeks ended October 31, 1998,
we reported a net loss of $34.5 million as compared to a net loss of $48.5
million for the 39 weeks ended November 1, 1997. Additionally, our November,
1998 and December, 1998 sales performance was below plan. For fiscal year 1997,
we reported a net loss of $22.6 million, for fiscal year 1996 we reported a net
loss of $218.8 million and for fiscal year 1995 we reported a net loss of
$207.4 million. There can be no assurance that we will achieve or maintain
profitability in any future period. See "Management Discussion and Analysis of
Financial Condition and Results of Operations."
Restrictions Imposed by the Terms of the BankBoston Facility
The BankBoston Facility is a $270 million financing facility which includes
a $20 million junior secured "last in-last out" subfacility under which we are
allowed to borrow for general corporate purposes, working capital and inventory
purchases. The BankBoston Facility is a revolving credit facility which has
affirmative and negative covenants which substantially restrict many aspects of
our operations and finances.
7
<PAGE>
The BankBoston Facility is a revolving credit facility that took effect upon
the Effective Date. This facility is for a term of up to three years and may
not exceed the maximum principal amount of $270 million. Under the terms of the
BankBoston Facility, we have agreed to certain financial covenants, including:
. maintaining a minimum level of earnings before interest, taxes,
depreciation and amortization;
. capping our capital expenditures at $20 million annually, subject to
certain exceptions; and
. agreeing not to let certain financial ratios which measure our debt
coverage and accounts payable to inventory ratios drop below specified
levels.
See also "Terms of Outstanding Indebtedness-Credit Agreement."
Risk to Continuing Operations if Covenants Not Met
The covenants under the BankBoston Facility will limit our operational and
financial flexibility and our ability to respond to changing retail conditions
and take advantage of attractive business opportunities. Should we be unable to
meet any of these covenants when required, it will be necessary to request
waivers and/or amendments of the facility from BankBoston. There can be no
assurance that the necessary waivers and/or amendments will be granted or that,
if granted, they will be on terms acceptable or favorable to us. Failure to
obtain such waivers and/or amendments could result in our obligations under the
BankBoston Facility being declared immediately due and payable, in which case
BankBoston could foreclose on the collateral securing the BankBoston Facility.
See "Terms of Outstanding Indebtedness-Credit Agreement."
Limitations on Future Growth
Our growth is subject to (i) our ability to maintain or further increase
revenues at existing stores, (ii) the availability of capital and new store
sites and (iii) the restrictions on capital expenditures set forth in the
BankBoston Facility, which prohibits annual capital expenditures in excess of
$20 million unless our earnings, as calculated before interest, taxes,
depreciation and amortization, are above $40 million annually and we do not
default under the BankBoston Facility. There can be no assurance that we will
be able to maintain or further increase revenues at current stores or that
sufficient capital will be available to us or, if available, that it will be
available on terms that we consider reasonable. Our inability or failure to
maintain or further increase such revenues or obtain such sufficient capital on
favorable terms could have a material adverse effect on our operations,
business or financial condition.
Our current plans are expected to require annual capital expenditures of
approximately $20 million, which are within the restrictions contained in the
BankBoston Facility. We are continually evaluating store locations and
operations to determine whether to close stores that do not meet our
performance objectives. Additionally, we may expand, downsize, relocate, or
remodel existing stores.
Further, numerous stores and our two distribution centers are in older
facilities. The foregoing limitations on capital expenditures could prevent us
from modernizing our distribution centers or remodeling our aging stores.
Liquidity
Although we have entered into the $270 million BankBoston Facility, we can
make no assurances that our cash and cash equivalents on hand and our cash
availability will be sufficient to meet our anticipated working capital needs
and capital expenditures in the future. To finance future expenditures, we may
need to issue additional securities and incur additional debt. We may not be
able to obtain additional required capital on satisfactory terms, if at all.
The failure to raise the funds necessary to finance future cash requirements
could materially and adversely affect our operating results in future periods.
We plan to sell our leasehold interest in our Yonkers, New York store. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
8
<PAGE>
Assets Pledged as Collateral under the BankBoston Facility and Vendor Lien
Agreement
Obligations under the BankBoston Facility are secured by liens on
substantially all of our non-real estate assets. If, after default, BankBoston
were to foreclose on the collateral securing the BankBoston Facility or if such
assets were liquidated, the proceeds of such assets would be applied to satisfy
our obligations under the BankBoston Facility. If this were to happen, it is
unlikely that the remaining unencumbered assets would be sufficient to allow
our equity holders to recover any significant amount. In addition, Bradlees
Stores, Inc. has entered into an agreement for the benefit of its trade vendors
which grants such trade vendors a subordinated security interest in Bradlees
Stores, Inc.'s inventory.
Post-Bankruptcy Risks
Recent Emergence from Chapter 11 Proceedings
We emerged from Chapter 11 proceedings on February 2, 1999. Our experience
in and recent emergence from Chapter 11 may affect our ability to negotiate
favorable trade terms with certain manufacturers and other vendors. The failure
to obtain such favorable terms could have a material adverse effect on our
operations, business or financial condition.
Fresh Start Reporting May Make Future Financial Statements Difficult to Compare
For accounting purposes, we plan to use the end of our fiscal year ended
January 30, 1999 as our emergence date. In accordance with AICPA Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"), we will adopt "Fresh-Start Reporting" and will
reflect the effects of such adoption on our Consolidated Balance Sheet as of
January 30, 1999. Accordingly, our Consolidated Balance Sheets after January
30, 1999 and our Consolidated Statements of Operations for periods after
January 30, 1999 will not be comparable in certain material respects to the
Consolidated Financial Statements for prior periods included elsewhere herein.
For example, the Consolidated Statement of Operations for fiscal 1998 will
include a gain relating to the debt discharged in the Chapter 11 proceedings.
Since our financial statements will not be comparable to our previous financial
statements in certain material respects, or the financial statements of our
competitors who have not adopted Fresh-Start Reporting, it may be more
difficult for third parties to accurately gauge our performance. This might
cause the price of our securities to fluctuate more than the prices of the
securities of our competitors.
Determination of Equity Value
The determination of equity value included in the unaudited pro forma
condensed consolidated financial statements and elsewhere in this Prospectus
was derived from an estimated enterprise value of the reorganized Bradlees and
reduced by estimated embedded debt levels. The enterprise value was developed
by an independent financial advisor for purposes of the filing of our
Disclosure Statement in the United States Bankruptcy Court for the Southern
District of New York in October 1998 (the "Disclosure Statement"). In
developing the determination of equity value, our financial advisor used
various assumptions and estimates, including projected embedded debt of
approximately $90 million which represents the ongoing revolver facility that
is estimated to remain after the seasonal cleanup of the facility. As a result,
the equity value was assumed to be in the range of $75 to $90 million. For
purposes of the Disclosure Statement and this Prospectus, we have determined
that an equity value of $85 million represents a reasonable estimate of
distributable equity value to the creditors. Subsequent to the filing of the
Disclosure Statement, a number of events have occurred which will impact the
determination of equity value, including but not limited to, the initial
trading prices of our stock (on a "when issued" basis), information regarding
our fourth quarter performance, a settlement with a landlord regarding the
disposition of a leasehold interest and the current liquidation of Caldor, a
major competitor. The weighted average price per share of our "when issued"
shares from the Effective Date through February 12, 1999 indicates an equity
value of approximately $52 million (based on 10,225,711 shares outstanding),
although there has been only limited trading during this period.
9
<PAGE>
In finalizing our fresh start reporting requirements, we are required to
perform a final appraisal of the book value of our equity which will take into
account the above matters and other pertinent events, and will result in a
change to the determination of equity value reflected in the unaudited pro
forma financial information. Accordingly, this equity value does not purport to
be an estimate of current or future trading prices of securities and actual
market prices of such securities after issuance will depend on various factors
not possible to predict with certainty.
Tax Consequences of the Plan of Reorganization; Potential Loss of Certain Tax
Attributes
As a result of the implementation of the Plan of Reorganization, we will (i)
undergo an "ownership change" (generally, a greater than 50 percentage point
change in ownership) for purposes of section 382 of the Internal Revenue Code
of 1986, as amended (the "Code"), and (ii) realize cancellation of indebtedness
income ("COI") from the cancellation of certain indebtedness in exchange for
Common Stock, 9% Convertible Notes and warrants to purchase shares of Common
Stock. Because such ownership change and cancellation of indebtedness arose in
a bankruptcy proceeding under Chapter 11, we avoided some of the adverse
Federal income tax consequences generally associated with such changes (e.g.
the COI realized will not be included in income). Nevertheless, we expect that
our ability to offset future taxable income with net operating loss
carryforwards ("NOLs"), as well as certain built-in losses and tax credits,
will be limited and that certain of our tax attributes, including NOLs, will be
reduced (but not eliminated). In addition, the sale of the Common Stock by the
Selling Securityholders under this Prospectus, as well as the exercise of the
warrants, may cause us to undergo another "ownership change" under Section 382
of the Code and, accordingly, may further limit our NOLs and certain built-in
losses and tax credits to income.
Risks Related to the Securities
Limited Market for Common Stock and Notes
Prior to our emergence from bankruptcy, the stock of the pre-reorganization
company ("Old Bradlees") traded on the New York Stock Exchange. In October of
1997, the New York Stock Exchange delisted the stock of Old Bradlees. The
Common Stock being offered hereby is listed on The Nasdaq National Market. The
Notes being offered hereby are not listed on any securities exchange. There can
be no assurance that a market will develop for the Securities, or that if a
market does develop, that the market will have sufficient liquidity so as not
to impact the price of the Securities.
In addition, pursuant to our Plan of Reorganization, Shares of Common Stock
and Warrants to purchase Common Stock will be issued to certain of our
creditors. Some of these creditors may prefer to sell their Common Stock and/or
Warrants, rather than to hold them on a long-term basis. The Shares, Notes and
Warrants issued in the reorganization to creditors other than the Selling
Securityholders will generally be freely tradeable as a result of an exemption
from registration provided by the Bankruptcy Code. Accordingly, it is
anticipated that the market for our Common Stock, to the extent one exists,
will be volatile and the availability for unrestricted sale of such a large
number of shares of Common Stock may have the effect of depressing the market
price of the Common Stock.
Restrictions on Common Stock Dividends
Old Bradlees did not declare or pay cash dividends on its common stock ("Old
Common Stock") or any other equity security while in Chapter 11, and we do not
anticipate paying cash dividends on the Common Stock offered hereby or any
other equity security in the foreseeable future. The BankBoston Facility
specifically prohibits the payment of any type of dividends on the Common
Stock. See "Terms of Outstanding Indebtedness-Credit Agreement."
10
<PAGE>
Future Stock Issuances Can Dilute Current Owners
As part of the Plan of Reorganization, we have issued Warrants to purchase
1,000,000 shares of Common Stock at $7.00 per share. Pursuant to the Plan of
Reorganization, we have also agreed to issue options to purchase 750,000 shares
of our Common Stock at an exercise price per share which is the lowest 10-day
rolling average of the closing prices of our Common Stock within the period
between 60 and 90 days after the Effective Date (April 3, 1999 to May 3, 1999).
These options will be issued when their exercise price is determined. Further,
we can also issue additional securities (including under our stock option plan)
in the future. When we sell a new security, the purchaser of that security is
entitled to a proportionate share of the aggregate rights of the holders of
that class of security. Thus, it is possible that the value we receive on the
sale of a new security will be less than the proportionate value attributable
to the existing holders of that security. Since all holders of the same
security share proportionately the rights of the security, the pre-existing
security holders will receive less value after the new security is issued than
if we had not issued the new security.
The Guarantors Do Not Have Significant Separate Assets
Bradlees, Inc., which owns all of the outstanding capital stock of Bradlees
Stores, Inc., will fully and unconditionally guarantee the 9% Convertible
Notes. Substantially all of the assets of the Companies, on a consolidated
basis, are held by Bradlees Stores, Inc. New Horizons of Yonkers, Inc. will
also guarantee the 9% Convertible Notes. New Horizons of Yonkers, Inc. holds
the leasehold interest in our Yonkers, New York store. New Horizons of Yonkers,
Inc. is still in Chapter 11. The guarantee by Bradlees, Inc. is expressly
subordinated to the guarantee by Bradlees, Inc. of the BankBoston Facility, and
the guarantee by New Horizons of Yonkers, Inc. is expressly subordinated to the
guarantee by New Horizons of Yonkers, Inc. of the BankBoston Facility.
Fraudulent Conveyance Matters--Federal and state statutes allow courts, under
specific circumstances, to void guarantees and require note holders to return
payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of
a guarantee could be subordinated to all other debts of that guarantor under
certain circumstances. In addition, any payment by that guarantor pursuant to
its guarantee could be voided and required to be returned to the guarantor, or
to a fund for the benefit of the creditors of the guarantor.
Miscellaneous Business Risks
Dependence on Key Personnel
Our future success is largely dependent on the talents and efforts of Peter
Thorner, our Chief Executive Officer and Chairman of the Board, and other
members of senior management. We entered into an employment agreement with Mr.
Thorner in 1995, but do not maintain a key person life insurance policy on the
life of Mr. Thorner. The loss of Mr. Thorner or other members of our senior
management could have a material adverse effect on our operations, business and
financial condition. See "Management--Employment Agreement with Peter Thorner."
Potential Year 2000 Liability
We have determined that we must modify portions of our software so that our
computer systems will properly recognize and use dates beyond December 31,
1999. We believe we can mitigate the impact of the Year 2000 disruption by
upgrading or modifying existing software and, in certain instances, converting
to new software. However, if the Year 2000 upgrades, modifications and
conversions are not made, or are not made in a timely manner, the Year 2000
issue could have a material impact on our operations.
We are using both internal and external resources to remediate, replace and
test software for Year 2000 compliance. We have entered into a contract with a
major outside consulting firm to provide the majority of the
11
<PAGE>
resources necessary to identify, and then replace or remediate, our affected
systems. We intend to complete our Year 2000 project no later than the
beginning of the fourth quarter of fiscal 1999, but currently expect to
substantially complete the conversion by the second quarter of fiscal 1999. At
this time, we expect the cost of the Year 2000 project to be approximately $3
to $4 million, the majority of which is being incurred in 1998 and included in
SG&A expenses. Through October 31, 1998, we have incurred $1.9 million for such
expense.
The remaining major systems to be remediated or replaced are the Company's
merchandise planning system (approximately 50% remediated) and store host
systems (approximately 30% remediated) expected to be completed by the end of
the first quarter of 1999, and the warehouse management system that is
scheduled to be replaced by the end of the second quarter of 1999. A test of
all systems, including store support and facility systems, for proper Year 2000
compliance is planned for the end of the second quarter of 1999.
We are in the process of developing contingency plans in the event that such
replacement or remediation is not fully completed in a timely manner. We have
calculated the costs of the Year 2000 project and predicted the dates on which
we plan to complete the Year 2000 modifications using our best estimates, which
required using a number of assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, we can not guarantee that we will achieve the predicted
estimates and our actual results could differ materially from those plans.
We are also attempting to obtain representations and assurances from our
third party providers of services and goods, including vendors of software
products, that their software is or will be Year 2000 compliant on a timely
basis. However, because certain of our processes may be interrelated with, or
dependent upon, systems outside our control, we can give no assurances that the
implementation of our Year 2000 project will be successful.
Change of Control not Restricted
Our Plan of Reorganization prohibits us from having anti-takeover measures
in our Articles of Organization and By-Laws. Numerous studies have shown that
the presence of such anti-takeover provisions in a corporation's organizational
documents has the result of increasing shareholder value in any attempted take-
over. If we do not subsequently amend these documents to include such
provisions, it is possible that our Board of Directors will be limited in its
ability to respond to any potential takeover, thus reducing the ability of the
Board to obtain maximum value for shareholders in a takeover.
Board of Directors May Change
Our current Board of Directors consists of 3 representatives chosen by us
and 6 representatives chosen by creditors in our Chapter 11 proceeding. It is
likely that the composition of our Board will change in the future as current
members resign, decline to stand for re-election, or are not re-elected. This
turnover in our directors may be more likely than it is for other companies
because it is likely that one or more of our creditor constituencies (which
some of our directors represent) will dispose of their ownership interests. The
changing composition of our Board might result in changing corporate policies.
12
<PAGE>
THE COMPANY
General
Bradlees, Inc. ("Bradlees") and its subsidiary companies operate 103
discount department stores as of February 1, 1999, in seven states in the
Northeast, through Bradlees, Inc.'s subsidiary, Bradlees Stores, Inc.
(collectively, the "Company") primarily in the heavily populated corridor
running from the Boston to the Philadelphia metropolitan areas. One store is
planned to be closed in March, 1999 and two other stores are expected to begin
closing in fiscal 1999. Headquartered in Braintree, Massachusetts, the Company
and its predecessor have been active in the discount department store business
for 40 years.
Background to Our Bankruptcy Reorganization
Events Leading to the Chapter 11 Filing. During the early 1990's, Old
Bradlees' business strategy relied heavily on opening new stores, remodeling
existing locations and competing on the basis of price. From 1992 to January,
1995, we opened 15 new stores (10 in 1994) and remodeled 41 stores at a total
capital cost of $182 million. The new stores were generally larger stores with
rents that substantially exceeded the chain average rent per square foot. Some
of the new stores were also multilevel facilities which further increased their
operating costs when compared with other prototypical Bradlees stores. The
store expansion and remodeling program marginally increased sales while gross
margins declined and operating expenses increased. Old Bradlees' declining
operating performance, coupled with the aggressive expansion program, began to
erode our liquidity. Old Bradlees' liquidity further eroded in May and June,
1995 because of the unwillingness of factors and vendors to continue to extend
trade credit. Old Bradlees, unable to obtain sufficient financing to satisfy
factor and vendor concerns, was compelled to seek Bankruptcy Court protection
on June 23, 1995.
The Chapter 11 Filing. Old Bradlees, and each of its subsidiaries filed
petitions for relief under Chapter 11 of the United States Bankruptcy Code on
June 23, 1995. Once in bankruptcy, we filed an initial plan of reorganization
and related disclosure statement with the United States Bankruptcy Court for
the Southern District of New York (the "Bankruptcy Court") on April 13, 1998
and filed an Amended Plan of Reorganization and related disclosure statement
with the Bankruptcy Court on October 2, 1998. Our Plan of Reorganization was
originally confirmed by the Bankruptcy Court on November 18, 1998. The United
States District Court for the Southern District of New York reversed this
confirmation on December 23, 1998. We modified the Plan of Reorganization, and
the modified Plan of Reorganization was confirmed by the Bankruptcy Court on
January 27, 1999. The modified Plan of Reorganization became effective on
February 2, 1999 (the "Plan of Reorganization"). The Chapter 11 reorganization
process and our Plan of Reorganization are discussed below.
The Plan of Reorganization
The following chart shows the organization of Old Bradlees and the
organization of the Company following its reorganization.
13
<PAGE>
CORPORATE STRUCTURE PRIOR TO THE REORGANIZATION CHART APPEARS HERE
CORPORATE STRUCTURE AFTER THE REORGANIZATION CHART APPEARS HERE
14
<PAGE>
The following discussion provides general background information regarding
the Chapter 11 process, but is not intended to be an exhaustive summary.
Chapter 11 Reorganization under the Bankruptcy Code. After we entered
Chapter 11, Section 362 of the Bankruptcy Code did not allow our creditors and
other parties in interest to take certain actions without Bankruptcy Court
approval. Among other things, they were not allowed to:
. Commence or continue a judicial, administrative or other proceeding
against us a) which was or could have been commenced prior to
commencement of the Chapter 11 proceeding, or b) to recover a claim
that arose prior to commencement of the case;
. Enforce any judgments against us that existed prior to our entry into
bankruptcy;
. Take any action to obtain possession of our property or to exercise
control over our property or our estates;
. Create, perfect or enforce any lien against our property;
. Collect, assess or recover claims against us that arose before the
commencement of the case; or
. Offset any debt owing to us that arose prior to the commencement of
the case against a claim of such creditor or party-in-interest against
us that arose before the commencement of the case.
Although we were authorized to operate our business as a debtor-in-
possession, we were not permitted to engage in transactions outside the
ordinary course of business without first complying with the notice and hearing
provisions of the Bankruptcy Code, and if necessary, obtaining Bankruptcy Court
approval. An official unsecured creditors' committee was formed by the United
States Trustee. This committee and various other parties in interest, including
creditors holding claims, such as the pre-petition bank group, had the right to
appear and be heard by the Bankruptcy Court on our applications relating to
certain business transactions. We were required to pay certain expenses of the
committee, including legal and accounting fees, to the extent allowed by the
Bankruptcy Court. In addition, upon the approval of the Bankruptcy Court, we
made monthly adequate protection payments of $300,000 to those creditors in the
pre-petition bank group, for an aggregate total payment of $13,300,000 as of
the Effective Date.
Plan of Reorganization - Procedures. A debtor-in-possession has the
exclusive right to propose and file with the Bankruptcy Court a plan of
reorganization for a period of time which can be extended by the Bankruptcy
Court.
Given the seasonality and magnitude of our operations, our change in
business strategies, and the number of interested parties possessing claims
that had to be resolved in this Chapter 11 case, the plan formulation process
was complex. Accordingly, we obtained additional extensions of the exclusivity
period to August 3, 1998. The Bankruptcy Court approved the disclosure
statement on October 5, 1998 and confirmed the modified Plan of Reorganization
on January 27, 1999.
Our Plan of Reorganization contained distributable value (as of the
Effective Date) to creditors of approximately $163 million, which consists of:
. Approximately $16 million of administrative claim payments;
. $14 million in cash to the bank group and the unsecured creditors;
. A $40 million note primarily payable to our pre-Chapter 11 bank group,
which is anticipated to be primarily paid down through proceeds of
sale of our leasehold interest in our Yonkers, New York store and the
modification of the lease terms of our Union Square, New York store;
15
<PAGE>
. New Bradlees' Common Stock with an estimated value as of the Effective
Date of $85 million. The Old Bradlees Common Stock was canceled; and
. Certain notes totalling $6.2 million and other distributions totalling
$1.4 million.
The Plan of Reorganization became effective February 2, 1999 (the "Effective
Date"). Pursuant to the Plan of Reorganization, after giving effect to various
elections made by various creditors, the following occurred on the Effective
Date:
. Although creditors can dispute the disallowance of claims after the
Effective Date, the claims of creditors are estimated to be allowed in
the aggregate amount of approximately $265 million. The holders of
these claims are expected to receive:
. $30.6 million in cash;
. 9% Convertible Notes in an original aggregate principal amount
equal to $40.0 million;
. 10,225,711 shares of our Common Stock;
. warrants to purchase 1,000,000 shares of our Common Stock at a
price of $7.00 per share (which warrants expire on February 2,
2004);
. 9% CAP Notes in an original aggregate principal amount of
$547,094;
. 9% Cure Notes in an original aggregate principal amount of $3.3
million; and
. 9% Tax Notes in an original aggregate principal amount of $2.4
million.
. The interests of all stockholders holding stock in Old Bradlees were
terminated, and the stock of Old Bradlees was canceled.
. All outstanding bonds, notes, indentures and like instruments were
canceled.
. Approximately $250 million in debtor-in-possession financing was paid
in full.
. We entered into the BankBoston Facility, which provides for a secured
revolving line of credit of $270 million with a maximum term of up to
3 years. See "Business -- Credit Facility."
. One of our subsidiaries, New Horizons of Yonkers, Inc., remained in
Chapter 11. All of the operations of the Yonkers store remained with
Bradlees Stores, Inc.
. We merged Bradlees Administrative Co., Inc. into Bradlees, Inc. We
also merged all of the subsidiaries of Bradlees Stores, Inc., with the
exception of New Horizons of Yonkers, Inc., into Bradlees Stores, Inc.
. The tenure of the Board of Directors of Bradlees, Inc. terminated on
the Effective Date. The following became new members of the Board of
Bradlees, Inc. as of the Effective Date:
. We selected three members (Messrs. Thorner, Lynn, and Friedman);
. The Bank Group selected two members (Messrs. Altschuler and
Lieberman);
. The Unofficial Committee selected one member (Mr. MacDonald);
. The Creditors Committee selected one member (Mr. Clingman); and
. The Bank Group, the Unofficial Committee and the Creditors
Committee, acting together, selected two members (Messrs. Blauner
and Roth).
See "Management--Board of Directors of Bradlees, Inc. and Its
Committees."
. We paid an aggregate emergence bonus of $1,000,000 and entered into an
agreement to pay additional bonuses of $2,000,000 if certain
conditions are met. We also paid deferred bonuses of $1,000,000
to certain executives. See "Executive Compensation -- Management
Emergence Bonus Plan, Corporate Bonus Plan, and Enterprise
Appreciation Incentive Plan."
16
<PAGE>
. We determined to grant, on or about May 3, 1999, options to purchase
an aggregate of 750,000 shares of Common Stock to certain members of
our management. See "Management--Stock Option Plan for Key Employees."
. We registered the resale of the Common Stock, the 9% Convertible
Notes, the Common Stock issuable upon the Conversion of the Notes and
the Common Stock issuable upon exercise of the Warrants, each as
received by certain parties, directly or indirectly as a result of
their ownership of participation interests in claims resulting in the
issuance of such securities with the Securities and Exchange
Commission under the Securities Act of 1933.
. The Plan of Reorganization also provided for many other matters,
including satisfaction of numerous other claims, satisfaction of
certain other claims in accordance with negotiated settlement
agreements and an agreement to keep in place certain retirement and
employment agreements.
The foregoing is a summary of the material terms of the Plan of
Reorganization. A complete copy of the Plan of Reorganization has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
17
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of Securities by the Selling
Stockholders.
DIVIDEND POLICY
We do not anticipate paying cash dividends in the foreseeable future. We
expect that we will retain all available earnings generated by our operations
for the development and growth of our business. Any future determination as to
the payment of dividends will be made at the discretion of the Board of
Directors and will depend upon our operating results, financial condition,
capital requirements, general business conditions and such other factors as the
Board of Directors deems relevant. Certain financing agreements, including the
BankBoston Facility, restrict our ability to pay cash dividends on the Common
Stock and make certain other restricted payments (as defined therein).
Specifically, under the terms of the BankBoston Facility, we have agreed not to
pay dividends of any kind. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
18
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at October 31, 1998, and as adjusted to give pro forma effect to the
consummation of the Plan of Reorganization at that date. The presentation does
not purport to represent what the Company's actual capitalization would have
been had such transactions in fact been consummated on such date. The table
should be read in conjunction with the Company's financial statements and the
related notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Unaudited Pro Forma Condensed
Consolidated Financial Information" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
October 31, 1998
--------------------
Pro
Historical Forma
---------- --------
(in thousands)
<S> <C> <C>
Long-term debt, including current maturities:
Liabilities subject to settlement under the
reorganization case................................... $ 548,788 $ - (1)
DIP facility/BankBoston Facility....................... 157,392 161,511
Notes payable.......................................... - 35,239 (2)
Capital lease obligations.............................. 27,249 26,928
--------- --------
Total long-term debt, including current maturities.... 733,429 223,678
Stockholders' equity (deficiency)(3):
Common stock........................................... 115 102 (2)
Additional paid in capital............................. 137,821 84,898 (2)
Accumulated deficit.................................... (457,665) -
Treasury stock, at cost................................ (803) -
--------- --------
Total stockholders' equity (deficiency)................. (320,532) 85,000 (4)
--------- --------
Total capitalization.................................... $ 412,897 $308,678
========= ========
</TABLE>
- --------
(1) Reflects cancellation of liabilities at the Effective Date.
(2) Reflects issuance of $40 million of 9% Convertible Notes less $11 million
repayment from the Union Square proceeds, and certain other long-term debt
and estimated equity value of the new Common Stock and Warrants issued in
connection with settlement of claims.
(3) Excludes 1,000,000 shares of Common Stock reserved for issuance upon
exercise of the Warrants and 750,000 shares of Common Stock reserved for
issuance upon exercise of options we have agreed to grant. The Warrants
will be valued along with the Common Stock after the Effective Date and
the total equity value may be modified as a result.
(4) See "Risk Factors--Post Bankruptcy Risks--Determination of Equity Value."
19
<PAGE>
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the end of, each of
the years in the five-year period ended January 31, 1998, are derived from the
consolidated financial statements of the Company, which consolidated financial
statements have been audited by Arthur Andersen LLP (fiscal year 1997) or
Deloitte & Touche LLP (pre-fiscal year 1997), independent certified public
accountants. The consolidated financial statements as of January 31, 1998 and
February 1, 1997, and for each of the years in the three-year period ended
January 31, 1998, and the independent auditors' reports thereon, are included
elsewhere in this Prospectus. Fiscal year 1994 refers to the 52 weeks ended
January 28, 1995 and fiscal year 1993 refers to the 52 weeks ended January 29,
1994. Certain reclassifications have been made to the operating expenses and
operating income of fiscal years 1994 and 1993 to conform to the current
presentation.
The selected data should be read in conjunction with the consolidated
financial statements for the three-year period ended January 31, 1998, the
related notes and the independent auditors' reports, which contain explanatory
paragraphs for fiscal years 1995-1997 relating to the Company's filing for
reorganization under Chapter 11 and raise substantial doubt about its ability
to continue as a going concern, appearing elsewhere in this Prospectus. The
consolidated financial statements and the selected data do not include any
adjustments that might result from the outcome of these uncertainties. As a
result of the Company filing a voluntary petition to reorganize under Chapter
11 on June 23, 1995 and operating as a debtor-in-possession thereafter, the
selected financial data for periods prior to June 23, 1995 are not comparable
in certain material respects to periods subsequent to such date. The selected
data presented below for the thirty-nine week periods ended October 31, 1998
and November 1, 1997 and as of October 31, 1998 and November 1, 1997 are
derived from the unaudited condensed consolidated financial statements of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Unaudited
39 Weeks Ended Fiscal Year
----------------------- ----------------------------------------------------------
October 31, November 1,
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $ 906,385 $ 895,220 $1,344,444 $1,561,718 $1,780,768 $1,916,555 $1,880,511
Gross margin........... 271,002 269,699 396,357 434,067 491,691 591,160 603,504
Operating expenses(a)... 296,180 308,666 401,578 530,757 612,102 549,154 544,386
Operating income
(loss)................. (25,178) (38,967) (5,221) (96,690) (120,411) 42,006 59,118
Income (loss) before
income taxes and
extraordinary items.... (34,583) (48,480) (22,557) (218,759) (311,946) 10,011 26,069
Income tax benefit
(expense).............. - - - - 104,533 (4,205) (12,619)
Income (loss) before
extraordinary items and
cumulative effect of
accounting changes..... (34,583) (48,480) (22,557) (218,759) (207,413) 5,806 13,450
Extraordinary items(b).. - - - - - - (5,200)
Cumulative effect of ac-
counting changes(c).... - - - - - (485) (1,475)
Net income (loss)....... $ (34,583) $ (48,480) $ (22,557) $ (218,759) $ (207,413) $ 5,321 $ 6,775
Income (loss) per share:
Basic and diluted...... $ (3.06) $ (4.26) $ (1.98) $ (19.17) $ (18.17) $ .47 $ .60
Shares used for
computation............ 11,311 11,382 11,365 11,412 11,416 11,353 11,273
Ratio of earnings to
fixed charges(d)....... - - - - - 1.31 1.81
Balance Sheet Data:
Working capital(e)...... $ 10,836 $ 19,530 $ 46,151 $ 68,649 $ 200,195 $ 32,874 $ 88,623
Total assets............ 661,410 700,007 595,166 604,200 798,662 884,814 785,845
Long-term debt, less
current maturities(e).. 26,211 32,738 27,073 33,296 53,396 289,643 269,798
Total stockholders' eq-
uity (deficiency)...... $(320,532) $(311,705) $ (285,950) $ (263,293) $ (45,010) $ 163,432 $ 163,680
</TABLE>
- --------
(a) Net of other income.
(b) The extraordinary item in fiscal year 1993 resulted from the refinancing of
a credit agreement and the associated write-off of unamortized deferred
financing costs.
20
<PAGE>
(c) The fiscal year 1994 charge for the cumulative effect of accounting changes
resulted from the adoption of Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits," and the
fiscal year 1993 charge resulted from a change in the method of discounting
accrued workers' compensation and general liability claims.
(d) For the periods presented since fiscal year 1994, earnings were
insufficient to cover fixed charges by the amounts of the respective loss
before income taxes. For purposes of computing the ratio of earnings to
fixed charges, "earnings" consist of income (loss) before taxes and
extraordinary items plus fixed charges less capitalized interest. "Fixed
charges" consist of interest expense, including amortization of debt
issuance cost, capitalized interest and a portion of rent expense which is
deemed to be representative of an interest factor.
(e) Excludes liabilities subject to settlement under the reorganization case
after the Chapter 11 filing.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet and
unaudited pro forma condensed consolidated statements of operations are based
on the statements of Bradlees included elsewhere in this Prospectus as adjusted
to give effect to the consummation of the Plan of Reorganization. The unaudited
pro forma condensed consolidated statements of operations have been prepared as
if the Effective Date of the Plan of Reorganization had occurred on February 1,
1997. The unaudited pro forma condensed consolidated balance sheet has been
prepared assuming the Effective Date of the Plan of Reorganization had occurred
on October 31, 1998.
The unaudited pro forma condensed consolidated financial information and
accompanying notes should be read in conjunction with the Company's financial
statements and the notes thereto appearing elsewhere in this Prospectus. The
Unaudited Pro Forma Condensed Consolidated Financial Information is presented
for informational purposes only and does not purport to represent what the
Company's financial position or results of operations would actually have been
if the Effective Date of the Plan of Reorganization had occurred on such date
or at the beginning of the period indicated, or to project the Company's
financial position or results of operations at any future date or for any
future period.
22
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Unrestricted cash and
cash equivalents...... $ 10,959 $ 11,000(2) $ 11,005(2) $ 10,954
Restricted cash and
cash equivalents...... 25,129 - 25,129(2) -
-------- ---------- ----------- --------
Total cash and cash
equivalents.......... 36,088 11,000 36,134 10,954
-------- ---------- ----------- --------
Accounts receivable.... 11,925 - - 11,925
Inventories............ 318,883 - 1,000(3h) 317,883
Prepaid expenses....... 11,031 - - 11,031
-------- ---------- ----------- --------
Total current assets.. 377,927 11,000 37,134 351,793
-------- ---------- ----------- --------
Property, plant and
equipment, net:
Property excluding
capital leases, net... 123,892 - 9,900(2) 111,792
2,200(3j)
Property under capital
leases, net........... 17,732 9,196(3b) 5,406(3j) 21,522
-------- ---------- ----------- --------
Total property, plant
and equipment, net... 141,624 9,196 17,506 133,314
-------- ---------- ----------- --------
Other assets:
Lease interests at fair
value, net............ 137,350 - 59,530(3j) 77,820
Assets held for sale... - 3,400(2) - 14,000
10,600(3d)
Other, net............. 4,509 2,575(2) 1,222(3g) 4,598
1,264(3i)
Reorganization value in
excess of revalued
assets................ - 14,477(3k) - 14,477
-------- ---------- ----------- --------
Total other assets.... 141,859 31,052 62,016 110,895
-------- ---------- ----------- --------
Total assets.......... $661,410 $ 51,248 $ 116,656 $596,002
======== ========== =========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
23
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable....... $ 179,413 $ - $ - $179,413
Accrued expenses....... 23,221 2,000(2) 2,000(1) 20,746
2,475(3c)
Self-insurance
reserves.............. 6,027 - - 6,027
Short-term debt........ 157,392 - 4,119(2) 161,511
Current portion of
notes and capital
lease obligations..... 1,038 - 567(2) 1,605
--------- ---------- ---------- --------
Total current
liabilities.......... 367,091 4,475 6,686 369,302
--------- ---------- ---------- --------
Long-term liabilities:
Obligations under
capital leases........ 26,211 321(3b) - 25,890
Convertible notes
payable............... - 11,005(2) 40,000(2) 28,995
Deferred income taxes.. 8,581 8,581(3h) - -
Self-insurance
reserves.............. 12,237 - - 12,237
Unfavorable lease
liability............. - - 45,573(3j) 45,573
Other long-term
liabilities........... 19,034 - 2,000(1) 29,005
5,677(2)
2,294(3f)
--------- ---------- ---------- --------
Total long-term
liabilities.......... 66,063 19,907 95,544 141,700
--------- ---------- ---------- --------
Liabilities subject to
settlement under the
reorganization case.... 548,788 548,788(2) - -
Stockholders' equity
(deficiency):
Common stock
Par value............. 115 115(3a) 102(2) 102
Additional paid-in-
capital.............. 137,821 137,821(3a) 84,898(2) 84,898
Accumulated deficit.... (457,665) 4,000(1) 393,463(2) -
68,202(3)
Treasury stock, at
cost.................. (803) - 803(3a) -
--------- ---------- ---------- --------
Total stockholders'
equity (deficiency).. (320,532) 141,936 547,468 85,000
--------- ---------- ---------- --------
Total liabilities and
stockholders' equity
(deficiency)......... $ 661,410 $ 715,106 $ 649,698 $596,002
========= ========== ========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
24
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
39 Weeks 39 Weeks
Ended Pro Forma Adjustments Ended
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Total sales............. $939,203 3,381(1) - $935,822
Leased department
sales.................. 32,818 70(1) - 32,748
-------- --------
Net sales............... 906,385 903,074
Cost of goods sold...... 635,383 - 2,472(1) 632,911
-------- --------
Gross margin............ 271,002 270,163
Leased department and
other operating in-
come................... 8,757 25(1) - 8,732
-------- --------
279,759 278,895
Selling, store
operating,
administrative and
distribution expenses.. 280,326 2,967(3) 631(1) 278,498
1,021(6) 5,773(7)
724(10) 136(11)
Depreciation and amorti-
zation expense......... 24,370 - 3(1) 12,761
5,103(3)
2,253(5)
469(6)
3,781(9)
Loss on disposition of
properties............. 241 241
Interest and debt ex-
pense.................. 11,960 869(4) 1,215(4) 21,189
9,575(8)
Reorganization items.... (2,555) 2,555(2) - -
-------- --------
Net loss................ $(34,583) $(33,794)
======== ========
Comprehensive loss...... $(34,583) $(33,794)
======== ========
Net loss per share - ba-
sic and diluted........ $ (3.06) $ (3.30)(12)
======== ========
Weighted average shares
outstanding (in
thousands) - basis and
diluted................ 11,311 10,226
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
25
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
52 Weeks 52 Weeks
Ended Pro Forma Adjustments Ended
Jan. 31, 1998 Debits Credits Jan. 31, 1998
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Total sales............. $1,392,250 $ 51,267(1) - $1,340,983
Leased sales............ 47,806 1,571(1) - 46,235
---------- ----------
Net sales............... 1,344,444 1,294,748
Cost of goods sold...... 948,087 - 35,343(1) 910,291
2,453(2)
---------- ----------
Gross margin............ 396,357 384,457
Leased department and
other operating
income................. 12,151 389(1) - 11,762
---------- ----------
408,508 396,219
Selling, store
operating,
administrative and
distribution expenses.. 382,910 3,957(4) 14,617(1) 370,556
1,361(7) 7,697(8)
4,879(11) 237(12)
Depreciation and
amortization expense... 36,244 187(1) 19,912
7,464(4)
3,004(6)
636(7)
5,041(10)
Gain on disposition of
properties............. (5,425) (5,425)
Interest and debt
expense................ 16,584 15,510(9) 3,751(5) 29,701
1,358(5)
Reorganization items.... 752 - 752(3) -
---------- ----------
Loss before income
taxes.................. (22,557) (18,525)
Income taxes............ - -
---------- ----------
Net loss................ $ (22,557) $ (18,525)
========== ==========
Net loss per share -
basic and diluted..... $ (1.98) $ (1.81)(13)
========== ==========
Weighted average shares
outstanding (in
thousands) - basic and
diluted................ 11,365 10,226
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
26
<PAGE>
BRADLEES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following notes set forth the explanations and assumptions used and
adjustments made in preparing the unaudited pro forma condensed consolidated
balance sheet as of October 31, 1998, and the unaudited pro forma condensed
consolidated statements of operations for the 52 weeks ended January 31, 1998
and for the 39 weeks ended October 31, 1998.
The unaudited pro forma condensed consolidated financial statements reflect
the adjustments described under "Pro Forma Adjustments" below, which are based
on the assumptions and preliminary estimates described therein, which are
subject to change. These statements do not purport to be indicative of the
financial position and results of operations of Bradlees as of such dates or
for such periods, nor are they indicative of future results. Furthermore, these
unaudited pro forma condensed consolidated financial statements do not reflect
anticipated changes which may occur as the result of activities before and
after the Effective Date of the Plan of Reorganization and other matters. (For
the purposes of the unaudited pro forma condensed consolidated financial
statements, the "Effective Date" is assumed to be October 31, 1998 for the
unaudited pro forma condensed consolidated balance sheet, and February 1, 1997
for the unaudited pro forma condensed consolidated statements of operations.)
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
included elsewhere in this Prospectus.
Pro Forma Adjustments
The unaudited pro forma condensed consolidated balance sheet and unaudited
pro forma condensed consolidated statements of operations reflect the following
pro forma adjustments based on the assumptions described below:
October 31, 1998 Balance Sheet Pro Forma Adjustments
1. Reserves established prior to emergence for emergence-related and
performance bonuses payable on the Effective Date or subsequent to
the Effective Date.
2. Plan consummation distributions that include, among other things, an
estimated equity value of $85.0 million, $14.0 million in cash
distributions, and 9% Convertible Notes totaling $40.0 million. In
connection with the consummation of the Plan, we will receive $11
million in cash for the modification to the Union Square lease and
immediately pay down the 9% Convertible Notes. The reduction of $9.9
million in property, plant and equipment, net, includes a write-off
of $6.5 million for the Union Square store and a reclassification of
$3.4 million to assets held for sale for one store lease that is
expected to be sold to help fund the further paydown of the 9%
Convertible Notes.
The payment of $25.1 million out of restricted funds and $4.1
million out of revolver borrowings is for certain settlements due
under the POR and for financing costs of $2.6 million associated
with the post-emergence revolver. The total payment, including
approximately $4.5 million to be paid for professional fees
subsequent to emergence, is expected to be $33.7 million in order to
fund all administrative and convenience claims, including the
bonuses due at consummation and the exit financing costs.
3. Fresh-start accounting adjustments that reflect the estimated
adjustments necessary to adopt fresh-start reporting in accordance
with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code". Fresh-start reporting
requires that the reorganization value of Bradlees be allocated to
Bradlees' assets in conformity with APB Opinion 16, "Business
Combinations", for transactions reported on the basis of the
purchase method. Any portion of the assigned reorganization value
exceeding the revalued net assets is recorded as a long-term asset,
while any portion of the assigned reorganization value that falls
below the revalued net assets, which may occur when fresh-start
reporting is adopted as of
27
<PAGE>
January 30, 1999, will be assigned to reduce long-term assets on a pro
rata basis. The calculation of the preliminary and estimated new
equity value is discussed in detail in Section Three (Subsection XIII)
of the Disclosure Statement filed as an exhibit to this Registration
Statement. See also "Risk Factors--Post Bankruptcy Risks--
Determination of Equity Value."
The fresh-start accounting adjustments are summarized as follows:
a. Cancellation of the old common stock pursuant to the Plan and
close-out to retained earnings.
b. A revaluation of all capital lease obligations and related
capital lease assets using our estimated October 31, 1998
borrowing rate (12%) for similar financings.
c. Revaluation of the straight-line rent reserve ($2.5 million).
Straight-line rent is recalculated on a going-forward basis by
the reorganized Bradlees.
d. Revaluation of the store lease held for sale to an estimated
total net realizable value of $14 million.
e. Restatement of LIFO merchandise inventories to estimated fair
value approximates FIFO cost. Inventories valued at FIFO cost
then become the base year layer for LIFO inventories in the
post-consummation financial reporting period. No LIFO adjustment
is expected.
f. Recording of additional pension plan liability (primarily from
the reduction of the discount rate) of $4.3 million (excluding
the impact from the fourth quarter non-union pension freeze--
Note 8 to the October 31, 1998 Form 10-Q) and additional
Supplemental Executive Retirement Plan (the "SERP") liability of
$1.4 million, reduced by the write-off of the unrecognized FAS
No. 106 prior service costs of $3.4 million.
g. Revaluation of the intangible SERP asset ($1.2 million) to its
estimated net realizable value.
h. Write-off ($8.6 million) of deferred income taxes (due to a
change in the status of timing differences) and a $1.0 million
reduction to reflect inventory at its estimated net realizable
value.
i. Write-off of the unamortized deferred financing charges ($1.3
million) associated with the terminated Debtor-in-Possession
(DIP) bank facility which will be amortized prior to emergence.
j. Revaluation of fixed assets and leasehold interests based upon
the estimated fair market value of properties and leases while
considering the current markets in which Bradlees has locations.
This revaluation resulted in, among other things, the recording
of a write-down of $59.5 million in favorable lease interests
and an unfavorable lease liability of $45.6 million for certain
locations. The remaining favorable lease interests and the
unfavorable lease liability will both be amortized to rent
expense.
k. Recording of the reorganization value in excess of the revalued
assets at October 31, 1998.
The Company expects to incur charges of approximately $5.7 million as of
January 30, 1999 for an estimated going-out-of-business inventory impairment
of $0.5 million for one store in the process of closing and other store
closing costs of $5.2 million, including two other store closings anticipated
to begin by the end of fiscal year 1999. At the same time, the Company expects
to recognize a gain of approximately $4.5 million from the modification of the
Union Square lease terms.
Pro Forma Adjustments - Statement of Operations for the Thirty-nine Weeks
Ended October 31, 1998
1. To eliminate the sales and expense amounts associated with five stores
closed in February, 1998.
2. To eliminate reorganization items.
3. Adjustment in amortization of lease interests revalued under fresh-
start reporting.
28
<PAGE>
4. To record amortization of post-emergence deferred financing costs
and reverse the historical year to date amortization of deferred
financing costs.
5. Reduction in depreciation expense due to certain reclassifications
to assets held for sale and fixed asset write-offs resulting from
fresh-start reporting.
6. To adjust lease rent expense and amortization expense for revised
straight-line rent calculations.
7. To adjust lease rent expense for amortization of the unfavorable
lease liability.
8. To adjust interest expense for amortization of the discount on the
unfavorable lease liability and for increased interest expense
resulting from a slightly higher average revolver borrowing level,
the 9% Convertible Notes and other issued notes.
9. To record reduction in depreciation and amortization expense
resulting from the allocation of the estimated excess of revalued
assets over the reorganization value at February 1, 1997.
10. To record additional FAS No. 106 expense as a result of fresh-start
reporting.
11. To reduce pension expense as a result of fresh-start reporting.
12. Pro forma earnings per share were computed based on the estimated
weighted average number of common shares outstanding during the
applicable period assuming that the Plan was effective on February
1, 1997.
Pro Forma Adjustments - Statement of Operations for the Fiscal Year Ended
January 31, 1998
1. To eliminate the sales and expense amounts associated with six
stores closed since February 1, 1997, excluding one store that was
assumed to be closed and sold in the ordinary course of business in
January, 1998.
2. To eliminate the provision for inventory impairment for the stores
closed in 1998.
3. To eliminate reorganization items, which include charges associated
with closing the six stores.
4. Adjustment in amortization of lease interests revalued under fresh-
start reporting.
5. To record amortization of post-emergence deferred financing costs
and reverse the historical fiscal year 1997 amortization of deferred
financing costs.
6. Reduction in depreciation expense due to certain reclassifications
to assets held for sale and fixed asset write-offs resulting from
fresh-start reporting.
7. To adjust lease rent expense and amortization expense for revised
straight-line rent calculations.
8. To adjust lease rent expense for amortization of the unfavorable
lease liability.
9. To adjust interest expense for amortization of the discount on the
unfavorable lease liability and for increased interest expense
resulting from a higher average revolver borrowing level and the 9%
Convertible Notes and other issued notes.
10. To record reduction in depreciation and amortization expense
resulting from the allocation of the estimated excess of revalued
assets over the reorganization value at February 1, 1997.
11. To record additional FAS No. 106 expense and eliminate the fiscal
year 1997 curtailment gain as a result of the effect of fresh-start
reporting and the associated write-off of unamortized prior service
costs.
12. To reduce pension and SERP expense as a result of the effect of
fresh-start reporting.
13. Pro forma earnings per share were computed based on the estimated
weighted average number of common shares outstanding during the
applicable period assuming that the Plan was effective on February
1, 1997.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion and analysis is based on our results of operations
detailed below for the 52 weeks ended January 31, 1998 ("1997"), the 52 weeks
ended February 1, 1997 ("1996") and the 53 weeks ended February 3, 1996
("1995"). The financial information discussed below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The following table sets forth
information concerning the number of our stores.
<TABLE>
<CAPTION>
Fiscal Year Ended
January 31, 1998 February 1, 1997 February 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Stores, beginning of
period.................... 110 134 136
New stores................. - 3 -
Closed stores.............. (1)(a) (27) (2)
--- --- ---
Stores, end of period...... 109 110 134
=== === ===
</TABLE>
- --------
(a) Excludes six stores closed in February, 1998.
The following table sets forth the amounts (in millions) and the percentages
of net sales for the items reflected in our Statements of Operations for the
periods indicated.
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 1,344.4 100.0 % $ 1,561.7 100.0 % $1,780.8 100.0 %
Cost of goods sold...... 948.0 70.5 % 1,127.6 72.2 % 1,289.1 72.4 %
--------- ----- --------- ----- -------- -----
Gross margin............ 396.4 29.5 % 434.1 27.8 % 491.7 27.6 %
Leased department and
other operating
income................. 12.1 0.9 % 13.7 0.9 % 15.1 0.8 %
--------- ----- --------- ----- -------- -----
408.5 30.4 447.8 28.7 % 506.8 28.5 %
Selling, store
operating,
administrative and
distribution expenses.. 382.9 28.5 % 504.0 32.3 % 572.8 32.2 %
Depreciation and
amortization expense... 36.2 2.7 % 42.2 2.7 % 54.4 3.1 %
--------- ----- --------- ----- -------- -----
Operating loss.......... (10.6) (0.8)% (98.4) (6.3)% (120.4) (6.8)%
Gain on disposition of
properties............. (5.4) (0.4)% (1.7) (0.1)% - -
Interest and debt
expense................ 16.6 1.2 % 11.5 0.7 % 27.2 1.5 %
Impairment of long-lived
assets................. - - 40.8 2.6 % 99.4 5.6 %
Reorganization items.... 0.8 0.1 % 69.8 4.5 % 65.0 3.6 %
Income tax benefit...... - - - - (104.6) (5.9)%
--------- ----- --------- ----- -------- -----
Net loss................ $ (22.6) (1.7)% $ (218.8) (14.0)% $ (207.4) (11.6)%
========= ===== ========= ===== ======== =====
</TABLE>
Our business is seasonal in nature, with a significant portion of our net
sales occurring in the fourth quarter, which includes the holiday selling
season. Comparable store sales, which include leased shoe department sales, for
each year are discussed below and represent percentage increases/decreases over
the prior year for stores that were open and operated by Bradlees for at least
the prior full fiscal year. The rate of inflation did not have a significant
effect on sales during these years.
1997 Compared to 1996
Net sales for 1997 declined $217.3 million or 13.9% from 1996 due primarily
to the closing of 27 stores during 1996 and a 5.0% decrease in comparable store
sales. The major cause for the decline in comparable
30
<PAGE>
store sales was our significant reduction in the number of promotional
activities in 1997, which had historically poor profit productivity.
We are focusing on three key merchandise categories: moderately priced basic
and casual apparel, basic and fashion items for the home, and frequently
purchased convenience and commodity products. We believe that we can
strategically leverage our strength in the quality and fashion content of our
product offerings while driving traffic with selected hardlines merchandise.
Management is continuing efforts to improve sales, including the expansion of
both the "Wow!" (opportunistic and unadvertised purchases) and "Certified
Value" (everyday low prices on selected highly recognizable products) programs
that have been particularly successful to-date. Comparable store sales
stabilized during the fourth quarter of 1997 (unchanged from 1996).
Gross margin declined $37.7 million but increased 1.7% as a percentage of
net sales in 1997 compared to 1996. The decline in gross margin dollars was due
to the store closings and lower comparable store sales, partially offset by the
increase in the gross margin rate. The increase in the rate was primarily due
to a lower markdown rate resulting from fewer promotions, improved inventory
control and a decrease of $3.7 million in 1997 compared to 1996 in going-out-
of-business markdown provisions for closed stores included in cost of goods
sold, partially offset by a slightly lower overall initial markup.
Leased department income and other operating income declined $1.6 million
but was unchanged as a percentage of net sales in 1997 compared to 1996. The
decline was primarily due to lower leased shoe department sales partially
offset by the benefit of layaway income (classified as other operating income)
from the layaway program that was reimplemented in the second half of 1997.
Selling, store operating, administrative and distribution ("SG&A") expenses
declined $121.1 million and 3.8% as a percentage of net sales in 1997 compared
to 1996. The decline in SG&A expenses was due to the closed stores and numerous
expense reduction initiatives, including substantial reductions in overhead and
advertising costs, designed to begin bringing our SG&A rate to a more
competitive level. Included in the 1997 SG&A expense reductions were a $4.5
million expense credit resulting from the elimination of automatic beginning of
year vacation vesting for certain pay groups and a $3.9 million curtailment
gain associated with a reduction in retiree medical benefits.
Depreciation and amortization expense declined $6.0 million in 1997 compared
to 1996, primarily as a result of the closed stores and the 1996 year-end
write-downs of certain long-lived assets in accordance with SFAS No. 121.
However as a percentage of net sales, depreciation and amortization remained
unchanged.
We sold an owned store in January, 1998 for approximately $8.0 million and
recognized a gain of $5.4 million. This store was closed as a result of the
sale of the property and the sale was not directly associated with the Chapter
11 proceedings; therefore, the gain was not classified as a reorganization
item. The net proceeds from this sale were placed into restricted funds.
Interest and debt expense increased $5.1 million or .5% as a percentage of
net sales in 1997 compared to 1996 due primarily to higher average borrowings
under the debtor-in-possession credit facilities in 1997 and a $1.1 million
write-off in 1997 of deferred financing costs associated with the replacement
of the prior DIP facility. Interest expense in 1996 includes a credit of $.8
million resulting from a change in the interest rate used to discount self-
insurance reserves.
Reorganization items resulted in net charges of $.8 and $69.8 million, or
.1% and 4.5% of net sales, in 1997 and 1996, respectively. These net charges
related directly to the Chapter 11 proceedings and associated restructuring of
our operations.
We did not incur any income tax expense or benefit in 1997 and 1996.
31
<PAGE>
1996 Compared to 1995
Net sales for 1996 declined $219.1 million or 12.3% from 1995 due primarily
to the closing of 27 stores in 1996 and a 5.4% decrease in comparable store
sales. The major causes for the decline in comparable store sales were our
relatively rapid introduction of higher-priced merchandise at the expense of
many lower opening price-point merchandise categories, elimination of layaway,
significant reduction in the number of basic convenience and commodity items
that are generally sold in discount stores, and changes in our advertising
strategy that included a reduction in the number of merchandise offerings in
our weekly circular. Although we improved the quality and fashion of our
merchandise in 1996, the changes that were implemented assumed rapid customer
acceptance of the new merchandise mix and significant sales from increased
promotional activities.
Gross margin declined $57.6 million but increased .2% as a percentage of net
sales in 1996 compared to 1995. The decline in gross margin dollars was due to
the lower sales, partially offset by the slight increase in the gross margin
rate. The increase in the rate was due to a higher overall initial markup and
lower inventory shrink, partially offset by a higher markdown rate associated
primarily with increased promotional activities and the negative impact of a
$6.7 million going-out-of-business markdown provision included in cost of goods
sold in 1996.
Leased department income and other operating income declined $1.4 million
but increased .1% as a percentage of net sales in 1996 compared to 1995. The
decline was due to lower leased shoe department sales and the absence of any
layaway income since the discontinuance of the layaway program in August, 1995.
SG&A expenses declined $68.8 million but increased .1% as a percentage of
net sales in 1996 compared to 1995. The decline in SG&A expenses was due to the
closed stores and reductions in logistics and certain home office expenses,
partially offset by an increase in advertising expenses. The increase in SG&A
expenses as a percentage of net sales was due to the sales decline in 1996.
Depreciation and amortization expense declined $12.2 million or .4% as a
percentage of net sales in 1996 compared to 1995, primarily as a result of the
closed stores and the 1995 year-end write-down of certain long-lived assets in
accordance with the adoption of SFAS No. 121.
We recognized a gain of $1.7 million in 1996 for forfeited deposits received
on the unconsummated sale of an owned undeveloped property.
Interest and debt expense declined $15.7 million or .8% as a percentage of
net sales in 1996 compared to 1995 due primarily to the discontinuance of
accruing interest on substantially all pre-petition debt subsequent to our
filing for bankruptcy on June 23, 1995. Interest expense includes a credit of
$.8 million in 1996 and a $2.9 million charge in 1995 resulting from changes in
the interest rate used to discount self-insurance reserves.
We incurred charges of $40.8 and $99.4 million, or 2.6% and 5.6% of net
sales, in 1996 and 1995, respectively, due to the impairment of certain long-
lived assets in accordance with SFAS No. 121.
Reorganization items resulted in net charges of $69.8 and $65.0 million, or
4.5% and 3.6% of net sales, in 1996 and 1995, respectively. These net charges
related directly to the Chapter 11 proceedings and associated restructuring of
our operations.
We did not incur any income tax expense or benefit in 1996 compared to an
income tax benefit of $104.5 million in 1995. A portion of our 1995 loss before
income taxes was utilized in April, 1996 to recover $24.5 million of income
taxes previously paid, of which $6.0 million was restricted in April, 1996
pending further order of the Bankruptcy Court.
32
<PAGE>
Year-to-Date 1998 Compared to Year-to-Date 1997
<TABLE>
<CAPTION>
39 weeks ended
October 31, 1998 November 1, 1997
---------------- ----------------
<S> <C> <C>
Stores, beginning of period................. 109 110
New stores.................................. - -
Closed stores............................... (6) (1)
------ ------
Stores, end of period....................... 103 109
====== ======
Results of operations, summarized in millions of dollars and expressed as a
percentage of net sales were as follows for the 39 weeks ended October 31, 1998
("Year-to-Date 1998") and for the 39 weeks ended November 1, 1997 ("Year-to-
Date 1997"):
<CAPTION>
Year to Date Year to Date
1998 1997
---------------- ----------------
(Dollars in millions except
per share amounts)
<S> <C> <C>
Total sales................................. $939.2 $930.7
Leased dept. sales.......................... 32.8 35.5
------ ------
Net sales................................... 906.4 895.2
Cost of goods sold.......................... 635.4 625.5
------ ------
Gross margin................................ 271.0 269.7
Leased dept. and other operating income..... 8.7 8.7
------ ------
279.7 278.4
Selling, store operating, administrative and
distribution expenses...................... 280.3 289.8
Depreciation and amortization expense....... 24.4 27.5
Loss on disposition of properties........... 0.2 -
Interest and debt expense................... 12.0 11.7
Reorganization items........................ (2.6) (2.1)
------ ------
Net loss.................................. $(34.6) $(48.5)
====== ======
Net loss per share........................ $(3.06) $(4.26)
====== ======
Total sales increase (decrease):
All stores................................ 0.9% (19.5)%
Comparable stores......................... 4.7% (7.6)%
</TABLE>
<TABLE>
<CAPTION>
39 Weeks Ended
October 31, 1998 November 1, 1997
---------------- ----------------
<S> <C> <C>
As a percentage of net sales, results were
as follows:
Net sales................................... 100.0 % 100.0 %
Cost of goods sold.......................... 70.1 69.9
----- -----
Gross margin................................ 29.9 30.1
Leased dept. and other operating income..... 0.9 1.0
----- -----
30.8 31.1
Selling, store operating, administrative and
distribution expenses...................... 30.9 32.3
Depreciation and amortization expense....... 2.7 3.1
Loss on disposition of properties........... - -
Interest and debt expense................... 1.3 1.3
Reorganization items........................ (0.3) (0.2)
----- -----
Net loss.................................... (3.8)% (5.4)%
===== =====
</TABLE>
33
<PAGE>
Year-to-Date 1998 total sales increased $8.5 million or 0.9% from Year-to-
Date 1997 due to an increase of 4.7% in comparable store sales, partially
offset by the impact from closing six stores in February, 1998. The increase in
Year-to-Date 1998 comparable store sales was due primarily to various
merchandising and marketing initiatives started in 1997, including the
reintroduction of layaway, lower opening price points in certain departments,
more item-intensive and price-point oriented circular ad offerings, the
addition of certain convenience and commodity products to drive traffic, and
the implementation of two key programs: "Certified Value" (highlights certain
key recognizable items at competitive everyday prices) and "WOW!" (integrates
targeted and unadvertised opportunistic purchases).
Gross margin for Year-to-Date 1998 increased $1.3 million, primarily as a
result of the strong comparable store sales and decreased 0.2% as a percentage
of net sales due primarily to a lower initial markup. Leased department and
other operating income was unchanged in Year-to-Date 1998 compared to Year-to-
Date 1997, as layaway fee income more than offset the impact from the store
closings and unfavorable leased shoe department sales.
Year-to-Date 1998 SG&A expenses declined $9.5 million or 1.4% as a
percentage of net sales compared to Year-to-Date 1997. The improved SG&A
expense performance was due primarily to advertising, home office and benefits
expense reductions, partially offset by last year's third quarter reduction of
$3.6 million in self-insurance reserves.
Depreciation and amortization expense declined $3.1 million or 0.4% as a
percentage of net sales in Year-to-Date 1998 compared to Year-to-Date 1997. The
decline was primarily due to the closing of six stores in February 1998.
Interest and debt expense increased $0.3 million and remained the same as a
percentage of net sales in Year-to-Date 1998 from Year-to-Date 1997. Peak and
average revolver borrowings were $162 and $116 million, respectively, in Year-
to-Date 1998 compared to $144 and $85 million, respectively, in Year-to-Date
1997, and the weighted average revolver interest rate was 7.93% during Year-to-
Date 1998 compared to 7.51% in the prior-year period. The unfavorable impact on
Year-to-Date 1998 interest expense from these factors was mostly offset by
lower bank fees, lower capital lease interest expense and lower amortization of
deferred financing costs.
Reorganization credits of $2.6 and $2.1 million for Year-to-Date 1998 and
Year-to-Date 1997, respectively, were associated with the Chapter 11
proceedings and related restructuring and are discussed in Note 6.
We did not record an income tax provision in Year-to-Date 1998 due to the
current expectation of no income tax expense or benefit in 1998. There was no
income tax expense or benefit recorded in Year-to-Date 1997.
Liquidity and Capital Resources
We had outstanding borrowings of $157.4 million at October 31, 1998,
exclusive of the issuance of letters of credit, under our $250 million DIP
Facility (Note 4). As of November 1, 1997, we had outstanding borrowings of
$131.5 million, exclusive of the issuance of letters of credit, under the prior
DIP facility (Note 4). The increase in borrowings since the end of the third
quarter of 1997 relates primarily to the net loss incurred in Year-to-Date
1998, along with payments for Chapter 11 professional fees and other
reorganization expenses.
We currently expect our borrowings, exclusive of the issuance of letters of
credit, for the fourth quarter of 1998 to peak at approximately $167 million in
November, 1998 and average approximately $120 million. The revolver amount
available to borrow in the fourth quarter of 1998, after deducting expected
letters of credit outstanding, is currently expected to peak at approximately
$225 million in November, 1998 and average approximately $185 million.
34
<PAGE>
Other than payments made to certain pre-petition creditors approved by the
Bankruptcy Court (Notes 2 and 4), principal and interest payments on
indebtedness, exclusive of certain capital lease obligations, incurred prior to
Chapter 11 have not been made and will not be made without Bankruptcy Court
approval or until the Plan of Reorganization has been consummated. Virtually
all pre-petition indebtedness of Bradlees is subject to settlement under the
reorganization case.
In Year-to-Date 1998, cash used by operations before reorganization items
was $48.8 million, compared to $50.8 million of cash used by operations before
reorganization items in Year-to-Date 1997. Net cash used by reorganization
items in Year-to-Date 1998 of $10.3 million was comprised of professional fee
payments of $7.8 million and store closing and severance costs of $3.2 million,
partially offset by interest income on restricted funds of $0.7 million.
Inventories at October 31, 1998 decreased $16.5 million from November 1,
1997, due primarily to the closing of six stores in February 1998 (inventories
decreased approximately $1.1 million, excluding the impact of the closed
stores). Accounts payable at October 31, 1998 decreased $16.9 million from
November 1, 1997, mostly due to the decrease in inventories. The increases in
inventories and accounts payable from January 31, 1998 were primarily the
result of normal seasonal build-ups.
Accrued expenses at October 31, 1998 were $7.3 million lower than at January
31, 1998, due primarily to payments made against certain reserves established
in or prior to 1997 for performance bonuses, employee severance and termination
benefits and store closing costs. Accrued expenses were $11.4 million lower
than at November 1, 1997, due primarily to reductions in severance reserves,
vacation pay liabilities and store closing costs.
We incurred capital expenditures of $10.4 million in Year-to-Date 1998
(compared to $14.7 million in Year-to-Date 1997), primarily for management
information systems, store remodels and store maintenance projects. The larger
Year-to-Date 1997 total was principally a result of the 1997 expenditures
associated with a new merchandise management system. For all of 1998, we expect
total capital expenditures to total approximately $18 to $20 million, primarily
for management information systems (including the initial expenditures for a
warehouse management system expected to be completed in 1999 and enhancements
to the new merchandise management system), the remodeling of nine stores, and
other store improvements and maintenance. We currently expect to finance these
expenditures through internally-generated funds.
We believe our business strategies and the availability of our DIP Facility
and BankBoston Facility, together with our available cash and expected cash
flows from 1998 operations and beyond, will enable us to fund our expected
needs for working capital, capital expenditures and debt service requirements.
Achievement of expected cash flows from operations will be dependent upon our
attainment of sales, gross profit, expense and trade support levels that are
reasonably consistent with our financial plans. Such operating performance will
be subject to financial, economic and other factors affecting the industry and
our operations, including factors beyond our control.
Year 2000 Readiness Disclosure
We have determined that we must modify portions of our software so that our
computer systems will properly recognize and use dates beyond December 31,
1999. We believe we can mitigate the impact of the Year 2000 disruption by
upgrading or modifying existing software and, in certain instances, converting
to new software. However, if the Year 2000 upgrades, modifications and
conversions are not made, or are not made in a timely manner, the Year 2000
issue could have a material impact on our operations.
We intend to use both internal and external resources to remediate, replace
and test software for Year 2000 compliance. We have entered into a contract
with a major outside consulting firm to provide the majority of the resources
necessary to identify, and then replace or remediate, our affected systems. We
intend to complete our Year 2000 project no later than the beginning of the
fourth quarter of fiscal 1999, but currently
35
<PAGE>
expect to substantially complete the conversion by the second quarter of fiscal
1999. At this time, we expect the cost of the Year 2000 project to be
approximately $3 to $4 million, the majority of which is being incurred in 1998
and included in SG&A expenses. Through October 31, 1998, we have incurred $1.9
million for such expense.
The remaining major systems to be remediated or replaced are the Company's
merchandise planning system (approximately 50% remediated) and store host
systems (approximately 30% remediated) expected to be completed by the end of
the first quarter of 1999, and the warehouse management system that is
scheduled to be replaced by the end of the second quarter of 1999. A test of
all systems, including store support and facility systems, for proper Year 2000
compliance is planned for the end of the second quarter of 1999.
We are in the process of developing contingency plans in the event that such
replacement or remediation is not fully completed in a timely manner. We have
calculated the costs of the Year 2000 project and predicted the dates on which
we plan to complete the Year 2000 modifications using our best estimates, which
required using a number of assumptions of future events, including the
continued availability of certain resources, third party modification plans and
other factors. However, we can not guarantee that we will achieve the predicted
estimates and our actual results could differ materially from those plans.
We are also attempting to obtain representations and assurances from our
third party providers of services and goods, including vendors of software
products, that their software is or will be Year 2000 compliant on a timely
basis. However, because certain of our processes may be interrelated with, or
dependent upon, systems outside our control, we can give no assurances that the
implementation of our Year 2000 project will be successful.
36
<PAGE>
BUSINESS
Company Overview
We operate 103 discount department stores as of February 1, 1999, in seven
states in the Northeast, primarily in the heavily populated corridor running
from the Boston to the Philadelphia metropolitan areas. One store is planned to
be closed in March, 1999 and two others are expected to begin closing in fiscal
1999. Headquartered in Braintree, Massachusetts, the Company and its
predecessor have been active in the discount department store business for 40
years.
Business Strategy. In 1995, we began to implement a strategy to position
ourselves between traditional discount stores and department stores. Some of
the initiatives associated with this strategy, especially the relatively rapid
introduction of higher-price points, an aggressive clearance markdown policy,
costly promotions of the Bradlees' credit card and associated elimination of
layaway, significant reduction in the number of basic convenience and commodity
items that are generally sold in discount stores, along with costly changes in
our advertising strategy, resulted in significant sales and margin declines and
operating losses. In late December, 1996, our Board of Directors appointed
Peter Thorner as Chairman, CEO and President. Prior to joining Bradlees, Mr.
Thorner led the successful turnaround of Ames Department Stores, Inc. In April,
1997, Mr. Thorner hired Robert Lynn as President and Chief Merchandising
Officer.
We made the following key modifications to our business strategy during 1997
to enhance profitability and improve customer service:
. Reintroduced lower opening price points in a comprehensive variety of
merchandise categories to enhance value and increase customer traffic;
. Reduced costly promotional events and thereby reduced the likelihood
of substandard profit margins;
. Reintroduced certain basic convenience and commodity products that are
typical of assortments carried by discount retailers;
. Reinstituted a layaway program while controlling promotions of the
Bradlees' credit card;
. Installed new in-store directional and departmental signage;
. Revised our markdown policy based on product rate of sale;
. Modified weekly ad circulars to achieve more item-intensive and price-
point oriented ad offerings;
. Introduced both a "Certified Value" program that highlights certain
key recognizable items at competitive everyday prices and a "Wow!"
program which integrates targeted and unadvertised opportunistic
purchases; and
. Significantly reduced overhead while improving operating efficiencies.
We are focusing on three key merchandise categories: moderately-priced basic
and casual apparel; basic and fashion items for the home; and frequently
purchased convenience and commodity products. We believe we can strategically
leverage our strength in the fashion and quality content of our apparel and
decorative home product offerings while driving traffic with selected hardlines
merchandise. Management has continued its efforts to improve sales and
profitability in 1998, including the expansion of both the "Wow!" and
"Certified Value" programs that have been particularly successful to-date.
Merchandise Mix. We provide a broad spectrum of basic and fashion apparel
(including private-label brands), basic and fashion home furnishings,
convenience hard goods and extensive seasonal offerings. Our
37
<PAGE>
average merchandise mix in fiscal year 1997 was comprised of approximately 53%
softlines and soft home furnishings and 47% hardlines, versus an estimated
industry average of 42% softlines and soft home furnishings and 58% hardlines.
Softline products generally have higher gross margins than hardline products.
Advertising and Promotional Programs. Our marketing strategy is designed to
appeal to our value-oriented customers. Sales are driven from competitive
pricing and promotions, primarily in weekly circulars, that feature a large
number of special values for the customer throughout the store. Approximately
45% of our sales were derived from our weekly circulars in 1997. Approximately
5.6 million circulars are distributed each week. Although circulars are our
major promotional vehicle, we also use newspaper advertising, periodic
television broadcasts, Bradlees credit-card statement inserts and in-store
promotions. Point-of-purchase advertising, layaway, employee discounts and
senior citizen discounts are also used as marketing vehicles.
Operations. Several programs have been or are being implemented to improve
store organization, thereby focusing us more intently on customer service while
at the same time reducing expenses. These improvements included reducing the
number of store regions from two to one and the number of store districts from
nine to eight. In addition, store managers are using automated staff scheduling
programs in 1998 to improve operating efficiency and provide better service to
the customer.
Management has improved productivity and controls and reduced expenses in
other areas. For example, a new merchandising management system was implemented
during 1997 and 1998 that facilitates, among other things, tracking merchandise
more accurately and efficiently from vendors through distribution centers and
to stores. In addition, we have begun developing a warehouse management system
that is planned to be completed in 1999. We also installed a new mainframe
computer and point-of-sale controllers and modified our point-of-sale equipment
and software to allow for additional promotional capabilities, enhanced
controls and improved customer service.
Store Profitability. We closed six stores in February, 1998. We currently
plan to sell our leasehold interest in our Yonkers, New York store. We are also
in the process of closing our Danvers, Massachusetts store. We continue to
closely monitor the profitability of each store and will close, sell or
relocate those stores whose performance is inadequate and not responsive to
remedial actions.
Employees and Collective Bargaining Arrangements
As of December 1, 1998, we employed approximately 10,000 people, of which
approximately 66% are covered by collective bargaining agreements. Agreements
affecting approximately 14% of the labor force will expire within one year and
are expected to be renegotiated. We believe our relations with our employees
are good.
Competition
We compete in most of our markets with a variety of national, regional and
local discount and other department and specialty stores, which vary by market.
Some of these competitors have substantially greater resources than we do. We
compete on the basis of product quality and value, merchandise selection,
advertising and price. In addition, store location, appearance and customer
service are important competitive factors. Our principal discount department
store competitors are Caldor, Kmart and Wal-Mart, and in certain locations,
Target and Ames. Caldor Corp., which has been in bankruptcy since 1995,
announced on January 22, 1999 that it intends to close all of its stores and
liquidate its assets. Caldor Corp. is currently conducting going-out-of-
business sales in certain markets in which we operate stores. Our principal
department store competitors are Sears and J.C. Penney. Target and Kohl's, a
department store chain, are opening stores in some areas in which Bradlees
operates. Management believes that it is pursuing the proper merchandising and
marketing strategies and operating focus that should allow it to compete
effectively in its operating areas. However, no assurances can be given that
these strategies will further improve performance or that our business and
financial performance will not be adversely affected by future competitive
pressures.
38
<PAGE>
Patents, Trademarks and Licenses
The trademark "Bradlees" is registered with the United States Patent and
Trademark Office. We have a significant number of other trademarks, trade
names, and service marks. We do not consider any of these other trademarks,
tradenames or services marks to individually have a material impact on our
business.
Seasonality
Our business is seasonal in nature, with a significant portion of net sales
occurring in the fourth quarter, which includes the pivotal holiday selling
season.
Credit Facility
The BankBoston Facility provides us with a $250 million senior secured
revolving credit facility (of which $125 million is available for issuance of
letters of credit) and a $20 million junior secured "last in-last out"
subfacility for a period until December 23, 2001. We can use the BankBoston
Facility for working capital, general business needs and to pay off our DIP
Facility.
The senior secured tranche has an advance rate equal to 80% of the Loan
Value of Eligible Receivables, plus generally 72% of the Loan Value of Eligible
Inventory, subject to certain adjustments. The Company may also borrow up to an
additional $20 million under the junior secured facility provided that the
total inventory borrowings do not exceed 93% of the Loan to Value Ratio.
The BankBoston Facility permits us to borrow funds under the senior secured
tranche at an interest rate per annum equal to (a) the higher of (i) the annual
rate of interest as announced by BankBoston as its "Base Rate" and (ii) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System plus 1/2 of 1% per annum; or (b) 2.25%
per annum plus the quotient of (i) the LIBOR Rate in effect divided by (ii) a
percentage equal to 100% minus the percentage established by the Board of
Governors of the Federal Reserve System as the maximum rate for all reserves
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency Liabilities. Each of these rates is subject to a 0.50% increase in
the event of overadvances. The junior secured subfacility permits us to borrow
funds at the "Base Rate" plus 7.00% per annum.
In connection with the BankBoston Facility, we have entered into a Security
Agreement and a Pledge Agreement with BankBoston. The Security Agreement and
the Pledge Agreement cover substantially all of our non-real estate assets.
Under the terms of the BankBoston Facility, we have agreed to certain financial
covenants including:
. maintaining a minimum level of earnings before interest, taxes,
depreciation and amortization;
. capping our capital expenditures at $20 million annually, subject to
certain exceptions;
. agreeing not to let certain financial ratios which measure our debt
coverage and accounts payable to inventory ratios drop below specified
goals.
See "Terms of Outstanding Indebtedness-Credit Agreement."
Further Information
Bradlees, Inc. files annual, quarterly and special reports, proxy statements
and other information with the SEC. We have requested an exemption from these
filing requirements for Bradlees Stores, Inc. and New Horizons of Yonkers, Inc.
since information concerning these entities is included in the filings made by
Bradlees, Inc. You may read and copy any document we file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the
SEC's Website at "http://www.sec.gov."
39
<PAGE>
Facilities
The following chart shows the geographic distribution of our stores as of
February 1, 1999:
<TABLE>
<S> <C>
Maine................................................................. 1
New Hampshire......................................................... 8
Massachusetts......................................................... 36
Connecticut........................................................... 17
New York.............................................................. 6
New Jersey............................................................ 29
Pennsylvania.......................................................... 6
---
Total................................................................. 103
===
</TABLE>
We operate stores in a variety of sizes, with the current average store
being 75,924 total square feet.
Our distribution facilities are located in Edison, New Jersey and Braintree,
Massachusetts. The 584,000 square foot Edison facility generally serves as the
soft goods processing center for nearly all apparel and softlines merchandise
and as the hardlines merchandise distribution facility for the New York, New
Jersey and Pennsylvania stores. The 470,000 square foot Braintree facility
generally services all stores with basic merchandise items and distributes
hardlines merchandise to the New England stores.
As of February 1, 1999, our stores, including the one store which is in the
process of closing and two stores which are expected to begin closing by the
end of fiscal year 1999, occupied a total of approximately 7,820,151 square
feet of selling area. We lease all of our stores, two distribution centers and
central office under long-term leases.
Pursuant to the Plan of Reorganization, in exchange for a payment of $11.0
million by the landlord, we have revised certain terms of the lease for our
Union Square, New York store, including amending the expiration date of such
lease to be March 15, 2000 and eliminating lease terms which allowed for
extensions of the lease. In addition, we have agreed to a $1.1 million annual
payment over the remaining term of the lease.
Legal Proceedings
On June 23, 1995, we filed a voluntary petition in the United States
Bankruptcy Court for the Southern District of New York to reorganize under
Chapter 11 of the United States Bankruptcy Code. Our modified plan of
reorganization was confirmed on January 27, 1999, and became effective on the
Effective Date. After the Effective Date, the Bankruptcy Court will retain
jurisdiction over us for limited purposes. New Horizons of Yonkers, Inc. will
remain in Chapter 11 after the Effective Date until it sells the leasehold
interest it holds. Thus, it will continue to be subject to the jurisdiction of
the Bankruptcy Court.
From time to time, we are party to litigation arising in the ordinary course
of business. We believe that no pending legal proceeding will have a material
adverse effect on our business, financial condition or results of operations.
40
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names, ages, and current positions of all of the executive officers and
directors of Bradlees, Inc. as of February 2, 1999 are listed below along with
their business experience during the past five years. The Directors of Bradlees
Stores, Inc. and New Horizons of Yonkers, Inc. are Messrs. Thorner, Moses and
Schmitt. The executive officers of Bradlees Stores, Inc. and New Horizons of
Yonkers, Inc. are the same as those of Bradlees, Inc.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert A. Alt-
schuler....... 42 Director
Robert W.
Benenati...... 50 Senior Vice President, Logistics
Stephen J.
Blauner....... 45 Director
W. Edward
Clingman,
Jr. .......... 45 Director
Bruce
Conforto..... 46 Senior Vice President, Chief Information Officer
Gregory K.
Dieffenbach.. 49 Senior Vice President, Human Resources
Judith D. Dun-
ning......... 48 Senior Vice President, Planning and Allocation
John M. Fried-
man, Jr. .... 54 Director
Mark E.
James........ 49 Senior Vice President, Marketing
Lawrence Lie-
berman....... 50 Director
Robert G.
Lynn......... 48 Director, President and Chief Operating Officer
Charles K.
MacDonald.... 40 Director
Cornelius F.
Moses
III(1)....... 40 Senior Vice President, Chief Financial Officer
Ronald T. Ray-
mond......... 55 Senior Vice President, Asset Protection
William H.
Roth......... 46 Director
David L.
Schmitt(1)... 48 Senior Vice President, General Counsel, Secretary and Clerk
Sandra L.
Smith........ 41 Senior Vice President, General Merchandise Manager, Hardlines
Thomas N.
Smith........ 42 Senior Vice President, Stores
James C.
Sparks....... 52 Senior Vice President, General Merchandise Manager, Softlines
Peter Thorn-
er(1)........ 55 Chairman and Chief Executive Officer
</TABLE>
- --------
(1) Director of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc.
Mr. Altschuler became a Director of the Company in February 1999. He has
served as Vice President and Director of Leasing for Marx Realty & Improvement
Co. Inc. since 1987.
Mr. Benenati became Senior Vice President, Logistics of the Company in
October 1997. He was Senior Vice President, Operations, from February 1997 to
October 1997. He was Senior Vice President, Distribution of the Company from
June 1995 to February 1997. Prior to joining the Company, he was Senior Vice
President, Distribution of QVC, Inc. from August 1994 to June 1995. He was Vice
President, Operations and Administration for Simon and Schuster Publishing Co.
from prior to 1993 to August 1994.
Mr. Blauner became a Director of the Company in February 1999. He has served
as a consultant on bankruptcy and distressed investing for a small group of
clients since January 1998. In addition, since 1998 Mr. Blauner has served in
an Of Counsel position to the law firm of Milbank, Tweed, Hadley & McCloy for
the purposes of representing the Loan Syndications and Trading Association,
Inc. as its outside general counsel. From prior to 1993 to December 1997, he
served as a partner and head of the bankruptcy department at Milbank, Tweed,
Hadley & McCloy.
Mr. Clingman became a Director of the Company in February 1999. He has
served as President and Chief Executive Officer of Best Products Co., Inc.
("Best Products") from January 1997 to the present (during Best Products'
liquidation and related wind-down). Prior to serving as President and Chief
Executive Officer, Mr. Clingman served as Senior Vice President, General
Counsel and Secretary from May 1996 to December 1996. He served as Vice
President, General Counsel and Secretary from March 1993 to May 1996. Mr.
Clingman serves as a director of Best Products.
41
<PAGE>
Mr. Conforto became Senior Vice President, Chief Information Officer of the
Company in April 1998. Prior to joining the Company, he was Vice President,
Corporate Information Technology of HFS Incorporated from August 1996 to April
1997. He was Vice President of Information Services for Rickel Home Centers,
Inc. from prior to 1993 to August 1996.
Mr. Dieffenbach became Senior Vice President, Human Resources of the Company
in July 1997. Prior to joining the Company, he was Vice President, Human
Resources for Uptons Department Stores, Inc. from prior to 1993 to May 1997.
Ms. Dunning became Senior Vice President, Planning and Allocation of the
Company in February 1997. Ms. Dunning served as Vice President, Strategic
Planning of the Company from January 1996 to February 1997. Prior to joining
the Company, she was Vice President, Merchandise Planning of
Rich's/Lazarus/Goldsmith's, a division of Federated Department Stores, Inc.,
from February 1995 to January 1996 and Vice President, Merchandise Planning of
Lazarus Department Stores, Inc., a division of Federated Department Stores,
Inc., from prior to 1993 to February 1995.
Mr. Friedman became a Director of the Company in May 1996. Mr. Friedman was
a partner at Dewey Ballantine from prior to 1993 to when he retired in April
1996.
Mr. James became Senior Vice President, Marketing of the Company in May
1997. Prior to joining the Company, he was Senior Vice President, Marketing and
Advertising for Best Products from prior to 1993 to December 1996.
Mr. Lieberman became a Director of the Company in February 1999. He has
served as Vice President, Merchandising for ABC Home Furnishings Inc. since
December 1990.
Mr. Lynn became President and Chief Operating Officer of the Company in
April 1998. He served as President and Chief Merchandising Officer of the
Company from April 1997 to April 1998. Mr. Lynn was elected a Director of the
Company in April 1997. Prior to joining the Company, he was a consultant to
various retail and manufacturing clients from January 1996 to April 1997. He
was Vice Chairman and Chief Operating Officer of American Eagle Outfitters,
Inc. from January 1995 to December 1995 and a Director from April 1994 to
December 1995. Mr. Lynn was a retail consultant to the creditors' committee in
the McCrory bankruptcy from December 1993 to January 1995. Mr. Lynn served as
President and Chief Executive Officer of the United States division of F.W.
Woolworth from January 1989 to September 1993.
Mr. MacDonald became a Director of the Company in February 1999. He has
served as President of Morgandane Management Corp., an investment advisory
firm, from 1997 to the present. From prior to 1993 to 1995, he was a portfolio
manager for Stonington Management Corp. Mr. MacDonald also serves as a director
of Atlantic Gulf Communities Corp.
Mr. Moses became Senior Vice President, Chief Financial Officer of the
Company in July 1996. Mr. Moses served as Senior Vice President, Finance of the
Company from July 1995 to July 1996. Mr. Moses was Vice President, Finance of
the Company from April 1995 to July 1995. Prior to joining the Company, Mr.
Moses was Senior Vice President, Finance of Ames Department Stores, Inc.
("Ames") from prior to 1993 to April 1995.
Mr. Raymond became Senior Vice President, Asset Protection of the Company in
July 1995. Prior to joining the Company, he was Senior Vice President, Asset
Protection for Ames from prior to 1993 to July 1995.
Mr. Roth became a Director of the Company in February 1999. He has served as
a partner at the law firm of Kelly & Roth since 1987.
42
<PAGE>
Mr. Schmitt has served as Senior Vice President, General Counsel, Secretary
and Clerk of the Company since November 1995. He was Vice President, General
Counsel, Secretary and Clerk of the Company from July 1995 to November 1995.
Prior to joining the Company he was Vice President, Business Development for
Wheelabrator Clean Water Systems, Inc. from 1994 to June 1995. He was President
of CP Consulting from prior to 1993 to June 1994.
Ms. Smith became Senior Vice President, General Merchandise Manager,
Hardlines of the Company in July 1995. Ms. Smith served as Vice President,
General Merchandise Manager, Hardlines of the Company from February 1994 to
July 1995 and Divisional Merchandise Manager, Home Fashions of the Company from
prior to 1993 to February 1994.
Mr. Smith became Senior Vice President, Stores of the Company in December
1997. Prior to joining the Company, he was Director of Operations and
Merchandising for Fry's Electronics from April 1995 to December 1997. He was
Division Director for The Home Depot/Crossroads from June 1993 to April 1995.
He was Regional Vice President for Wal-Mart from prior to 1993 to April 1993.
Mr. Sparks became Senior Vice President, General Merchandise Manager,
Softlines of the Company in July 1995. He was Vice President, General
Merchandise Manager, Softlines of the Company from October 1994 to July 1995.
Prior to joining the Company, Mr. Sparks was Vice President, General
Merchandise Manager of Belk Lindsey from prior to 1993 to October 1994.
Mr. Thorner has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since April 1997. He served as Chairman of the
Board of Directors, President and Chief Executive Officer of the Company from
December 1996 to April 1997. He served as President and Chief Operating Officer
of the Company from June 1995 to December 1996 and he was elected a Director of
the Company in July 1995. He was Vice Chairman of the Company from March 1995
to June 1995. Prior to joining the Company, he was President, Chief Operating
Officer and Acting Chief Executive Officer and a member of the Board of
Directors of Ames from prior to 1993 to 1994.
On September 24, 1996, while Mr. James was Senior Vice President, Marketing
and Advertising of Best Products, and Mr. Clingman was Senior Vice President,
General Counsel and Secretary of Best Products, Best Products filed for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
Best Products was subsequently liquidated.
Mr. Conforto was Vice President of Information Services for Rickel Home
Centers, Inc. when they filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code. Rickel Home Centers, Inc. was subsequently
liquidated.
Board of Directors of Bradlees, Inc. and Its Committees
The business of Bradlees, Inc. is managed under the direction of the Board
of Directors. As of the Effective Date, there are nine members of the Board of
Directors of Bradlees, Inc. These directors were selected pursuant to the Plan
and assumed their positions immediately prior to the Effective Date. The
Amended and Restated Articles of Organization of Bradlees, Inc. provide that
the members of the Board of Directors shall serve initial terms which will
expire upon the election and qualification of directors at each annual meeting
of stockholders. At each annual meeting of stockholders, the successors of the
directors will be elected by a plurality of the votes cast at such meeting.
Bradlees, Inc. intends to hold its first annual meeting after the Effective
Date in the Spring of 2000.
The Board of Bradlees, Inc. has established an audit committee (the "Audit
Committee"), a compensation committee (the "Compensation Committee") and a
nominating committee (the "Nominating Committee"). The Audit Committee, which
consists solely of outside directors, recommends to the Board of Directors the
firm to be appointed as independent accountants to audit financial statements
and to perform
43
<PAGE>
services related to the audit. The Audit Committee also reviews the scope and
results of the audit with the independent accountants, reviews with management
and the independent accountants the Company's year-end operating results,
considers the adequacy of the internal accounting procedures and considers the
effect of such procedures on the accountants' independence.
The Compensation Committee, which consists solely of outside directors,
reviews and recommends to the Board of Directors the compensation arrangements
for all directors and officers, approves such arrangements for other senior
level employees and administers and takes such other action as may be required
in connection with certain compensation and incentive plans of the Company. The
Compensation Committee also determines the number of options to be granted or
shares of Common Stock to be issued to eligible persons under our Bradlees,
Inc. 1999 Stock Option Plan (the "Stock Plan"). In addition, the Compensation
Committee establishes, amends and revokes rules and regulations for
administration of the Stock Plan.
The Nominating Committee consists of the Chairman of the Board and two other
non-employee directors nominated by the Chairman of the Board and approved by a
majority of the Board. The purpose of the Nominating Committee is to facilitate
the nomination of directors to fill vacancies on the Board.
Board of Directors of Bradlees Stores, Inc.
The business of Bradlees Stores, Inc. is managed by its Board of Directors.
As of the Effective Date, there were three members of its Board of Directors.
The Amended and Restated Articles of Organization of Bradlees Stores, Inc.
provide that the members of the Board of Directors shall serve initial terms
which will expire upon the election and qualification of directors at each
annual meeting of stockholders.
Board of Directors of New Horizons of Yonkers, Inc.
The business of New Horizons of Yonkers, Inc. is managed by its Board of
Directors. As of the Effective Date, there were three members of its Board of
Directors. The By-laws of New Horizons of Yonkers, Inc. provide for the
creation of committees to exercise the powers of the Board. No such committees
currently exist.
44
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the earned compensation for the Chief
Executive Officer of the Company and our four highest-paid executive officers
in 1997 other than the Chief Executive Officer (the "Named Officers") for
fiscal years 1997, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Awards
------------------------
Payouts
--------
Annual Compensation
------------------------------------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards Option/SARs Payouts Compensation
- ------------------ ---- -------- -------- ------------ ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Thorner........... 1997 $741,827 $299,063(l) (2) - - $150,000(3) $9,318(4)
Chairman and Chief l996 $589,166 - $ 12,961 - - $150,000(3) $9,293
Executive Officer 1995 $440,391 $406,252(5) $ 97,257 $231,250(6) 100,000 $150,000(3) $4,490
Robert G. Lynn.......... 1997 $401,827(7) $196,875(1) $ 29,109(8) - - - $ 840(4)
Director, President, and
Chief Operating Officer
Robert W. Benenati...... 1997 $292,729 $ 90,011(l) (2) - - - $1,113(4)
Senior Vice 1996 $205,036 - $ 62,762 - - - $ 850
President, Logistics l995 $141,948 $190,075(5) $ 18,793 - - - $ 596
Cornelius F. l997 $279,175 $ 84,012(l) (2) - - - $1,054(4)
Moses, III..............
Senior Vice President 1996 $228,682 - (2) - - - $ 944
and Chief Financial 1995 $162,322 $ 79,453(5) $162,087 - - - $ 216
Officer
David L. Schmitt ....... 1997 $243,751 $ 73,500(l) (2) - - - $ 912(4)
Senior Vice 1996 $180,024 - (2) - - - $ 748
President, General 1995 $103,860 $ 69,556(5) (2) - - - $ 312
Counsel, Secretary and
Clerk
</TABLE>
- --------
(1) Includes an earned bonus paid in April, 1998 pursuant to our Corporate
Bonus Plan (see below), but excludes the following deferred payments
which were paid, with interest, at the Effective Date: Mr. Thorner -
$99,688; Mr. Lynn - $65,625; Mr. Benenati - $30,004; Mr. Moses -
$28,004; and Mr. Schmitt - $24,500.
(2) Perquisites and other personal benefits for the indicated periods did
not exceed the lesser of $50,000 or 10% of reported salary and bonus.
(3) See Enterprise Appreciation Incentive Plan below.
(4) Premiums paid with respect to term life insurance for the calendar year
ended December 31, 1997.
(5) Includes an earned bonus paid in April, 1996 pursuant to our Retention
Bonus Plan, but excludes the following deferred payments which were
paid, with interest, at the Effective Date: Mr. Thorner - $68,751; Mr.
Benenati - $16,915; Mr. Moses - $18,151; and Mr. Schmitt - $14,852.
(6) Based on a fair market value of $9.250, the closing price of the
Company's Common Stock on May 11, 1995, the date of grant. The
restrictions on these shares lapse at the rate of 20% a year, on or
after the third business day following the announcement of annual
earnings for the years 1995 through 1999. On January 30, 1998, the last
trading day of fiscal 1997, 15,000 shares with a value of $1,875 were
still subject to restrictions. The aggregate market value is based on a
fair market value of $.125, the closing price of the Company's Common
Stock on January 30, 1998. The Common Stock was canceled at the
Effective Date.
(7) Represents a partial year beginning when Mr. Lynn joined the Company in
April, 1997.
(8) Includes $27,216 for relocation expenses related to Mr. Lynn's
employment as President and Chief Merchandising Officer of the Company
and reimbursement for tax liabilities related to such relocation
expenses.
45
<PAGE>
Corporate Bonus Plan
In February 1997 we adopted, and in April 1997 the Bankruptcy Court
approved, the Corporate Bonus Plan (the "Corporate Bonus Plan"). The Corporate
Bonus Plan provides incentives and rewards for (i) performance of key employees
that meets or exceeds expectations and (ii) attainment of threshold performance
measurements tied directly to our annual business plan. The amount of the award
increases if our performance exceeds the business plan. In addition, a
discretionary fund in the amount of $500,000 has been established to provide
bonuses to (a) non-bonus eligible employees based upon performance regardless
of whether we achieve our target performance level and (b) bonus eligible
employees based on performance if we do not achieve our target performance
level.
Under the Corporate Bonus Plan, we had to obtain a minimum EBITDA (as
defined) of $28.1 million for fiscal 1997, net of the anticipated costs of the
Corporate Bonus Plan, in order for any employee to be eligible for 100% of an
award (except for the discretionary fund mentioned above). For each $5 million
of EBITDA improvement over the amount projected, the award increases by 25% of
the base award up to a maximum increase of 100% of the award. We achieved an
EBITDA of $28.5 million (net of the provision for the bonuses and excluding
gains on disposition of properties) for fiscal 1997 and paid total bonuses of
$3.9 million to approximately 286 employees under the Corporate Bonus Plan in
April 1998.
With respect to the Named Officers and certain other members of our senior
management, one-quarter of the amount of any bonus payable before such time as
we consummated our Chapter 11 plan of reorganization was paid, with interest,
on the Effective Date. The remaining three-quarters of the bonuses were
previously paid. See "Summary Compensation Table."
For fiscal 1998, our Board of Directors adopted threshold performance
measurements tied directly to our 1998 business plan. We must obtain a minimum
EBITDA of $32 million, net of the anticipated costs of the Corporate Bonus
Plan, in order for any employee to be eligible for 100% of an award (except for
the discretionary fund mentioned above). Partial awards will be made if we
achieve certain levels of EBITDA below $32 million. For each $5 million of
EBITDA improvement over $32 million, the award increases by 25% of the base
award up to a maximum increase of 100% of the award. In addition, any award may
be increased or decreased by 25% based upon an employee's performance.
Enterprise Appreciation Incentive Plan
In August 1995 we adopted, and in November 1995 the Bankruptcy Court
approved, the Enterprise Appreciation Incentive Plan (the "Incentive Plan").
The Incentive Plan was terminated on the Effective Date. The Incentive Plan was
intended to provide an incentive to those key executives whose management and
individual performance will have a direct impact on increasing the long-term
value of the Company. No further payments are expected to be paid under the
Incentive Plan, other than the payment of $400,000 with respect to amounts due
Mr. Thorner for the remaining term of the Incentive Plan (see Employment
Agreement with Peter Thorner below) because the Incentive Plan was canceled.
Management Emergence Bonus Plan
On the Effective Date, certain executives were selected to participate in
our Management Emergence Bonus Plan (the "Emergence Bonus Plan"). The aggregate
amount payable to these employees under the Emergence Bonus Plan is $3 million.
One million dollars of this was paid on the Effective Date. The remaining $2
million will be paid on the later of (a) the one-year anniversary of the
Effective Date and (b) the date upon which the 9% Convertible Notes are fully
paid or converted into equity. No payments will be made under the Emergence
Bonus Plan if there exists any continuing default under the BankBoston Facility
or its successor (as such terms are defined under the Emergence Bonus Plan). If
an employee leaves us for any reason, other than an involuntary termination
without Cause or a voluntary termination for Good Reason, within one year of
receiving a payment under the Emergence Bonus Plan, the payment shall be
subject to partial or total
46
<PAGE>
recoupment. If an employee is involuntarily terminated without Cause,
voluntarily leaves for Good Reason, or leaves due to death or disability, then
the employee does not have to return any payments under the Emergence Bonus
Plan and is entitled to receive any portion of the payments to be made under
the Emergence Bonus Plan within 30 days after the date of termination of
employment.
Severance Program
In August 1995 we adopted, and in November 1995 the Bankruptcy Court
approved, a severance program (the "Severance Program") that covers all
officers, Vice President and above, and certain other employees of the Company,
but not including Mr. Thorner who has a separate employment agreement (see
Employment Agreement with Peter Thorner below). If the employment of any
participant in the Severance Program is terminated other than for cause, death,
disability or by the employee, then salary is guaranteed, subject to mitigation
by other employment, for up to eighteen months for the President, Executive
Vice Presidents and Senior Vice Presidents and twelve months for Vice
Presidents, and a lump-sum payment equal to six months of salary is paid to
certain other employees. Certain participants would also receive a lump-sum
payment equal to the amount of any incentive payment for the fiscal year in
which the termination occurred (the "Severance Lump Sum").
If the employment of any participant is terminated other than for Cause,
death, disability or retirement, or is terminated under certain other
circumstances, within one year following a change of control of the Company,
the employee will receive a lump-sum payment. The payment is the Severance Lump
Sum amount plus one and one-half times the annual salary in effect immediately
prior to the change of control (the "Annual Salary") for the President and
Senior Vice Presidents, one times the Annual Salary for Vice Presidents and
one-half times the Annual Salary for certain other employees. For purposes of
the Severance Program, a change of control includes but is not limited to the
acquisition by any person of beneficial ownership of 50% or more of the
Company's outstanding voting securities, or the failure of the individuals who
constituted the Board of Directors in August 1995 to continue to constitute a
majority of the Board unless the election of the new directors has been
approved by the incumbent directors. Consummation of our Plan of Reorganization
did not constitute a change of control under the Severance Program.
Stock Option Plan for Key Employees
There were no options for Old Bradlees' common stock granted or exercised by
Named Officers in fiscal 1998. Pursuant to the Plan of Reorganization, all
options outstanding immediately prior to the Effective Date were canceled as of
the Effective Date. On the Effective Date, the Bradlees, Inc. 1999 Stock Option
Plan (the "Stock Plan") became effective. Pursuant to the Plan of
Reorganization, we have agreed to grant options to purchase 750,000 shares of
our Common Stock to our management. The options will be granted when their
exercise price is determined. The exercise price of these options will be the
lowest ten-day rolling average of the closing price of our Common Stock within
the period between sixty and ninety days after the Effective Date.
Retirement Plans
We maintain a qualified retirement plan (the "Retirement Plan") for our
eligible employees. The retirement benefits under the Retirement Plan are
determined pursuant to a benefit formula that takes into account the employee's
Final Average Compensation (as defined in the Retirement Plan), and/or years of
service, up to 30 years. Effective December 31, 1998, the Retirement Plan for
our non-union employees was frozen for credited service and salary adjustments.
All benefits under the Retirement Plan, except the minimum benefits, are
subject to an integration offset based upon the employee's Covered Compensation
(as defined in the Retirement Plan) or Final Average Compensation, if less. We
also maintain a non-qualified Supplemental Executive Retirement Plan (the
"Supplemental Plan") which, as of December 1, 1995, replaced the Excess Pension
Plan which was terminated. Under the Supplemental Plan an eligible employee,
upon normal retirement at age 65, may receive supplemental retirement benefits
equal to 50% of his Final Average Compensation, minus the sum of his Social
Security benefits and the annual benefit payable from the
47
<PAGE>
Retirement Plan. The benefits from the Supplemental Plan are payable in the
form of a single lump sum amount. The following table shows the estimated
annual retirement benefits which will be payable to participating employees
from the Retirement Plan and the Supplemental Plan in the form of a straight
life annuity upon normal retirement at age 65 after selected periods of
service. These benefits presented below do not reflect the Social Security
offset described above and do not take into account any reduction for joint and
survivor payments.
Pension Plan Table
Estimated Annual Retirement Benefits
<TABLE>
<CAPTION>
10 Years
Final Average of 15 or More
Compensation* Service Years of Service
- ------------- -------- ----------------
<S> <C> <C>
$ 200,000 $ 66,666 $100,000
$ 250,000 $ 83,333 $125,000
$ 300,000 $100,000 $150,000
$ 400,000 $133,333 $200,000
$ 500,000 $166,666 $250,000
$ 600,000 $200,000 $300,000
$ 700,000 $233,333 $350,000
$ 800,000 $266,666 $400,000
$ 900,000 $300,000 $450,000
$1,000,000 $333,333 $500,000
$1,100,000 $366,666 $550,000
$1,200,000 $400,000 $600,000
$1,300,000 $433,333 $650,000
</TABLE>
- --------
* Federal law limits the amount of compensation that may be taken into account
in calendar year 1998 in calculating benefits under the Retirement Plan to
$160,000 and limits the annual benefits that may be payable in calendar year
1998 to $125,000. These tax limits do not apply to benefits payable from the
Supplemental Plan.
Compensation recognized under the Retirement Plan is the participant's
annualized rate of base salary. Compensation under the Supplemental Retirement
Plan is the participant's base salary and bonus. The calculation of retirement
benefits under both plans is generally based upon the participant's highest
annual compensation averaged over three years. As of December 31, 1998, the
years of credited service for the Retirement Plan for Messrs. Thorner, Lynn,
Benenati, Moses, and Schmitt were 4, 2, 4, 4, and 4, respectively. As of
December 31, 1998, the years of credited service for the Supplemental Plan for
Messrs. Thorner, Lynn, Benenati, Moses, and Schmitt were 9, 2, 4, 4 and 4,
respectively.
Compensation of Directors
Each director who is not an employee of the Company receives an annual
retainer of $30,000. Directors who are also employees of the Company do not
receive any remuneration for serving as directors.
Employment Agreement with Peter Thorner
We have entered into a three-year employment agreement with Mr. Thorner,
commencing as of October 26, 1995 and amended as of November 7, 1997. This
employment agreement is automatically extended for one additional year each
year unless either party gives the other party written notice of its election
not to extend the contract. Effective December 24, 1996, concurrent with his
then appointment as Chairman, President and Chief Executive Officer, Mr.
Thorner received a minimum annual base salary of $725,000 and an annual
incentive award of 55% of his base salary. In March 1998, our Board of
Directors approved an increase in Mr. Thorner's
48
<PAGE>
annual base salary to $850,000 effective February 1, 1998. While in Chapter 11,
the annual incentive award was payable pursuant to the Corporate Bonus Plan.
The annual incentive award could be increased to 110% of Mr. Thorner's base
salary if certain maximum performance goals are met under the Corporate Bonus
Plan. Under the employment agreement, one-quarter of the amount of any annual
incentive bonus payable before the consummation of the Plan of Reorganization
was deferred, and paid with interest on the Effective Date.
In addition, the employment agreement provides for the payment by us of an
equity incentive bonus (payable in cash, debt and equity securities) pursuant
to the Incentive Plan determined by reference to the increase in value of the
Company from the date of the bankruptcy filing to the fifth anniversary of the
employment agreement, subject generally to vesting over five years. Under the
employment agreement, Mr. Thorner is entitled to receive an annual
nonrefundable advance of $150,000 towards his benefits under the Incentive Plan
while he remains employed by us. The employment agreement also provides that
Mr. Thorner's equity incentive bonus under the Incentive Plan would be at least
$1,000,000 but would not exceed the lesser of $4,615,385 or 3% of the
appreciation in value of the Company. No payments were paid under the Incentive
Plan to Mr. Thorner, other than the annual nonrefundable advances and a payment
of $400,000 with respect to amounts due Mr. Thorner for the remaining term of
the Incentive Plan, which was paid on the Effective Date. The agreement also
provides for certain retirement benefits, for reimbursement of certain legal,
annual financial counseling and relocation expenses and participation in our
employee benefit plans. The employment agreement also provides that in the
event of Mr. Thorner's termination of employment by us (including following a
change in control of the Company) without Cause or Good Reason (as defined in
the Employment Agreement), Mr. Thorner would generally be entitled to all
payments and benefits called for under the agreement for the remainder of its
term.
Compensation Committee Interlocks and Insider Participation
All executive officer compensation decisions will be made by the
Compensation Committee. The Compensation Committee will review and make
recommendations regarding the compensation for our management and key
employees, including salaries and bonuses.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of February 2, 1999, by (i) each
person known by us to beneficially own five percent or more of the outstanding
shares of the Common Stock, (ii) each director and certain executive officers,
and (iii) all directors, nominees for director and executive officers as a
group. Except as otherwise indicated, we believe that the beneficial owners of
the Common Stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable. All of the Common Stock of Bradlees
Stores, Inc. is owned by Bradlees, Inc.
<TABLE>
<CAPTION>
Directors, Executives
Officers,
and 5% Beneficial Shares Beneficially Owned
Owners(1)(2) Prior to the Offering(2) Percentage(3)
--------------------- ------------------------- -------------
<S> <C> <C>
Ariel Fund Limited..................... 2,853,981 27.9%
Gabriel Capital, L.P................... 1,934,578 18.9%
Elliott Associates, L.P.(4)............ 461,120 4.6%
Westgate International, L.P.(4)........ 977,619 9.6%
Robert A. Altschuler................... 0 *
Robert W. Benenati..................... 0 *
Stephen J. Blauner..................... 0 *
W. Edward Clingman, Jr................. 0 *
Bruce Conforto......................... 0 *
Gregory Dieffenbach.................... 0 *
Judith Dunning......................... 0 *
John M. Friedman, Jr. ................. 0 *
Mark James............................. 0 *
Lawrence Lieberman..................... 0 *
Robert Lynn............................ 0 *
Charles K. MacDonald................... 0 *
Cornelius F. Moses, III................ 0 *
Ronald T. Raymond...................... 0 *
William H. Roth........................ 0 *
David L. Schmitt....................... 0 *
Sandra Smith........................... 0 *
Thomas N. Smith........................ 0 *
James C. Sparks........................ 0 *
Peter Thorner.......................... 0 *
All directors and executive officers
as a group (consisting of 20 people).. 0 *
</TABLE>
- --------
* Represents less than 1.0% of the issued and outstanding shares of Common
Stock.
(1) Unless otherwise indicated, the mailing address for each stockholder and
director is c/o the Company, One Bradlees Circle, Braintree, Massachusetts
02184. For Ariel Fund Limited, the mailing address is c/o Maples & Calder,
P.O. Box 309, Grand Cayman, Cayman Islands, BWI. For Gabriel Capital, L.P.,
the mailing address is 450 Park Avenue, New York, New York 10627. For
Elliott Associates, L.P. the mailing address is 712 Fifth Avenue, 36th
Floor, New York, New York 10019. For Westgate International, L.P. the
mailing address is c/o Midland Bank Trust Corporation (Cayman) Limited,
P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands, BWI.
(2) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose, or
direct the disposition of, a security). In computing the number of shares
of Common Stock beneficially owned by a person, shares of Common Stock
subject to options held by that person that are currently exercisable or
exercisable within 60 days of this Prospectus are deemed outstanding, but
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person. The number of shares beneficially
owned does not include any warrants that may be owned by such person. We
have agreed to issue warrants to purchase 1,000,000 shares of our common
stock, but until resolution of all outstanding claims, the recipients of
such warrants are not determinable.
(3) Percentage ownership prior to this Offering is based upon 10,225,711 shares
of Common Stock issued and outstanding as of February 2, 1999.
(4) Elliott Associates, L.P. and Westgate International, L.P. are investment
partnerships under common management.
50
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other Transactions
In February 1998, we made a loan in the amount of $100,000 to Thomas N.
Smith, Senior Vice President, Stores, in connection with his relocation. This
loan was interest-free and payable on January 30, 1999. The due date has been
extended until April 15, 1999, with interest at 10% per annum during the
extension period. Any bonus payments payable to Mr. Smith prior to April 15,
1999 shall be used to repay any outstanding balance of the loan. As of February
16, 1999, the amount remaining outstanding under this loan was $75,267. In
September 1998, we made a loan in the amount of $100,000 to Bruce Conforto,
Senior Vice President and Chief Information Officer, in connection with his
relocation. This loan is interest-free and payable on or prior to March 31,
1999. Any bonus payments payable to Mr. Conforto prior to March 31, 1999 shall
be used to repay any outstanding balance of this loan. As of February 16, 1999,
the amount remaining outstanding under this loan was $88,750.
Company Policy
We have a policy that any transactions with directors, officers, employees
or affiliates be approved in advance by a majority of our Board of Directors,
including a majority of the disinterested members of the Board, and be on terms
no less favorable to us than we could obtain from non-affiliated parties.
SELLING SECURITYHOLDERS
The Selling Securityholders are Ariel Fund Limited, Gabriel Capital, L.P.,
Elliott Associates, L.P. and Westgate International, L.P.
The following table sets forth the name of each Selling Securityholder, and
the amount of the Securities owned by each such Selling Securityholder as of
February 2, 1999 which are subject to being offered hereby. This Prospectus
relates to the offers and sales of the Securities by the Selling
Securityholders, including the shares of Common Stock issuable upon conversion
of the 9% Convertible Notes. The Securities subject to offering and sale by the
Selling Securityholders pursuant hereto constitute all of the holdings of such
securities by such Selling Securityholders. For the respective percentages of
the Company's securities beneficially owned by each Selling Securityholder
(including such ownership as may be attributed to such securityholders) prior
to the offering. See "Principal Stockholders." The following table does not
include any Common Stock issuable upon exercise of outstanding options or
warrants. Each Selling Stockholder may offer and sell all of the Securities
registered hereby. If such Selling Stockholder sells all of the Securities
registered hereby, such Selling Stockholder will not beneficially own any of
our securities. Inclusion on this list does not imply that any person or entity
will actually offer or sell any of the shares registered on his, her or its
behalf.
<TABLE>
<CAPTION>
Shares of Principal Amount
Common Stock(1) of Notes(2)
--------------- ----------------
<S> <C> <C>
Ariel Fund Limited(3)......................... 2,853,981 $17,421,221
Gabriel Capital, L.P.(3)...................... 1,934,578 $11,809,016
Elliott Associates, L.P.(4)................... 461,120 $ 540,000
Westgate International, L.P.(4)............... 977,619 $ 4,532,875
--------- -----------
TOTAL....................................... 6,227,298(5) $34,303,112(5)
</TABLE>
- --------
(1) Excludes an indeterminate number of shares issuable upon conversion of the
9% Convertible Notes. Since the number of shares of Common Stock issuable
upon conversion of the 9% Convertible Notes varies as the market price of
the Common Stock changes, it is impossible at this time to determine how
many shares may be issued upon conversion of the 9% Convertible Notes.
(2) The principal amount of Notes shown includes such holders' pro rata portion
of the $11.0 million pre-payment of the Notes made on the Effective Date.
The aggregate principal amount outstanding after accounting for the pre-
payment and the issuance of Notes in $1,000 denominations is: $12,201,000
for Ariel; $8,271,000 for Gabriel; $3,172,000 for Westgate; and $378,000
for Elliott.
(3) J. Ezra Merkin ("Merkin") is the sole general partner of Gabriel Capital,
L.P. Gabriel Capital Corp. is the investment advisor for Ariel, and Merkin
is the sole shareholder, sole director and president of Gabriel Capital
Corp.
(4) Elliott Associates, L.P. and Westgate International L.P. are investment
partnerships under common management.
(5) Additional securities have been registered hereby on behalf of parties
which may receive such securities in connection with the Companies'
emergence from Chapter 11 and which parties have not yet been identified.
Once identified, such parties will be listed above pursuant to a post-
effective amendment of the Registration Statement of which this Prospectus
forms a part.
51
<PAGE>
PLAN OF DISTRIBUTION
Type of Transactions.
The Selling Securityholders (and donees, pledgees, transferees or other
successors in interest receiving Securities from a Selling Securityholder after
the date of this Prospectus) may offer and sell all or a portion of their
Securities at various times in one or more of the following types of
transactions:
. In the over-the-counter market;
. In private transactions and in transactions other than the over-the-
counter market;
. In connection with short sales of the Securities;
. By pledge to secure debts or other obligations;
. In connection with the writing of non-traded and exchange traded call
options, swaps or derivatives (exchange-listed or otherwise) and in
settlement of other transactions in standardized or over-the-counter
options;
. cross or block trades;
. "at the market" to or through market makers, into an existing market;
. direct sales to purchasers, sales effected through agents;
. hedging transactions with broker-dealers (who may short the Common
Stock); or
. In a combination of any of the above transactions.
Price of Transaction; Fees.
These transactions may be at market price, at prices related to the market
price, at negotiated prices or at fixed prices that may be changed. If the
Selling Securityholders use the services of an underwriter, broker, dealer or
agent to assist with the sale of Securities, the party providing services may
be paid for their efforts. The compensation can be paid by either the buyer or
the seller of the Securities and can be in the form of a discount, commission
or concession. The buyer and the seller will determine how much compensation
will be paid and the form in which it will be paid. It is possible that the
agent providing these services, or the Selling Securityholders, might be
considered to be underwriters under the Securities Act, and any profits
received or compensation paid could be considered an underwriting discount or
commission under the Securities Act.
At the time a particular offer of Securities is made, a prospectus
supplement, to the extent required, will be distributed which will set forth
the aggregate amount and type of Securities being offered, the names of the
Selling Securityholders, the purchase price, the amount of expenses of the
offering and the terms of the offering, including the name or names of any
underwriters, brokers, dealers or agents, any discounts, commissions and other
items constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Under the Exchange Act and applicable rules and regulations promulgated
thereunder, any person engaged in a distribution of any of the Securities may
not simultaneously engage in market making activities with respect to the
Securities for a period of 5 days prior to the commencement of the
distribution, subject to certain exemptions. In addition and without limiting
the foregoing, the Selling Securityholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, including without limitation Regulation M, which provisions may
limit the timing of purchases and sales of any of the Securities by the Selling
Securityholders.
Under the securities laws of certain states, the Securities may be sold in
such states only through registered or licensed brokers or dealers. In
addition, in certain states the Securities may not be sold unless the
Securities have been registered or qualify for sale in such state or an
exemption from registration or qualification is available and is complied with.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
At the Effective Date, we have 10,225,711 shares of Common Stock
outstanding. Under the terms of our Plan of Reorganization, the number of
shares we issue to our former creditors varies with the amount of general
unsecured claims allowed. The number of shares outstanding is based upon an
assumption that the amount of general unsecured claims allowed are not less
than $225 million and the number of shares issued to the Selling
Securityholder's not more than 7,267,424. The number of shares outstanding does
not include an indeterminate number of shares of Common Stock which may be
issued upon conversion of the 9% Convertible Notes. In addition, we have an
aggregate of 1,000,000 shares of Common Stock reserved for issuance upon the
exercise of outstanding Warrants and 750,000 shares of Common Stock reserved
for issuance upon exercise of Options which we agreed to grant pursuant to the
Plan of Reorganization. The offer and sale of 7,267,424 of such shares of
Common Stock, plus an indeterminate number of shares issuable upon conversion
of the 9% Convertible Notes, are registered under the Securities Act pursuant
to the Registration Statement of which this Prospectus is a part.
All of the outstanding shares of Common Stock, all of the shares of Common
Stock issuable upon exercise of the warrants and options, and all of the shares
of Common Stock issuable upon conversion of the 9% Convertible Notes, are
freely tradeable without restriction or further registration under the
Securities Act, either because such shares were issued or are issuable pursuant
to the exemption provided by Section 1145 of the Bankruptcy Code and such
shares are not "restricted securities" as defined in Rule 144 under the
Securities Act or because the offer and resale of such shares is registered
pursuant to the Registration Statement of which this Prospectus forms a part or
pursuant to a registration statement on Form S-8 as described below.
As of February 2, 1999, a total of 1,000,000 shares of Common Stock were
reserved for issuance under the Stock Plan, of which 750,000 shares will be the
subject of options we agreed to grant pursuant to the Plan of Reorganization.
These options will be granted in May, 1999. In addition, 1,000,000 shares of
Common Stock were reserved for issuance under Warrants outstanding as of
February 2, 1999. The Warrants will expire on February 2, 2004. We currently
intend to file a registration statement on Form S-8 under the Securities Act to
register all shares of Common Stock currently issuable pursuant to the Stock
Plan. To the extent shares of Common Stock are owned or purchased by our
"affiliates" as such term is defined in Rule 144 and are not registered
pursuant to this Registration Statement of which this Prospectus forms a part,
such restricted shares may generally be sold in compliance with Rule 144.
In general under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least one year
from the later of the date of acquisition from us or any of our affiliates, may
sell such securities in brokers' transactions or directly to market makers,
provided the number of shares sold in any three-month period does not exceed
the greater of 1% of the then outstanding shares of the Common Stock or the
average weekly trading volume in the public market during the four calendar
weeks immediately preceding the filing of the seller's Form 144. Sales under
Rule 144 are also subject to certain notice requirements and availability of
current public information concerning us. Pursuant to Rule 144(k), after two
years have elapsed from the later of the acquisition of the restricted
securities from us or any of our affiliates, such shares may be sold without
limitation by persons who have not been our affiliates for at least three
months.
TERMS OF OUTSTANDING INDEBTEDNESS
Credit Agreement
As of the Effective Date, we entered into a $270 million financing facility
with BankBoston, N.A. as Administrative Agent and Issuing Bank. The facility is
composed of a $250 million senior secured revolving credit facility and a $20
million "last-in last-out" secured subfacility. This facility is for a period
expiring on December 23, 2001 and may not exceed a maximum principal amount of
$270 million. The initial advances
53
<PAGE>
under this BankBoston Facility were used to pay in full all of our obligations
under the DIP Facility and the remainder can be used for general corporate
purposes, working capital and inventory purchases. No more than $125 million of
the advances under the BankBoston Facility are permitted to be in the form of
letters of credit.
Borrowings under the BankBoston Facility are secured by a first-priority
security interest in all of our assets, properties and rights, except for our
interest in any owned or leased real property. The security interest of the
junior secured facility, though a first-priority interest, ranks behind the
security for the senior secured facility.
The BankBoston Facility permits us to borrow funds under the senior secured
facility at an interest rate per annum equal to (a) the higher of (i) the
annual rate of interest as announced by BankBoston as its "Base Rate" and (ii)
the weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System plus 1/2 of 1% per annum; or (b) 2.25%
per annum plus the quotient of (i) the LIBOR Rate in effect divided by (ii) a
percentage equal to 100% minus the percentage established by the Board of
Governors of the Federal Reserve System as the maximum rate for all reserves
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency Liabilities. Each of these rates is subject to a 0.50% increase in
the event of overadvances. The junior secured subfacility permits us to borrow
funds at the "Base Rate" plus 7.00% per annum. We are also required to pay a
fee of 1.50% per annum of the average daily balance of the maximum amount that
is available at any time for drawing or payment under any outstanding letters
of credit.
The BankBoston Facility contains a number of significant covenants preventing
us from taking certain actions including:
. Undergoing a merger or entering into a stock or asset acquisition
(subject to certain exceptions);
. Making capital expenditures in any fiscal year in excess of $20 million,
which limit is subject to increase after twelve months provided we meet
certain earnings goals;
. Permitting our earnings before interest, taxes, depreciation and
amortization ("EBITDA") from dropping below specified levels;
. Permitting the ratio of (a) our amount of accounts payable to (b) the
value of our inventory to be less than specified percentages (which
percentages change on a monthly basis, but are between 37.0% and 42.5%);
. Allowing the ratio of (a) our EBITDA less certain capital expenditures
to (b) our cash interest expense plus principal payments to be less than
1.00:1; and
. Purchasing or guaranteeing any other party's indebtedness, paying
dividends, entering into certain transactions with our affiliates and
making any investments other than those permitted.
If we fail to meet these and other obligations under the BankBoston Facility,
the lenders under the BankBoston Facility would have recourse to a number of
remedies, including an acceleration of amounts owed and foreclosure on the
collateral securing the borrowings.
CAP Notes
Pursuant to the Plan of Reorganization, Bradlees Stores, Inc. has issued CAP
Notes in the aggregate principal amount of $547,094. The CAP Notes bear
interest at a rate equal to nine percent (9%) per annum. Principal and accrued
interest are payable in twelve equal quarterly installments, commencing three
months after the Effective Date. Bradlees Stores, Inc. can prepay these notes,
in whole or in part, at any time or from time to time, without premium or
penalty. The CAP Notes are secured by a first lien on the property on which the
CAP Note holder holds a valid first priority security interest.
54
<PAGE>
Cure Notes
Pursuant to the Plan of Reorganization, Bradlees Stores, Inc. has issued
Cure Notes in the aggregate principal amount of $3.4 million. The Cure Notes
are not secured and bear interest at a rate equal to nine percent (9%) per
annum. Principal and accrued interest are payable in twelve equal quarterly
installments, commencing three months after the Effective Date. Bradlees
Stores, Inc. can prepay these notes, in whole or in part, at any time or from
time to time, without premium or penalty.
Tax Notes
Pursuant to the Plan of Reorganization and Section 1129(a)(9)(C) of the
Bankruptcy Code, Bradlees Stores, Inc. has agreed to make deferred cash
payments in the aggregate principal amount of $3.4 million on account of
allowed tax claims. Payments will be made in equal annual installments of
principal, plus simple interest accruing from the Effective Date at a rate
equal to eight percent (8%) per annum on the unpaid portion of such claims. The
first payment is due on the latest of: (i) 30 days after the Effective Date,
(ii) 30 days after the date on which an order allowing any such claim becomes a
final order, and (iii) such other date as is agreed to by Bradlees Stores, Inc.
and by the holder of such claim. Bradlees Stores, Inc. has the right to pay any
such claim, or the remaining balance of any such claim, in full, at any time,
on or after the Effective Date, without premium or penalty.
Vendor Lien
Bradlees Stores, Inc. has entered into an agreement for the benefit of its
trade vendors which grants such trade vendors a subordinated security interest
in Bradlees Stores, Inc.'s inventory.
DESCRIPTION OF THE 9% CONVERTIBLE NOTES
The 9% Convertible Notes (as used in this section, the "Notes") were issued
under an Indenture dated February 2, 1999 (the "Indenture") among Bradlees,
Inc., Bradlees Stores, Inc., New Horizons of Yonkers, Inc. and IBJ Whitehall
Bank & Trust Company, as trustee (the "Trustee"). The material provisions of
the Notes and the Indenture are summarized below. The statements under this
caption relating to the Notes and the Indenture are summaries only, however,
and do not purport to be complete. Such summaries make use of terms defined in
the Indenture and are qualified in their entirety by express reference to the
Indenture, which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The Notes will be issued by Bradlees Stores,
Inc. The Indenture will be subject to and governed by the Trust Indenture Act
of 1939, as amended (the "TIA").
General
Each Note will mature on February 3, 2004, and will bear interest at the
rate of 9% per annum from the date of issuance, payable semi-annually in
arrears on January 1 and July 1 of each year, commencing July 1, 1999, to the
person in whose name the Note is registered at the close of business on the
record date next preceding such interest payment date. Bradlees Stores, Inc.
will pay interest on overdue principal and will pay interest on overdue
interest. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Bradlees Stores, Inc. will pay the principal on the Notes
only to each Holder who presents and surrenders such Notes to a Paying Agent on
or after February 3, 2004. Bradlees Stores, Inc. will pay principal and
interest in U.S. legal tender by Federal funds bank wire transfer or by check
to the persons who are registered Holders at the close of business on the
Record Date next preceding the applicable interest payment date. The aggregate
principal amount of the Notes that may be issued under the Indenture will be
limited to $28,995,000 (which excludes the $11.0 million aggregate principal
amount that was pre-paid on the Effective Date).
55
<PAGE>
The Notes will be transferable and exchangeable at the office of the
Security Registrar and will be issued in fully registered form, without
coupons, in denominations of $1,000 and any whole multiple thereof. Bradlees
Stores, Inc. may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection with certain
transfers and exchanges and any other expenses connected therewith.
Ranking
The indebtedness represented by the Notes will rank equally with other non-
subordinated indebtedness of Bradlees Stores, Inc. Each Note will rank on
parity with each other Note.
Except as described under "Merger, Consolidation or Sale of Assets," or
"Limitations on Indebtedness" the Notes do not contain any provisions that
would limit the ability of Bradlees Stores, Inc. to incur indebtedness or that
would afford holders of Notes protection in the event of (i) a highly leveraged
or similar transaction involving Bradlees Stores, Inc., the management of
Bradlees Stores, Inc., or any affiliate of any such party, (ii) a change of
control, or (iii) a reorganization, restructuring, merger or similar
transaction involving Bradlees Stores, Inc. that may adversely affect the
holders of the Notes. In addition, subject to the limitations set forth under
"Merger, Consolidation or Sale of Assets," Bradlees Stores, Inc. may, in the
future, enter into certain transactions, such as the sale of all or
substantially all of its assets or the merger or consolidation of the Bradlees
Stores, Inc., that would increase the amount of Bradlees Stores, Inc.'s
indebtedness or substantially reduce or eliminate Bradlees Stores, Inc.'s
assets, which may have an adverse effect on Bradlees Stores, Inc.'s ability to
service its indebtedness, including the Notes.
Redemption
Any Notes outstanding shall be redeemed, along with any accrued and unpaid
interest on such Notes, with the net proceeds received upon the disposition of
our leasehold interest in our Yonkers, New York store or the net proceeds (up
to a maximum amount of $6.5 million plus accrued and unpaid interest and
expenses) received upon the disposition of the Additional Collateral (as
defined below). Additionally, the net proceeds of any offering of common stock
by Bradlees, Inc., except offerings to employees pursuant to the Plan of
Reorganization or pursuant to any benefit plan, shall be used to repay, pro
rata, any outstanding Notes plus accrued and unpaid interest. We also have the
right to redeem the Notes at any time, in whole or in part, by paying the
holder the unpaid principal plus accrued and unpaid interest. In addition,
pursuant to the Plan of Reorganization, we have modified the termination date
and certain other provisions of our lease for our Union Square, New York store
in exchange for a payment upon the Effective Date of $11.0 million by the
landlord. This payment was applied as a pre-payment to the Notes, leaving
$28,995,000 aggregate principal amount of Notes outstanding. Notice of any
redemption shall be given to the holder of the Notes to be redeemed not less
than 10 days prior to the scheduled redemption date.
Limitations on Mergers and Consolidation
The Indenture provides that neither Bradlees, Inc. nor Bradlees Stores, Inc.
may consolidate or merge with, or sell, assign, transfer, lease or convey all
or substantially all of its assets to, any other entity unless (i) either
Bradlees, Inc. or Bradlees Stores, Inc., as the case may be, shall be the
continuing entity, or the successor entity formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such
assets, shall be a person organized and existing under the laws of any
jurisdiction of the United States, and shall expressly assume by supplemental
indenture (A) in the case of a transaction involving Bradlees Stores, Inc.,
Bradlees Stores, Inc.'s obligations to pay principal of and interest on all of
the Notes, as well as every covenant and obligation of Bradlees Stores, Inc.
under the Indenture and the Security Documents or (B) in the case of a
transaction involving Bradlees, Inc., the guarantee obligations and other
obligations of Bradlees, Inc. under the Indenture (ii) before and immediately
after giving effect to such transaction, no event
56
<PAGE>
of default under the Indenture, and no event which, after notice or the lapse
of time, or both, would become such an event of default, shall have occurred or
be continuing and (iii) Bradlees, Inc., Bradlees Stores, Inc. or the successor
entity, shall deliver to the Trustee a certificate and an opinion of counsel
that such actions comply with the applicable provisions of the Indenture.
Limitations on Indebtedness
The Indenture provides that neither Bradlees Stores, Inc. nor any of its
subsidiaries will incur any Indebtedness (which as defined in the Indenture
includes obligations for borrowed money, the defined purchase price of certain
assets and guarantees of the foregoing) other than (i) Indebtedness incurred
under or permitted by the BankBoston Facility (or any amendment, restatement,
modification, renewal, refunding, replacement or refinancing thereof in whole
or in part from time to time provided that the Indebtedness does not exceed
$270 million plus any guarantees thereof); (ii) Indebtedness represented by the
Notes, the guarantee of the Notes described below and other Indebtedness
incurred pursuant to the Plan of Reorganization (or any amendment, restatement,
modification, renewal, refunding, replacement or refinancing thereof in whole
or in part from time to time); (iii) Indebtedness, which may be in addition to
Indebtedness incurred pursuant to clause (i), incurred in connection with the
acquisition (by purchase, lease or otherwise) of additional store sites or to
finance the fixtures, equipment, inventory and other costs and expenses
associated with such store sites; (iv) Indebtedness incurred to finance or
refinance capital expenditures; and (v) Indebtedness incurred in the ordinary
course of our business as of February 2, 1999 in accordance with past
practices. The Indenture further provides that Bradlees, Inc. will not incur
Indebtedness other than as described in clauses (i) through (iii) above;
provided that any indebtedness incurred by Bradlees, Inc. pursuant to clause
(iii) above shall rank pari passu with Bradlees, Inc.'s guarantee of the Notes.
Guarantees
Bradlees, Inc. and New Horizons of Yonkers, Inc. will severally, fully and
unconditionally guarantee the payment obligations of Bradlees Stores, Inc.
under the 9% Notes, the Indenture and the Security Documents. The obligations
of Bradlees, Inc. under its guarantee will be unsecured obligations of
Bradlees, Inc. and New Horizons of Yonkers, Inc. and will be limited as
necessary to prevent the guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--Fraudulent Conveyance Matters." The
guarantee by each guarantor ranks equally with all other non-subordinated
indebtedness of such guarantor except the guarantee by Bradlees, Inc. is
expressly subordinated to the guarantee by Bradlees, Inc. of the BankBoston
Facility and the guarantee by New Horizons of Yonkers, Inc. is expressly
subordinated to the guarantee by New Horizons of Yonkers, Inc. of the
BankBoston Facility. A guarantor may not make payments on the Notes if such
guarantor's guarantee of the BankBoston Facility is not paid when due or
discharged in full, unless the representative under the BankBoston Facility
consents. Upon any distribution to creditors following a liquidation,
dissolution, bankruptcy, reorganization or similar proceeding relating to a
guarantor, holders of such guarantor's guarantee of the BankBoston Facility are
entitled to payment in full (including interest after commencement of any such
proceedings) before holders of Notes may be paid under the guarantee.
Prior to making any distributions pursuant to these guarantees, the Trustee
or paying agent must inquire of the representative of the BankBoston Facility
as to whether such distribution is permitted under the subordination provisions
of the Indenture. If no response is received within 24 hours of such inquiry,
distributions may be made.
Events of Default, Notice and Waiver
The following events are "Events of Default" with respect to the Notes: (i)
default for 15 days in the payment of any installment of interest on any Note
when it becomes due and payable; (ii) default in the payment of principal of
any Note when it becomes due and payable, at maturity, acceleration, redemption
or otherwise; (iii) default in the performance or breach of any other
obligation of Bradlees Stores, Inc., Bradlees, Inc. or New Horizons of Yonkers,
Inc. contained in the Indenture or related security agreement that continues
57
<PAGE>
for 30 days after written notice from holders of at least 25% of the aggregate
principal amount of outstanding Notes thereof given to Bradlees, Inc., Bradlees
Stores, Inc. or New Horizons of Yonkers, Inc. as provided in the Indenture;
(iv) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of Bradlees, Inc., Bradlees
Stores, Inc. or New Horizons of Yonkers, Inc.; (v) any one or more judgments or
orders as to liability or debt for payment in excess of five million dollars in
the aggregate shall be rendered against us and either (a) enforcement
proceedings shall have been commenced and shall be continuing by any creditor
upon such judgment or order or (b) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal, payment or otherwise, shall not be in effect; (vi) Bradlees,
Inc. fails to deliver Common Stock within three trading days upon conversion of
the Notes; (vii) the guarantee of Bradlees, Inc. ceases to be in effect for a
period of ten days after notice is provided; (viii) any liens created by the
security agreement shall cease to be enforceable and Bradlees Stores, Inc. does
not cure the cessation within 30 days; and (ix) the collateral agent under the
BankBoston Facility has commenced the exercise of its remedies with respect to
amounts outstanding thereunder or the related collateral.
If an Event of Default under the Indenture occurs and is continuing and has
not been waived, then in every such case the holders of at least 25% in
principal amount of outstanding Notes have the right to declare the principal
amount of all the Notes to be due and payable immediately by written notice
thereof to Bradlees Stores, Inc. and the Trustee. However, at any time after
such a declaration of acceleration with respect to the Notes has been made, the
holders of a majority in principal amount of outstanding Notes may, on behalf
of the holders of all of the Notes, rescind and cancel such declaration and its
consequences if (i) the recission would not conflict with any judgement or
decree; (ii) all existing events of default, with respect to the Notes have
been cured or waived, except nonpayment of principal or interest that has
become due solely because of acceleration; (iii) to the extent payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid; and (iv) Bradlees Stores, Inc. has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advancements. The Indenture also provides that the
holders of not less than a majority in principal amount of the outstanding
Notes may waive any past default and its consequences, except a default (i) in
the payment of the principal of (or premium, if any) or interest on any Note;
or (ii) with respect to an obligation contained in the Indenture that cannot be
modified or amended without the consent of the holder of each outstanding Note
affected thereby.
The TIA requires the Trustee to give notice to the holders of the Notes
within 90 days of the occurrence of an Event of Default of which it is aware
under the Indenture unless such default shall have been cured or waived;
provided, however, that such Trustee may withhold notice to the holders of
Notes if specified responsible officers, as set forth in the TIA, of such
Trustee consider such withholding to be in the interest of such holders.
The Indenture provides that no holders of Notes may institute any
proceedings, judicial or otherwise, upon or with respect to the Indenture or
for any remedy thereunder, except in the case of failure of the Trustee to act
within 10 days after it has received satisfactory indemnity and a written
request to institute proceedings relating to an Event of Default from the
holders of not less than 25% aggregate principal amount of the outstanding
Notes. This provision will not prevent, however, any holder of Notes from
instituting suit for the enforcement of payment of the principal and interest
on such Notes at the respective due dates thereof.
The holders of a majority in principal amount of the outstanding Notes shall
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or of exercising any trust
or power conferred upon such Trustee. The Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, which may involve
the Trustee in personal liability or which may be unduly prejudicial to the
holders of Notes not joining therein, it being understood that the Trustee
shall have no duty to ascertain the potential prejudice of any actions.
Within 120 days after the close of each fiscal year, Bradlees Stores, Inc.
is required to deliver to the Trustee a certificate, signed by one of several
specified officers of Bradlees Stores, Inc., stating whether or not
58
<PAGE>
such officer has knowledge of any failure by Bradlees Stores, Inc. to comply
with any of its obligations under the Indenture.
Modification of the Indenture
Modifications and amendments of the Indenture, any security documents or the
Notes are permitted to be made only with the consent of the holders of a
majority in principal amount of all outstanding Notes issued under the
Indenture affected by such modification or amendment; provided, however, that
no such modification or amendment may, without the consent of the holder of
each such Note affected thereby, (i) reduce the principal or change or have the
effect of changing the stated maturity of any Notes, or change the date on
which any Notes may be subject to redemption, or reduce the redemption price;
(ii) reduce the rate of interest, or change or have the effect of changing the
stated maturity for payment of interest on the Notes, (iii) change the place of
payment or currency for payment of principal or interest on any such Notes;
(iv) impair the right to institute suit for the enforcement of any payment on
or with respect to any such Notes or permitting the holders of a majority in
principal amount of Notes to waive events of default; (v) reduce the above-
stated percentage of any outstanding Notes necessary to modify or amend the
Indenture with respect to such Notes or to waive compliance with certain
provisions thereof or certain Events of Default and consequences thereunder;
(vi) change any material provision of any security document; (vii) adversely
affect the right of holders of the Notes to convert them into common stock;
(viii) waive a default in payment of principal or interest; (ix) release
Bradlees, Inc. from its guarantee obligations or release collateral other than
as permitted by the Indenture; or (x) modify any of the foregoing provisions.
In addition, if any Indebtedness is outstanding under the BankBoston Facility,
provisions of the Indenture relating to the BankBoston Facility guarantees and
the subordination of the guarantees of the Notes shall not be amended without
the consent of the agent of the BankBoston Facility. Any amendment to release
the collateral securing the Notes must be unanimously approved by all holders
of Notes.
Modifications and amendments of the Indenture, any security documents or the
Notes will be permitted to be made by Bradlees, Inc, Bradlees Stores, Inc. and
the Trustee thereunder without the consent of any holder of the Notes for any
of the following purposes: (i) to evidence the succession of another person to
Bradlees Stores, Inc. as obligor under the Indenture to the extent permitted
under the Indenture; (ii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trust under the
Indenture by more than one Trustee; (iii) to cure any ambiguity, defect or
inconsistency in such documents, provided that in the opinion of the Trustee,
such action shall not adversely affect the interests of holders of Notes issued
under the Indenture; (iv) to provide for uncertificated Notes; (v) to maintain
compliance with the requirements of the SEC or to remain qualified under the
TIA; (vi) to give effect to the release of any collateral or any lien in
accordance with the terms of any security document; (vii) to make any change
that does not adversely affect the rights of any Note holders or (viii) to make
any change that provides an additional benefit to the holders of the Notes.
Collateral
The Notes are secured by (i) a first priority lien on our leasehold interest
in our Yonkers, New York store which we are seeking to sell (and the net
proceeds we receive upon its disposition), (ii) under certain circumstances and
subject to certain limitations described below, first priority liens on our
leasehold interests in our Danbury, Connecticut, Norwalk, Connecticut and
Saddle Brook, New Jersey stores (the "Additional Collateral"), as well as the
net proceeds we receive upon their disposition(s) (none of which we are
currently seeking to sell), and (iii) a first priority pledge of all of the
outstanding capital stock of New Horizons of Yonkers, Inc. We have agreed with
the holders of the Notes that if we have not disposed of our leasehold interest
in our Yonkers, New York store by July 31, 1999, the Trustee may market and
sell such leasehold interest and the Trustee may take title to all of the
outstanding capital stock of New Horizons of Yonkers, Inc. In either such
event, it is expected that the Trustee or its representative will continue to
actively seek to sell such leasehold interest. The net proceeds realized upon a
sale (by us, the Trustee or its representative) of the
59
<PAGE>
Yonkers, New York leasehold interest will be paid to the holders of the Notes
as a pre-payment. The disposition of our leasehold interest in the Yonkers, New
York store is subject to Bankruptcy Court approval. In addition, pursuant to
the Plan of Reorganization we have modified the termination date and certain
other provisions of our lease for our Union Square, New York store in exchange
for a payment upon the Effective Date of $11.0 million by the landlord. This
payment was applied as a pre-payment to the Notes, leaving $28,995,000
outstanding principal amount of Notes.
We are currently seeking to sell our leasehold interest in our Yonkers, New
York store. We have filed motions with the Bankruptcy Court seeking
authorization to auction such interest. Those motions require a minimum bid of
$15 million. In addition, we have agreed with the holders of the Notes that if
we receive a bona fide cash offer of $15 million or higher (excluding customary
prorations and transaction costs), we will accept such bid. No assurances can
be given that we will receive any bids at or in excess of $15 million and we
reserve the right to accept bids of less than $15 million.
The lien on the Additional Collateral shall only secure indebtedness under
the Notes equal to the sum of $6.5 million plus an amount from time to time
equal to the amount of interest (plus interest on interest) that would accrue
on $6.5 million of principal amount of outstanding Notes from February 2, 1999
to the date of calculation of the extent of such lien on the Additional
Collateral (but excluding any period for which interest has in fact been paid
under the Notes) and all costs and expenses payable by us under the mortgages
encumbering the Additional Collateral.
We are in the process of obtaining title insurance covering the leasehold
mortgages described above. In the event we are unable to obtain title insurance
satisfactory to the holders of the Notes, we have agreed to substitute an
insurable replacement mortgage or mortgages encumbering other leasehold
interests held by us, which leasehold interests are mutually acceptable to both
us and the Trustee as directed by the holders of a majority of principal amount
of outstanding Notes.
We have agreed to obtain this title insurance (including title insurance on
the replacement properties, if any) within 45 days following the Effective
Date. If we do not obtain this insurance for any reason whatsoever (including,
without limitation, our inability to agree on replacement collateral) within
this time period, we have agreed to pay the Trustee liquidated damages for the
benefit of the Note holders of $5,000 per day until our obligations are
satisfied.
Prior to any foreclosure of the leasehold mortgages by the Trustee, the
Trustee has agreed to generally allow the Company 120 days to conduct going-
out-of-business sales at those stores or to remove the inventory located at
those stores.
Conversion
The Notes will be convertible any time after the first anniversary of the
Effective Date into shares of our Common Stock. The conversion price will
initially be the arithmetic unweighted average closing price of the Common
Stock of Bradlees, Inc. during the twenty business days preceding the first
anniversary of the Effective Date. The conversion price may change if (i) we
make any distributions in shares of our Common Stock to our stockholders; (ii)
we issue options, warrants or rights to our stockholders that dilute current
owners of Bradlees, Inc. Common Stock; (iii) we take any action to increase or
decrease the number of shares outstanding which would effectively dilute the
value of the convertible feature of the Note; (iv) we distribute any assets
(other than cash dividends not exceeding certain levels), evidences of
indebtedness or shares of stock; or (v) certain extraordinary distributions of
cash are made to holders of our Common Stock (directly or by means of a tender
or exchange offer) where the amount distributed (plus other amounts distributed
to holders of our Common Stock in the previous 12 months) exceeds 15% of the
market capitalization (determined pursuant to the Indenture) of Bradlees, Inc.
In the case of a reclassification, change, merger, consolidation or sale of
substantially all assets, Bradlees, Inc. shall, as a condition precedent to
such event, enter into a supplemental indenture providing that the
consideration to be received by the Note holders upon conversion after such
event shall be the same as such holder would have received in connection with
such
60
<PAGE>
extraordinary event had they held the number of shares of our Common Stock
which would have been issued had such Notes been converted immediately prior to
such event. The Notes will not be convertible after the close of business on
January 30, 2004, or after the close of business on the second day prior to the
date on which the specified Note was to be redeemed.
Governing Law
The Indenture and each Note are governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the principles
thereof relating to conflicts of law except Sections 5-1401 and 5-1402 of the
New York General Obligations Law.
The Trustee
IBJ Whitehall Bank & Trust Company will be the Trustee under the Indenture.
Its address is One State Street, New York, New York 10004.
The TIA contains certain limitations on the right of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any such claim as
security or otherwise.
The Indenture provides that in case an Event of Default shall occur and be
continuing, the Trustee will be required to use the degree of care and skill of
a prudent person in the conduct of his or her own affairs.
Authentication
One officer of Bradlees Stores, Inc. will sign each Note on behalf of
Bradlees Stores, Inc., in each case by manual or facsimile signature. A Note
will not be valid until the Trustee or an Authenticating Agent manually signs
the certificate of authentication on the Note. Each Note will be dated as of
the date of its authentication.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The following summary description of the capital stock of Bradlees is
qualified in its entirety by reference to the Bradlees Amended and Restated
Articles of Organization (the "Articles") and the Bradlees Amended and Restated
By-laws (the "By-laws"), copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. All of the stock of
Bradlees Stores, Inc. is owned by Bradlees. The terms of the common stock of
Bradlees Stores, Inc. are contained in the Amended and Restated Articles of
Organization and the Amended and Restated By-laws of Bradlees Stores, Inc.,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
Authorized and Outstanding Capital Stock
Bradlees has authorized capital stock consisting of 41,000,000 shares, par
value $.01 per share, consisting of 40,000,000 shares of Common Stock and
1,000,000 shares of preferred stock. As of February 2, 1999, 10,225,711 shares
of Common Stock, held by approximately 2,200 stockholders, are issued and
outstanding. As of February 2, 1999, no preferred stock was issued or
outstanding.
Common Stock. In addition to the 10,225,711 shares we have issued, the
following shares of Common Stock are reserved for issuance:
. 1,000,000 shares issuable upon exercise of outstanding warrants; and
. 1,000,000 shares are reserved for issuance under the Stock Plan.
In addition, we have agreed to issue an indeterminate number of shares upon
the conversion of the 9% Convertible Notes.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of preferred
stock, if and when issued. As of February 2, 1999, no preferred stock was
issued or outstanding. The holders of Common Stock are entitled to receive such
dividends, if any, as may be declared from time to time by our Board of
Directors from funds legally available therefor. See "Dividend Policy." The
possible issuance of preferred stock with a preference over Common Stock as to
dividends could impact that dividend rights of holders of Common Stock. The
holders of Common Stock have no preemptive or other subscription rights, and
there are no conversion rights or redemption or sinking fund provisions with
respect to the Common Stock. All outstanding shares of Common Stock, including
the shares offered hereby, are fully paid and non-assessable.
Undesignated Preferred Stock. The Board of Directors is authorized, without
further action of the stockholders, to issue up to 1,000,000 shares of
preferred stock in one or more series and to fix the designations, powers,
preferences and the relative, participating, optional or other special rights
of the shares of each series and any qualifications, limitations and
restrictions thereon as set forth in our Articles of Organization. Any such
preferred stock issued by us may rank prior to the Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock.
Certain Provisions of the Articles and By-laws of Bradlees, Inc.
General. Bradlees' Articles and By-laws contain rules of corporate
governance and stockholder rights. The Articles and By-laws allow the board of
directors to issue shares of preferred stock and to set the voting rights and
preferences of that stock.
62
<PAGE>
Board of Directors. The Articles and By-laws provide that the initial number
of directors shall be 9. The board of directors may increase, but not decrease,
the number of directors. The first annual meeting of stockholders will be held
in 2000. The initial directors shall serve terms expiring at this annual
meeting. Successors will hold office until the next annual meeting of the
stockholders in 2001. The initial directors shall hold office until their
successors are elected and qualified or until their resignation or removal.
Any holder of record of shares of capital stock or the Nominating Committee
established by the board of directors may nominate directors. Shareholders who
nominate directors are subject to advance notice and disclosure requirements as
well as time limits. Shareholders shall elect directors by the affirmative vote
of a plurality of the votes cast at the meeting.
Removal of Directors. The board of directors may only remove any director by
the vote of a majority of directors then in office if the director to be
removed is (i) subject to any regulatory or judicial order or decree barring or
suspending such individual from any activity related to the purchase, sale or
trading of securities or commodities; or (ii) such person has been indicted on
charges relating to the purchase, sale or trading of securities or commodities.
The shareholders may remove any director with the vote of two-thirds ( 2/3) of
the shareholders eligible to elect Directors.
Meetings of Stockholders. The board of directors may call a special meeting
of stockholders. The clerk or in certain circumstances any other officer must
call a special meeting of the stockholders upon written application of one or
more stockholders who hold at least (1) a majority in interest in interest of
the capital stock entitled to vote at such meeting or (2) such lesser
percentage as shall be determined to be the maximum percentage which we are
permitted by applicable law to establish for the call of such a meeting. At a
special meeting, the shareholders may only act upon those matters set forth in
the notice of the special meeting. The By-laws set forth advance notice and
disclosure requirements and time limitations on any new business which a
stockholder wishes to propose for consideration at an annual meeting of
stockholders.
Indemnification and Limitation of Liability. The By-laws provide that we
shall indemnify our directors and officers to the fullest extent authorized by
Massachusetts law against all expense and liabilities reasonably incurred in
connection with service for or on behalf of us, unless that director or officer
is adjudicated in that proceeding to have breached his or her duty of loyalty
to us. We may, in the discretion of the Board of Directors, indemnify our
employees and agents as if they were directors or officers, to the fullest
extent authorized by Massachusetts law.
Pursuant to Massachusetts law and the Articles, a director does not have any
liability for monetary damages for breach of fiduciary duty except for:
. any breach of the director's duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. an unauthorized distribution or loan to an officer or director in
violation of the Massachusetts General Law; or
. any transaction from which the director obtained an improper personal
benefit.
In addition, Massachusetts law states that a corporation may not indemnify a
director, officer or employee who has not acted in good faith in the reasonable
belief that his or her action was in the best interest of the corporation.
Sale, Lease or Exchange of Assets; Merger. Massachusetts law provides that,
unless the articles of organization provide otherwise, two-thirds ( 2/3) of the
outstanding shares are required to approve a sale, lease or exchange of all or
substantially all of our assets or a merger or consolidation. The Articles do
not contain a provision changing this requirement.
63
<PAGE>
Amendment of the By-laws. The board of directors or the shareholders may
amend or repeal the Articles or By-laws, subject to the following:
. The board of directors can amend or repeal the By-laws with a
majority vote of the directors in office. Following an amendment,
the board of directors must give notice to all shareholders entitled
to vote on amendments by the time the board gives notice of the next
annual meeting.
. The shareholders can amend or repeal the By-laws with a vote of at
least two-thirds ( 2/3) of all shareholders eligible to vote. All
shares of voting stock vote together as a single class.
. If the board of directors recommends an amendment or repeal of the
By-laws, the shareholders can amend or repeal with a majority vote
of all shareholders eligible to vote. All shares of voting stock
vote together as a single class.
Amendment of the Articles. The shareholders can amend the Articles at any
annual meeting or at a special meeting called to amend the Articles. The
shareholders may vote to amend the Articles alone or with the board of
directors. The board of directors may not amend the Articles without
shareholder approval.
. The shareholders can amend the Articles with a vote of at least two-
thirds of all shareholders eligible to vote. All shares of voting
stock vote together as a single class.
. If the board of directors recommends an amendment, the shareholders
can amend the Articles with a majority vote of all shareholders
eligible to vote. All shares of voting stock vote together as a
single class.
Massachusetts Anti-takeover Laws
Chapter 110F
Chapter 110F of the Massachusetts General Laws prohibits corporations from
engaging in certain business combinations which include mergers and
consolidations and certain stock or assets sales with an interested
stockholder. This prohibition extends for three years following the date the
stockholder becomes an interested stockholder. An interested stockholder is a
holder of five percent (5%) or more of the outstanding stock of the
corporation. The statute allows corporations to elect not to be governed by
Chapter 110F if a majority of shares entitled to vote approves such election.
In its Articles, Bradlees has elected not to be governed by Chapter 110F. The
Articles were approved by the Bankruptcy Court in connection with the Plan of
Reorganization. This election took effect at the Effective Date.
Chapter 110D
Chapter 110D of the Massachusetts General Laws governs any person (the
"acquiror") who makes a bona fide offer to acquire, or acquires, shares of
stock of a Massachusetts corporation that when combined with shares already
owned, would increase the acquiror's ownership to at least 20% of the voting
stock of such company. To vote his or her shares, an acquiror must obtain the
approval of a majority of shares held by all stockholders not including shares
of the acquiror, officers or inside directors of the corporation. A
Massachusetts corporation may elect not to be governed by Chapter 110D by
including a provision to that effect in its articles of organization or by-
laws. In its Articles, Bradlees has opted not to be governed by the provisions
of Chapter 110D.
Certain Provisions of the Articles and By-laws of Bradlees Stores, Inc.
The Articles and By-laws of Bradlees Stores, Inc. are substantially the same
as the Articles and By-laws of Bradlees, Inc. discussed above, with the
following major exceptions
. Bradlees Stores, Inc. has only three directors;
. Bradlees Stores, Inc. has authorized capital stock consisting of
150,000 shares of common stock
and
50,000 shares of preferred stock.
All of the issued and outstanding shares of common stock of Bradlees Stores,
Inc. is held by Bradlees, Inc. There is no preferred stock of Bradlees Stores,
Inc. currently outstanding.
64
<PAGE>
Transfer Agent and Registrar
Boston EquiServe serves as the transfer agent and registrar for the Common
Stock.
Listing
The Common Stock is currently listed on the Nasdaq National Market on a
"when issued" basis under the symbol "BRADV."
We do not intend to apply for listing of the Notes on any securities
exchange or authorization for quotation on the Nasdaq Stock Market.
LEGAL MATTERS
Goodwin, Procter & Hoar llp, Boston, Massachusetts has passed upon the
validity of the shares of the Common Stock and the Notes offered by this
Prospectus.
EXPERTS
The consolidated balance sheet, statements of operations, stockholder's
equity (deficiency), and cash flows of the Company as of January 31, 1998 and
for the fiscal year then ended included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports. Arthur Andersen LLP's report for the fiscal year ended
January 31, 1998 contained an explanatory paragraph that raised substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The consolidated financial statements of Bradlees, Inc. as of February 1,
1997 and for the years ended February 1, 1997 and February 3, 1996 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein (which report expresses an
unqualified opinion and includes explanatory paragraphs referring to (a) the
Company's filing for reorganization under Chapter 11 of the Federal Bankruptcy
Code, and (b) the Company's 1996 and 1995 losses from operations and
stockholders' deficiency, which raise substantial doubt about the Company's
ability to continue as a going concern), and have been so included in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form S-1 (including any and all amendments thereto,
the "Registration Statement") under the Securities Act and the rules and
regulations promulgated thereunder, with respect to the Securities offered
hereby. This Prospectus omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the Securities offered hereby. Statements contained in this Prospectus
concerning the provisions or contents of any contract, agreement or any other
document referred to herein are not necessarily complete with respect to each
such contract, agreement or document filed as an exhibit to the Registration
Statement, and reference is made to such exhibit for a more complete
description of the matters involved, and each such statement shall be deemed
qualified by such reference. We are subject to the information requirements of
the Exchange Act, and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information, as well as the Registration Statement,
including the exhibits and schedules thereto, may be inspected and copied at
the public
65
<PAGE>
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from such offices,
upon payment of the fees prescribed by the Securities and Exchange Commission.
The Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that submit electronic filings to the Commission.
We intend to furnish our stockholders with annual reports containing audited
consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm, and with quarterly reports for the first
three quarters of each fiscal year containing unaudited interim consolidated
financial information.
On September 24, 1997, the Audit Committee of the Board of Directors of the
Company recommended the appointment of Arthur Andersen LLP as certifying
accountants for the Company replacing Deloitte & Touche LLP, who was dismissed,
effective September 24, 1997 and the appointment along with the dismissal was
approved by the Board of Directors and the United States Bankruptcy Court for
the Southern District of New York.
There were no disagreements between Deloitte & Touche LLP and the Company's
management at the decision-making level during the two most recent fiscal years
and the subsequent interim periods (the "Reporting Period"), which
disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused Deloitte & Touche LLP to make reference to the subject matter
of the disagreements in connection with its reports. In addition, there were no
reportable events, as defined in Item 304(a)(i)(v) of Regulation S-K, during
the Reporting Period.
Deloitte & Touche LLP's report on the consolidated financial statements for
the year ended February 1, 1997 expressed an unqualified opinion and included
explanatory paragraphs relating to the following:
February 1, 1997 report:
a The Company's filing for reorganization protection under Chapter 11
of the Federal Bankruptcy Code.
b. The Company's 1996 and 1995 losses from operations and stockholders'
deficiency which raises substantial doubt about the Company's
ability to continue as a going concern.
During the Reporting Period, neither the Company nor anyone on its behalf
consulted Arthur Andersen LLP regarding the application of accounting
principles to a specified transaction or the type of audit opinion that might
be rendered on the Company's financial statements, and Arthur Andersen LLP did
not provide a written or oral report or advice that Bradlees' management
concluded was an important factor considered by the registrant in reaching a
decision on the issue.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Bradlees, Inc. and Subsidiaries
(Operating as Debtor-in-Possession)
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Financial Statements as of October 31, 1998
(unaudited)
Condensed Consolidated Statements of Operations for the thirteen weeks
ended October 31, 1998
(unaudited) and November 1, 1997 (unaudited)............................ F-2
Condensed Consolidated Statements of Operations for the thirty-nine weeks
ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited)..... F-3
Condensed Consolidated Balance Sheets as of October 31, 1998 (unaudited)
and November 1, 1997 (unaudited)........................................ F-4
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks
ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited)..... F-6
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-7
Consolidated Financial Statements as of January 31, 1998
Report of Independent Public Accountants-Arthur Andersen LLP............. F-21
Independent Auditors' Report-Deloitte & Touche LLP....................... F-22
Consolidated Statements of Operations for the fiscal years ended January
31, 1998, February 1, 1997 and February 3, 1996......................... F-23
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997.. F-24
Consolidated Statements of Cash Flows for the fiscal years ended January
31, 1998, February 1, 1997 and February 1, 1996......................... F-25
Consolidated Statements of Stockholders' Equity (Deficiency) for the fis-
cal years ended January 31, 1998, February 1, 1997 and February 3,
1996.................................................................... F-26
Notes to Consolidated Financial Statements............................... F-27
</TABLE>
F-1
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------
Oct. 31, 1998 Nov. 1, 1997
------------- ------------
<S> <C> <C>
Total sales........................................ $323,106 $342,337
Leased department sales............................ 10,973 11,904
-------- --------
Net sales.......................................... 312,133 330,433
Cost of goods sold................................. 217,394 233,329
-------- --------
Gross margin....................................... 94,739 97,104
Leased department and other operating income....... 3,028 3,282
-------- --------
97,767 100,386
-------- --------
Selling, store operating, administrative and
distribution expenses............................. 95,549 93,796
Depreciation and amortization expense.............. 7,803 9,004
Interest and debt expense.......................... 4,371 4,187
Reorganization items............................... (2,749) (6,978)
-------- --------
Net income (loss).................................. $ (7,207) $ 377
======== ========
Comprehensive income (loss)........................ $ (7,207) $ 377
======== ========
Net loss per share - basic and diluted............. $ (0.64) $ 0.03
======== ========
Weighted average shares outstanding (in
thousands) - basic and diluted.................... 11,310 11,366
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
39 Weeks Ended
--------------------------
Oct. 31, 1998 Nov. 1, 1997
------------- ------------
<S> <C> <C>
Total sales........................................ $939,203 $930,683
Leased department sales............................ 32,818 35,463
-------- --------
Net sales.......................................... 906,385 895,220
Cost of goods sold................................. 635,383 625,521
-------- --------
Gross margin....................................... 271,002 269,699
Leased department and other
operating income................................... 8,757 8,722
-------- --------
279,759 278,421
Selling, store operating, administrative and
distribution expenses............................. 280,326 289,844
Depreciation and amortization expense.............. 24,370 27,544
Loss on disposition of properties.................. 241 --
Interest and debt expense.......................... 11,960 11,673
Reorganization items............................... (2,555) (2,160)
-------- --------
Net loss........................................... $(34,583) $(48,480)
======== ========
Comprehensive loss................................. $(34,583) $(48,480)
======== ========
Net loss per share - basic and diluted............. $ (3.06) $ (4.26)
======== ========
Weighted average shares outstanding (in
thousands) - basic and diluted.................... 11,311 11,382
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Unrestricted cash and cash
equivalents........................ $ 10,959 $ 10,949 $ 11,291
Restricted cash and cash
equivalents........................ 25,129 16,760 9,436
-------- -------- --------
Total cash and cash equivalents... 36,088 27,709 20,727
-------- -------- --------
Accounts receivable................. 11,925 10,013 14,183
Inventories......................... 318,883 238,629 335,359
Prepaid expenses.................... 11,031 8,733 11,087
Assets held for sale................ - 7,754 7,754
-------- -------- --------
Total current assets.............. 377,927 292,838 389,110
Property, plant and equipment, net:
Property excluding capital leases,
net................................ 123,892 131,525 135,430
Property under capital leases, net.. 17,732 18,959 21,126
-------- -------- --------
Total property, plant and
equipment, net................... 141,624 150,484 156,556
-------- -------- --------
Other assets:
Lease interests at fair value, net.. 137,350 142,454 144,705
Assets held for sale................ - 4,000 5,250
Other, net.......................... 4,509 5,390 4,386
-------- -------- --------
Total other assets................ 141,859 151,844 154,341
-------- -------- --------
Total assets........................ $661,410 $595,166 $700,007
======== ======== ========
</TABLE>
(Continued)
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997
------------- ------------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
Current liabilities:
Accounts payable.................... $179,413 $124,361 $196,279
Accrued expenses.................... 23,221 30,516 34,619
Self-insurance reserves............. 6,027 6,564 6,144
Short-term debt..................... 157,392 84,208 131,500
Current portion of capital lease
obligations........................ 1,038 1,038 1,038
-------- -------- --------
Total current liabilities......... 367,091 246,687 369,580
-------- -------- --------
Long-term liabilities
Obligations under capital leases.... 26,211 27,073 32,738
Deferred income taxes............... 8,581 8,581 8,581
Self-insurance reserves............. 12,237 13,328 12,473
Other long-term liabilities......... 19,034 23,342 28,186
-------- -------- --------
Total long-term liabilities....... 66,063 72,324 81,978
-------- -------- --------
Liabilities subject to settlement
under the reorganization case........ 548,788 562,105 560,154
Stockholders' deficiency:
Common stock - 11,310,384
outstanding (11,312,154 at 1/31/98,
11,387,154 at 11/1/97)
Par value.......................... 115 115 115
Additional paid-in-capital......... 137,821 137,821 137,951
Accumulated deficit................. (457,665) (423,082) (449,007)
Treasury stock, at cost............. (803) (804) (764)
-------- -------- --------
Total stockholders' deficiency.... (320,532) (285,950) (311,705)
-------- -------- --------
Total liabilities and stockholders'
deficiency......................... $661,410 $595,166 $700,007
======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
39 Weeks Ended
--------------------------
Oct. 31, 1998 Nov. 1, 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(34,583) $(48,480)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation and amortization expense........... 24,370 27,544
Amortization of deferred financing costs........ 1,215 2,098
Reorganization items............................ (2,555) (2,160)
Changes in working capital and other, net....... (37,231) (29,832)
-------- --------
Net cash used by operating activities before
reorganization items............................. (48,784) (50,830)
-------- --------
Reorganization items:
Interest income received........................ 746 330
Chapter 11 professional fees paid............... (7,786) (7,877)
Other reorganization expenses paid, net......... (3,225) (5,611)
-------- --------
Net cash used by reorganization items............. (10,265) (13,158)
-------- --------
Net cash used by operating activities............. (59,049) (63,988)
Cash flows from investing activities:
Capital expenditures, net......................... (10,379) (14,721)
Increase in restricted cash and cash equivalents.. (8,369) (310)
-------- --------
Net cash used in investing activities............. (18,748) (15,031)
-------- --------
Cash flows from financing activities:
Payments of liabilities subject to settlement..... (6,551) (5,447)
Deferred financing costs.......................... - (2,026)
Net borrowings under the DIP facilities........... 73,184 89,000
Proceeds from sales of properties................. 12,036 -
Principal payments on capital lease obligations... (862) (1,242)
-------- --------
Net cash provided by financing activities......... 77,807 80,285
-------- --------
Net increase (decrease) in unrestricted cash and
cash equivalents................................... 10 1,266
Unrestricted cash and cash equivalents:
Beginning of period............................... 10,949 10,025
-------- --------
End of period..................................... $ 10,959 $ 11,291
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest and certain debt fees...... $ 10,282 $ 9,264
Cash received (paid) for income taxes............. $ (279) $ 109
Supplemental schedule of noncash (investing and
financing) activities:
Reduction of liabilities subject to settlement due
to transfer of title to property................. $ 2,000 $ -
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-6
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements of Bradlees, Inc. and
subsidiaries, including Bradlees Stores, Inc. (collectively "Bradlees" or the
"Company"), have been prepared in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7: "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") and
generally accepted accounting principles applicable to a going concern, which
principles, except as otherwise disclosed, assume that assets will be realized
and liabilities will be discharged in the normal course of business. The
Company filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on June 23, 1995 (the "Filing"). The Company is
presently operating its business as a debtor-in-possession subject to the
jurisdiction of the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court").
With respect to the unaudited condensed consolidated financial statements
for the 13 weeks (third quarter) and 39 weeks (year-to-date) ended October 31,
1998 and November 1, 1997, it is the Company's opinion that all necessary
adjustments (consisting of normal and recurring adjustments) have been included
to present a fair statement of results for the interim periods. Certain prior-
year amounts have been reclassified to conform to this year's presentation.
These statements should be read in conjunction with the Company's financial
statements (Form 10-K) for the fiscal year ended January 31, 1998 ("1997"). Due
to the seasonal nature of the Company's business, operating results for the
interim periods are not necessarily indicative of results that may be expected
for the fiscal year ending January 30, 1999 ("1998"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, pursuant to the general rules and regulations promulgated by the
Securities and Exchange Commission (the "SEC").
The Company's ability to continue as a going concern is dependent upon the
consummation of the Company's amended plan of reorganization (Note 2), the
ability to maintain compliance with debt covenants under the DIP Facility (Note
4), achievement of profitable operations, maintenance of adequate financing,
and the resolution of the uncertainties of the reorganization case discussed in
Note 2. The Company experienced significant operating losses in 1996 and 1995.
In an effort to return the Company to profitability and accomplish its long-
term goals, the Company is focusing on three core product lines: moderately-
priced basic and casual apparel, basic and fashion items for the home, and
edited assortments of frequently purchased commodity and convenience products.
Bradlees is committed to quality and fashion, especially in apparel and home
furnishings, and to improved customer service. The Company believes that it can
strategically leverage its strength in the fashion and quality content of its
apparel and decorative home product offerings while driving traffic with
selected hardlines merchandise.
2. Reorganization Case
In the Chapter 11 case, substantially all liabilities as of the date of the
Filing are subject to settlement under the amended and modified plan of
reorganization (the "Plan") that was confirmed by the Bankruptcy Court on
January 27, 1999. As of the Effective Date, the Plan provided for approximately
$163 million in distributions to creditors, inclusive of $16 million of
administrative claim payments, $6 million in tax and cure notes, $14 million in
cash, $40 million in convertible notes primarily payable to the Company's pre-
Chapter 11 bank group, new common stock with an estimated value of $85 million,
and $2 million in other distributions. As previously reported, all existing
stock will be canceled upon the Company's emergence from bankruptcy with no
issuance of new stock to current shareholders.
A Form 8-K has been filed with the SEC that describes, among other things,
the classification and treatment of pre-petition claims under the Plan and
conditions to the occurrence of the Plan's effective date.
F-7
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
The Company emerged from Chapter 11 on February 2, 1999. Pro forma financial
information has been presented in the Company's Form S-1 Registration Statement
("Form S-1") filed with the SEC in November, 1998 and is updated in Note 11.
The Plan was originally confirmed by the Bankruptcy Court on November 18, 1998.
The United States District Court for the Southern District of New York reversed
this confirmation on December 23, 1998. We modified the Plan and the modified
Plan was confirmed by the Bankruptcy Court on January 27, 1999 and became
effective on February 2, 1999.
Schedules were filed by the Company with the Bankruptcy Court setting forth
the assets and liabilities of the Company as of the date of the Filing as shown
by the Company's accounting records. Differences between amounts shown by the
Company and claims filed by creditors are continuing to be investigated and
resolved. Although the ultimate amount and settlement terms for all pre-
petition liabilities have not yet been finalized, the Company believes that the
total of unsecured claims will not exceed $300 million, a condition precedent
to the effectiveness of the Plan. Payments of approximately $2.1 million were
made in 1997 to settle certain reclamation claims and two properties that were
financed prior to the Filing and held for sale at the beginning of 1998 were
either sold or transferred during the second quarter and the associated pre-
petition financing obligation was reduced accordingly (Note 7).
Under the Bankruptcy Code, the Company may elect to assume or reject real
estate leases, employment contracts, personal property leases, service
contracts and other executory pre-petition leases and contracts, subject to
Bankruptcy Court approval. A liability of approximately $45.7 million was
recorded through October 31, 1998, for rejected leases and contracts. This
liability may be subject to future adjustments based on claims filed and
Bankruptcy Court actions. The Company believes that it has recorded its best
estimate of the liability for rejected leases and contracts based on
information currently available.
The principal categories of claims classified as "Liabilities Subject to
Settlement Under the Reorganization Case" are identified below. Deferred
financing costs as of the Filing of $3.4 million, $2.0 million and $2.7
million, respectively, for the pre-petition revolving loan facility (the
"Revolver") and subordinated debt (the "2002 and 2003 Notes") have been netted
against the related outstanding debt amounts. In addition, a $9.0 million cash
settlement and approximately $12.7 million of adequate protection payments
since the Filing have been applied to reduce the Revolver debt amount. The cash
settlement relates to a portion of the Company's cash balance as of the date of
the Filing ($9.3 million) which was claimed as collateral by the pre-petition
bank group. The claim was settled in full for $9.0 million and approved by the
Bankruptcy Court in 1995. All amounts presented below may be subject to future
adjustments depending on Bankruptcy Court actions, further developments with
respect to disputed claims, determination as to the security of certain claims,
the value of any collateral securing such claims, or other events.
<TABLE>
<CAPTION>
(000's)
Liabilities Subject to Settlement ----------------------------------------
Under the Reorganization Case Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997
--------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Accounts payable................... $166,567 $165,324 $165,016
Accrued expenses................... 26,000 27,996 27,694
Revolver........................... 68,405 71,105 72,005
2002 Notes......................... 122,274 122,274 122,274
2003 Notes......................... 97,957 97,957 97,957
Financing obligation............... 12,460 17,951 17,951
Obligations under capital leases... 9,440 11,407 11,527
Provision for rejected leases...... 45,685 48,091 45,730
-------- -------- --------
$548,788 $562,105 $560,154
======== ======== ========
</TABLE>
F-8
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
3. Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents at October 31, 1998 were comprised of
the following, along with earned interest of $1.2 million: (a) $6.0 million of
the $24.5 million federal income tax refund received in April, 1996; (b) $1.1
million of forfeited deposits, net of property carrying costs, received in 1996
on a planned sale of an owned undeveloped property that was not consummated and
$7.6 million of net proceeds received when this property was sold in March,
1998; (c) $8.0 million from the sale of a closed store in January, 1998; and
(d) other funds ($1.2 million) restricted for security deposits for utility
expenses incurred after the Filing.
4. Debt
As a result of the Filing, substantially all debt (exclusive of the DIP
Facility) outstanding at October 31, 1998, was classified as liabilities
subject to settlement (Note 2). No principal or interest payments are made on
any pre-petition debt (excluding certain capital leases) without Bankruptcy
Court approval or until a reorganization plan defining the repayment terms has
been approved. During 1995, the Company received Bankruptcy Court approval to
make certain adequate protection payments to the pre-petition bank group. The
adequate protection payments, a cash settlement, and deferred financing costs
have been netted against the related outstanding debt amounts (Note 2).
Generally, interest on pre-petition debt ceases accruing upon the filing of
a petition under the Bankruptcy Code. Contractual interest expense not recorded
on certain pre-petition debt (the Revolver, 2002 Notes and 2003 Notes) totaled
approximately $7.7 and $23.1 million for the third quarter and year-to-date
periods of 1998, respectively, and $7.8 and $23.3 million for the third quarter
and year-to-date periods of 1997, respectively.
Financing Facility. The Company has a $250 million financing facility (the
"Financing Facility") (of which $125 million is available for issuance of
letters of credit) with BankBoston Retail Finance, Inc. ("BBNA") as agent,
under which the Company is allowed to borrow for general corporate purposes,
working capital and inventory purchases. The Financing Facility consists of (a)
an up to eighteen month debtor-in-possession revolving credit facility in the
maximum principal amount of $250 million (the "DIP Facility" - see below) and,
subject to meeting certain conditions, (b) an up to three year post-
confirmation revolving credit facility in the maximum principal amount of $250
million (the "Exit Facility" - see below). The commitment period for the
combined facility cannot exceed four years.
The DIP Facility replaced a $200 million Debtor-in Possession Revolving
Credit and Guaranty Agreement (the "Prior DIP Facility") with Chase Manhattan
Bank, as agent. There were outstanding direct borrowings of $157.4 million
under the DIP Facility as of October 31, 1998. Trade and standby letters of
credit outstanding under the DIP Facility were $8.5 and $19.3 million,
respectively, at October 31, 1998, and $16.1 and $19.7 million, respectively,
at November 1, 1997 under the Prior DIP Facility.
The DIP Facility has an advance rate of 60% of the Loan Value of Eligible
Receivables (as defined), plus 72% of the Loan Value of Eligible Inventory (as
defined). Between March 1 and December 15, the Company can borrow an
overadvance amount on the Loan Value of Eligible Inventory of 5% (the
"Overadvance Amount"), subject to a $20 million limitation. At the Company's
option, the Company may borrow under the DIP Facility at the Alternate Base
Rate (as defined) in effect from time to time (the "Base Rate Applicable
Margin") or the adjusted Eurodollar rate plus 2.25% (the "Eurodollar Applicable
Margin") for interest periods of one, two or three months. The Base Rate
Applicable Margin and Eurodollar Applicable Margin would be increased 0.5%
during any fiscal month that the Company has Overadvance Amounts. The weighted
average interest rate under the DIP Facility was 7.92% in the third quarter and
7.93% in the year-to- date period of 1998.
F-9
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
There are no compensating balance requirements under the DIP Facility but
the Company is required to pay an annual commitment fee of 0.3% of the unused
portion. The DIP Facility contains restrictive covenants including, among other
things, limitations on the incurrence of additional liens and indebtedness,
limitations on capital expenditures and the sale of assets, the maintenance of
minimum operating earnings ("EBITDA") and minimum accounts payable to inventory
ratios. The lenders under the DIP Facility have a "super-priority claim"
against the estate of the Company. As of October 31, 1998, the Company is in
compliance with the DIP Facility covenants. The DIP Facility expires on the
earlier of June 30, 1999, or the effective date of the Plan.
The Company has received a commitment for the Exit Facility, which consists
of a $250 million senior secured revolving line of credit (of which $125
million is available for issuance of letters of credit) and a $20 million
junior secured "last in-last out" facility. The Exit Facility is for a term of
up to three years. The Company will use the Exit Facility to repay its existing
DIP Facility and for working capital and general business needs.
The senior secured tranche has an advance rate equal to 80% of the Loan
Value of Eligible Receivables, plus the lower of (i) 72% of the Loan Value of
Eligible Inventory or (ii) 80% of the ratio of the annual appraised liquidation
value to the Loan Value (as defined) of the inventory (the "Loan to Value
Ratio"). Between March 1 and December 15, the inventory advance rate will be
increased to 77% of the Loan Value of Eligible Inventory. The Company may also
borrow up to an additional $20 million under the junior secured facility
provided that the total inventory borrowings do not exceed 93% of the Loan to
Value Ratio.
The Exit Facility permits the Company to borrow funds under the senior
secured tranche at an interest rate per annum equal to (a) the higher of (i)
the annual rate of interest as announced by BankBoston as its "Base Rate" and
(ii) the weighted average of the rates on overnight federal funds plus 0.50%
per annum; or (b) 2.25% per annum plus the quotient of (i) the LIBOR Rate in
effect divided by (ii) a percentage equal to 100% minus the percentage
established by the Federal Reserve as the maximum rate for all reserves
applicable to any member bank of the Federal Reserve system in respect of
eurocurrency liabilities. Each of these rates is subject to a 0.50% increase in
the event of overadvances. The junior secured facility permits the Company to
borrow funds at the "Base Rate" plus 7.00% per annum.
The Exit Facility is subject to certain conditions being satisfied,
including minimum EBITDA performance and minimum borrowing availability on the
effective date of the Plan. The Exit Facility will be secured by substantially
all of the non-real estate assets of the Company. The Exit Facility contains
financial covenants including (i) minimum EBITDA, (ii) minimum accounts payable
to inventory; (iii) maximum capital expenditures; and (iv) minimum operating
cash flow to interest expense (for the fiscal quarters ending on or about
January 31, 2001, and thereafter).
5. Income Taxes
The Company provides for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
On an interim basis, the Company provides for income taxes using the estimated
annual effective rate method. The Company did not recognize a quarterly or
annual income tax expense or benefit in 1997 and also does not expect to
recognize a quarterly or annual income tax expense or benefit in 1998.
As a result of the implementation of the Plan, the Company will (i) undergo
an "ownership change" (generally, a greater than 50 percentage point change in
ownership) for purposes of Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), and (ii) realize cancellation of indebtedness income
("COI") from the cancellation of certain indebtedness in exchange for common
stock, 9% convertible notes and warrants to purchase shares of common stock.
Because such ownership change and cancellation of indebtedness arise in a
bankruptcy proceeding under Chapter 11, the Company will avoid some of the
adverse
F-10
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Federal income tax consequences generally associated with such changes (e.g.
the COI realized will not be includible in income). Nevertheless, the Company
expects that its ability to offset future taxable income with net operating
loss carryforwards ("NOLs"), as well as certain built-in losses and tax
credits, will be limited and that certain tax attributes, including NOLs, will
be reduced (but not eliminated). In addition, if the Company experiences
another "ownership change" under Section 382 of the Code subsequent to
emergence, there may be further limits on the Company's NOLs and certain built-
in losses and tax credits to income.
6. Reorganization Items
The Company provided for or incurred the following expense and income items
during the third quarter and year-to-date periods of 1998 and 1997, directly
associated with the Chapter 11 reorganization proceedings and the resulting
restructuring of its operations:
<TABLE>
<CAPTION>
(000's)
------------------------------------
13 Weeks Ended 39 Weeks Ended
----------------- -----------------
10/31/98 11/1/97 10/31/98 11/1/97
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Professional fees.................... $ 2,250 $ 2,250 $ 6,750 $ 7,500
Interest income...................... (274) (101) (746) (330)
Net asset write-off.................. - - 470 -
Gain on disposition of properties.... - (800) (1,873) (1,003)
Provision for rejected leases........ (4,725) (5,207) (7,156) (5,207)
Employee severance and termination
benefits............................ - (3,400) - (3,400)
Provision for MIS retention bonuses.. - 280 - 280
------- ------- ------- -------
$(2,749) $(6,978) $(2,555) $(2,160)
======= ======= ======= =======
</TABLE>
Professional fees and interest income: Professional fees represent estimates
of expenses incurred, primarily for legal, consulting and accounting services
provided to the Company and the creditors committee (which are required to be
paid by the Company while in Chapter 11). Interest income represents interest
earned on cash invested during the Chapter 11 proceeding.
Net asset write-off: The Company incurred a $0.5 million net asset write-off
in the second quarter of 1998 relating to the disposal of greeting card
fixtures that are being replaced as a consequence of the Company's rejection of
its greeting card supply contract.
Gain on disposition of properties: The Company sold a previously closed
store in the second quarter of 1998 (see Note 7) and recognized a gain of $1.9
million that was classified as a reorganization item since the associated asset
write-offs were previously included in reorganization items. In 1997, the
Company sold three closed stores leases and certain equipment and recorded
related gains of $1.0 million, including $0.8 million in the third quarter, as
reorganization items.
Provision for rejected leases: During the third quarter of 1998, the Company
obtained confirmation that the lessor of a previously rejected lease had re-let
the premises and, accordingly, the Company reduced its liability for rejected
leases by $4.7 million and recognized a reorganization credit for that amount.
During the second quarter of 1998, the Company was notified by two of its
former landlords at closed locations that the properties had been re-let and
therefore their claims for rejected lease damages were reduced by $2.4 million.
The Company reduced its rejected lease liability accordingly and recognized a
reorganization credit for that amount in the second quarter. During the third
quarter of 1997, the Company sold a closed store lease and reversed the
associated $5.2 million rejected lease liability that had previously been
recorded at the time of the store-closing announcement when it was expected
that the lease would be rejected.
F-11
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Employee severance and termination benefits: The credit of $3.4 million in
the third quarter and year-to-date period of 1997 resulted from the reversal of
certain executive severance reserves, including a significant portion of the
severance reserve that had been established for the Company's former CEO Mark
Cohen, whose employment terminated in December 1996, and remaining reserves for
certain former executives who found employment. During the third quarter of
1997, a mediated settlement was reached with Mr. Cohen that was subsequently
approved by the Bankruptcy Court.
MIS retention bonuses: The Company had a retention bonus program for certain
Management Information System (MIS) employees that provided for bonuses during
the Chapter 11 proceedings for continued employment through April 1998. In
April, 1998 these bonuses were paid and this program was then discontinued.
Restructuring reserves: The Company closed 6 stores in February, 1998. As of
October 31, 1998, the Company had remaining reserves (included in accrued
expenses) totaling approximately $1.0 million (exclusive of provisions for
rejected leases discussed in Note 2) for costs associated with the closing of
the 6 stores and other restructuring activities. Approximately $3.2 million of
restructuring costs were paid in the year-to-date period of 1998. The majority
of the remaining reserved costs are expected to be paid within a year.
The Company expects to incur charges of approximately $5.7 million as of
January 30, 1999 for an estimated going-out-of-business inventory impairment of
$0.5 million (to be recorded as cost of goods sold) for one store in the
process of closing and other store closing costs of $5.2 million, including two
other store closings anticipated to begin by the end of fiscal year 1999. At
the same time, the Company expects to recognize a gain of approximately $4.5
million from the modification of the Union Square lease terms.
7. Assets Held for Sale
The Company had assets held for sale at the beginning of 1998 that consisted
of two properties, one of which was sold in the second quarter for
approximately $4.3 million. A net gain of approximately $1.9 million was
recorded in the second quarter for the sale of that property (Note 6) and the
net proceeds from the sale of the property of $3.5 million were utilized to pay
down the related pre-petition financing obligation. Title to the other property
that had been held for sale was transferred to the related financing group at
the end of the second quarter and the pre-petition financing obligation was
reduced by the amount of the carrying value of the property ($2 million)
pending a final agreement on the economic value of the property (which is
currently anticipated to be at or above $2 million).
8. Retirement Plans
The Company has a qualified, noncontributory defined benefit pension plan
for non-union employees. Plan benefits are based on the participant's
compensation and years of service. As of December 31, 1998, the Company will
freeze credited service and salary levels in this plan. This change impacts all
management and non-union hourly associates. All affected associates were
notified of the freeze in November. Vesting service will continue for non-
vested associates but no future credited service will be provided. The Company
recorded a gain of $6.2 million in the fourth quarter as a result of the
freeze, net of the effect of using a lower discount rate in the valuation of
the pension liability.
The Company has a 401(k) plan for all active employees in eligible job
categories. Employees may contribute a portion of their salary to the plan. As
of January 1, 1999, the Company will contribute an amount equal to 50% of up to
6% of each participant's salary contributed to the plan. This change impacts
all management and non-union hourly associates. Currently eligible participants
will become fully vested in the Company contribution as required by law, while
new hires on or after January 1, 1999 will have a 20% per year vesting schedule
with full vesting after 5 years.
F-12
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
The Company provides certain health care and life insurance benefits for
certain retired non-union employees meeting age and service requirements. The
Company accounts for the post retirement plan in accordance with SFAS No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions," which
requires the Company to accrue the estimated cost of retiree benefit payments
during the years the employee provides services. The Company's post-retirement
benefits are funded on a current basis.
The SFAS No. 106 valuation at January 31, 1998, along with amortization
credits of $1.3 and $4.0 million in the third quarter and year-to-date periods
of 1998, respectively, reflected changes that were effective January 1, 1998.
The changes represent the elimination of future benefits for active employees
who do not become eligible by January 1, 2000, and a phase-out of the Company
contributions over the next two years (at 50% per year beginning January 1,
1999) towards the cost of providing medical benefits to eligible retirees.
9. Changes in Accounting Estimates
The Company is primarily self-insured for workers' compensation and general
liability costs. Actuarial studies of the self-insurance reserves were
completed in the third quarters of 1998 and 1997 using a discount rate of 6.0%
(the same rate used at January 31, 1998 and February 1, 1997). As a result of
the 1997 study, the self-insurance reserves were reduced by $3.6 million in the
third quarter of 1997 with a corresponding reduction in SG&A expenses (selling,
store operating, administrative and distribution expenses).
10. Summarized Financial Information for Bradlees Stores, Inc. and New Horizons
of Yonkers, Inc.
Under the Plan (Note 2), Bradlees, Inc. is issuing common stock and Bradlees
Stores, Inc. is issuing certain debt. Bradlees, Inc. operates its stores
through Bradlees Stores, Inc., an indirect wholly-owned subsidiary.
Bradlees, Inc. is fully and unconditionally guaranteeing the debt issued by
Bradlees Stores, Inc. Substantially all of the assets of the Company, on a
consolidated basis, are held by Bradlees Stores, Inc. The following summarized
financial information of Bradlees Stores, Inc. is presented in accordance with
SEC Staff Accounting Bulletin 53 and Regulation S-X Rule 1-02 (bb):
<TABLE>
<CAPTION>
(000's)
----------------------------
Oct. 31, Jan. 31, Nov. 1,
1998 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current Assets................................... $371,208 $286,332 $382,649
Noncurrent Assets................................ 283,441 302,286 310,855
Current Liabilities.............................. 367,091 246,687 369,580
Payable to Bradlees, Inc......................... 189,735 189,881 189,139
Noncurrent Liabilities........................... 66,063 72,324 81,978
Liabilities Subject to Settlement Under the
Reorganization Case............................. $328,557 $341,874 $339,923
<CAPTION>
Thirty-Nine Weeks
Ended
------------------
Oct. 31, Nov. 1,
1998 1997
-------- --------
<S> <C> <C> <C>
Net Sales........................................ $906,385 $895,220
Gross Margin..................................... 271,002 269,699
Loss from Continuing Operations.................. (34,689) (48,628)
Net Loss......................................... $(34,689) $(48,628)
</TABLE>
Upon confirmation of the Plan, Bradlees, Inc. will contribute a portion of
its intercompany receivable to the capital of Bradlees Stores, Inc. so that $96
million will be allowed as the final intercompany claim.
F-13
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
New Horizons of Yonkers, Inc., a subsidiary of Bradlees Stores, Inc. is the
lessee of the Yonkers, New York Bradlees' store lease (with no net book value),
which it subleases to Bradlees Stores, Inc. New Horizons of Yonkers, Inc.'s
financial activity was limited to rent expense under the lease and rental
income from the sublease during the above periods. New Horizons of Yonkers,
Inc. is also fully and unconditionally guaranteeing the debt issued by Bradlees
Stores, Inc. The following summarized financial information of New Horizons of
Yonkers, Inc. is presented in accordance with SEC Staff Accounting Bulletin 53
and Regulation S-X Rule 1-02(bb):
<TABLE>
<CAPTION>
(000's)
-----------------------------------
October 31, January 31, November 1,
1998 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Due from Bradlees Stores, Inc. ...... $ 1 $ 1 $ 1
Stockholders' Equity................. $ 1 $ 1 $ 1
<CAPTION>
Thirty-Nine Weeks Ended
-----------------------
October 31, November 1,
1998 1997
----------- -----------
<S> <C> <C> <C>
Rental Income........................ $441 $441
Rent Expense......................... $441 $441
</TABLE>
11. Pro Forma Financial Information (Unaudited)
The following unaudited pro forma summary information, pro forma condensed
consolidated balance sheet and unaudited pro forma condensed consolidated
statement of operations are based on the statements of Bradlees as adjusted to
give effect to the consummation of the Plan (Note 2). The unaudited pro forma
summary information, and pro forma condensed consolidated statement of
operations have been prepared as if the effective date of the Plan had occurred
on February 1, 1997. The unaudited pro forma condensed consolidated balance
sheet has been prepared assuming the effective date of the Plan had occurred on
October 31, 1998.
The unaudited pro forma condensed consolidated financial information and
accompanying notes should be read in conjunction with the Company's financial
statements and the notes thereto appearing in the Company's Form 10-K for 1997,
Form S-1 and elsewhere in these financial statements. The unaudited pro forma
condensed consolidated financial information is presented for informational
purposes only and does not purport to represent what the Company's financial
position or results of operations would actually have been if the consummation
of the Plan had occurred on such date or at the beginning of the period
indicated, or to project the Company's financial position or results of
operations at any future date or for any future period.
The following unaudited pro forma summary information for 1997 was derived
from the unaudited pro forma condensed consolidated statement of operations for
1997 presented, along with the notes thereto, in the Form S-1:
Pro Forma Summary Information
(Unaudited)
(000's Omitted)
<TABLE>
<CAPTION>
Fiscal Year Ended
January 31, 1998
-----------------
<S> <C>
Total Sales................................................ $1,340,983
Net Loss................................................... (18,525)
Loss Per Common Share...................................... (1.81)
Pro Forma Number of Stores................................. 103
</TABLE>
The pro forma net loss amount above excludes the gain on debt discharge and
fresh-start reporting credit expected to be recorded on the effective date.
F-14
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Unrestricted cash and
cash equivalents...... $ 10,959 $ 11,000(2) $ 11,005(2) $ 10,954
Restricted cash and
cash equivalents...... 25,129 - 25,129(2) -
-------- ---------- ----------- --------
Total cash and cash
equivalents.......... 36,088 11,000 36,134 10,954
-------- ---------- ----------- --------
Accounts receivable.... 11,925 11,925
Inventories............ 318,883 1,000(3h) 317,883
Prepaid expenses....... 11,031 - - 11,031
-------- ---------- ----------- --------
Total current assets.. 377,927 11,000 37,129 351,793
-------- ---------- ----------- --------
Property, plant and
equipment, net:
Property excluding
capital leases, net... 123,892 - 9,900(2) 111,792
2,200(3j)
Property under capital
leases, net........... 17,732 9,196(3b) 5,406(3j) 21,522
-------- ---------- ----------- --------
Total property, plant
and equipment, net... 141,624 9,196 17,506 133,314
-------- ---------- ----------- --------
Other assets:
Lease interests at fair
value, net............ 137,350 - 59,530(3j) 77,820
Assets held for sale... - 3,400(2) - 14,000
10,600(3d)
Other, net............. 4,509 2,575(2) 1,222(3g) 4,598
1,264(3i)
Reorganization value in
excess of revalued
assets................ - 14,477(3k) - 14,477
-------- ---------- ----------- --------
Total other assets.... 141,859 31,052 62,016 110,895
-------- ---------- ----------- --------
Total assets.......... $661,410 $ 51,248 $ 116,656 $596,002
======== ========== =========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-15
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable....... $ 179,413 $ - $ - $179,413
Accrued expenses....... 23,221 2,000(2) 2,000(1) 20,746
2,475(3c)
Self-insurance
reserves.............. 6,027 - - 6,027
Short-term debt........ 157,392 - 4,119(2) 161,511
Current portion of
capital lease
obligations........... 1,038 - 567(2) 1,605
--------- ---------- ---------- --------
Total current
liabilities.......... 367,091 4,475 6,686 369,302
--------- ---------- ---------- --------
Long-term liabilities:
Obligations under
capital leases........ 26,211 321(3b) - 25,890
Convertible notes
payable............... - 11,005(2) 40,000(2) 28,995
Deferred income taxes.. 8,581 8,581(3h) - -
Self-insurance
reserves.............. 12,237 - - 12,237
Unfavorable lease
liability............. - - 45,573(3j) 45,573
Other long-term
liabilities........... 19,034 - 2,000(1) 29,005
5,677(2)
2,294(3f)
--------- ---------- ---------- --------
Total long-term
liabilities.......... 66,063 19,907 95,544 141,700
--------- ---------- ---------- --------
Liabilities subject to
settlement under the
reorganization case.... 548,788 548,788(2) - -
Stockholders' equity
(deficiency):
Common stock
Par value............. 115 115(3a) 102(2) 102
Additional paid-in-
capital.............. 137,821 137,821(3a) 84,898(2) 84,898
Accumulated deficit.... (457,665) 4,000(1) 393,463(2) -
68,202(3)
Treasury stock, at
cost.................. (803) - 803(3a) -
--------- ---------- ---------- --------
Total stockholders'
equity (deficiency).. (320,532) 141,936 547,468 85,000
--------- ---------- ---------- --------
Total liabilities and
stockholders' equity
(deficiency)......... $ 661,410 $ 715,106 $ 649,698 $596,002
========= ========== ========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-16
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
39 Weeks 39 Weeks
Ended Pro Forma Adjustments Ended
Oct. 31, 1998 Debits Credits Oct. 31, 1998
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Total sales............. $939,203 3,381(1) - $935,822
Leased department
sales.................. 32,818 70(1) - 32,748
-------- --------
Net sales............... 906,385 903,074
Cost of goods sold...... 635,383 - 2,472(1) 632,911
-------- --------
Gross margin............ 271,002 270,163
Leased department and
other operating in-
come................... 8,757 25(1) - 8,732
-------- --------
279,759 278,895
Selling, store
operating,
administrative and
distribution expenses.. 280,326 2,967(3) 631(1) 278,498
1,021(6) 5,773(7)
724(10) 136(11)
Depreciation and amorti-
zation expense......... 24,370 - 3(1) 12,761
5,103(3)
2,253(5)
469(6)
3,781(9)
Loss on disposition of
properties............. 241 241
Interest and debt ex-
pense.................. 11,960 869(4) 1,215(4) 21,189
9,575(8)
Reorganization items.... (2,555) 2,555(2) - -
-------- --------
Net loss................ $(34,583) $(33,794)
======== ========
Comprehensive loss...... $(34,583) $(33,794)
======== ========
Net loss per share - ba-
sic and diluted........ $ (3.06) $ (3.30)(12)
======== ========
Weighted average shares
outstanding (in
thousands) - basis and
diluted................ 11,311 10,226
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-17
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following notes set forth the explanations and assumptions used and
adjustments made in preparing the unaudited pro forma condensed consolidated
balance sheet as of October 31, 1998, and the unaudited pro forma condensed
consolidated statement of operations for the thirty-nine weeks then ended.
The unaudited pro forma condensed consolidated financial statements reflect
the adjustments described under "Pro Forma Adjustments" below, which are based
on the assumptions and preliminary estimates described therein, which are
subject to change. These statements do not purport to be indicative of the
financial position and results of operations of Bradlees as of such dates or
for such periods, nor are they indicative of future results. Furthermore, these
unaudited pro forma condensed consolidated financial statements do not reflect
the anticipated gain on debt discharge or fresh-start reporting credit which
are expected to be incurred as of the effective date of the Plan. (For the
purposes of the pro forma financial statements, the "Effective Date" is assumed
to be October 31, 1998 for the pro forma balance sheet, and February 1, 1997
for the pro forma statement of operations.)
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
included in these financial statements.
The unaudited pro forma condensed consolidated balance sheet and unaudited
pro forma condensed consolidated statements of operations reflect the following
pro forma adjustments based on the assumptions described below:
October 31, 1998 Balance Sheet Pro Forma Adjustments
1. Reserves established prior to emergence for emergence-related and
performance bonuses payable on the Effective Date or subsequent to
the Effective Date.
2. Plan consummation distributions that include, among other things, an
estimated equity value of $85.0 million, $14.0 million in cash
distributions, and 9% Convertible Notes totaling $40.0 million. In
connection with the consummation of the Plan, we will receive $11.0
million in cash for the modification of the Union Square lease and
immediately pay down the 9% Convertible Notes. The reduction of $9.9
million in property, plant and equipment, net, includes a write-off
of $6.5 million for the Union Square store and a reclassification of
$3.4 million to assets held for sale for one store lease that is
expected to be sold to help fund the further paydown of the 9%
Convertible Notes.
The payment of $25.1 million out of restricted funds and $4.1
million out of revolver borrowings is for certain settlements due
under the POR and for financing costs of $2.6 million associated
with the post-emergence revolver. The total payment, including
approximately $4.5 million to be paid for professional fees
subsequent to emergence, is expected to be $33.7 million in order to
fund all administrative and convenience claims, including the
bonuses due at consummation and the exit financing costs.
3. Fresh-start accounting adjustments that reflect the estimated
adjustments necessary to adopt fresh-start reporting in accordance
with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code". Fresh-start reporting
requires that the reorganization value of Bradlees be allocated to
Bradlees' assets in conformity with APB Opinion 16, "Business
Combinations", for transactions reported on the basis of the
purchase method. Any portion of the assigned reorganization value
exceeding the revalued net assets is recorded as a long-term asset,
while any portion of the assigned reorganization value that falls
below the revalued net assets, which may occur when fresh-start
reporting is adopted as of January 30, 1999, will be assigned to
reduce long-term assets on a pro rata basis. The calculation of the
preliminary and estimated new equity value is discussed in detail in
Section Three (Subsection XIII) of the Disclosure Statement filed as
an exhibit to this Registration Statement. See also "Risk Factors--
Post Bankruptcy Risks--Determination of Equity Value."
F-18
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fresh-start accounting adjustments are summarized as follows:
a. Cancellation of the old common stock pursuant to the Plan and
close-out to retained earnings.
b. A revaluation of all capital lease obligations and related
capital lease assets using our estimated October 31, 1998
borrowing rate (12%) for similar financings.
c. Revaluation of the straight-line rent reserve ($2.5 million).
Straight-line rent is recalculated on a going-forward basis by
the reorganized Bradlees.
d. Revaluation of the one store lease held for sale to an
estimated total net realizable value of $14 million.
e. Restatement of LIFO merchandise inventories to estimated fair
value approximates FIFO cost. Inventories valued at FIFO cost
then become the base year layer for LIFO inventories in the
post-consummation financial reporting period. No LIFO
adjustment is expected.
f. Recording of additional pension plan liability (primarily from
the reduction of the discount rate) of $4.3 million (excluding
the impact from the fourth quarter non-union pension freeze--
Note 8 to the October 31, 1998 Form 10-Q.) and additional
Supplemental Executive Retirement Plan (the "SERP") liability
of $1.4 million, reduced by the write-off of the unrecognized
FAS No. 106 prior service costs of $3.4 million.
g. Revaluation of the intangible SERP asset ($1.2 million) to its
estimated net realizable value.
h. Write-off ($8.6 million) of deferred income taxes (due to a
change in the status of timing differences) and a $1.0 million
reduction to reflect inventory at its estimated net realizable
value.
i. Write-off of the unamortized deferred financing charges ($1.3
million) associated with the terminated Debtor-in-Possession
(DIP) bank facility which will be amortized prior to
emergence.
j. Revaluation of fixed assets and leasehold interests based upon
the estimated fair market value of properties and leases while
considering the current markets in which Bradlees has
locations. This revaluation resulted in, among other things,
the recording of a write-down of $59.5 million in favorable
lease interests and an unfavorable lease liability of $45.6
million for certain locations. The remaining favorable lease
interests and the unfavorable lease liability will both be
amortized to rent expense.
k. Recording of the reorganization value in excess of the
revalued assets at October 31, 1998.
F-19
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Adjustments - Statement of Operations for the Thirty-nine Weeks
Ended October 31, 1998
1. To eliminate the sales and expense amounts associated with five
stores closed in February, 1998.
2. To eliminate reorganization items.
3. Adjustment in amortization of lease interests revalued under fresh-
start reporting.
4. To record amortization of post-emergence deferred financing costs
and reverse the historical year to date amortization of deferred
financing costs.
5. Reduction in depreciation expense due to certain reclassifications
to assets held for sale and fixed asset write-offs resulting from
fresh-start reporting.
6. To adjust lease rent expense and amortization expense for revised
straight-line rent calculations.
7. To adjust lease rent expense for amortization of the unfavorable
lease liability.
8. To adjust interest expense for amortization of the discount on the
unfavorable lease liability and for increased interest expense
resulting from a slightly higher average revolver borrowing level,
the 9% Convertible Notes and other issued notes.
9. To record reduction in depreciation and amortization expense
resulting from the allocation of the estimated excess of revalued
assets over the reorganization value at February 1, 1997.
10. To record additional FAS No. 106 expense as a result of fresh-start
reporting.
11. To reduce pension expense as a result of fresh-start reporting.
12. Pro forma earnings per share were computed based on the estimated
weighted average number of common shares outstanding during the
applicable period assuming that the Plan was effective on February
1, 1997.
F-20
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Bradlees, Inc., Debtor-in-Possession:
We have audited the accompanying consolidated balance sheet of Bradlees,
Inc. and subsidiaries, Debtor-in-Possession (the "Company"), as of January 31,
1998, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the fiscal year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bradlees, Inc. and
subsidiaries as of January 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 1 and 3 to the consolidated financial statements on June 23, 1995, the
Company filed a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. In addition, the Company has experienced operating losses in
each of the three years ended January 31, 1998 and at January 31, 1998 had a
substantial stockholders' deficit. These matters raise substantial doubt about
the Company's ability to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon, among other things, (i)
acceptance of a Plan of reorganization by the Company's creditors with
confirmation by the Bankruptcy Court, (ii) compliance with all debt covenants
under the debtor-in-possession financing, (iii) the success of future
operations, including returning to profitability and maintaining adequate post
bankruptcy financing and liquidity and (iv) the resolution of the uncertainties
of the reorganization case discussed in Note 3. Management's plans in regard to
these matters are also discussed in Note 1 to the financial statements.
The eventual outcome of these matters discussed in the previous paragraph is
not presently determinable. The consolidated financial statements do not
include any adjustments relating to the resolution of these uncertainties or
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
/s/ Arthur Andersen LLP
New York, New York
March 17, 1998 (except with respect to the matter discussed in Note 16, as to
which the date is February 16, 1999)
F-21
<PAGE>
Deloitte & Touche LLP
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Bradlees, Inc., Debtor-in-Possession:
We have audited the accompanying consolidated balance sheet of Bradlees,
Inc. and subsidiaries, Debtor-in-Possession (the "Company"), as of February 1,
1997, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the years ended February 1, 1997 and
February 3, 1996. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Bradlees, Inc. and
subsidiaries at February 1, 1997 and the results of its operations and its cash
flows for the years ended February 1, 1997 and February 3, 1996 in conformity
with generally accepted accounting principles.
As discussed in Notes 1 and 3, the Company has filed for reorganization
under Chapter 11 of the Federal Bankruptcy Code. The accompanying consolidated
financial statements do not purport to reflect or provide for the consequences
of the bankruptcy proceedings. In particular, such consolidated financial
statements do not purport to show (a) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities; (b) as to
prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be
made in its business.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company's 1996 and 1995
losses from operations and stockholders' deficiency raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The consolidated
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 20, 1997 (February 16, 1999 with respect to Note 16)
F-22
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
52 Weeks ended 52 Weeks ended 53 Weeks ended
January 31, 1998 February 1, 1997 February 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Total sales................ $ 1,392,250 $1,619,444 $1,840,926
Leased sales............... 47,806 57,726 60,158
----------- ---------- ----------
Net sales.................. 1,344,444 1,561,718 1,780,768
Cost of goods sold......... 948,087 1,127,651 1,289,077
----------- ---------- ----------
Gross margin............... 396,357 434,067 491,691
Leased department and other
operating income.......... 12,151 13,734 15,130
----------- ---------- ----------
408,508 447,801 506,821
Selling, store operating,
administrative
and distribution
expenses.................. 382,910 504,030 572,843
Depreciation and
amortization expense...... 36,244 42,200 54,387
Gain on disposition of
properties................ (5,425) (1,739) -
Interest and debt expense.. 16,584 11,495 27,176
Impairment of long-lived
assets.................... - 40,782 99,358
Reorganization items....... 752 69,792 65,003
----------- ---------- ----------
Loss before income taxes... (22,557) (218,759) (311,946)
Income tax benefit......... - - (104,533)
----------- ---------- ----------
Net loss................... $ (22,557) $ (218,759) $ (207,413)
=========== ========== ==========
Net loss per share - basic
and diluted............... $ (1.98) $ (19.17) $ (18.17)
=========== ========== ==========
Weighted average shares
outstanding
(in thousands) - basic and
diluted................... 11,365 11,412 11,416
=========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-23
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Unrestricted cash and cash equivalents..... $ 10,949 $ 10,025
Restricted cash and cash equivalents....... 16,760 9,126
--------- ---------
Total cash and cash equivalents.......... 27,709 19,151
--------- ---------
Accounts receivable.......................... 10,013 8,240
Inventories.................................. 238,629 236,920
Prepaid expenses............................. 8,733 8,466
Assets held for sale......................... 7,754 8,419
--------- ---------
Total current assets..................... 292,838 281,196
--------- ---------
Property, plant and equipment, net........... 150,484 163,641
--------- ---------
Other assets:
Lease interests, net....................... 142,454 150,229
Assets held for sale....................... 4,000 5,250
Other, net................................. 5,390 3,884
--------- ---------
Total other assets....................... 151,844 159,363
--------- ---------
Total assets............................. $ 595,166 $ 604,200
========= =========
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable........................... $ 124,361 $ 115,315
Accrued employee compensation and
benefits.................................. 17,401 13,317
Self-insurance reserves.................... 6,564 7,086
Other accrued expenses..................... 13,115 32,607
Short-term debt............................ 84,208 42,500
Current portion of capital lease
obligations............................... 1,038 1,722
--------- ---------
Total current liabilities................ 246,687 212,547
--------- ---------
Obligations under capital leases............. 27,073 33,296
Deferred income taxes........................ 8,581 8,581
Self-insurance reserves...................... 13,328 14,386
Other long-term liabilities.................. 23,342 27,642
Liabilities subject to settlement under the
reorganization case......................... 562,105 571,041
Commitments and contingencies (Note 13)
Stockholders' equity (deficiency):
Common stock - 11,312,154 shares
outstanding (11,394,433 at 2/1/97) Par
value...................................... 115 115
Additional paid-in-capital................. 137,821 137,951
Unearned compensation...................... - (167)
Accumulated deficit........................ (423,082) (400,525)
Treasury stock, at cost - 155,575 shares
(73,296 at 2/1/97)........................ (804) (667)
--------- ---------
Total stockholders' deficiency........... (285,950) (263,293)
========= =========
Total liabilities and stockholders'
deficiency.............................. $ 595,166 $ 604,200
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-24
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
52 Weeks ended 52 Weeks ended 53 Weeks ended
January 31, 1998 February 1, 1997 February 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash Flows From Operating
Activities:
Net loss................... $(22,557) $(218,759) $(207,413)
Adjustments to reconcile
net loss to cash provided
(used) by operating
activities:
Depreciation and
amortization.............. 36,244 42,200 54,387
Impairment of long-lived
assets.................... - 40,782 99,358
Amortization of deferred
financing costs........... 3,750 2,154 1,475
Stock compensation......... - - 701
Deferred income taxes...... - - (79,957)
Reorganization items....... 752 69,792 65,003
Gain on disposition of
properties................ (5,425) (1,739) -
Increase (decrease) in cash
resulting from changes in:
Accounts receivable........ (1,773) 2,296 6,819
Inventories................ (1,709) 44,293 16,848
Prepaid expenses........... (357) 1,542 372
Refundable income taxes.... - 24,576 (24,576)
Accounts payable........... 9,046 (32,319) 96,431
Accrued expenses........... (6,185) 580 3,401
Other, net................. (4,547) (1,664) (1,359)
-------- --------- ---------
Net cash provided (used)
by operating activities
before reorganization
items.................... 7,239 (26,266) 31,490
-------- --------- ---------
Operating cash flows from
reorganization items:
Interest income received... 420 1,445 2,965
Bankruptcy-related
professional fees paid.... (9,626) (10,756) (2,250)
Other reorganization
expenses paid, net........ (7,157) (17,572) (3,084)
-------- --------- ---------
Net cash used by
reorganization items..... (16,363) (26,883) (2,369)
-------- --------- ---------
Net cash (used) provided
by operating activities.. (9,124) (53,149) 29,121
-------- --------- ---------
Cash Flows from Investing
Activities:
Capital expenditures, net.. (19,568) (27,527) (37,029)
Increase in restricted cash
and cash equivalents...... (7,634) (7,932) (1,194)
-------- --------- ---------
Net cash used in investing
activities............... (27,202) (35,459) (38,223)
-------- --------- ---------
Cash Flows From Financing
Activities:
Principal payments on long-
term debt................. (1,657) (2,707) (5,794)
Payments of liabilities
subject to settlement..... (6,467) (5,327) (11,764)
Proceeds from sales of
assets.................... 7,967 1,739 -
Borrowings under pre-
petition revolving loan
facility.................. - - 72,500
Borrowings under financing
obligation................ - - 12,801
Borrowings under DIP
facilities................ 41,708 42,500 -
Deferred financing costs... (4,301) (584) (4,047)
Other common stock
activity, net............. - - (18)
Dividends paid............. - - (1,712)
-------- --------- ---------
Net cash provided by
financing activities..... 37,250 35,621 61,966
-------- --------- ---------
Net increase (decrease) in
unrestricted cash and
cash equivalents......... 924 (52,987) 52,864
Unrestricted cash and cash
equivalents:
Beginning of period........ 10,025 63,012 10,148
-------- --------- ---------
End of period.............. $ 10,949 $ 10,025 $ 63,012
======== ========= =========
Supplemental disclosure of
cash flow information:
Cash paid for interest..... $ 12,807 $ 9,991 $ 16,382
Cash received for income
taxes..................... $ 109 $ 25,046 $ 2,869
Supplemental schedule of
noncash (investing and
financial) activities:
Capital lease obligations
incurred.................. $ - $ - $ 8,398
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-25
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
(Dollars in thousands except per share amounts)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Retained
Earnings Stockholders'
Common Stock Additional Unearned (Accumulated Treasury Equity
Shares Amount Paid-in-Capital Compensation Deficit) Stock (Deficiency)
------------ ------ --------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 28,
1995................... 11,385,254 $113 $138,077 $(1,697) $ 27,359 $(420) $ 163,432
Restricted stock -
grant................. 25,000 1 232 (232) - - 1
Restricted stock -
revaluation........... - (628) 628 - - -
Restricted stock -
forfeitures........... (13,139) - - 79 - (79) -
Restricted stock -
amortization.......... - - - 429 - - 429
Deferred salary option
plan grant............. 27,000 1 270 - - - 271
Other treasury stock
activity, net.......... (7,459) - - - - (18) (18)
Net loss................ - - - - (207,413) - (207,413)
Dividends ($0.15 per
share)................. - - - - (1,712) - (1,712)
---------- ---- -------- ------- --------- ----- ---------
Balance at February 3,
1996................... 1,416,656 115 137,951 (793) (181,766) (517) (45,010)
Restricted stock -
forfeitures........... (22,223) - - 150 - (150) -
Restricted stock -
amortization.......... - - - 476 - - 476
Net loss................ - - - - (218,759) - (218,759)
---------- ---- -------- ------- --------- ----- ---------
Balance at February 1,
1997................... 11,394,433 115 137,951 (167) (400,525) (667) (263,293)
Restricted stock -
forfeitures........... (82,279) - (130) 137 - (137) (130)
Restricted stock -
amortization.......... - - - 30 - - 30
Net loss................ - - - - (22,557) - (22,557)
---------- ---- -------- ------- --------- ----- ---------
Balance at January 31,
1998................... 11,312,154 $115 $137,821 - $(423,082) $(804) $(285,950)
========== ==== ======== ======= ========= ===== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-26
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
(Operating as Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Bradlees, Inc. and its subsidiaries, including Bradlees Stores, Inc.
(collectively "Bradlees" or the "Company") is a discount department store
retailer operating in the Northeast United States. The Company's consolidated
financial statements have been prepared in accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7") and generally accepted accounting principles applicable to a going
concern, which principles, except as otherwise disclosed, assume that assets
will be realized and liabilities will be discharged in the normal course of
business. The Company filed petitions for relief under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11") on June 23, 1995 (the "Filing"). The
Company is presently operating its business as a debtor-in-possession subject
to the jurisdiction of the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court").
Bradlees acquired the Bradlees Business from The Stop & Shop Companies, Inc.
("Stop & Shop") with the proceeds from a July 10, 1992 initial public offering
of 11,018,625 shares of its common stock ("the Acquisition"). The Bradlees
Business was comprised of Bradlees New England Holdings, Inc., Bradlees New
York Holdings, Inc. and Stop & Shop Holdings, Inc. ("Holdings") and Holdings'
wholly-owned subsidiary, Bradlees New Jersey, Inc. and each of their
subsidiaries. Certain real estate subsidiaries of the Bradlees Business were
retained by Stop & Shop and the properties owned by these subsidiaries were
leased to Bradlees. The Acquisition was accounted for using the purchase method
of accounting.
The Company's ability to continue as a going concern is dependent upon the
confirmation of a plan of reorganization by the Bankruptcy Court, the ability
to maintain compliance with debt covenants under the New Financing Facility
(Note 6), achievement of profitable operations, and the resolution of the
uncertainties of the reorganization case discussed in Note 3. A confirmed plan
of reorganization could materially change the amounts reported in the
accompanying consolidated financial statements. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability of the value of recorded asset amounts or the amounts and
classification of liabilities that might be necessary as a consequence of a
confirmed plan of reorganization. The Company incurred significant operating
losses in 1996 and 1995.
The Company made the following key modifications to its business strategy
during fiscal 1997 to enhance profitability and improve customer service: (a)
reintroduced lower opening price points in a comprehensive variety of
merchandise categories to enhance value and increase customer traffic; (b)
reduced costly promotional events and thereby eliminated or reduced the
likelihood of substandard profit margins; (c) reintroduced certain basic
convenience and commodity products that are typical of assortments carried by
discount retailers; (d) reinstituted a layaway program, while controlling
promotions of the Bradlees' credit card, and installed new in-store directional
and departmental signage; (e) revised the Company's markdown policy based on
product rate of sale; (f) modified weekly ad circulars to achieve more item-
intensive and price-point oriented ad offerings; (g) introduced both a
"Certified Value" program that highlights certain key recognizable items at
competitive everyday prices and a "Wow!" program which integrates targeted and
unadvertised opportunistic purchases; and (h) significantly reduced overhead
while improving operating efficiencies.
The Company continues to focus on three key merchandise categories:
moderately priced family apparel, home furnishings and conventional consumable
hardlines products. Bradlees is committed to quality and fashion, especially in
apparel and home furnishings, and to improving customer service, to
differentiate itself from its competition. The Company believes that it can
strategically leverage its strength in the quality and fashion content of its
apparel and decorative home product offerings while driving traffic with
selected hardlines merchandise.
F-27
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company closed one store in April, 1997 and, in December, 1997,
announced the planned closing of six additional underperforming stores by
February, 1998, including one owned store that was being closed as a result of
the sale of the property in January, 1998 (for which a gain of $5.4 million was
recorded). The Company closed 27 stores in 1996.
2. Summary of Significant Accounting Policies
Principles of consolidation The consolidated financial statements include
the accounts of all subsidiaries and the accounts of the special purpose entity
("SPE") with which the Company had a financing arrangement for new store sites
(Note 8). All intercompany transactions have been eliminated in consolidation.
The Company's fiscal year ends on the Saturday nearest to January 31. The
term "1997" refers to the 52 weeks ended January 31, 1998; "1996" refers to the
52 weeks ended February 1, 1997; and "1995" refers to the 53 weeks ended
February 3, 1996.
Fair Value of Financial Instruments Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments" requires disclosures of estimated fair values of financial
instruments both reflected and not reflected in the accompanying financial
statements. The estimated fair values of the Company's cash and cash
equivalents, accounts receivable, borrowings under the DIP facilities and
accounts payable (post-petition) approximate the carrying amounts at January
31, 1998 and February 1, 1997 due to their short maturities or variable-rate
nature of the borrowings. The fair value of the Company's liabilities subject
to settlement are not presently determinable as a result of the Chapter 11
proceedings. The fair values of the 2002 Notes and 2003 Notes (Note 6) were not
obtainable at January 31, 1998 and February 1, 1997. Face values of the 2002
Notes and 2003 Notes were $125,000 and $100,000, respectively, at January 31,
1998 and February 1, 1997.
Geographical concentration As of January 31, 1998, the Company operated 109
discount department stores in seven states in the Northeast, primarily in the
heavily populated corridor running from Boston to Philadelphia. A significant
change in economic or competitive conditions within this area could have a
material impact on the Company's operations. The Company closed six additional
stores in February, 1998.
Use of estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The primary
estimates underlying the Company's financial statements include the value of
assets held for sale, the estimated useful lives of fixed assets and lease
interests, the estimates used in SFAS No. 121 calculations (Note 4), accruals
for self-insured workers compensation and general liability (Note 14), vacation
pay reserves (Note 14), provisions for rejected leases and restructuring costs
associated with closing stores (Note 7), and the classification of liabilities
subject to settlement (Note 3).
Collective bargaining arrangements Approximately 73% of the Company's labor
force is covered by collective bargaining agreements, of which collective
bargaining agreements affecting approximately 54% of the labor force will
expire within one year and are expected to be renegotiated.
Cash and cash equivalents Highly liquid investments with original maturities
of 3 months or less when purchased are classified as cash and cash equivalents.
Restricted cash and cash equivalents at January 31, 1998 were comprised of the
following, along with earned interest of $.5 million: (a) $6.0 million of the
$24.5 million federal income tax refund received in April, 1996 held, in escrow
pending further order of the Bankruptcy Court; (b) $1.1 million of forfeited
deposits, net of property carrying costs, received in 1996 on a
F-28
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
planned sale of an owned undeveloped property that was not consummated
(pursuant to the Bankruptcy Court order permitting the sale of the property,
all proceeds associated with the sale of the property must be maintained in a
segregated escrow account pending further order of the Bankruptcy Court); (c)
$8.0 million from the sale of a closed store in 1997; and (d) other funds ($1.2
million) restricted for security deposits for utility expenses incurred after
the Filing.
Inventories Substantially all inventories are valued at the lower of cost
(which includes certain warehousing costs) or market, using the last-in, first-
out ("LIFO") retail method. No LIFO charge has been recorded by the Company as
there has been no excess of current cost over LIFO cost since the Acquisition.
Assets held for sale Assets held for sale are stated at the lower of net
book value or estimated net realizable value and have been classified as
current or noncurrent based upon the anticipated time to sell the asset.
Property, plant and equipment Maintenance, repairs and minor renewals are
charged to operations as incurred. Major renewals and betterments which
substantially extend the useful life of the property are capitalized. The costs
of assets sold or retired and the related amounts of accumulated depreciation
are eliminated from the accounts in the year of disposal, with the resulting
gain or loss included in earnings. Depreciation and amortization are recorded
based upon the estimated useful lives under the straight-line method. Leasehold
improvements and assets recorded under capital leases are amortized over the
lives of the respective leases (including extensions) or the lives of the
improvements, whichever is shorter.
<TABLE>
<S> <C>
Buildings............................... 30 years
Fixtures, machinery and equipment....... 3 to 10 years
Leasehold improvements.................. 10 to 20 years
or the term of the lease, if shorter
</TABLE>
Lease interests Lease interests represent the lease rights acquired at the
Acquisition (Note 1) and are amortized on the straight-line method over the
remaining lives of the leases (including option periods) or 40 years, if
shorter. Accumulated amortization was $34.8 million at January 31, 1998 and
$27.7 million at February 1, 1997. During 1996, accumulated amortization of
$3.3 million was eliminated in accordance with SFAS No. 121 (Note 4).
Lease interests acquired at the Acquisition represented the value attributed
to real estate leased by the Company at July 10, 1992. The lease interests were
determined by calculating the present value of the excess of market rent for
each lease over the actual rent payable (including percentage rent) over the
remaining lease term, including all renewal option periods, discounted at 10%,
and then adjusted in accordance with the purchase method of accounting. The
recoverability of the remaining carrying value of lease interests is dependent
upon the Company's ability to generate sufficient future cash flows from
operations at each leased site, or in the case of a sale or disposition of a
lease or leases, the continuation of similar favorable market rents.
Accordingly, recoverability of this asset could be significantly affected by
further economic, market and competitive factors and is subject to the inherent
uncertainty associated with estimates.
Self-insurance reserves The Company is primarily self-insured for workers'
compensation and general liability costs. The self-insurance reserves are
actuarially determined using discount rates of 6.00% at January 31, 1998 and
February 1, 1997. Self-insurance reserves have been classified as current and
noncurrent in accordance with the estimated timing of the projected payments.
Deferred financing costs Deferred financing costs (related to the DIP
facilities) are amortized over the lives of the related financings. Accumulated
amortization was $.1 million at January 31, 1998 and $2.9 million
F-29
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
at February 1, 1997. The Company wrote off $1.1 million of unamortized deferred
financing costs in 1997 relating to the prior DIP Facility (Note 6) that was
replaced in December, 1997. Net deferred financing costs as of the filing date
of $3.4 million, $2.0 million, and $2.7 million for the pre-petition revolver,
2002 Notes and 2003 Notes, respectively, were netted against the related
outstanding debt subject to settlement during 1995 (Note 3).
Store opening and closing costs Pre-opening costs are expensed prior to or
when a store opens or, in the case of a remodel, reopens. Store closing costs
are provided for when the decision is made to close such stores.
Stock compensation The Company accounts for stock-based employee
compensation costs using the intrinsic value method.
Income taxes The Company provides for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." Deferred income taxes, net of valuation
allowances, are provided to recognize the effect of temporary differences
between financial reporting and income tax reporting of assets and liabilities.
Net loss per share Net loss per share is computed using the weighted average
number of common shares outstanding, plus the common stock equivalents related
to stock options if not anti-dilutive, in accordance with the provisions of the
SFAS No. 128 "Earnings Per Share", which was adopted in 1997. The weighted
average number of shares (in thousands) used in the calculation for both basic
and diluted net loss per share in 1997, 1996 and 1995 was 11,365, 11,412 and
11,416 shares respectively. Diluted earnings per share equals basic earning per
share as the dilutive calculations would have an antidilutive impact as a
result of the net loss incurred in each of the years.
Reclassifications Certain reclassifications have been made to the 1996 and
1995 financial statements to conform with the 1997 presentation.
New accounting pronouncements In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for the Company beginning
with the fiscal year ending January 30, 1999 ("1998"). SFAS No. 130 will
require that total comprehensive income (the change in equity from transactions
and other events except those resulting from investment by owners) be reported
in the financial statements. The Company does not expect SFAS No. 130 to have
any material impact on the Company's financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information", which is effective beginning with
1998. SFAS No. 131 will require that segment financial information be publicly
reported on the basis that is used internally for evaluating segment
performance. The Company does not expect SFAS No. 131 to have a material effect
on its financial statement disclosures.
In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-Retirement Benefits", which is effective
beginning with 1998 and which will affect the Company's pension and post-
retirement plan disclosures in 1998. SFAS No. 132 requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures. The Company is still reviewing the effect that SFAS No. 132 will
have on its 1998 disclosures.
F-30
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Reorganization Case
During the early 1990's, Bradlees' business strategy relied heavily on
opening new stores, remodeling existing locations and competing on the basis of
price. From 1992 to January, 1995, Bradlees opened 15 new stores (10 in 1994)
and remodeled 41 stores at a total capital cost of $182 million. The new stores
were generally larger stores with rents that substantially exceeded the chain
average rent per square foot. Some of the new stores were also multilevel
facilities which further increased their operating costs when compared with
other prototypical Bradlees stores. The store expansion and remodeling program
marginally increased sales while gross margins declined and operating expenses
increased. Bradlees' declining operating performance, coupled with the
aggressive expansion program, began to erode the Company's liquidity. The
Company's liquidity further eroded in May and June, 1995, because of the
unwillingness of factors and vendors to continue to extend trade credit.
Bradlees, unable to obtain sufficient financing to satisfy factor and vendor
concerns, was compelled to seek Bankruptcy Court protection on June 23, 1995.
In the Chapter 11 case, substantially all liabilities as of the date of the
Filing are subject to settlement under a plan of reorganization to be voted
upon by the Company's creditors and stockholders and confirmed by the
Bankruptcy Court. Schedules have been filed by the Company with the Bankruptcy
Court setting forth the assets and liabilities of the Company as of the date of
the Filing as shown by the Company's accounting records. Differences between
amounts shown by the Company and claims filed by creditors are being
investigated and resolved. Except for payments of $2.1 million made in 1997 to
settle certain reclamation claims, the ultimate amount and settlement terms for
pre-petition liabilities are subject to a confirmed plan of reorganization, and
accordingly, are not presently determinable. The Company currently retains the
exclusive right to file a plan of reorganization until August 3, 1998 and to
solicit acceptance of a plan of reorganization until October 5, 1998, each
subject to possible extension as approved by the Bankruptcy Court. The Company
filed its plan of reorganization and related disclosure statement with the
Bankruptcy Court on April 13, 1998 and, subject to confirmation of the plan of
reorganization, currently anticipates emergence from Chapter 11 in August,
1998. A hearing to approve the disclosure statement has been scheduled for May
27, 1998 with the Bankruptcy Court.
Under the Bankruptcy Code, the Company may elect to assume or reject real
estate leases, employment contracts, personal property leases, service
contracts and other executory pre-petition leases and contracts, subject to
Bankruptcy Court approval. A liability of approximately $48.1 million has been
recorded as of January 31, 1998 for rejected leases. This liability may be
subject to future adjustments based on claims filed by the lessors and
Bankruptcy Court actions. Although the Company does not currently anticipate
the rejection of additional leases, the Company cannot presently determine or
reasonably estimate the ultimate liability which may result from the filing of
claims for any rejected contracts or from any additional leases which may be
rejected at a future date. The Company believes that it recorded its best
estimate of the liability for rejected leases based on information available.
The principal categories of claims classified as "Liabilities subject to
settlement under the reorganization case" are identified below. Deferred
financing costs as of the Filing date of $3.4 million, $2.0 million and $2.7
million, respectively, for the pre-petition revolving loan facility (the
"Revolver") and subordinated debt (the "2002 and 2003 Notes") have been netted
against the related outstanding debt amounts. In addition, a $9.0 million cash
settlement and approximately $10 million of adequate protection payments
reduced the Revolver debt amount. The cash settlement relates to a portion of
the Company's cash balance as of the date of the Filing ($9.3 million) which
was claimed as collateral by the pre-petition bank group. The claim was settled
in full for $9.0 million and approved by the Bankruptcy Court in 1995. Also,
payments of approximately $1.1 and $.8 million were made to IBM Credit
Corporation ("IBM") and Comdisco, Inc. ("Comdisco"), respectively, in 1996 for
settlement of certain equipment capital lease obligations (Note 6). All amounts
presented below may be subject to future adjustments depending on Bankruptcy
Court actions, further
F-31
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
developments with respect to disputed claims, determination as to the security
of certain claims, the value of any collateral securing such claims, or other
events.
<TABLE>
<CAPTION>
(000's)
---------------------------------
Liabilities Subject to Settlement Under the
Reorganization Case January 31, 1998 February 1, 1997
- ------------------------------------------- ---------------- ----------------
<S> <C> <C>
Accounts payable............................ $165,324 $167,098
Accrued expenses............................ 27,996 27,932
Revolver.................................... 71,105 75,005
2002 Notes.................................. 122,274 122,274
2003 Notes.................................. 97,957 97,957
SPE financing obligation (Note 8)........... 17,951 17,951
Obligations under capital leases............ 11,407 11,887
Liability for rejected leases............... 48,091 50,937
-------- --------
$562,105 $571,041
======== ========
</TABLE>
4. Statement of Financial Accounting Standards No. 121
In the fourth quarter of 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" and recorded a charge of approximately $99.4 million to reflect
the impairment of certain long-lived assets. In the fourth quarter of 1996, the
Company recorded an additional charge of approximately $40.8 million in
accordance with SFAS No. 121 based on revisions to cash flow assumptions and as
a result of the significant operating loss incurred in 1996. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company reviewed its long-lived assets for recoverability in
both years primarily as a result of the significant operating losses incurred.
Because of these prior-year charges and the closings of unprofitable stores,
and because the Company met its operating earnings plan in 1997, there was no
such SFAS No. 121 charge in 1997.
In applying SFAS No. 121 in 1996 and 1995, the Company compared anticipated
cash flows over the remaining lease term, including anticipated renewal
periods, from each store (excluding closing stores) with the corresponding
carrying amount of identified long-lived assets and recorded a reduction in
carrying value where such cash flows were not sufficient to recover the related
assets over the term of the lease.
The fair value of these impaired long-lived assets was determined primarily
using the Company's current estimate of the associated future cash flows over
the base lease term, including anticipated renewal periods and consideration of
the fair market value of the assets at the end of the lease term. The stream of
future cash flows by store were discounted at a 20% rate, which the Company
believed to be commensurate with the risks involved. There were significant
assumptions, primarily future cash flows, inherent in the SFAS No. 121
calculations, particularly given the Company's prior-year operating losses and
evolving merchandising strategy.
The assumptions utilized in 1996 and 1995 were subject to significant
business, economic and competitive uncertainties. The charges in 1996 and 1995
were comprised of the following long-lived asset impairments (in 000's):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Property excluding capital leases, net...................... $10,548 $43,632
Property under capital leases, net.......................... 3,363 21,688
Lease interest and lease acquisition costs, net............. 26,871 34,038
------- -------
Total long-lived asset impairment........................... $40,782 $99,358
======= =======
</TABLE>
F-32
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Property, Plant and Equipment, Net
<TABLE>
<CAPTION>
(000's)
---------------------------------
January 31, 1998 February 1, 1997
---------------- ----------------
<S> <C> <C>
Property excluding capital leases:
Buildings and improvements.................. $ 96,678 $ 96,978
Equipment and fixtures...................... 123,603 109,486
Land........................................ - 3,731
-------- --------
Subtotal.................................. 220,281 210,195
Accumulated depreciation.................... (88,756) (70,949)
-------- --------
Property excluding capital leases, net.... 131,525 139,246
-------- --------
Property under capital leases:
Buildings and improvements.................. 22,682 28,218
Equipment and fixtures...................... 8,395 8,395
-------- --------
Subtotal.................................. 31,077 36,613
Accumulated amortization.................... (12,118) (12,218)
-------- --------
Property under capital leases, net........ 18,959 24,395
-------- --------
Total property, plant and equipment, net...... $150,484 $163,641
======== ========
</TABLE>
6. Debt
<TABLE>
<CAPTION>
(000's)
---------------------------------
January 31, 1998 February 1, 1997
---------------- ----------------
<S> <C> <C>
DIP facilities (8.5% - 1997, 8.5% - 1996)... $ 84,208 $ 42,500
Pre-petition Revolver (10.25% - 1997,
10.0% - 1996).............................. 71,105 75,005
Pre-petition 2002 Notes (11%)............... 122,274 122,274
Pre-petition 2003 Notes (9.25%)............. 97,957 97,957
SPE financing obligation (7.75%) (Note 8)... 17,951 17,951
Obligations under capital leases (Note 8)... 39,518 46,905
-------- --------
Total debt.................................. 433,013 402,592
Less: Short-term debt (DIP facilities).. 84,208 42,500
Current portion - capital leases........ 1,038 1,722
Less: Debt subject to settlement (Note
3):
Prepetition Revolver.................... 71,105 75,005
Prepetition 2002 Notes.................. 122,274 122,274
Prepetition 2003 Notes.................. 97,957 97,957
SPE financing obligation................ 17,951 17,951
Obligations under capital leases........ 11,407 11,887
-------- --------
Long-term debt obligations under capital
leases..................................... $ 27,073 $ 33,296
======== ========
</TABLE>
As a result of the Filing, substantially all debt (exclusive of the DIP
facilities) outstanding at January 31, 1998 and February 1, 1997 was classified
as liabilities subject to settlement (Note 3). No principal or interest
payments are made on any pre-petition debt (excluding certain capital leases)
without Bankruptcy Court approval or until a reorganization plan defining the
repayment terms has been approved. During 1995, the Company received Bankruptcy
Court approval to make certain adequate protection payments to the pre-petition
bank group. The adequate protection payments, a cash settlement, and deferred
financing costs have been netted against the related outstanding debt amounts
(Note 3).
F-33
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 25, 1996, the Bankruptcy Court approved an agreement between the
Company and BTM Capital Corporation ("BTM") that fixed the secured claim of BTM
in the amount of $2.25 million, subject to reduction for adequate protection
payments also approved by the Bankruptcy Court. On December 17, 1996, the
Bankruptcy Court approved agreements between the Company and IBM and between
the Company and Comdisco which settled all litigation between the parties
regarding the characterization of certain equipment lease agreements. Under
these agreements, the Company agreed to pay all amounts due to IBM ($1.1
million in December, 1996) and Comdisco ($.8 million in January, 1997),
purchase all the equipment under the IBM equipment lease agreement ($1.4
million in December, 1996) and reject the Comdisco lease effective February 28,
1997.
Generally, interest on pre-petition debt ceases accruing upon the filing of
a petition under the Bankruptcy Code; if, however, the debt is collateralized
by an interest in property whose value (minus the cost of preserving such
property) exceeds the amount of the debt, post-petition interest may be
payable. Other than those noted above, no other determinations have yet been
made regarding the value of the property interests which collateralize various
debts. Although interest may be paid pursuant to an order of the Bankruptcy
Court, it is uncertain whether any post-petition interest will be payable or
paid. The Company believes at this time that it is unlikely that such interest
will be paid. Contractual interest expense not recorded on certain pre-petition
debt (the Revolver, 2002 Notes and 2003 Notes) totaled approximately $31.1 and
$31.3 million for 1997 and 1996, respectively.
New Financing Facility The Company obtained a new $250 million financing
facility (of which $125 million is available for issuance of letters of credit)
in December, 1997 with BankBoston Retail Finance, Inc. ("BBNA") as agent (the
"New Facility"), under which the Company is allowed to borrow for general
corporate purposes, working capital and inventory purchases. The New Facility
consists of (a) an up to eighteen month debtor-in-possession revolving credit
facility in the maximum principal amount of $250 million (the "New DIP" - see
below) and, subject to meeting certain conditions, (b) an up to three year
post-confirmation revolving credit facility in the maximum principal amount of
$250 million (the "Exit Facility" - see below). The commitment period for the
combined facility cannot exceed four years.
The New DIP replaced a $200 million Debtor-in-Possession Revolving Credit
and Guaranty Agreement with The Chase Manhattan Bank, as agent (the "Prior DIP
Facility"). There were outstanding direct borrowings of $84.2 million under the
New DIP as of January 31, 1998. Trade and standby letters of credit outstanding
under the DIP facilities were $7.1 and $26.8 million, respectively, at January
31, 1998 and $9.2 and $26.9 million, respectively, as of February 1, 1997. The
weighted average borrowings under the DIP facilities in 1997 were $87.2
million. The weighted average interest rate under the DIP facilities in 1997
was 7.54%.
The New DIP has an advance rate of 60% of the Loan Value of Eligible
Receivables (as defined), plus 72% of the Loan Value of Eligible Inventory (as
defined). Between March 1 and December 15, the Company can borrow an
overadvance amount on the Loan Value of Eligible Inventory of 5% (the
"Overadvance Amount"), subject to a $20 million limitation. At the Company's
option, the Company may borrow under the New DIP at the Alternate Base Rate (as
defined) in effect from time to time (the "Base Rate Applicable Margin") or the
adjusted Eurodollar rate plus 2.25% (the "Eurodollar Applicable Margin") for
interest periods of one, two, or three months. The Base Rate Applicable Margin
and Eurodollar Applicable Margin will be subject to an additional 0.50% during
any fiscal month that the Company has Overadvance Amounts.
There are no compensating balance requirements under the New DIP but the
Company is required to pay an annual commitment fee of 0.30% of the unused
portion of the New DIP. The New DIP contains restrictive covenants including,
among other things, limitations of the incurrence of additional liens and
indebtedness, limitations on capital expenditures and the sale of assets, the
maintenance of minimum operating earnings ("EBITDA"), and minimum accounts
payable to inventory ratios. The lenders under the New DIP
F-34
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
have a "super-priority claim" against the estate of the Company. As of January
31, 1998, the Company was in compliance with the New DIP covenants. The New DIP
expires on the earlier of June 30, 1999 or the effective date of any plan of
reorganization that is confirmed by the Bankruptcy Court.
In the fourth quarter of 1997, the Company incurred a charge of
approximately $1.1 million for the write-off of the Prior DIP Facility's
unamortized deferred financing costs and paid approximately $2.3 million for
financing fees associated with the New DIP.
The Exit Facility has an advance rate equal to 60% of the Loan Value of
Eligible Receivables, plus the lower of (i) 72% of the Loan Value of Eligible
Inventory or (ii) 80% of the ratio of the annual appraised liquidation value to
the Loan Value (as defined) of the inventory (the "Loan to Value Ratio").
Between March 1 and December 15, the Company can borrow an overadvance amount
on the Loan Value of Eligible Inventory of 5%, provided the Loan to Value Ratio
does not exceed 85%. At the Company's option, the Company may borrow under the
Exit Facility at the Base Rate Applicable Margin or the Eurodollar Applicable
Margin for interest periods of one, two, or three months. The Base Rate
Applicable Margin and Eurodollar Applicable Margin will be subject to an
additional 0.50% during any fiscal month that the Company has Overadvance
Amounts.
The Exit Facility is subject to certain conditions being satisfied,
including (i) an all equity plan of reorganization; (ii) minimum EBITDA
performance; and (iii) minimum borrowing availability on the effective date of
the plan of reorganization. The Company obtained a modification to the
commitment letter dated April 7, 1998, from BBNA, as agent, that modifies their
commitment so that the plan of reorganization filed by the Company on April 13,
1998, although not an all equity plan, satisfies the conditions for the Exit
Facility. The Exit Facility will be secured by all of the assets of the
Company, except interests in real property.
The Exit Facility contains financial covenants including (i) minimum EBITDA,
(ii) minimum accounts payable to inventory, (iii) maximum capital expenditures
and (iv) minimum operating cash flow to interest expense (for the fiscal
quarters ending on or about January 31, 2000, and thereafter).
Prepetition Revolver Prior to the Filing, the Company had a $150 million
revolving loan facility ("Revolver"), including outstanding commercial and
standby letters of credit. The Revolver had a maturity date of July 31, 1997,
and had a variable interest rate based on, among other factors, the Company's
elected borrowing period and amount. The weighted average interest rate
approximated 10.0% in 1997 and 1996 and 8.1% in 1995. No interest has been paid
or accrued on the Revolver since the Filing.
Prepetition 2002 Notes and 2003 Notes The 2002 Notes and 2003 Notes are pari
passu to each other and subordinated to the Company's senior indebtedness.
Beginning on August 1, 1997, the 2002 Notes were to be redeemable, in whole or
in part, at the Company's option, at 104%, decreasing annually to par on August
1, 2000. Beginning on March 1, 2000, the 2003 Notes were to be redeemable, in
whole or in part, at the Company's option, at par plus accrued interest.
Interest on the 2002 Notes and 2003 Notes, due semiannually, has not been paid
or accrued since the Filing.
F-35
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Reorganization Items
The Company provided for or incurred the following expense and income items
in 1997, 1996 and 1995 directly associated with the Chapter 11 reorganization
proceedings and the resulting restructuring of its operations (in 000's):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Professional fees.................................. $10,000 $10,000 $ 9,200
Interest income.................................... (420) (1,445) (3,078)
Provision for rejected leases...................... (2,846) 32,756 18,971
Net asset/liability write-offs..................... (3,408) 4,034 21,548
Gain on disposition of properties.................. (1,153) (1,697) -
Provision for inventory impairment................. - (1,000) 7,100
Provision for occupancy and other store closing
costs............................................. 1,112 4,102 3,059
Employee severance and termination benefits........ (2,813) 23,042 -
Provision for MIS retention bonuses................ 280 - -
Chapter 11 customer discounts...................... - - 2,960
Provision for retention bonuses.................... - - 5,243
------- ------- -------
Total reorganization items........................ $ 752 $69,792 $65,003
======= ======= =======
</TABLE>
Professional fees and interest income: Professional fees represent estimates
of expenses incurred, primarily for legal, consulting and accounting services
provided to the Company and the creditors committee (which are required to be
paid by the Company while in Chapter 11). Interest income represents interest
earned on cash invested during the Chapter 11 proceeding.
Provision for rejected leases and net asset/liability write-offs: Under the
Bankruptcy Code, the Company may elect to reject real estate leases, subject to
Bankruptcy Court approval. The Company recorded provisions of approximately
$32.8 and $19.0 million in 1996 and 1995, respectively, for rejected leases and
anticipated claims for certain closed and closing store leases that were
expected to be rejected. In 1997, the Company reversed a rejected lease
provision of $5.2 million that had been recorded in 1996 for a store that was
subsequently sold in 1997 with no rejection liability. In addition, the Company
recorded a provision of approximately $2.4 million in 1997 for four of the six
stores closed in February, 1998 whose leases were rejected by the Company.
In connection with the store closings and lease rejections, the Company
wrote off certain net assets (net liability in 1997), primarily for leasehold
improvements, net capital leases and lease interests. The credit of $3.4
million in 1997 resulted from the write-off of closed stores' capital lease
obligations that exceeded the carrying value of the closed stores' assets. Net
asset write-offs also include adjustments to lower the carrying values of
certain properties held for sale to their current net realizable values. The
rejected lease liability may be subject to future adjustments based on claims
filed by the lessors and Bankruptcy Court actions. The Company cannot presently
determine or reasonably estimate the ultimate liability which may result from
such claims and actions or from additional leases which may be rejected at a
future date.
Gain on disposition of properties: The Company sold certain closed store
leases in 1997 and 1996 and the related gains were classified as reorganization
items since the sales were directly related to the Chapter 11 proceedings and
the associated net asset write-offs were previously included in reorganization
items.
Inventory impairment and store closing costs: In December, 1997, the Company
approved a restructuring plan to close 6 stores by February, 1998. One of the 6
stores was owned and closed as a result of the sale of the property in January,
1998. In connection with the plan to close the 6 stores, the Company
F-36
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
rejected certain leases and wrote off net assets (see "Provision for rejected
leases and net asset/liability write-offs"). In addition, the Company
established provisions in 1997 for the associated closing costs and for an
inventory impairment for the 6 stores of $2.9 million that was charged to cost
of sales. The provision for inventory impairment represented the incremental
markdowns required to liquidate the inventory at the closed stores. Such costs
are recorded in accordance with the retail inventory method.
In January, 1996, the Company approved a restructuring plan to close 13
stores in the first half of 1996. In connection with this plan, the Company
also rejected certain leases and wrote off net assets. In addition, the Company
established provisions in 1995 for inventory impairment and other closing costs
associated with closing the 13 stores. The provision for inventory impairment
was reduced by $1 million at the conclusion of the going-out-of-business sales
in 1996 when actual results became available. The $1 million reduction was
recorded as a credit to reorganization items since the original provision was
recorded as a reorganization item in 1995 prior to a Securities and Exchange
Commission staff announcement in which it stated that inventory markdowns
attributable to a restructuring or exit plan should be classified in the income
statement as a component of cost of sales.
In July, 1996, the Company approved a restructuring plan to close 14
additional stores in October, 1996. In connection with this plan, the Company
also rejected certain leases and wrote off net assets. In addition, the Company
established provisions for inventory impairment and other closing costs
associated with closing the 14 stores. An inventory impairment charge of $6.7
million for 15 stores (including the one store to be closed in April, 1997) was
charged to cost of sales in 1996.
Other store closing costs represent incremental asset protection, occupancy
and various closing costs associated with the decision to close the stores.
Other store closing costs paid in 1997 totaled approximately $3.5 million.
Employee severance and termination benefits: The credit to employee
severance and termination benefits of $2.8 million in 1997 resulted from the
reversal of certain severance reserves totaling $3.4 million, including a
significant portion of the severance reserve that had been established in 1996
for Mark Cohen, the Company's former CEO, partially offset by a $0.6 million
charge for severance and termination benefits for 382 store associates at the 6
stores closed in February, 1998. A settlement agreement was reached with Mr.
Cohen in 1997.
Employee severance and termination benefits of $23.0 million in 1996
included the following: (a) $13.5 million for the January 1997 management
reorganization and regional and district consolidation; (b) $1.2 million
resulting from the 14 stores closed in October, 1996; (c) $4.2 million for
central office positions eliminated in September, 1996; (d) $1.1 million
resulting from the 13 stores closed in the first half of 1996; and (e) $3.0
million paid to store, district and regional associate positions eliminated as
a result of the February, 1996 store management reorganization. Severance and
termination benefits paid in 1997 and 1996 totaled approximately $4.5 and $16.6
million, respectively.
Chapter 11 customer discounts: The "Chapter 11 customer discounts" reflected
a special 5% discount that was provided to customers during a two-week period
following the Filing to retain customer loyalty and to compensate customers for
the inconvenience of unavailable merchandise.
Retention bonuses: During 1995, the Bankruptcy Court approved certain
assumed and amended executive contracts and the Company's Retention Bonus Plan
(the "Retention Plan") that provided for management bonuses for continued
employment during the first fiscal year of Chapter 11 reorganization and
through the date of payment. Thereafter, the Retention Plan and executive
contracts provided incentives and
F-37
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
rewards for performance that met or exceeded established levels, as well as for
continued employment. The 1995 provision included the Chapter 11-related
bonuses, along with certain executive guaranteed awards related to the Filing.
MIS retention bonuses: The Company has a retention bonus program for certain
Management Information System (MIS) employees that provides for bonuses during
the Chapter 11 proceedings for continued employment through April, 1998. In
April, 1998 these bonuses were paid and this program was then discontinued.
Closed store results: Net sales and operating losses (exclusive of any
central office expense allocation and prior to interest expense, income taxes
and reorganization items) from the one store closed in April, 1997, the six
stores closed in February, 1998 and the 27 stores closed during 1996 were (in
000's):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Net sales....................................... $61,039 $213,363 $367,693
Operating loss.................................. (251) (28,012) (36,040)
</TABLE>
8. Leases
At January 31, 1998, the Company had various noncancelable leases in effect
for substantially all of its stores, distribution centers, and its office
building, as well as certain equipment. In connection with the Filing, all
lease contracts whether assumed or rejected are subject to Bankruptcy Court
approval. Therefore, the commitments shown below may not reflect actual cash
outlays in the future. Payments under certain capital leases which the Company
currently believes represent undersecured financings are classified as
liabilities subject to settlement and are not presented herein. Minimum
payments due under remaining leases, excluding leases which are included in the
provision for rejected leases (Notes 3 and 7), are as follows:
<TABLE>
<CAPTION>
(000's)
-------------------------------
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
1998.......................................... $ 4,645 $ 41,853
1999.......................................... 4,646 40,844
2000.......................................... 4,111 39,357
2001.......................................... 4,132 37,933
2002.......................................... 4,132 36,041
Thereafter.................................... 40,416 220,198
-------- --------
Total minimum payments........................ 62,082 $416,226
========
Estimated executory costs..................... (2,857)
--------
Net minimum lease payments.................... 59,225
Imputed interest.............................. (31,114)
--------
Present value of net minimum lease payments... 28,111
Less current portion.......................... (1,038)
--------
Obligations under capital leases, net of
current portion.............................. $ 27,073
========
</TABLE>
Minimum payments for capital and operating leases have not been reduced by
minimum sublease rentals of $11.7 and $10.0 million, respectively, due in the
future under noncancelable leases. The minimum payments do not include the
contingent rentals that may be payable under certain leases.
F-38
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total rent expense is as follows:
<TABLE>
<CAPTION>
(000's)
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Operating leases:
Minimum rent....................................... $48,749 $57,352 $60,890
Contingent rent.................................... 425 1,024 972
Sublease income.................................... (7,899) (9,248) (9,585)
------- ------- -------
41,275 49,128 52,277
------- ------- -------
Capital leases:
Sublease income.................................... (1,297) (1,726) (1,829)
------- ------- -------
Total................................................ $39,978 $47,402 $50,448
======= ======= =======
</TABLE>
Contingent rentals are determined on the basis of a percentage of sales in
excess of stipulated minimums for certain stores. Sublease income includes
leased department income which is included in leased department and other
operating income. Most of the leases require that the Company pay taxes,
maintenance, insurance and certain operating expenses. Management expects that,
in the normal course of business, expiring leases will be renewed or replaced
by other leases.
During 1994, the Company entered into a financing facility with a special
purpose entity ("SPE") (Note 2) and a group of banks, with Bankers Trust as
Agent, that provided a $75 million financing facility for new store sites,
which was to expire in 1998. On April 17, 1995, the amount under the financing
facility was reduced to $45 million, of which only $30 million could be
utilized in 1995. In June, 1995, the amount was further reduced to $24 million,
the amount required for the two sites then under development. Under the terms
of the financing facility with the SPE, the Company entered into leases with
terms of up to six years. Upon expiration of the leases, the Company could
purchase the properties, allow the SPE to sell the sites to an unrelated third
party (subject to the residual guarantee which, in effect, guarantees 100% of
the outstanding borrowings) or extend the lease term. As a result of the
guarantee and the Filing, the Company has included the accounts of the SPE in
its consolidated financial statements. Borrowings of approximately $18 million
at January 31, 1998 and February 1, 1997 are included in liabilities subject to
settlement and are collateralized by land and buildings (with a carrying value
of $4.0 million) that are classified as long-term assets held for sale. Any
proceeds from the sale of these properties will be restricted to pay down the
related borrowings.
9. Common Stock and Additional Paid-In Capital
The authorized capital stock of the Company consists of 40 million shares of
common stock, par value of $0.01 per share ("Common Stock"), of which
11,312,154 shares were outstanding at January 31, 1998, and one million shares
of preferred stock, par value of $0.01 per share, none of which were
outstanding at January 31, 1998. The Common Stock will be canceled under the
Company's filed plan of reorganization.
The Company has a Restricted Stock Plan that provides for the award of
277,008 shares of Common Stock ("Restricted Stock") to certain officers and
employees. At January 31, 1998, 15,217 shares were outstanding under the
Restricted Stock Plan. There have been no awards of Restricted Stock since the
Filing. No cash payments are required from Restricted Stock recipients and all
issued shares accrue dividends, if any. In general, the shares become
unrestricted under a five-year vesting schedule. All shares of Restricted Stock
may vest earlier in certain circumstances (death, disability, retirement or a
change of control). Shares of Restricted Stock which have not vested are not
freely transferable and revert to the Company upon the employee's termination.
F-39
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Stock Options
The Company has a 1992 Stock Option Plan for Key Employees ("Key Employee
Plan") that provides for the grant of options for up to 1,272,283 shares of
Common Stock to certain employees. No options have been granted under the Key
Employee Plan since the Filing. The options are intended to qualify as
incentive stock options or non qualified stock options and generally have a
three to five-year vesting schedule. Activity in the Key Employee Plan is as
follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at January 28, 1995..................... 1,052,362 $13.65
Granted............................................. 153,000 9.78
Canceled............................................ (261,794) 13.83
Exercised........................................... - -
---------
Outstanding at February 3, 1996..................... 943,568 $12.97
Granted............................................. -
Canceled............................................ (265,790) $13.46
Exercised........................................... - -
---------
Outstanding at February 1, 1997..................... 677,778 $12.78
Granted............................................. - -
Canceled............................................ (396,753) $13.32
Exercised........................................... - -
--------- ------
Outstanding at January 31, 1998..................... 281,025 $12.30
========= ======
Exercisable at January 31, 1998..................... 171,997 $12.65
========= ======
</TABLE>
Options outstanding at January 31, 1998, range in exercise price from $6.50
to $18.38 and have a remaining weighted average contractual life of 5.56 years.
The Company has a 1993 Non-Employee Directors' Stock Option Plan
("Directors' Plan") that provides for the grant of non qualified options for up
to 100,000 shares of Common Stock to non-employee directors. In general, the
options have a three-year vesting schedule. During 1997, 1996 and 1995, 30,000,
15,000 and 30,000 options, respectively, were granted under the Directors'
Plan. During both 1997 and 1996, 15,000 options were canceled. At January 31,
1998, 90,000 options under the Directors' Plan were outstanding with exercise
prices ranging from $0.06 to $15.75 (weighted average exercise price is $7.02).
At January 31, 1998, 45,000 of the options were exercisable at a weighted
average price of $12.26 and have a weighted average remaining contractual life
of 5.26 years.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," effective for the Company's fiscal year beginning February 4,
1996. SFAS No. 123 encourages but does not require the recognition of
compensation expense for the fair value of stock option and other equity
instruments issued to employees. If the fair-value provisions of SFAS No. 123
are not adopted, certain pro forma amounts of net earnings and earnings per
share that would have been reported had these provisions been adopted are
required to be disclosed, if material. The Company continues to account for
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" using the intrinsic value
method. The difference between accounting for stock-based compensation under
APB No. 25 and SFAS No. 123 was not material for 1997, 1996 and 1995, and
accordingly the pro forma disclosures have been omitted.
F-40
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Employee Benefit Plans
Pension plan. Certain union employees are covered by multi-employer defined
benefit plans. Expenses for these plans were $.9 million for 1997, $1.1 million
for 1996 and $1.3 million for 1995.
The Company has a qualified, noncontributory defined benefit pension plan
for employees not participating in multi-employer plans. Plan benefits are
based on the participant's compensation and/or years of service. The Company
funds the net pension costs each year. The plan assets are held in a master
trust fund, which invests primarily in equity, fixed income securities and cash
and cash equivalents.
The Company has several nonqualified, noncontributory defined benefit plans
for the benefit of certain highly compensated employees. The plans are unfunded
and benefits paid under the plans are based on years of service and employees'
compensation.
The components of net pension costs for the plans are as follows:
<TABLE>
<CAPTION>
000's
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service costs........................................ $ 3,272 $ 3,897 $ 3,061
Interest costs....................................... 5,054 4,909 4,369
Return on plan assets................................ (9,566) (7,617) (9,165)
Net amortization and deferral........................ 4,177 2,993 5,497
Curtailment loss..................................... 126 554 -
Special termination benefits......................... (359) 782 -
------- ------- -------
Net pension costs.................................... $ 2,704 $ 5,518 $ 3,762
======= ======= =======
</TABLE>
The funded status is as follows:
<TABLE>
<CAPTION>
(000's)
---------------------------------------------
January 31, 1998 February 1, 1997
---------------------- ----------------------
Qualified Nonqualified Qualified Nonqualified
Plan Plans Plan Plans
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation..... $61,504 $ 3,046 $55,352 $ 4,444
======= ======= ======= =======
Accumulated benefit obligation.. $62,656 $ 3,490 $56,183 $ 4,583
======= ======= ======= =======
Projected benefit obligation.... $72,233 $ 4,236 $66,978 $ 5,126
Plan assets at fair value....... 68,611 - 62,325 -
------- ------- ------- -------
Projected benefit obligation
greater
than plan assets............... (3,622) (4,236) (4,653) (5,126)
Unrecognized prior service
cost........................... 518 1,434 576 107
Unrecognized transition
obligation..................... - 102 - 1,609
Unrecognized net (gain) loss.... (2,740) 435 313 49
Additional minimum liability
(recorded
as other assets)............... - (1,225) - (1,222)
------- ------- ------- -------
Accrued pension liability....... $(5,844) $(3,490) $(3,764) $(4,583)
======= ======= ======= =======
</TABLE>
The curtailment losses and special termination benefits in 1997 and 1996
result from the employment terminations of several executives and the closing
of stores. These costs in 1996 were primarily included in
F-41
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
termination benefits as part of reorganization items (Note 7). Certain portions
($1.2 million) of the nonqualified plans' accrued pension liability at January
31, 1998 relate to pre-petition employment contracts and are included in
liabilities subject to settlement under the reorganization case.
The rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation for the qualified
plan was 4.09% for 1997 and 1996; the discount rate was 7.0% for 1997 and 7.25%
for 1996; and the expected rate of return on the plan assets was 9.25% for 1997
and 9.0% for 1996. The rate of increase in future compensation levels and
discount rate used in determining the actuarial present value of the projected
benefit obligation for the non qualified plans was 4.25% for 1997 and 1996 and
7.0% for 1997 and 7.25% for 1996, respectively.
Defined Contribution Plan The Company has a 401(k) plan for all active
employees in eligible job categories. Employees may contribute a portion of
their salary to the plan. The Company's contributions to the plan, which were
suspended in 1996, were in the form of cash or common stock of the Company and
were based on a percentage of employee contributions. There was no plan expense
in 1997 and 1996, as compared to $1.0 million for 1995.
Postretirement Plan The Company provides certain health care and life
insurance benefits for certain retired non-union employees meeting age and
service requirements. The Company accounts for the post- retirement plan in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," which requires the Company to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. The Company's postretirement benefits are funded on a
current basis.
The SFAS No. 106 valuation at January 31, 1998, along with the $3.9 million
curtailment gain and a $.4 million amortization credit, reflects changes that
were effective January 1, 1998. The changes represent the elimination of future
benefits for active employees who do not become eligible by January 1, 2000,
and a phase-out of the Company contributions over the next two years (at 50%
per year beginning January 1, 1999) towards the cost of providing medical
benefits to eligible retirees.
The status of the plan is as follows:
<TABLE>
<CAPTION>
(000's)
---------------------------------
January 31, 1998 February 1, 1997
---------------- ----------------
<S> <C> <C>
Accumulated postretirement benefit
obligation for:
Retirees.................................. $ 733 $ 1,886
Fully eligible actives.................... 536 1,998
Other actives............................. 439 3,983
------- --------
1,708 7,867
Plan assets at fair value................... - -
------- --------
Funded status............................... (1,708) (7,867)
Unrecognized prior service cost............. (5,189) (5,313)
Unrecognized net (gain)..................... (2,513) (1,203)
------- --------
Accrued postretirement benefit cost......... $(9,410) $(14,383)
======= ========
</TABLE>
F-42
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net postretirement (benefit) cost is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
Service cost.......................................... $ 172 $ 241 $ 338
Interest cost......................................... 429 540 774
Amortization, net..................................... (1,359) (877) (808)
Curtailment gain...................................... (3,939) - -
------- ----- -----
Net (benefit) cost.................................... $(4,697) $ (96) $ 304
======= ===== =====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.70% for 1997 (6.25% for post-65
coverage) grading down to 4.25% over 10 years and 8.70% for 1996 (6.75% for
post-65 coverage) grading down to 4.25% over 10 years. A one percentage point
increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation by .56% and the service and
interest cost by 3.31%. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% for 1997 and 1996.
12. Income Taxes
There was no income tax expense or benefit in 1997 and 1996. The income tax
benefit in 1995 was comprised of the following components:
<TABLE>
<CAPTION>
(000's)
---------
1995
---------
<S> <C>
Current:
Federal......................................................... $ (24,476)
State........................................................... (100)
---------
(24,576)
---------
Deferred:
Federal......................................................... (74,765)
State........................................................... (5,192)
---------
(79,957)
---------
$(104,533)
=========
</TABLE>
The income tax expense (benefit) differs from the amount computed by
applying the statutory Federal income tax rates to the earnings (loss) before
income taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory rate..................................... (35.0%) (35.0%) (35.0%)
State income taxes, net of Federal income tax
benefit........................................... (4.0%) (6.4%) (4.8%)
Non-deductible professional fees................... 14.5% 1.5% 1.2%
Non-deductible compensation........................ - 1.5% -
Valuation allowance................................ 24.5% 38.4% 5.1%
----- ----- -----
0% 0% (33.5%)
===== ===== =====
</TABLE>
F-43
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred taxes represent the differences between financial statement amounts
and the tax bases of assets and liabilities. Deferred tax liabilities (assets)
are as follows:
<TABLE>
<CAPTION>
(000's)
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Lease interests........................................ $ 51,399 $ 50,435
Inventories............................................ 11,854 12,916
Other.................................................. 3,295 793
--------- ---------
Total liabilities...................................... 66,548 64,144
--------- ---------
Net operating loss carryforwards....................... (105,917) (100,392)
Self insurance accruals................................ (8,602) (9,018)
Rejected lease claims.................................. (20,350) (21,725)
Postretirement benefits................................ (3,704) (5,829)
Closing costs.......................................... (2,902) (3,278)
Property, plant and equipment, net..................... (3,233) (4,294)
Capital leases......................................... (10,708) (2,890)
Vacation............................................... (2,636) (3,769)
Alternative minimum tax credit carryforwards........... (2,144) (2,144)
Other.................................................. (3,182) (2,110)
--------- ---------
(163,378) (155,449)
Valuation allowance.................................... 105,411 99,886
--------- ---------
Total assets........................................... (57,967) (55,563)
--------- ---------
Net deferred tax liability............................. $ 8,581 $ 8,581
========= =========
</TABLE>
At January 31, 1998, the Company had net operating loss carryforwards of
approximately $260.8 million for Federal income tax purposes which will expire
beginning in fiscal year 2011 and alternative minimum tax credit carryforwards
of $2.1 million which are available to reduce future Federal regular income
taxes over an indefinite period. As part of the Company's filed plan of
reorganization, it is anticipated that a major portion of the net operating
loss carryforward will be reduced by the cancellation of indebtedness and that
the change in ownership resulting from the issuance of new stock will result in
a limitation on the remaining amount of net operating loss and tax credit
carryovers that can be utilized each year.
The Company had a valuation allowance of $99.9 million against deferred tax
assets in 1996. During 1997, the valuation allowance was increased by $5.5
million. The realization of the deferred tax assets is dependent upon future
taxable income during the Federal and State carryforward periods.
13. Commitments and Contingencies
The Company, exclusive of matters relating to the Filing (Note 3), is party
to various legal actions and administrative proceedings and subject to various
claims arising in the ordinary course of business. The Company believes that
the disposition of these matters will not have a material adverse effect on its
financial position, results of operations or liquidity. All civil litigation
commenced against the Company prior to the Filing has been stayed by operation
of law. There were no material legal proceedings pending against the Company
prior to the Filing.
In February, 1997 the Company adopted the Corporate Bonus Plan (the
"Corporate Bonus Plan") that was approved by the Bankruptcy Court. The
Corporate Bonus Plan provides incentives and rewards for (i)
F-44
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
performance of key employees that meets or exceeds expectations and (ii)
attainment of threshold performance measurements tied directly to the Company's
1997 business plan. The amount of the award would increase as the Company's
performance exceeds the business plan. In addition, a discretionary fund in the
amount of $500,000 has been established to provide bonuses to (a) non-bonus
eligible employees based upon performance regardless of whether the Company
achieves its target performance level and (b) bonus eligible employees based on
performance if the Company does not achieve its target performance level.
Under the Corporate Bonus Plan, the Company had to obtain a minimum EBITDA
(as defined) of $28.1 million in 1997, net of the anticipated costs of the
Corporate Bonus Plan, in order for any employee to be eligible for an award
(except for the discretionary fund mentioned above). For each $5 million of
EBITDA improvement over the amount projected, the award increases by 25% of the
base award up to a maximum increase of 100% of the award. The Company achieved
the minimum EBITDA in 1997 and, accordingly, recorded a provision of
approximately $4 million for such bonuses in 1997 that was included in selling,
store operating, administrative and distribution expenses. These bonuses were
paid in April, 1998.
With respect to the five-highest paid officers of the Company and certain
other members of senior management of the Company, one-quarter of the amount of
any bonus payable before such time as the Company has consummated a Chapter 11
plan of reorganization is contingently payable, with interest, at the earlier
of the date of consummation of such plan, or the date of termination of
employment by the Company without cause, by the officer for good reason, or on
account of death or disability. Approximately $.4 million was subject to this
deferral under the Corporate Bonus Plan in 1997. This is in addition to
approximately $.2 million of bonuses earned under the Retention Plan (Note 7)
in 1995 that remains subject to the same deferral.
In August, 1995, the Company adopted, and in November, 1995, the Bankruptcy
Court approved, the Enterprise Appreciation Incentive Plan (the "Incentive
Plan"). All members of the Company's senior management are eligible to be
selected by the Board of Directors to participate in the Incentive Plan. Under
the Incentive Plan, each participant receives an equity incentive award payable
on June 23, 2000 (the fifth anniversary of the Chapter 11 filing date) equal to
the increase in the value of the Company (as determined by appraisal) over the
five years ending on June 23, 2000. Each participant's interest in the
Incentive Plan vests in equal installments over the five-year period, subject
to acceleration in certain situations. In the event a participant terminates
his or her employment without good reason or is terminated with cause prior to
June 23, 2000, then the participant forfeits his or her rights under the
Incentive Plan.
Awards under the Incentive Plan will be paid promptly following June 23,
2000 in the form of 60% cash and the balance in cash, notes and stock as
described thereunder. In no event will the total of all benefits payable under
the Incentive Plan exceed the lesser of $20,000,000 or 13% (6% was for the
Company's former CEO, Mark Cohen, and is not reallocable) of the total
appreciation in the value of the Company during the five year period. No
payments are expected to be paid under the Incentive Plan because the Company
anticipates that the Incentive Plan will be canceled and replaced by a
different incentive plan under the presently proposed terms of the Company's
filed plan of reorganization.
The Company has entered into a three-year employment agreement with its
current CEO, Peter Thorner, commencing as of October 26, 1995 and amended as of
November 7, 1997. Mr. Thorner's employment agreement provides for the payment
by the Company of an equity incentive bonus (payable in cash, debt and equity
securities) pursuant to the Incentive Plan determined by reference to the
increase in value of the Company from the date of the bankruptcy filing to the
fifth anniversary of the employment agreement, subject generally to vesting
over five years. Mr. Thorner's equity incentive bonus under the Incentive Plan
would be at least $1,000,000 but would not exceed the lesser of $4,615,385 or
3% of the appreciation in value of the Company. As stated above, no payments,
other than annual nonrefundable advances of $150,000 to Mr.
F-45
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Thorner, are expected to be paid under the Incentive Plan because the Company
anticipates that the Incentive Plan will be canceled and replaced by a
different incentive plan under the presently proposed terms of the Company's
filed plan of reorganization. The employment agreement also provides that in
the event of Mr. Thorner's termination of employment by the Company (including
following a change in control of the Company) without Cause or Good Reason (as
defined), Mr. Thorner would generally be entitled to all payments and benefits
called for under the agreement for the remainder of its term.
In August, 1995, the Company adopted and the Bankruptcy Court approved a
severance program (the "Severance Program") that covers certain members of
management. If the employment of any participant in the Severance Program is
terminated other than for cause, death, disability or by the employee, or in
connection with a change in control (as defined), then salary and certain
incentive payments are guaranteed for periods ranging up to eighteen months,
subject to mitigation by other employment. Amounts payable at January 31, 1998
under the Severance Program for management terminations were included in the
reserve for termination benefits (Note 7).
14. Changes in Accounting Estimates
As discussed in Note 2, the Company is primarily self-insured for workers'
compensation and general liability costs. Actuarial studies of the self-
insurance reserves were completed in the third quarter of 1997, using a
discount rate of 6.0% (the same rate used at February 1, 1997), and in the
third quarter of 1996, using a discount rate of 6.0% (compared to 5.3% at
February 3, 1996). As a result of the studies, the self-insurance reserves were
reduced by $3.6 million in the third quarter of 1997 with a corresponding
reduction in SG&A expenses (selling, store operating, administrative and
distribution expenses) and by $5.0 million in the third quarter of 1996 with
corresponding reductions of $4.2 and $.8 million in SG&A expenses and interest
expense, respectively. The reductions in the self-insurance reserves were
primarily the result of aggressive claims management and safety initiatives.
The Company changed its vacation pay vesting policy for certain pay groups
in December, 1997, whereby the employees in those pay groups earn their
vacation pay entitlements the course of each calendar year worked (similar to
industry practice) rather than being fully vested on the first day of each
calendar year. As a result of this change, $4.5 million of the Company's
vacation pay reserves as of January 1, 1998 was eliminated with a corresponding
credit in SG&A expenses.
15. Summary of Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
($ in thousands except per share data)
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended January 31,
1998:
Net Sales................. $267,371 $297,416 $330,433 $449,224 $1,344,444
Gross Margin.............. 79,658 92,936 97,104 126,658 396,357
Net income (loss)......... (31,993) (16,864) 376 25,925 (22,557)
Net income (loss) per
share.................... $ (2.81) $ (1.48) $ 0.03 $ 2.29 $ (1.98)
Weeks in period........... 13 13 13 13 52
Year Ended February 1,
1997:
Net sales................. $337,703 $369,578 $404,456 $449,981 $1,561,718
Gross margin.............. 102,514 101,396 113,061 117,096 434,067
Net loss.................. (53,746) (82,785) (23,073) (59,155) (218,759)
Net loss per share........ $ (4.71) $ (7.25) $ (2.02) $ (5.19) $ (19.17)
Weeks in period........... 13 13 13 13 52
</TABLE>
F-46
<PAGE>
BRADLEES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Summarized Financial Information for Bradlees Stores, Inc. and New Horizons
of Yonkers, Inc.
On January 27, 1999, the Company's amended and modified plan of
reorganization (the "Plan") was confirmed by the Bankruptcy Court. Under the
Plan, Bradlees, Inc. is issuing common stock and Bradlees Stores, Inc. is
issuing certain debt. Bradlees, Inc. operates its stores through Bradlees
Stores, Inc., an indirect wholly-owned subsidiary. Bradlees, Inc. is
guaranteeing the debt issued by Bradlees Stores, Inc. Substantially all of the
assets of the Company, on a consolidated basis, are held by Bradlees Stores,
Inc. The following summarized financial information of Bradlees Stores, Inc. is
presented in accordance with SEC Staff Accounting Bulletin 53 and Regulation S-
X Rule 1-02 (bb):
<TABLE>
<CAPTION>
(000's)
-----------------------------
January 31, February 1,
1998 1997
-------------- --------------
<S> <C> <C> <C>
Current Assets................... $ 286,332 $ 274,980
Noncurrent Assets................ 302,286 322,962
Current Liabilities.............. 246,687 212,547
Payable to Bradlees, Inc......... 189,881 190,038
Noncurrent Liabilities........... 72,324 83,905
Liabilities Subject to Settlement
Under the Reorganization Case... $ 341,874 $ 350,810
<CAPTION>
(000's)
--------------------------------------------
52 Weeks ended 52 Weeks ended 53 Weeks ended
January 31, February 1, February 3,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net Sales........................ $1,344,444 $1,561,718 $1,780,768
Gross Margin..................... 396,357 434,067 491,691
Loss from Continuing Operations.. (22,620) (218,726) (206,870)
Net Loss......................... $ (22,620) $ (218,726) $ (206,870)
</TABLE>
Upon confirmation of the Plan, Bradlees, Inc. will contribute a portion of
its intercompany receivable to the capital of Bradlees Stores, Inc. so that $96
million will be allowed as the final intercompany claim.
New Horizons of Yonkers, Inc., a subsidiary of Bradlees Stores, Inc., is the
lessee of the Yonkers, New York Bradlees' store lease (with no net book value),
which it subleases to Bradlees Stores, Inc. New Horizons of Yonkers, Inc.'s
financial activity was primarily limited to rent expense under the lease and
rental income from the sublease during the above periods. New Horizons of
Yonkers, Inc. is also fully and unconditionally guaranteeing the debt issued by
Bradlees Stores, Inc. The following summarized financial information of New
Horizons of Yonkers, Inc. is presented in accordance with SEC Staff Accounting
Bulletin 53 and Regulation S-X Rule 1-02 (bb):
<TABLE>
<CAPTION>
(000's)
-----------------------------
January 31, February 1,
1998 1997
-------------- --------------
<S> <C> <C> <C>
Due from Bradlees Stores, Inc.... $ 1 $ 1
Stockholders' Equity............. $ 1 $ 1
<CAPTION>
(000's)
--------------------------------------------
52 Weeks ended 52 Weeks ended 53 Weeks ended
January 31, February 1, February 3,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Rental Income.................... $588 $ 588 $588
Rent Expense..................... $588 $ 588 $588
Impairment of Long-Lived Assets
(Lease Acquisition Costs)....... -- $15,793 --
</TABLE>
F-47
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this
Prospectus. Neither Bradlees, Inc. nor Bradlees Stores, Inc. has authorized
anyone to provide prospective investors with information different from that
contained in this Prospectus. This Prospectus is not an offer to sell nor is
it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this Prospectus
is correct only as of the date of this Prospectus, regardless of the time of
the delivery of this Prospectus or any sale of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the Securities or possession or distribution of
this Prospectus in any such jurisdiction. Persons who come into possession of
this Prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this Offering
and the distribution of this Prospectus applicable in that jurisdiction.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 6
The Company.............................................................. 13
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 37
Management............................................................... 41
Principal Stockholders................................................... 50
Certain Relationships and Related Transactions........................... 51
Selling Securityholders.................................................. 51
Plan of Distribution..................................................... 52
Shares Eligible for Future Sale.......................................... 53
Terms of Outstanding Indebtedness........................................ 53
Description of the 9% Convertible Notes.................................. 55
Description of Capital Stock............................................. 62
Legal Matters............................................................ 65
Experts.................................................................. 65
Additional Information................................................... 65
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BRADLEES, INC.
BRADLEES STORES, INC.
7,267,424 Shares of Common Stock
$36,000,000 9% Convertible Notes
----------------
PROSPECTUS
----------------
February , 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses of this Offering
(excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
Nature of Expense Amount(1)
----------------- ---------
<S> <C>
SEC Registration Fee............................................... $ 27,343
--------
Nasdaq Listing Fee................................................. 77,875
--------
Accounting Fees and Expenses....................................... 185,000
--------
Legal Fees and Expenses............................................ 250,000
--------
Printing Expenses.................................................. 50,000
--------
Trustee's Fees and Expenses........................................ 25,000
--------
Transfer Agent's Fee............................................... 25,000
--------
Miscellaneous...................................................... 9,782
--------
TOTAL............................................................ $650,000
========
</TABLE>
- --------
(1) The amounts set forth above, except for the SEC fee, are in each case
estimated.
Item 14. Indemnification of Directors and Officers
The Company's Amended and Restated Articles of Organization provide that a
Director shall not have personal liability to the Company or its stockholders
for monetary damages arising out of the Director's breach of fiduciary duty as
a Director of the Company to the maximum extent permitted by Massachusetts law.
Section 13(b)(1 1/2) of Chapter 156B of the Massachusetts Business Corporation
Law provides that the articles of organization of a corporation may state a
provision eliminating or limiting the personal liability of a Director to a
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, provided, however, that such provision shall not eliminate
or limit the liability of a Director (i) for any breach of the Director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, (iii) under Section 61 or 62 of the Massachusetts Business Corporation
Law dealing with liability for unauthorized distributions and loans to
insiders, respectively, or (iv) for any transaction from which the Director
derived an improper personal benefit.
The Company's Amended and Restated By-Laws further provide that the Company
shall, to the fullest extent authorized by Chapter 156B of the Massachusetts
General Laws, indemnify each person who is, or was or has agreed to become, a
Director or officer of the Company or who is or was a Director or employee of
the Company and is serving, or shall have served, at the request of the
Company, as Director or officer of another organization or in any capacity with
respect to any employee benefit plan of the Company, against all liabilities
and expenses (including reasonable attorneys' fees), judgments and fines
incurred by him or on his behalf in connection with, or arising out of, the
defense or disposition of any action, suit or other proceeding, whether civil
or criminal, or any appeal therefrom in which they may be involved by reason of
being or having been such a Director or officer or as a result of service with
respect to any such employee benefit plan. Section 67 of Chapter 156B of the
Massachusetts General Laws authorizes a corporation to indemnify its directors,
officers, employees and other agents unless such person shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that such action was in the best interests of the corporation or, to the
extent such matter is related to service with respect to an employee benefit
plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
II-1
<PAGE>
The effect of these provisions would be to permit indemnification by the
Company for, among other liabilities, liabilities arising out of the Securities
Act of 1933, as amended (the "Securities Act").
Section 67 of the Massachusetts Business Corporation Law also affords a
Massachusetts corporation the power to obtain insurance on behalf of its
directors and officers against liabilities incurred by them in those
capacities. We have procured a directors' and officers' liability and company
reimbursement liability insurance policy that (i) insures directors and
officers of the Company against losses (above a deductible amount) arising from
certain claims made against them by reason of certain acts done or attempted by
such directors or officers and (ii) insures the Company against losses (above a
deductible amount) arising from any such claims, but only if the Company is
required or permitted to indemnify such directors or officers for such losses
under statutory or common law or under provisions of the Company's Amended and
Restated Articles of Organization or Amended and Restated By-Laws.
The By-laws of New Horizons of Yonkers, Inc. provide that such corporation
shall indemnify its officers and directors to the extent permitted by the
General Corporation Law of Delaware.
Item 15. Recent Sales of Unregistered Securities
On the Effective Date, we issued the following securities in connection with
the Effectiveness of our Plan of Reorganization:
1. We issued 10,225,711 shares of our Common Stock to holders of
approximately $361 million of allowed prepetition claims against us in
satisfaction of such claims in reliance upon the exemption from
registration set forth in Section 1145 of the Bankruptcy Code.
2. We issued $40.0 million aggregate principal amount of 9%
Convertible Notes to holders of approximately $108 million of allowed
prepetition claims against us in satisfaction of such claims in reliance
upon the exemption from registration set forth in Section 1145 of the
Bankruptcy Code.
3. We issued warrants to purchase 1,000,000 shares of our common stock
to holders of approximately $265 million of allowed prepetition claims
against us in satisfaction of such claims in reliance upon the exemption
from registration set forth in Section 1145 of the Bankruptcy Code.
4. We issued $3.3 million worth of Cure Notes to holders of
approximately $3.3 million of allowed prepetition claims against us in
satisfaction of such claims in reliance upon the exemption from
registration set forth in Section 1145 of the Bankruptcy Code.
5. We issued $587,094 worth of Cap Notes to holders of approximately
$547,094 of allowed prepetition claims against us in satisfaction of such
claims in reliance upon the exemption from registration set forth in
Section 1145 of the Bankruptcy Code.
6. We issued $2.4 million worth of Tax Notes to holders of
approximately $2.4 million of allowed prepetition claims against us in
satisfaction of such claims in reliance upon the exemption from
registration set forth in Section 1145 of the Bankruptcy Code.
Item 16. Exhibits and Financial Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
##2.1 --Modified Plan of Reorganization and Plan Disclosure Statement.
*2.2 --Indenture dated February 2, 1999 between Bradlees Stores, Inc., Bradlees, Inc., New Horizons of
Yonkers, Inc. and IBJ Whitehall Bank & Trust Company, with Form of Note.
##2.3 --Form of 9% Convertible Note.
*2.4 --Form of Leasehold Mortgage.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
##2.5 --Form of CAP Notes.
##2.6 --Form of Cure Note.
##2.7 --Form of Tax Note for other priority tax claims.
##2.8 --Form of Tax Note for Federal priority tax claims.
##2.9 --Form of New Warrant.
*2.10 --Stock Pledge Agreement.
*3.1 --Amended and Restated Articles of Organization of Bradlees, Inc.
*3.2 --Amended and Restated Articles of Organization of Bradlees
Stores, Inc.
*3.3 --Amended and Restated By-laws of Bradlees, Inc.
*3.4 --Amended and Restated By-laws of Bradlees Stores, Inc.
*3.5 --Certificate of Incorporation of New Horizons of Yonkers, Inc.
*3.6 --By-laws of New Horizons of Yonkers, Inc.
*4.1 --Specimen Certificate for shares of Common Stock, $.01 par value,
of Bradlees, Inc.
##5.1 --Opinion of Goodwin, Procter & Hoar LLP with respect to the
legality of the securities being offered.
*10.1 --Registration Rights Agreement.
10.22 --Amended and Restated Employment Agreement dated as of October
26, 1995 between and among Bradlees, Inc., Bradlees Stores, Inc.
and Peter Thorner is incorporated by reference from the Company's
Form 10-Q for the quarterly period ended October 28,1995, Part
II, Item 6, Exhibit 10.2, as filed with the Securities and
Exchange Commission on December 12, 1995.
10.23 --Amendment to Amended and Restated Employment Agreement, dated as
of November 7, 1997, between and among Bradlees, Inc., Bradlees
Stores, Inc. and Peter Thorner is incorporated by reference from
the Company's Form 10-K for the year ended January 31, 1998, Part
IV, Item 14(a)(3), Exhibit 10.23, as filed with the Securities
and Exchange Commission on May 1, 1998.
10.25 --Bradlees, Inc. and Bradlees Stores, Inc. Enterprise Appreciation
Incentive Plan Effective June 23, 1995 is incorporated by
reference from the Company's Form 10-Q for the quarterly period
ended October 28, 1995, Part II, Item 6, Exhibit 10.5, as filed
with the Securities and Exchange Commission on December 12, 1995.
10.34 --Bradlees, Inc. and Bradlees Stores, Inc. Supplemental Executive
Retirement Plan Effective December 1, 1995 is incorporated by
reference from the Company's Form 10-K for the year ended
February 3, 1996, Part IV, Item 14(a)(3), Exhibit 10.32, as filed
with the Securities and Exchange Commission on May 3, 1996.
10.35 --Form of Senior Vice President Severance Agreement is
incorporated by reference from the Company's Form 10-K for the
year ended February 3, 1996, Part IV, Item 14(a)(3), Exhibit
10.33, as filed with the Securities and Exchange Commission on
May 3, 1996.
10.36 --Form of Revised Senior Vice President Severance Agreement is
incorporated by reference from the Company's Form 10-K for the
fiscal year ended February 1, 1997, Part IV, Item 14(a)(3),
Exhibit 10.40, as filed with the Securities and Exchange
Commission on May 2, 1997.
10.37 --Form of Revised Senior Vice President Severance Agreement is
incorporated by reference from the Company's Form 10-Q for the
quarterly period ended May 3, 1997, Part II, Item 6, Exhibit 10,
as filed with the Securities and Exchange Commission on June 6,
1997.
10.38 --Form of President Severance Agreement is incorporated by
reference from the Company's Form 10-K for the fiscal year ended
February 1, 1997, Part IV, Item 14(a)(3), Exhibit 10.41, as filed
with the Securities and Exchange Commission on May 2, 1997.
10.39 --Corporate Bonus Plan for Fiscal Year Ended January 31, 1998 and
Subsequent Fiscal Years is incorporated by reference from the
Company's Form 10-Q for the quarterly period ended August, 1997,
Part II, Item 6, Exhibit 10, as filed with the Securities and
Exchange Commission on September 16, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
10.40 --Stipulation and Order, dated October 6, 1997, among Bradlees
Stores, Inc., Bradlees, Inc. and their Affiliates and Mark A.
Cohen Settling Claims Arising Under Employment Contract with Mark
A. Cohen and Bar Order, are incorporated by reference from the
Company's Form 10-Q for the quarterly period ended November 1,
1997, Part II, Item 6, Exhibit 10, as filed with the Securities
and Exchange Commission on December 16, 1997.
*10.41 --Revolving Credit and Guaranty Agreement between BankBoston, N.A.
as Administrative Agent and as Issuing Bank, and the Borrower,
Bradlees Stores, Inc., with Bradlees, Inc. as Guarantor.
##10.42 --Bradlees, Inc. 1999 Stock Option Plan.
##10.43 --Bradlees, Inc. and Bradlees Stores, Inc. Management Emergence
Bonus Plan.
*10.44 --Vendor Lien Agreement
*21 --Subsidiaries of the Registrant.
##23.1 --Consent of Counsel (included in Exhibit 5.1 hereto).
*23.2 --Consent of Arthur Andersen LLP.
*23.3 --Consent of Deloitte & Touche LLP.
*24.1 --Power of Attorney (included on the signature page hereto).
##25.1 --Statement of Eligibility on Form T-1.
</TABLE>
- --------
# Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (SEC File No. 333-66953) filed with the Securities and Exchange
Commission on November 6, 1998.
## Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form S-1 (SEC File No. 333-66953) filed
with the Securities and Exchange Commission on January 28, 1999.
* Filed herewith.
(b) Financial Statement Schedule filed as part of this Registration
Statement is as follows:
Condensed Consolidated Financial Statements as of October 31, 1998 (unaudited)
Condensed Consolidated Statements of Operations for the thirteen weeks ended
October 31, 1998 (unaudited) and November 1, 1997 (unaudited)
Condensed Consolidated Statements of Operations for the thirty-nine weeks ended
October 31, 1998 (unaudited) and November 1, 1997 (unaudited)
Condensed Consolidated Balance Sheets as of October 31, 1998 (unaudited) and
November 1, 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended
October 31, 1998 (unaudited) and November 1, 1997 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Consolidated Financial Statements as of January 31, 1998
Report of Independent Public Accountants-Arthur Andersen LLP
Independent Auditors' Report-Deloitte & Touche LLP
Consolidated Statements of Operations for the fiscal years ended January 31,
1998, February 1, 1997 and February 3, 1996
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997
Consolidated Statements of Cash Flows for the fiscal years ended January 31,
1998, February 1, 1997 and February 1, 1996
Consolidated Statements of Stockholders' Equity (Deficiency) for the fiscal
years ended January 31, 1998, February 1, 1997 and February 3, 1996
Notes to Consolidated Financial Statements
II-4
<PAGE>
Item 17. Undertakings
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 foregoing provisions, or otherwise, the registrants
have 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.
The undersigned registrants hereby undertake:
(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 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.
(3) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrants have duly caused this Post-Effective Amendment No. 1 to the
Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of Braintree, The Commonwealth of
Massachusetts on February 15, 1999.
BRADLEES, INC.
/s/ Peter Thorner
By: _________________________________
Name:Peter Thorner
Office Title: Chairman of the
Board andChief
Executive Officer
BRADLEES STORES, INC.
/s/ Peter Thorner
By: _________________________________
Name:Peter Thorner
Office Title: Chairman of the
Board and Chief
Executive Officer
NEW HORIZONS OF YONKERS, INC.
/s/ Peter Thorner
By: ____________________________
Name:Peter Thorner
Office Title: Chairman of the
Board andChief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below, with the exception of Charles K. MacDonald, constitutes and appoints
each of Peter Thorner and David L. Schmitt such person's true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for such person and in such person's name, place and stead in all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) of the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that any said
attorney-in-fact and agent, or any substitute or substitutes of any of them,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Each person listed below has signed this Post-Effective Amendment No. 1 to the
Registration Statement in their capacity as an officer or director of Bradlees,
Inc. Messrs. Thorner and Moses are also signing this Registration Statement as
officers and directors of Bradlees Stores, Inc. and New Horizons of Yonkers,
Inc. Mr. Lynn is also signing this Registration Statement as an officer of
Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. Mr. Schmitt, in his
individual capacity, is signing this Registration Statement solely as a
director of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc.
II-6
<PAGE>
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Peter Thorner
- ------------------------------------- Chief Executive February 16,
Peter Thorner Officer (Principal 1999
Executive Officer)
and Chairman of the
Board
/s/ Cornelius F. Moses, III
- ------------------------------------- Senior Vice February 16,
Cornelius F. Moses, III President and Chief 1999
Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Robert Lynn
- ------------------------------------- Director, President February 16,
Robert Lynn and Chief Operating 1999
Officer
/s/ Robert A. Altschuler
- ------------------------------------- Director February 16,
Robert A. Altschuler 1999
/s/ Stephen J. Blauner
- ------------------------------------- Director February 16,
Stephen J. Blauner 1999
/s/ W. Edward Clingman, Jr.
- ------------------------------------- Director February 16,
W. Edward Clingman, Jr. 1999
/s/ John M. Friedman, Jr.
- ------------------------------------- Director February 16,
John M. Friedman, Jr. 1999
/s/ Lawrence Lieberman
- ------------------------------------- Director February 16,
Lawrence Lieberman 1999
/s/ Charles K. MacDonald
- ------------------------------------- Director February 16,
Charles K. MacDonald 1999
/s/ William H. Roth
- ------------------------------------- Director February 16,
William H. Roth 1999
/s/ David L. Schmitt
- ------------------------------------- Director of Bradlees Febraury 16,
David L. Schmitt Stores, Inc. and 1999
New Horizons of
Yonkers, Inc.
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
##2.1 --Modified Plan of Reorganization and Plan Disclosure Statement.
*2.2 --Indenture dated February 2, 1999 between Bradlees Stores, Inc., Bradlees, Inc., New Horizons of
Yonkers, Inc. and IBJ Whitehall Bank & Trust Company.
##2.3 --Form of 9% Convertible Note.
*2.4 --Form of Leasehold Mortgage.
##2.5 --Form of CAP Note.
##2.6 --Form of Cure Note.
##2.7 --Form of Tax Note for priority tax claims.
##2.8 --Form of Tax Notes for Federal priority tax claims.
##2.9 --Form of New Warrant.
*2.10 --Stock Pledge Agreement.
*3.1 --Amended and Restated Articles of Organization of Bradlees, Inc.
*3.2 --Amended and Restated Articles of Organization of Bradlees Stores, Inc.
*3.3 --Amended and Restated By-laws of Bradlees, Inc.
*3.4 --Amended and Restated By-laws of Bradlees Stores, Inc.
*3.5 --Certificate of Incorporation of New Horizons of Yonkers, Inc.
*3.6 --By-laws of New Horizons of Yonkers, Inc.
*4.1 --Specimen Certificate for shares of Common Stock, $.01 par value, of Bradlees, Inc.
##5.1 --Opinion of Goodwin, Procter & Hoar LLP with respect to the legality of the securities being
offered.
*10.1 --Registration Rights Agreement.
10.22 --Amended and Restated Employment Agreement dated as of October 26, 1995 between and among Bradlees,
Inc., Bradlees Stores, Inc. and Peter Thorner is incorporated by reference from the Company's Form
10-Q for the quarterly period ended October 28,1995, Part II, Item 6, Exhibit 10.2, as filed with
the Securities and Exchange Commission on December 12, 1995.
10.23 --Amendment to Amended and Restated Employment Agreement, dated as of November 7, 1997, between and
among Bradlees, Inc., Bradlees Stores, Inc. and Peter Thorner is incorporated by reference from the
Company's Form 10-K for the year ended January 31, 1998, Part IV, Item 14(a)(3), Exhibit 10.23, as
filed with the Securities and Exchange Commission on May 1, 1998.
10.25 --Bradlees, Inc. and Bradlees Stores, Inc. Enterprise Appreciation Incentive Plan Effective June 23,
1995 is incorporated by reference from the Company's Form 10-Q for the quarterly period ended
October 28, 1995, Part II, Item 6, Exhibit 10.5, as filed with the Securities and Exchange
Commission on December 12, 1995.
10.34 --Bradlees, Inc. and Bradlees Stores, Inc. Supplemental Executive Retirement Plan Effective December
1, 1995 is incorporated by reference from the Company's Form 10-K for the year ended February 3,
1996, Part IV, Item 14(a)(3), Exhibit 10.32, as filed with the Securities and Exchange Commission
on May 3, 1996.
10.35 --Form of Senior Vice President Severance Agreement is incorporated by reference from the Company's
Form 10-K for the year ended February 3, 1996, Part IV, Item 14(a)(3), Exhibit 10.33, as filed with
the Securities and Exchange Commission on May 3, 1996.
10.36 --Form of Revised Senior Vice President Severance Agreement is incorporated by reference from the
Company's Form 10-K for the fiscal year ended February 1, 1997, Part IV, Item 14(a)(3), Exhibit
10.40, as filed with the Securities and Exchange Commission on May 2, 1997.
10.37 --Form of Revised Senior Vice President Severance Agreement is incorporated by reference from the
Company's Form 10-Q for the quarterly period ended May 3, 1997, Part II, Item 6, Exhibit 10, as
filed with the Securities and Exchange Commission on June 6, 1997.
10.38 --Form of President Severance Agreement is incorporated by reference from the Company's Form 10-K
for the fiscal year ended February 1, 1997, Part IV, Item 14(a)(3), Exhibit 10.41, as filed with
the Securities and Exchange Commission on May 2, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<C> <S>
10.39 --Corporate Bonus Plan for Fiscal Year Ended January 31, 1998 and Subsequent Fiscal Years is
incorporated by reference from the Company's Form 10-Q for the quarterly period ended August 2,
1997, Part II, Item 6, Exhibit 10, as filed with the Securities and Exchange Commission on
September 16, 1997.
10.40 --Stipulation and Order, dated October 6, 1997, among Bradlees Stores, Inc., Bradlees, Inc. and
their Affiliates and Mark A. Cohen Settling Claims Arising Under Employment Contract with Mark A.
Cohen and Bar Order, are incorporated by reference from the Company's Form 10-Q for the quarterly
period ended November 1, 1997, Part II, Item 6, Exhibit 10, as filed with the Securities and
Exchange Commission on December 16, 1997.
*10.41 --Revolving Credit and Guaranty Agreement between BankBoston, N.A. as Administrative Agent and as
Issuing Bank, and the Borrower, Bradlees Stores, Inc., with Bradlees, Inc. as Guarantor.
##10.42 --Bradlees, Inc., 1999 Stock Option Plan.
##10.43 --Bradlees, Inc. and Bradlees Stores, Inc. Management Emergence Bonus Plan.
*10.44 --Vendor Lien Agreement.
*21 --Subsidiaries of the Registrant.
##23.1 --Consent of Counsel (included in Exhibit 5.1 hereto).
*23.2 --Consent of Arthur Andersen LLP.
*23.3 --Consent of Deloitte & Touche LLP.
*24.1 --Power of Attorney (included on the Signature page hereto).
##25.1 --Statement of Eligibility on Form T-1.
</TABLE>
- --------
# Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (SEC File No. 333-66953) filed with the Securities and Exchange
Commission on November 6, 1998.
## Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form S-1 (SEC File No. 333-66953) filed
with the Securities and Exchange Commission on January 28, 1999.
*Filed herewith.
<PAGE>
Exhibit 2.2
INDENTURE, dated as of February 2, 1999, among Bradlees Stores, Inc.,
a Massachusetts corporation, as reorganized pursuant to the Plan described below
(together with its successors and assigns, the "Issuer"), IBJ Whitehall Bank &
Trust Company, a New York banking corporation (the "Trustee"), Bradlees, Inc., a
Massachusetts corporation, as reorganized pursuant to the Plan (together with
its successors and assigns, "BI") and New Horizons of Yonkers, Inc., a Delaware
corporation.
W I T N E S S E T H:
WHEREAS, the Issuer and certain of its Affiliates filed a voluntary
petition (Case Nos. 95 B 42777 through 95 B 42784 (BRL) (Jointly Administered))
(the "Bankruptcy Proceeding") under Chapter 11 of the Bankruptcy Code on June
23, 1995 with the United States Bankruptcy Court Southern District of New York
(the "Bankruptcy Court");
WHEREAS, the Bankruptcy Court confirmed the Second Amended Joint Plan
of Reorganization of Bradlees Stores, Inc. and Certain Affiliates Under Chapter
11 of the Bankruptcy Code on January 27, 1999 (the "Plan");
WHEREAS, the Plan contemplates the issuance of the Notes (as
hereinafter defined) hereunder to certain of the Issuer's pre-petition creditors
(together with certain other consideration provided for in the Plan) in exchange
for relinquishment by such creditors of their claims filed in connection with
the Bankruptcy Proceeding;
WHEREAS, as contemplated by the Plan, the Notes issued hereunder shall
be a full recourse obligation of the Issuer and shall be secured by (A) first
priority mortgage Liens (as hereinafter defined) on the Yonkers Property (as
hereinafter defined), and, subject to Section 12.1(b) hereof, the Additional
Collateral (as hereinafter defined) and the Net Proceeds of the Disposition (as
hereinafter defined) of the Yonkers Property and, subject to Section 12.1(b)
hereof, the Additional Collateral and (B) a first priority Lien on the Pledged
Stock, in each case as described hereunder and in the Security Documents (as
hereinafter defined);
WHEREAS, BI has duly authorized the full and unconditional guarantee
on an unsecured basis by BI of the Issuer's due and punctual payment of the
principal of and interest on the Notes and any other amounts payable on the
Notes, whether at maturity, by declaration of acceleration, upon redemption or
otherwise;
WHEREAS, all acts necessary (i) to make this Indenture a valid and
binding agreement and instrument for the security of the Notes, in accordance
with its and their terms and (ii) to make the Notes, when executed by the Issuer
and authenticated and delivered by the Trustee, valid and binding obligations of
the Issuer, have been done, and the Issuer has duly authorized the execution and
delivery of this Indenture to secure the Notes and to provide for the
authentication and delivery thereof by the Trustee;
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in
consideration of the premises and of the covenants continued herein, it is
mutually
<PAGE>
covenanted and agreed, for the benefit of the parties hereto and the
equal and proportionate benefit of all Noteholders, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1 Definitions; Construction.
-------------------------
(a) For all purposes of this Indenture capitalized terms used herein
shall have the meanings set forth below. For purposes of this Indenture, except
as otherwise expressly provided or unless the context otherwise requires:
"Acceleration Notice" has the meaning specified in Section 8.2.
"Additional Collateral" means the Issuer's leasehold interest in the
following leases, each as further described in the Leasehold Mortgage applicable
thereto: (i) Sublease dated July 8, 1992 between The Stop & Shop Supermarket
Company and Bradlees New England, Inc., predecessor in interest to the Issuer
("BNE"), with respect to property located in Danbury, Connecticut; (ii) Lease
dated October 26, 1973 between ASC of Moorestown, Inc. and The Stop & Shop
Companies, Inc., with respect to property located in Saddle Brook, New Jersey,
assigned to Bradlees New Jersey Inc., predecessor in interest to the Issuer
("BNJ"), pursuant to an Assignment of Lease dated June 18, 1988 between the Stop
& Shop Companies, Inc. and BNJ; and (iii) Indenture of Lease dated August 24,
1962 between Postrich Realty Corp. and Stop & Shop, Inc., with respect to
property located in Norwalk, Connecticut, assigned to BNE pursuant to an
Assignment of Lease dated June 18, 1988 between Stop & Shop, Inc. and BNE.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" shall mean any Person acting as Authenticating
Agent hereunder pursuant to Section 4.13.
"Authorized Agent" shall mean any Paying Agent, Authenticating Agent
or Security Registrar or other agent appointed by the Trustee in accordance with
this Indenture to perform any function that this Indenture authorizes the
Trustee or such agent to perform.
"Authorized Representative" means, with respect to any Person, the
president, vice-president, chief financial officer, treasurer or secretary of
the Person
2
<PAGE>
authorized to act on behalf of such Person by its Board of Directors
or any other governing body of such Person in matters relating to the Notes and
this Indenture.
"Authorized Signatory" shall mean any officer of the Trustee or any
other individual who shall be duly authorized by appropriate corporate action on
the part of the Trustee to authenticate Notes.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended,
as codified under Title 11 of the United States Code, 11 U.S.C. (S) 101 et
--
seq., and the Bankruptcy Rules promulgated thereunder, as the same may be in
- ---
effect from time to time.
"Bankruptcy Court" shall have meaning specified in the recitals
hereto.
"Bankruptcy Law" means Title 11 of the United States Code, or any
similar Federal or state law for the relief of debtors.
"Bankruptcy Proceeding" shall have meaning specified in the recitals
hereto.
"BI" has the meaning specified in the introductory paragraph hereof.
"BI Credit Facility Guarantee" means the Indebtedness represented by
the guarantee by BI of the Obligations of the Borrower (each as defined in the
New Credit Facility) under the New Credit Facility.
"BI Guarantee" means the guarantee by BI of the BI Guarantee
Obligations, as provided in Article 13.
"BI Guarantee Obligations" has the meaning specified in Section 13.1.
"Board of Directors", when used with respect to a corporation, shall
mean either the board of directors of the corporation, or any committee of that
board duly authorized to act for it hereunder.
"Board Resolution" shall mean a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Issuer or BI, as the case may be, to
have been adopted by the Board of Directors of the Issuer or BI, as the case may
be, and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in New York, New York, or in the city and State
where the Trustee's Corporate Trust Office is located, are authorized or
obligated by law, executive order or governmental decree to be closed.
"Collateral" means, collectively, all of the property and assets that
are from time to time subject to the Lien of any of the Security Documents.
3
<PAGE>
"Constituent Entity" has the meaning specified in Section 7.1.
"Conversion Price" has the meaning specified in Section 9.4.
"Conversion Shares" has the meaning specified in Section 9.5(j).
"Corporate Trust Office" means the principal office of the Trustee at
which any particular time corporate trust business of the Trustee shall be
administered, which at the date hereof is One State Street, New York, New York,
or such other office as may be designated by the Trustee to the Issuer and each
Noteholder.
"Credit Facility Guarantees" means, collectively, the BI Credit
Facility Guarantee and the New Horizons Credit Facility Guarantee.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under the Bankruptcy Law.
"Date of Conversion" has the meaning specified in Section 9.2.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Depository" means DTC, together with any Person succeeding thereto by
merger, consolidation or acquisition of all or substantially all of its assets,
including substantially all of its securities payment and transfer operations.
"Disposition" means, with respect to any Collateral, the sale,
assignment, transfer, lease, conveyance or other disposition of all or any
portion of such Collateral (including without limitation the disposition of all
of the stock of the entity holding such Collateral). Notwithstanding the
foregoing, any such sale, assignment, transfer, lease, conveyance or other
disposition to a subsidiary of the Issuer or BI shall not be deemed a
"Disposition" hereunder so long as such subsidiary acquires its interest subject
to the Lien on such Collateral for the benefit of the Holders created by the
Security Documents, executes a guarantee under the Notes in substantially the
form of the Guarantee and executes an undertaking to be bound by and perform the
obligations of the Mortgagor or pledgor under the Security Documents applicable
to such Collateral. "Dispose" and "Disposed" shall have the correlative
meaning.
"Distribution Date" has the meaning specified in Section 9.5(j).
"Dollars" means the lawful currency of the United States of America.
"DTC" means The Depository Trust Company, having a principal office at
55 Water Street, New York, New York 10041-0099.
"Effective Date" has the meaning specified in the Plan.
4
<PAGE>
"Equity Offering" shall mean an offering, sale or issuance for cash by
BI of its common stock, other than offerings to officers, directors, employees
or consultants pursuant to the Plan or pursuant to any compensation, incentive
or benefit plan or arrangement adopted by BI.
"Events of Default" has the meaning specified in Section 8.1 hereof.
"'ex' date" has the meaning specified in Section 9.5(f).
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC promulgated
thereunder.
"Expiration Date" has the meaning specified in Section 9.5(e).
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar function of comparable stature and authority within the accounting
profession), or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
"Global Note" means any global security in registered form
representing all or a portion of the Notes.
"Guarantees" means, collectively, the BI Guarantee and the New Horizon
Guarantee.
"Guarantee Obligations" has the meaning specified in Section 13.1.
"Guarantor" shall have the meaning specified in Section 13.1.
"Holders" has the same meaning as Noteholders.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or bankers'
acceptances or letters of credit (or reimbursement agreements in respect
thereof) or representing the balance deferred and unpaid of the purchase price
of any property (including pursuant to capital leases), except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing indebtedness would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, and also includes, to the
extent not otherwise included, the guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect by such Person in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any of the items which would be included within this definition.
5
<PAGE>
"Indenture" means this instrument as amended or supplemented from time
to time pursuant to the terms hereof.
"Issue Date" means the date the Notes are issued pursuant to this
Indenture.
"Issuer" means Bradlees Stores, Inc., a Massachusetts corporation,
together with its successors and assigns.
"Issuer Request" and "Issuer Order" mean, respectively, a written
request or order signed in the name of the Issuer by its Authorized
Representative and delivered to the Trustee.
"Last Sale Price" has the meaning specified in Section 9.3.
"Leasehold Mortgages" means, collectively, each of (a) the Leasehold
Mortgage, Security Agreement, Assignment of Leases, Rents and Profits and
Fixture Financing Statement by and between New Horizons, as Mortgagor, and
Trustee, as Mortgagee, on behalf of the Holders, dated as of February 2, 1999,
with respect to the Yonkers Property, in the original principal amount of
$17,760,000; (b) the Leasehold Mortgage, Security Agreement, Assignment of
Leases, Rents and Profits and Fixture Financing Statement by and between New
Horizons, as Mortgagor, and Trustee, as Mortgagee, on behalf of the Holders,
dated as of February 2, 1999, with respect to the Yonkers Property, in the
original principal amount of $11,240,000; (c) the Leasehold Mortgage, Security
Agreement, Assignment of Leases, Rents and Profits and Fixture Financing
Statement by and between Bradlees Stores, Inc., as Mortgagor, and Trustee, as
Mortgagee, on behalf of the Holders, dated as of February 2, 1999, with respect
to property located in Danbury, Connecticut, in the original principal amount of
$6,500,000; (d) the Leasehold Mortgage, Security Agreement, Assignment of
Leases, Rents and Profits and Fixture Financing Statement by and between
Bradlees Stores, Inc., as Mortgagor, and Trustee, as Mortgagee, on behalf of the
Holders, dated as of February 2, 1999, with respect to property located in
Norwalk, Connecticut, in the original principal amount of $6,500,000; and (e)
the Leasehold Mortgage, Security Agreement, Assignment of Leases, Rents and
Profits and Fixture Financing Statement by and between Bradlees Stores, Inc. as
Mortgagor, and Trustee, as Mortgagee, on behalf of the Holders, dated as of
February 2, 1999, with respect to property located in Saddlebrook, New Jersey,
in the original principal amount of $6,500,000.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Majority" has the meaning specified in Section 6.8.
"Maturity Date" means the date, as set forth on the face of the Notes,
on which the Notes will mature.
6
<PAGE>
"Mortgaged Property", with respect to any Leasehold Mortgage, shall
have the meaning specified in such Leasehold Mortgage.
"Mortgagee" and "Mortgagor", with respect to any Leasehold Mortgage,
have the meanings specified in such Leasehold Mortgage.
"Net Proceeds" means, as appropriate, (i) the proceeds of an Equity
Offering minus all customary out-of-pocket expenses and fees relating to such
Equity Offering or (ii) the proceeds of the Disposition of the Yonkers Property
or the Additional Collateral minus all customary out-of-pocket expenses and fees
relating to such Disposition.
"New Common Stock" means the common stock, par value $.01, of BI
authorized under the amended certificate of incorporation of BI and issued
pursuant to the Plan.
"New Credit Facility" has the meaning specified in the Plan.
"New Credit Facility Waivers and Consents" means all Mortgagee's
Waivers and Consents (or similar documents) entered into from time to time by
the Issuer, BankBoston Retail Finance, Inc., as collateral agent and the
Trustee, as mortgagee, with respect to any Additional Collateral, replacement
collateral or the Yonkers Property.
"New Horizons" means New Horizons of Yonkers, Inc., a Delaware
corporation and wholly-owned subsidiary of the Issuer.
"New Horizons Credit Facility Guarantee" means the Indebtedness
represented by the guarantee by New Horizons of the Obligations of the Borrower
(each as defined in the New Credit Facility) under the New Credit Facility.
"New Horizon Guarantee" means the guarantee by New Horizons of the New
Horizons Guarantee Obligations, as provided in Article 13.
"New Horizons Guarantee Obligations" has the meaning specified in
Section 13.1.
"New Horizons Old Common Stock" means the common stock issued by New
Horizons and outstanding immediately prior to the Effective Date.
"non-electing shares" has the meaning specified in Section 9.6.
"Notes" means the notes issued to the Holders in accordance with the
terms of this Indenture.
"Noteholders" means the registered owners of the Notes as shown on the
Security Register maintained for that purpose.
7
<PAGE>
"Offer" has the meaning specified in Section 9.5(e).
"Officers' Certificate" of any Person means a certificate signed by
two Authorized Representatives of such Person.
"Opinion of Counsel" means a written opinion of counsel for any Person
reasonably satisfactory to the intended recipient thereof.
"Outstanding" shall mean, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes or portions thereof deemed to have been paid within the
meaning of Section 10.1;
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture; and
(iv) Notes converted to New Common Stock pursuant to Article 9;
provided, however, that in determining whether the Holders of the requisite
principal of Notes outstanding have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or whether or not a quorum is
present at a meeting of Holders, Notes owned by the Issuer, BI or any subsidiary
thereof shall be disregarded and deemed not to be outstanding as provided in
Section 1.4.
"Paying Agent" means any Person acting as Paying Agent pursuant to
this Indenture.
"Person" means an individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, limited liability partnership, institution, public benefit
corporation, firm, joint stock company, estate, government (or agency or
political subdivision thereof) or other entity.
"Place of Payment", when used with respect to the Notes, shall mean
the office or agency maintained pursuant to Section 4.13 hereof.
"Plan" shall have the meaning specified in the recitals hereto.
"Pledged Stock" means 100% of the outstanding New Horizons Old Common
Stock, registered in the name of the Issuer.
"Predecessor Notes", with respect to any particular Note, shall mean
any previous Note evidencing all or a portion of the same debt as that evidenced
by such particular Note; for the purposes of this definition, any Note
authenticated and delivered
8
<PAGE>
under Section 2.5 in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the lost, destroyed or stolen Note.
"Purchased Shares" has the meaning specified in 9.5(e).
"Redemption Account" has the meaning specified in Section 3.4.
"Redemption Date" means a date set forth for the redemption of Notes
pursuant to Section 3.3.
"Redemption Price" means the price to be paid by the Issuer for the
Notes that are redeemed under Article 3.
"Regular Record Date", for the Stated Maturity of any installment of
principal of any Note or payment of interest thereon, shall mean the 15th day
(whether or not a Business Day) next preceding such Stated Maturity, or any
other date specified for such purpose in the form of the Note.
"Responsible Officer" means, when used with respect to the Trustee,
any officer assigned to the Corporate Trust Office, including any managing
director, vice president, assistant vice president, assistant treasurer,
assistant secretary or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
having direct responsibility for the administration of this Indenture, and also,
with respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale Agreement" has the meaning specified in Section 6.9.
"SEC" means the Securities and Exchange Commission of the United
States or any successor agency.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Security Agreement" means the Security Agreement from the Issuer to
the Trustee, on behalf of the Holders, dated as of February 1, 1999, as the same
may be amended from time to time in accordance with its terms.
"Security Documents" means the Leasehold Mortgages, the Security
Agreement and any other instruments or documents entered into in connection
therewith (for avoidance of doubt, expressly excluding the New Credit Facility
or related loan documents), as such instruments and documents may from time to
time be amended in accordance with the terms hereof and thereof.
"Security Register" means any register which the Issuer shall cause to
be kept at the Corporate Trust Office of the Trustee (and in any other office or
agency of the Issuer in a place of payment) in which, subject to such reasonable
regulations as it may
9
<PAGE>
prescribe, the Issuer provides for the registration of Notes and of transfers
and exchanges of Notes.
"Security Registrar" means any person acting as Security Registrar
pursuant to this Indenture.
"Significant Subsidiary" means any subsidiary that would be a
"significant subsidiary" of the Issuer or BI, as the case may be, within the
meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" when used with respect to any Note or any
installment of principal thereof or payment of interest thereon, shall mean the
date specified in such Note as the fixed date on which such Note or such
installment of principal or payment of interest is due and payable.
"Surviving Entity" has the meaning specified in Section 7.1.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the NASDAQ (or,
if the relevant security is not listed for trading thereon, the principal
securities exchange or market on which the New Common Stock is then listed or
admitted for trading).
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended, and the rules and regulations promulgated thereunder.
"Trustee" means IBJ Whitehall Bank & Trust Company, named as "Trustee"
in the introductory paragraph hereof until a successor Trustee shall have been
appointed pursuant to the applicable provisions hereof, and thereafter means
such successor Trustee.
"Yonkers Property" means that certain leasehold interest owned by New
Horizons located in Yonkers, New York, as further described in the Leasehold
Mortgage encumbering the Yonkers Property.
(b) (i) the terms defined in this Indenture have the meanings
assigned to them in this Indenture and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the other
gender;
(ii) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP as in effect on the date
hereof;
(iii) references herein to "Articles", "Sections", "Subsections",
"Paragraphs" and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions of
this Indenture;
(iv) a reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
10
<PAGE>
(v) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
provision; and
(vi) the term "include" or "including" shall mean without
limitation by reason of enumeration.
SECTION 1.2 Compliance Certificates and Opinions. Except as otherwise
------------------------------------
expressly provided by this Indenture, upon any application or request by the
Issuer to the Trustee to take any action under any provision of this Indenture,
the Issuer shall furnish to the Trustee an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any particular application or request
as to which the furnishing of documents is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion or such other officer or employee of the Issuer on whom such individual
has relied in good faith has read such covenant or condition and the definitions
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, or such
officer or employee, such examination or investigation as is necessary to enable
such individual to express an informed opinion as to whether or not such
covenant or condition has been complied with has been made;
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with; and
(e) in the case of an Officers' Certificate, a statement that no
Event of Default has occurred and is continuing.
SECTION 1.3 Form of Documents Delivered to Trustee. In any case
--------------------------------------
where several matters are required to be certified by or covered by an opinion
of any specified Person, it is not necessary that all such matters be certified
by or covered by the opinion of only one such Person, or that they be so
certified by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matter in one or several documents.
11
<PAGE>
Any certificate or opinion of an officer of the Issuer may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows or has reason to believe
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate, opinion or an Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Issuer stating that the information with
respect to each factual matters is in the possession of the Issuer unless such
counsel knows or in the exercise of reasonable care (without independent
investigation) should know that the certificate or opinion or representations
with respect to such matters are erroneous.
Any Opinion of Counsel stated to be based on the opinion of other
counsel shall be accompanied by a copy of such other opinion.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4 When Securities Disregarded. In determining whether the
---------------------------
Holders of the required principal amount of Notes have concurred in any
direction, waiver or consent, Notes owned by the Issuer, BI or any of their
respective subsidiaries shall be disregarded and deemed not to be outstanding,
except that, for the purpose of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes with
respect to which the Trustee has received written notice that such Notes are so
owned shall be so disregarded. Also, subject to the foregoing, only Outstanding
Notes shall be considered in any such determination.
SECTION 1.5 Conflict with Trust Indenture Act. If any provision
---------------------------------
hereof limits, qualifies or conflicts with another provision hereof which is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provisions shall control.
SECTION 1.6 Execution in Counterparts. This instrument may be
-------------------------
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one of the same instrument.
SECTION 1.7 Effect of Headings and Table of Contents. The Article
----------------------------------------
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 1.8 Successors and Assigns. All covenants and agreements
----------------------
in this Indenture by the Trustee, the Issuer and BI shall bind and, to the
extent permitted hereby, shall inure to the benefit of and be enforceable by
their respective successors and assigns, whether so expressed or not. The Issuer
may not assign or otherwise transfer any of its rights under this Agreement.
12
<PAGE>
SECTION 1.9 Severability Clause. In case any provision in this
-------------------
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1.10 Benefits of Indenture. Nothing in this Indenture or in
---------------------
the Notes, expressed or implied, shall give to any Person, other than the
parties hereto and their successors hereunder and the Holders of Notes, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.11 GOVERNING LAW. THIS INDENTURE AND THE NOTES SHALL BE
-------------
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTIONS 5-1401 AND 5-
1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
SECTION 1.12 Legal Holidays. In any case where the Redemption Date
--------------
or the Stated Maturity of any Note or of any installment of principal thereof or
payment of interest thereon, is proposed to be paid, shall not be a Business
Day, then (notwithstanding any other provision of this Indenture or such Note)
payment of interest or principal, if any, need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as if
made on the Redemption Date or at the Stated Maturity, and if such payment is
timely made, no interest shall accrue for the period from and after such
Redemption Date or Stated Maturity, as the case may be, to the date of such
payment.
SECTION 1.13 No Recourse Against Others. A director, officer,
--------------------------
employee, stockholder or incorporator, as such, of the Issuer or BI shall not
have any liability for any obligations of the Issuer or BI under the Notes or
this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes. This Section 1.13 shall not affect
in any respect the obligations of BI set forth in Article 13.
SECTION 1.14 Notices. Any notices or other communications required
-------
or permitted hereunder shall be in writing, and shall be sufficiently given if
made by hand delivery, by commercial courier service, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
13
<PAGE>
(a) if to the Issuer, to:
Bradlees Stores, Inc.
One Bradlees Circle
P.O. Box 9051
Braintree, MA 02184-9051
Attention: David L. Schmitt, Senior Vice-President & General Counsel
Telephone: (781) 380-6190
Telecopy: (781) 380-8096
(b) if to BI or New Horizons, to such entity at:
One Bradlees Circle
P.O. Box 9051
Braintree, MA 02184-9051
Attention: David L. Schmitt, Senior Vice-President & General Counsel
Telephone: (781) 380-6190
Telecopy: (781) 380-8096
and
(c) if to the Trustee, to:
IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust Administration
Telephone: (212) 858-2784
Telecopy: (212) 858-2952
Each of the Issuer, BI and the Trustee by written notice to each other
such Person may designate additional or different addresses for notices to such
Person. Any notice or communication to the Issuer, BI or the Trustee shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when receipt is confirmed if delivered by commercial courier service;
when answered back, if telexed; when receipt is acknowledged, if faxed; and five
(5) calendar days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to him
by first class mail or other equivalent means at his address as it appears on
the registration books of the Security Registrar and shall be sufficiently given
to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
14
<PAGE>
ARTICLE 2
THE NOTES
SECTION 2.1 Title and Terms. The aggregate principal amount of
---------------
Notes which may be authenticated and delivered under this Indenture is limited
to $28,995,000, except for Notes authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Section 2.3, 2.4, 2.5 or 3.5.
The Maturity Date of the Notes shall be February 3, 2004 and they
shall bear interest at the rate of 9% per annum, from and including the date of
issuance thereof until maturity or earlier redemption, payable semi-annually in
cash on each of January 1 and July 1, commencing July 1, 1999, until the
principal thereof is paid or made available for payment. The Issuer shall pay
interest on overdue principal from time to time on demand at the rate of
interest borne by the Notes and it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) from time to time on
demand at the rate of interest borne by the Notes to the extent lawful.
Interest will be computed on the basis of a 360-day year comprised of twelve 30-
day months, and, in the case of a partial month, the actual number of days
elapsed. It is acknowledged and agreed that the principal of the Notes may not
be repaid prior to the Maturity Date except as specifically provided in this
Indenture.
The principal of and interest on the Notes shall be payable at the
office or agency of the Issuer maintained by the Issuer for such purpose;
provided, however, that at the option of the Issuer, payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register, unless such Person has, at least
30 days prior to the relevant due date for payment, designated in writing a U.S.
dollar account maintained by such Person with a bank in the United States, in
which case the Issuer shall make payments of interest by wire transfer of funds
to such account.
The Notes shall be redeemable as provided in Article 3.
The Notes shall be convertible as provided in Article 9.
The Notes shall be secured by (A) a first priority mortgage Lien on
(i) the Yonkers Property and the Net Proceeds of the Disposition of the Yonkers
Property and (ii) subject to Section 12.1(b) hereof, the Additional Collateral
and the Net Proceeds of the Disposition of the Additional Collateral and (B) a
first priority Lien on the Pledged Stock, in each case as and to the extent
provided in Article 12 and in the Security Documents.
The BI Guarantee Obligations and New Horizons Guarantee Obligations
under the Notes shall be fully and unconditionally guaranteed by BI and New
Horizons, respectively, as provided in Article 13.
SECTION 2.2 Execution, Authentication, Delivery and Dating. The
----------------------------------------------
Notes shall be executed on behalf of the Issuer by one Authorized Representative
of the
15
<PAGE>
Issuer. The signature of any Authorized Representative on the Notes may be
manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at the time of execution the proper officers of the Issuer shall bind the
Issuer, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
Subject to Section 2.4 hereof, the Issuer shall deliver the Notes
executed by the Issuer to the Trustee for authentication, together with an
Issuer Order for the authentication and delivery of such Notes, and the Trustee
in accordance with the Issuer Order shall authenticate and deliver the Notes.
The Trustee shall at all times act as the sole authenticating agent for the
authentication of the Notes hereunder unless, and until, the Trustee may appoint
a successor Authenticating Agent pursuant to Section 4.13(c) hereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder. Notwithstanding the foregoing, if
any Note shall have been authenticated and delivered hereunder but never issued
and sold by the Issuer, and the Issuer shall deliver such Note to the Trustee
for cancellation as provided in Section 2.8 hereof, for all purposes of this
Indenture such Note shall be deemed never to have been authenticated and
delivered hereunder and shall never be entitled to the benefits of this
Indenture.
SECTION 2.3 Temporary Notes. Pending the preparation of definitive
---------------
Notes, the Issuer may execute, and upon Issuer Order the Trustee shall
authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers of the Issuer executing the same may determine, as
evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer in a
Place of Payment, without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Notes, the Issuer shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive Notes
of any authorized denominations and of like tenor and aggregate principal
amount. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
16
<PAGE>
SECTION 2.4 Registration; Registration of Transfer and Exchange.
---------------------------------------------------
(a) General. The Issuer shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency of the Issuer in a Place of Payment being herein
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and of transfers and exchanges of Notes. The Trustee
is hereby appointed "Security Registrar" for the purpose of registering Notes
and transfers and exchanges of Notes as herein provided.
Notwithstanding anything to the contrary set forth herein, the Trustee
shall not be required and shall have no obligation to monitor compliance with
any federal or state securities laws.
Upon surrender for registration of transfer of any Notes at the office
or agency of the Issuer in a Place of Payment, the Issuer shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized denominations and of
like tenor and aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes,
of any authorized denominations and of like tenor and aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Trustee shall authenticate and deliver, the Notes which the Holder
making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall be duly endorsed, or be accompanied by a written instrument
of transfer in form reasonably satisfactory to the Issuer and the Security
Registrar duly executed, by the Holder thereof or its attorney duly authorized
in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 2.3, 2.4, 2.5 or 3.5 hereof not involving any transfer.
If any Notes are to be redeemed in part, the Issuer shall not be
required (A) to issue, register the transfer of or exchange such Notes during a
period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of any such Notes selected for redemption
under Section 3.4 hereof and ending at the close of business on the day of such
mailing or (B) to issue, register the transfer of or
17
<PAGE>
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
As used in this Section 2.4, the term "transfer" encompasses any sale,
pledge or other transfer or disposition of any Notes referred to herein.
(b) Global Notes. This Section 2.4(b) shall apply to Global Notes.
(i) Each Global Note authenticated under this Indenture shall
be registered in the name of the Depository designated for such Global Note
or a nominee thereof and delivered to such Depository or a nominee thereof
or custodian therefor, and each such Global Note shall constitute a single
Note for all purposes of this Indenture. The Notes may be represented by
one or more Global Notes.
(ii) Notwithstanding any other provision in this Indenture, no
Global Note may be exchanged in whole or in part for Notes registered, and
no transfer of a Global Note in whole or in part may be registered, in the
name of any Person other than the Depository for such Global Note or a
nominee thereof unless (A) such Depository (1) has notified the Issuer that
it is unwilling or unable to continue as Depository for such Global Note or
(2) has ceased to be a clearing agency registered under the Exchange Act,
and, in either case, a successor Depository is not appointed within 90 days
thereof, (B) the Issuer executes and delivers to the Trustee an Issuer
Order providing that such Global Note shall be so transferable, registrable
and exchangeable, and such transfers shall be registrable or (C) there
shall have occurred and be continuing an Event of Default with respect to
the Notes. Any Global Note exchanged pursuant to subclause (A) above shall
be so exchanged in whole and not in part and any Global Note exchanged
pursuant to subclause (B) or (C) above may be exchanged in whole or from
time to time in part as directed by the Depository for such Global Note.
Notwithstanding any other provision in this Indenture, a Global Note to
which the restriction set forth in the second preceding sentence shall have
ceased to apply may be transferred only to, and may be registered and
exchanged for Notes registered only in the name or names of, such Person or
Persons as the Depository for such Global Note shall have directed, and no
transfer thereof other than such a transfer may be registered.
(iii) Subject to clause (ii) above, any exchange of a Global Note
for other Notes may be made in whole or in part, and all Notes issued in
exchange for a Global Note or any portion thereof shall be registered in
such name or names as the Depository for such Global Note shall direct. At
the option of the applicable Noteholder, a Note issued in exchange for an
interest in a Global Note pursuant to this clause (iii) may be issued, in
accordance with the rules and procedures of the Depository, in the form of
a permanent certificated Note in registered form in substantially the form
set forth of Exhibit A attached hereto (each such Note, a "Physical Note").
In connection with any transfer or exchange of a portion of the beneficial
interest in the Global Note to beneficial owners where one or more
18
<PAGE>
Physical Notes are to be issued, the Trustee shall reflect on its books and
records the date and decrease in the principal amount of the Global Note in
an amount equal to the principal amount of the beneficial interest in the
Global Note to be transferred, and the Issuer shall execute, and, upon the
direction of the Issuer, the Trustee shall authenticate and deliver, one or
more Physical Notes of like tenor and amount. In connection with the
transfer of the entire Global Note to beneficial owners in exchange for a
Physical Note, the Global Note shall be deemed to be surrendered to the
Trustee for cancellation, and the Issuer shall execute, and, upon the
direction of the Issuer, the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Note, an equal aggregate principal amount
of Physical Notes of authorized denominations.
(iv) Every Note authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Note or any portion
thereof, whether pursuant to this Section, Section 2.3 or 3.5 hereof or
otherwise, shall be authenticated and delivered in the form of, and shall
be, a Global Note, unless such Note is registered in the name of a Person
other than the Depository for such Global Note or a nominee thereof.
SECTION 2.5 Mutilated, Destroyed, Lost and Stolen Notes. If (a) any
-------------------------------------------
mutilated Note is surrendered to the Trustee or the Issuer, or if the Security
Registrar and the Trustee receive evidence to their reasonable satisfaction of
the destruction, loss or theft of any Note and (b) there is delivered to the
Issuer, the Security Registrar and the Trustee evidence to their reasonable
satisfaction of the ownership and authenticity thereof, and such security or
indemnity as may be reasonably required by them to save each of them harmless,
then, in the absence of notice to the Issuer, the Security Registrar or the
Trustee that such Note has been acquired by a bona fide purchaser, the Issuer
shall execute and, upon the Issuer's request, the Trustee shall authenticate and
make available for delivery in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a new Note, of like tenor (including the same
date of issuance) and equal face amount of principal, registered in the same
manner, dated the date of its authentication and bearing interest from the date
to which interest has been paid on such Note, in lieu of and substitution for
such Note. If, after delivery of such new Note, a bona fide purchaser of the
original Note in lieu of which such new Note was issued presents for payment
such original Note, the Issuer and the Trustee shall be entitled to recover such
new Note from the Person to whom it was delivered or any Person taking
therefrom, except a bona fide purchaser, and shall be entitled to recover upon
the security or indemnity provided therefor to the extent of any loss, damage,
cost or expenses incurred by the Issuer or the Trustee in connection therewith.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable (excluding any payment of principal other
than the final installment of principal) the Issuer in its discretion may,
instead of issuing a new Note, pay such Note without surrender thereof (except
in the case of a mutilated Note) if the applicant for such payment shall furnish
to the Issuer and the Trustee such reasonable security or indemnity as they may
require to save each of them harmless, and in case of
19
<PAGE>
destruction, loss or theft, evidence to the reasonable satisfaction of the
Issuer and the Trustee of the destruction, loss or theft of such Note.
Upon the issuance of any new Note under this Section, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the security and benefits of this Indenture equally and proportionately with
any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 Payments; Interest and Principal Rights Preserved.
-------------------------------------------------
Principal and interest on any Note which is payable, and is punctually paid or
duly provided for, on any Stated Maturity shall be paid by the close of
business, State of New York time, on the applicable payment date to the Person
in whose name that Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such principal or interest.
Notwithstanding the foregoing, payment of the principal amount of any Note (or
any outstanding installment thereof) upon final maturity (whether by redemption,
acceleration or otherwise) shall be made instead only upon presentation and
surrender of such Note. Each Note delivered under this Indenture upon
registration of transfer of or in exchange for or in lieu of any other Note
shall carry the rights to interest accrued and unpaid, and to accrue, which were
carried by such other Note.
SECTION 2.7 Persons Deemed Owners. Subject to Section 2.4, prior to
---------------------
due presentment of a Note for registration of transfer, the Issuer, the Trustee
and any agent of the Issuer or the Trustee shall treat the Person in whose name
such Note is registered as the owner of such Note for the purpose of receiving
payment of principal of and any interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Issuer, the
Trustee nor any agent of the Issuer or the Trustee shall be affected by notice
to the contrary.
SECTION 2.8 Cancellation; Purchase by the Issuer. All Notes
------------------------------------
surrendered for payment, redemption, conversion, registration of transfer or
exchange or for credit in full against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by it following such payment, redemption,
conversion, registration, exchange or credit in full. The Issuer may at any time
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Issuer may have acquired in any manner whatsoever,
and may deliver to the Trustee (or to any other Person for delivery to the
20
<PAGE>
Trustee) for cancellation any Notes previously authenticated hereunder which the
Issuer has not issued and sold, and all Notes so delivered shall be promptly
canceled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes previously canceled as provided in this Section, except
as expressly permitted by this Indenture. All canceled Notes held by the Trustee
shall be disposed of in accordance with its customary procedure in effect from
time to time.
SECTION 2.9 Dating of Notes. Each Note shall be dated the date of
---------------
its authentication.
SECTION 2.10 CUSIP Numbers. The Issuer in issuing the Notes may use
-------------
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption and related materials as a convenience
to Holders; provided that the Trustee shall assume no responsibility for the
accuracy of such numbers and any such redemption or other notice shall not be
affected by any defect in or omission of such numbers.
SECTION 2.11 Parity and Ranking of Notes. All Notes issued and
---------------------------
Outstanding hereunder rank on a parity with each other Note, and each Note shall
be guaranteed equally and ratably under the Guarantee and secured equally and
ratably by this Indenture and the Security Documents.
SECTION 2.12 Book Entry. In the event the Notes are issued as Global
----------
Notes with the Depository: (i) the Trustee may deal with the Depository as the
authorized representative of the Holders who hold interests in such Global
Notes; (ii) the Depository will make book-entry transfers among the direct
participants of the Depository and will receive and transmit distributions of
principal and interest on the Notes to such direct participants; and (iii) the
direct participants of the Depository shall have no rights under this Indenture
under or with respect to any of the Notes held on their behalf by the Depository
other than such rights as are exercised through the Depository, and the
Depository may be treated by the Trustee and its agents, employees, officers and
directors as the absolute owner of the Notes represented by such Global Notes
for all purposes whatsoever; provided, however, that the Trustee may deal
-------- -------
directly with any beneficial Holder of Notes holding interests in such Global
Notes so long as such beneficial Holder provides to the Trustee evidence
satisfactory to the Trustee of such beneficial ownership.
ARTICLE 3
REDEMPTION OF NOTES
SECTION 3.1 Mandatory Redemption of Notes. The Outstanding Notes
-----------------------------
shall be redeemed pro rata with (a) the Net Proceeds of the Disposition of the
Yonkers Property, (b) subject to Section 12.1(b) hereof, the Net Proceeds of the
Disposition of the Additional Collateral, and (c) the Net Proceeds of any Equity
Offering. The Redemption Price shall equal 100% of the unpaid principal amount
of the Notes to be redeemed plus accrued and unpaid interest thereon to the
Redemption Date. The Redemption Date shall be a date determined by the Issuer
which shall be no later than 30
21
<PAGE>
days following receipt by the Trustee or the Issuer, as the case may be, of the
Net Proceeds referred to in the first sentence of this Section 3.1.
SECTION 3.2 Optional Redemption of Notes. The Issuer shall have the
----------------------------
right at any time and from time to time to redeem the Outstanding Notes, in
whole or in part, at a Redemption Price equal to 100% of the unpaid principal
amount thereof plus accrued and unpaid interest thereon to the Redemption Date.
The Redemption Date shall be a date determined by the Issuer.
SECTION 3.3 Delivery of Notices, Certificates and Opinions.
----------------------------------------------
(a) The Issuer shall notify the Trustee of any mandatory or optional
redemption of Notes at least 20 days prior to the applicable Redemption Date
(unless a shorter notice shall be satisfactory to the Trustee), specifying the
Redemption Date and the principal amount of Notes to be redeemed. In the case of
an optional redemption, such notice shall be accompanied by an Issuer Order. In
the case of a mandatory redemption, such notice shall be accompanied or followed
(no later than 12 days prior to the applicable Redemption Date) by an Officers'
Certificate certifying the amount of the Net Proceeds and the calculation
thereof, which amount shall be used for the redemption. In each case, such
notice shall be accompanied by an Officers' Certificate setting forth the clause
of this Indenture or the Notes pursuant to which redemption shall occur and a
statement to the effect that such redemption will comply with the conditions
contained therein.
(b) Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 10 days prior to the Redemption Date, to each
Holder of Notes to be redeemed, at his or her address, appearing in the Security
Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Notes are to be redeemed, the
identification (and, in the case of partial redemption, the principal amounts)
of the particular Notes to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Note (or portion thereof) to be redeemed and that
interest thereon will cease to accrue on and after said date,
(5) the Conversion Price, the date on which the right to convert the
principal of the Notes to be redeemed will terminate and the place or places
where such Notes may be surrendered for conversion, and
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price.
22
<PAGE>
Notice of redemption of Notes to be redeemed shall be given by the
Issuer or, at the Issuer's request, by the Trustee in the name and at the
expense of the Issuer; provided, however, that the Issuer shall have delivered
to the Trustee, at least 20 days prior to the Redemption Date, an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.
(c) If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed pro rata or by lot or by a method that complies
with applicable legal and securities exchange requirements, if any, and that the
Trustee in its sole discretion considers fair and appropriate; provided,
however, that in the case of a mandatory redemption, selection of the portion of
Notes for redemption shall be made by the Trustee only on a pro rata basis
unless such method is otherwise prohibited by law. Notes and portions thereof
that the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption. The Trustee shall notify
the Issuer promptly of the Notes or portions of Notes to be redeemed.
SECTION 3.4 Redemption of and Payment on Notes. Notice of
----------------------------------
redemption having been given as aforesaid, and the conditions, if any, set forth
in such notice having been satisfied, the Notes or portions thereof so to be
redeemed shall, on the Redemption Date, become due and payable, and from and
after such date such Notes or portions thereof shall cease to bear interest.
Upon delivery of any notice of redemption pursuant to Section 3.3 hereof, the
Trustee shall establish a special purpose account (the "Redemption Account").
Following the Disposition of each of the Yonkers Property and the Additional
Collateral, the Issuer shall transfer, or cause to be transferred, to the
Trustee, immediately upon receipt, the full amount of proceeds therefrom, and
the Trustee, immediately upon receipt, shall, in accordance with the terms of
the Security Documents, transfer the full Redemption Price in Dollars to the
Redemption Account which funds shall be held by the Trustee in the Redemption
Account and applied to the redemption of such Notes on the Redemption Date.
Following any Equity Offering, the Issuer shall transfer, or cause to be
transferred, to the Trustee, immediately upon receipt, the full Redemption Price
in Dollars, which amount after transfer to the Trustee by the Issuer shall be
held by the Trustee in the Redemption Account and applied to the redemption of
such Notes on the Redemption Date. In connection with any mandatory redemption
pursuant to Section 3.1 hereof, upon receipt by the Trustee no later than one
Business Day prior to the Redemption Date of one or more Officers' Certificates
of the Issuer certifying the amounts of customary fees and expenses relating to
the transaction resulting in such mandatory redemption, the Trustee shall
promptly cause such fees and expenses to be paid from the funds held in the
Redemption Account. In connection with any mandatory redemption pursuant to
Section 3.1 hereof resulting from a Disposition of the Additional Collateral,
the Issuer shall certify to the Trustee in an Officers' Certificate the maximum
amount of proceeds of such Disposition that are to be used to redeem the Notes
calculated in accordance with Section 12.1(b) hereof. In connection with any
optional redemption by the Issuer pursuant to Section 3.2 hereof, the Issuer
shall deposit with the Trustee or the Paying Agent on or prior to the Redemption
Date money sufficient to pay the Redemption Price on all Notes to be redeemed on
that date. Upon
23
<PAGE>
surrender of any such Note for redemption in accordance with the notice thereof
to Holders sent pursuant to Section 3.3 hereof, the Trustee shall pay an amount
in respect of such Note or portion thereof as provided in such notice; provided,
however, that any payment of interest on any Note, the Stated Maturity of which
payment of interest is on or prior to the Redemption Date, shall be payable to
the Holder of such Note or one or more Predecessor Notes, registered as such at
the close of business on the related Regular Record Date according to the terms
of such Note and subject to the provisions of Section 2.6 hereof. The Trustee or
the Paying Agent shall promptly return to the Issuer any money deposited with or
transferred to the Trustee or the Paying Agent by the Issuer in excess of the
amounts necessary to pay the Redemption Price of or on behalf of all Notes to be
redeemed.
SECTION 3.5 Notes Redeemed in Part. Any Note that is to be redeemed
----------------------
only in part shall be surrendered at a Place of Payment therefor (with due
endorsement by, or a written instrument of transfer in form satisfactory to the
Issuer and the Trustee duly executed by, the Holder thereof or its attorney duly
authorized in writing), and the Issuer shall execute, and the Trustee shall
authenticate and make available for delivery to the Holder of such Note, in each
case as soon as practicable after the surrender of such Note (but in any event
within 10 Business Days), without service charge, a new Note or Notes, of any
authorized denomination requested by such Holder and of like tenor and in
aggregate principal amount equal to and in exchange for the remaining unpaid
principal amount of the Note so surrendered.
SECTION 3.6 Cancellation of Notes. All Notes redeemed under any of
---------------------
the provisions of this Indenture shall forthwith be canceled.
ARTICLE 4
CONCERNING THE TRUSTEE
SECTION 4.1 Duties and Responsibilities of Trustee; During Default;
-------------------------------------------------------
Prior to Default. With respect to the Holders of Notes issued hereunder, the
- ----------------
Trustee, prior to the occurrence of an Event of Default with respect to the
Notes and after the curing or waiving of all Events of Default which may have
occurred with respect to the Notes, undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default with respect to
the Notes and after the curing or waiving of all such Events of Defaults with
respect to the Notes which may have occurred:
(i) the duties and obligations of the Trustee with respect to
the Notes shall be determined solely by the express provisions of this
Indenture, and
24
<PAGE>
the Trustee shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such statements,
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty
to examine the same to determine whether or not they conform to the
requirements of this Indenture (but need not confirm or investigate the
accuracy of mathematical computations or other facts stated therein);
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts;
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
the Holders holding a sufficient percentage of Notes to give such direction as
permitted by this Indenture relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; and
(d) none of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if the Trustee shall have ground for believing
that the repayment of such funds or adequate indemnity against such liability is
not assured to it.
Except as otherwise specifically provided herein, (i) all references
in this Indenture to the Trustee shall be deemed to refer to the Trustee in its
capacity as Trustee and in its capacity as Security Registrar and Paying Agent
and (ii) every provision of this Indenture relating to the conduct or affecting
the liability or offering protection, immunity or indemnity to the Trustee shall
be deemed to apply with the same force and effect to the Trustee acting in its
capacity as Security Registrar and Paying Agent.
SECTION 4.2 Certain Rights and Duties of Trustee. Subject to
------------------------------------
Section 4.1 hereof and the Trust Indenture Act, in performing its duties and
exercising its powers hereunder:
(a) The Trustee may conclusively rely and shall be fully protected in
acting, or refraining from acting, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties or with respect to any action it takes
or omits to take in good faith in
25
<PAGE>
accordance with a direction received by it from Holders holding a sufficient
percentage of Notes to give such direction as permitted by this Indenture.
(b) Any request, direction, order or demand of the Issuer or BI
mentioned herein shall be sufficiently evidenced by an instrument signed in the
name of the Issuer or BI, as the case may be, by an Authorized Representative
(unless other evidence in respect thereof be herein specifically prescribed);
and any Board Resolution may be evidenced to the Trustee by a copy thereof
certified by the Secretary or an Assistant Secretary of the Issuer.
(c) The Trustee may consult with counsel, and the advice of counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(d) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture and may refuse to perform any
duty or exercise any such rights or powers unless it shall have received
security or indemnity satisfactory to it against the costs, expenses and
liabilities which may be incurred therein or thereby.
(e) The Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture
with respect to any action it takes or omits to take in good faith in accordance
with a direction received by it from Holders holding a sufficient percentage of
Notes to give such direction as permitted by this Indenture.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, appraisal, bond,
debenture or other paper or document unless requested in writing so to do by the
Holders of not less than a majority in aggregate principal amount of the Notes
then Outstanding; provided, that, if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require indemnity satisfactory to it against such
expenses or liabilities as a condition to so proceeding. The reasonable expense
of every such investigation shall be paid by the Issuer or, if paid by the
Trustee, shall be repaid by the Issuer upon demand.
(g) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys, and the Trustee shall not be responsible for the willful misconduct
or negligence on the part of or for the supervision of any agent or attorney
appointed with due care by it hereunder.
26
<PAGE>
(h) If an Event of Default has occurred and is continuing and the
Trustee receives actual notice of such event, the Trustee shall exercise such of
the rights and powers vested in it by this Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise or use under
the circumstances in the conduct of his or her own affairs.
(i) Every provision of this Indenture that in any way relates to the
Trustee is subject to this Article 4.
(j) The Trustee shall not be charged with knowledge of an Event of
Default unless a Responsible Officer of the Trustee obtains actual knowledge of
such event or the Trustee receives written notice of such event from the Issuer,
BI or Holders owning Notes aggregating not less than 10% of the Outstanding
principal amount of the Notes.
(k) The Trustee shall have no duty to monitor the performance of the
Issuer, nor shall it have any liability in connection with the malfeasance or
nonfeasance by the Issuer or BI. The Trustee shall have no liability in
connection with compliance by the Issuer or BI with statutory or regulatory
requirements related to the transactions contemplated by this Indenture and the
Security Documents.
SECTION 4.3 Trustee Not Responsible for Recitals, Etc. The recitals
-----------------------------------------
contained herein and in the Notes, except the Trustee's certificate of
authentication, shall be taken as the statements of the Issuer or BI, as the
case may be, and the Trustee assumes no responsibility for the correctness of
the same. The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Notes or of the offering materials used in
connection with the offering for sale or sale of the Notes. The Trustee shall
not be accountable for the use or application by the Issuer of any of the Notes
or of the proceeds of such Notes.
SECTION 4.4 Trustee and Others May Hold Notes. The Trustee, or any
---------------------------------
Paying Agent or Security Registrar or any other Authorized Agent of the Trustee,
or any Affiliate thereof, in its individual or any other capacity, may become
the owner or pledgee of Notes and may otherwise deal with the Issuer or any
other obligor on the Notes with the same rights it would have if it were not
Trustee, Paying Agent, Security Registrar or such other Authorized Agent.
SECTION 4.5 Monies Held by Trustee or Paying Agent. All monies
--------------------------------------
received by the Trustee or any Paying Agent shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by law
or this Indenture. The Trustee shall not be liable for interest on any money
received by it, except as the Trustee may agree in writing with the Issuer.
SECTION 4.6 Compensation of Trustee and Its Lien. The Issuer
------------------------------------
covenants and agrees to pay to the Trustee (all references in this Section 4.6
to the Trustee shall be deemed to apply to the Trustee in its capacities as
Trustee, Paying Agent
27
<PAGE>
and Securities Registrar) from time to time, and the Trustee shall be entitled
to, compensation for all services rendered by it hereunder in such amounts as
may be agreed to from time to time by the Trustee and the Issuer, and, except as
herein otherwise expressly provided, the Issuer will pay or reimburse the
Trustee upon its request for all reasonable expenses and disbursements incurred
or made by the Trustee in accordance with any of the provisions of this
Indenture and the Security Documents (including the reasonable compensation and
the reasonable expenses and disbursements of its counsel and of all persons not
regularly employed by it) exce pt any such expense or disbursement as may arise
from its negligence or bad faith. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. If any
property other than cash shall at any time be subject to the Lien of this
Indenture, the Trustee, if and to the extent authorized by a receivership or
bankruptcy court of competent jurisdiction or by the supplemental instrument
subjecting such property to such Lien, shall be entitled, but shall not be
required, to make advances for the purpose of preserving such property or of
discharging tax liens or other prior liens or encumbrances thereon. The Issuer
also covenants and agrees to indemnify the Trustee and its officers, directors,
employees and agents for, and to hold them harmless against, any loss,
liability, claim, damage or expense (including the reasonable compensation and
expenses and disbursements of its counsel) incurred without negligence or bad
faith on the part of the Trustee, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder and the
performance of its duties and the exercise of its powers under this Indenture
and the Security Documents, including the costs and expenses of defending itself
against any claim or liability in the premises. The obligations of the Issuer
under this Section 4.6 shall constitute additional Indebtedness hereunder. The
rights of the Trustee and the obligations of the Issuer under this Section 4.6
shall survive the resignation or removal of the Trustee, the payment of the
Notes, and the satisfaction, discharge or termination of this Indenture.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 8.1(d) or (e) hereof, the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
SECTION 4.7 Right of Trustee to Rely on Officers' Certificates and
------------------------------------------------------
Opinions of Counsel. Before the Trustee acts or refrains from acting with
- -------------------
respect to any matter contemplated by this Indenture, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to the
provisions of Section 1.2 hereof. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on such certificate or
opinion.
SECTION 4.8 Persons Eligible for Appointment as Trustee. The
-------------------------------------------
Trustee shall be a bank or trust company, shall be a Person organized and doing
business under the laws of the United States or any State thereof, with a
combined capital and surplus of at least US$100,000,000, and shall be authorized
under such laws to exercise corporate trust powers, subject to supervision by
Federal or state authorities. If such corporation publishes reports of condition
at least annually, then, for the purposes of this
28
<PAGE>
Section 4.8, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with this Section 4.8, the Trustee shall resign
immediately in the manner and with the effect specified in Section 4.9 hereof.
SECTION 4.9 Conflicting Interests; Resignation and Removal of
-------------------------------------------------
Trustee; Appointment of Successor.
- ---------------------------------
(a) If the Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
permitted by the Trust Indenture Act, the Trustee shall not be deemed to have a
conflicting interest by virtue of being a trustee under this Indenture with
respect to the Notes.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice to the Issuer and by giving notice
of such resignation to the Holders of such Notes in the manner provided in
Section 1.14 hereof. Upon receiving such notice of resignation, the Issuer shall
promptly appoint a successor trustee or trustees by written instrument executed
by order of the Board of Directors, one copy of which instrument shall be
delivered to each of the resigning trustee and the successor trustee. If no
successor trustee shall have been so appointed and shall have accepted
appointment within 30 days after the mailing of such notice of resignation, the
resigning trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Holder who has been a bona fide
Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper, appoint a successor trustee.
(c) In case at any time any of the following shall occur:
(i) the Trustee shall cease to be eligible under Section 4.8
hereof with respect to the Notes and shall fail to resign after written
request therefor by the Issuer or by any Holder, or
(ii) the Trustee shall become incapable of acting with respect to
the Notes, or shall be adjudged bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee with respect to the
Notes and appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors of the Issuer, one copy of which
instrument shall be delivered to each of the Trustee so removed and the
successor Trustee, or, subject to the Trust Indenture Act, any Holder who has
been a bona fide Holder of a Note may, on behalf of himself
29
<PAGE>
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee. Such
court may thereupon after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor Trustee.
(d) The Holders of a majority in aggregate principal amount of the
Notes at the time Outstanding may at any time remove the Trustee and appoint a
successor Trustee by delivering to the Trustee so removed, the successor Trustee
so appointed and the Issuer a written instrument executed by such Holders
evidencing the action taken by the Holders.
(e) Any resignation or removal of the Trustee and any appointment of
a successor Trustee pursuant to this Section 4.9 shall become effective only
upon acceptance of appointment by the successor Trustee as provided in Section
4.10 hereof.
SECTION 4.10 Acceptance of Appointment by Successor Trustee. Any
----------------------------------------------
successor Trustee appointed under Section 4.9 hereof shall execute, acknowledge
and deliver to the Issuer and to its predecessor Trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts, duties and obligations of its predecessor Trustee hereunder,
with like effect as if originally named as Trustee herein; but, nevertheless, on
the written request of the Issuer or of the successor Trustee, the Trustee
ceasing to act shall, upon payment of any such amounts then due it pursuant to
the provisions of Section 4.6 hereof, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
Trustee so ceasing to act. Upon request of any such successor Trustee, the
Issuer shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor Trustee all such rights
and powers. Any Trustee ceasing to act shall, nevertheless, retain a Lien upon
all property or funds held or collected by such Trustee to secure any amounts
then due it pursuant to Section 4.6 hereof.
No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Trustee shall be
qualified under the requirements of the Trust Indenture Act and eligible under
the provisions of Section 4.8.
Upon acceptance of appointment by a successor Trustee, the Issuer
shall give notice of the succession of such Trustee hereunder to the Holders of
Notes in the manner provided in Section 1.14 hereof. If the Issuer fails to
give such notice within 10 days after acceptance of appointment by the successor
Trustee, the successor Trustee shall cause such notice to be given at the
expense of the Issuer.
SECTION 4.11 Merger, Conversion or Consolidation of Trustee. Any
----------------------------------------------
Person into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
all or substantially all the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder
30
<PAGE>
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such successor Trustee shall be
eligible under the provisions of Section 4.8 hereof and Section 310(a) of the
Trust Indenture Act.
SECTION 4.12 Preferential Collection of Claims Against Issuer and BI.
-------------------------------------------------------
If and when the Trustee shall be or become a creditor of the Issuer or BI (or
any other obligor upon the Notes or the Guarantee Obligations), the Trustee
shall be subject to the provisions of the Trust Indenture Act regarding the
collection of claims against the Issuer or BI (or any such other obligor).
SECTION 4.13 Maintenance of Offices and Agencies.
-----------------------------------
(a) There shall at all times be maintained in the Borough of
Manhattan, The City of New York, an office or agency where Notes may be
presented or surrendered for registration of transfer or exchange and for
payment of principal and interest, and where notices and demands to or upon the
Trustee in respect of such Notes or this Indenture may be served. Such office or
agency shall be initially at the Corporate Trust Office. Written notice of the
location of each of such other office or agency and of any change of location
thereof shall be given by the Trustee to the Issuer and the Holders in the
manner specified in Section 1.14 hereof. In the event that no such office or
agency shall be maintained or no such notice of location or of change of
location shall be given, presentations, surrenders and demands may be made and
notices may be served at the Corporate Trust Office.
(b) There shall at all times be a Security Registrar and a Paying
Agent hereunder. Any Paying Agent (other than the Trustee) from time to time
appointed hereunder shall execute and deliver to the Trustee an instrument in
which said Paying Agent shall agree with the Trustee, subject to the provisions
of this Section 4.13, that such Paying Agent will:
(i) hold all sums held by it for the payment of principal and
interest on the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided;
(ii) give the Trustee within three days thereafter notice of
any default by any obligor upon the Notes in the making of any such payment
of principal or interest; and
(iii) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
Notwithstanding any other provision of this Indenture, any payment required to
be made to or received or held by the Trustee may, to the extent authorized by
written instructions of the Trustee, be made to or received or held by a Paying
Agent in the Borough of Manhattan, The City of New York, for the account of the
Trustee.
31
<PAGE>
The Trustee at its Corporate Trust Office is hereby appointed as a
Paying Agent hereunder.
(c) At any time when any Notes remain Outstanding, the Trustee may
appoint an Authenticating Agent or Agents with respect to the Notes which shall
be authorized to act on behalf of the Trustee to authenticate Notes issued upon
original issuance, exchange, registration of transfer or partial redemption
thereof or pursuant to Section 2.4 hereof, and Notes so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder (it being understood
that wherever reference is made in this Indenture to the authentication and
delivery of Notes by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent). If an appointment
of an Authenticating Agent shall be made pursuant to this Section 4.13(c) with
respect to the Notes, the Notes may have endorsed thereon, in addition to the
Trustee's certificate of authentication, an alternate certificate of
authentication in the following form:
This Note is one of the Notes referred to in the within-mentioned
Indenture.
IBJ Whitehall Bank & Trust Company,
as Trustee
By:______________________________________
Authenticating Agent
By:______________________________________
Authorized Signatory
(d) Any Authorized Agent shall be a bank or trust company, shall be a
Person organized and doing business under the laws of the United States or any
State thereof, with a combined capital and surplus of at least US$100,000,000,
and shall be authorized under such laws to exercise corporate trust powers,
subject to supervision by Federal or state authorities. If such Authorized Agent
publishes reports of its condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section 4.13, the combined capital and surplus of such
Authorized Agent shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time an
Authorized Agent shall cease to be eligible in accordance with the provisions of
this Section 4.13, such Authorized Agent shall resign immediately in the manner
and with the effect specified in this Section 4.13.
32
<PAGE>
(e) Any Person into which any Authorized Agent may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, consolidation or conversion to which any Authorized Agent shall be a
party, or any corporation succeeding to the corporate trust business of any
Authorized Agent, shall be the successor of such Authorized Agent hereunder, if
such successor Person is otherwise eligible under this Section 4.13, without the
execution or filing of any paper or any further act on the part of the parties
hereto or such Authorized Agent or such successor Person.
(f) Any Authorized Agent may at any time resign by giving written
notice of resignation to the Trustee and the Issuer. The Issuer may, and at the
request of the Trustee shall, at any time, terminate the agency of any
Authorized Agent by giving written notice of such termination to the Authorized
Agent and to the Trustee. Upon the resignation or termination of an Authorized
Agent or in case at any time any such Authorized Agent shall cease to be
eligible under this Section 4.13 (when, in either case, no other Authorized
Agent performing the functions of such Authorized Agent shall have been
appointed), the Issuer shall promptly appoint one or more qualified successor
Authorized Agents approved by the Trustee to perform the functions of the
Authorized Agent which has resigned or whose agency has been terminated or who
shall have ceased to be eligible under this Section 4.13. The Issuer shall give
written notice of any such appointment to all Holders pursuant to Section 1.14
hereof.
(g) The Paying Agent shall comply with all applicable withholding,
information reporting and back-up withholding tax requirements under the United
States Internal Revenue Code of 1986, as amended, and the Treasury regulations
issued thereunder in respect of any payment on, or in respect of a Note.
SECTION 4.14 Trustee Risk. None of the provisions contained in this
------------
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Trustee shall have ground
for believing that the repayment of such funds or liability is not assured to
it. Whether or not expressly provided herein, every provision of this Indenture
relating to the conduct or affecting the liability of or affording protection to
the Trustee shall be subject to Section 4.2 hereof and the requirements of the
Trust Indenture Act.
SECTION 4.15 Appointment of a Co-Trustee. If the Trustee deems it
---------------------------
necessary or desirable in order to carry out the purposes of this Indenture, the
Trustee may appoint a co-Trustee, who shall be reasonably acceptable to the
Issuer, with such powers of the Trustee as may be designated by the Trustee at
the time of such appointment, and the Issuer shall, on request, execute and
deliver to such co-Trustee any deeds, conveyances or other instruments
reasonably required by such co-Trustee so appointed by the Trustee to more fully
and certainly vest in and confirm to such co-Trustee its rights, powers, trusts,
duties and obligations hereunder. In case any separate trustee or co-trustee, or
a successor to either, shall die, become incapable of acting, resign or be
removed, all the estates, properties, rights, powers, trusts, duties and
obligation of such separate trustee or co-trustee, so far as permitted by law,
shall vest in and be
33
<PAGE>
exercised by the Trustee until the appointment of a new trustee or successor to
such separate trustee or co-trustee.
ARTICLE 5
HOLDERS' LISTS AND REPORTS
BY TRUSTEE AND ISSUER
SECTION 5.1 Issuer to Furnish Trustee Names and Addresses of Holders.
--------------------------------------------------------
The Issuer will furnish or cause to be furnished to the Trustee
(1) semi-annually, not later than January 15 and July 15 in each year,
a list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of a date not more than 15 days prior to
the time such list is furnished, and
(2) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Issuer of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 5.2 Preservation of Information; Communications to Holders.
------------------------------------------------------
The Trustee shall preserve, in as current a form as is reasonably practicable,
the names and addresses of Holders contained in the most recent list furnished
to the Trustee as provided in Section 5.1 and the names and addresses of Holders
received by the Trustee in its capacity as Security Registrar. The Trustee may
destroy any list furnished to it as provided in Section 5.1 upon receipt of a
new list so furnished.
The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Notes, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Notes, by receiving and holding the same, agrees with
the Issuer and the Trustee that neither the Issuer nor the Trustee nor any agent
of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 5.3 Reports by Trustee. On or before March 1 in every year,
------------------
so long as any Notes are Outstanding hereunder, the Trustee shall transmit to
the Holders a brief report, dated as of the preceding December 31, to the extent
required by Section 313(a) of the Trust Indenture Act in accordance with the
procedures set forth in said Section. The Trustee shall also transmit to the
Holders any report required by Section 313(b) during the time specified in such
subsection. A copy of each such report at the time of its mailing to Holders
shall be filed with the SEC and each stock exchange, if any, on which the Notes
are listed. The Issuer shall promptly notify the Trustee if the
34
<PAGE>
Notes become listed on any stock exchange, and the Trustee shall comply with
Section 313(d) of the Trust Indenture Act.
SECTION 5.4 Reports by Issuer and BI. The Issuer and BI shall file
------------------------
with the Trustee and the SEC, and transmit to Holders, such information,
documents and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act.
ARTICLE 6
COVENANTS
SECTION 6.1 Payment of Notes. The Issuer shall pay the principal of
----------------
and interest on the Notes on the dates and in the manner provided in the Notes
and in this Indenture. An installment of principal of or interest on the Notes
shall be considered paid on the date it is due if the Trustee or Paying Agent
holds on that date U.S. legal tender designated for and sufficient to pay the
installment in full and is not prohibited from paying such money to the Holders
pursuant to the terms of this Indenture. Notwithstanding anything to the
contrary contained in this Indenture, the Issuer may, to the extent it is
required to do so by law, deduct or withhold income or other similar taxes
imposed by the United States of America from principal or interest payments
hereunder.
SECTION 6.2 Corporate Existence. Except as otherwise permitted by
-------------------
Article 7, each of the Issuer and BI shall do or cause to be done, at its own
cost and expense, all things necessary to preserve and keep in full force and
effect its corporate existence in accordance with its organizational documents.
SECTION 6.3 Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Issuer shall deliver to the Trustee within 120 days after the
end of the Issuer's fiscal year, an Officers' Certificate stating that a review
of its activities and the activities of BI's and its subsidiaries during the
preceding fiscal year, has been made under the supervision of the signing
officer with a view to determining whether they have complied with their
obligations under this Indenture and further stating that to the best of such
officers' knowledge such entities during such preceding fiscal year have
complied with each and every such covenant and no Default or Event of Default
occurred during such year and at the date of such certificate there is no
Default or Event of Default that has occurred and is continuing or, if such
officer does know of such Default or Event of Default, the certificate shall
describe the Default or Event of Default and its status with particularity.
(b) Upon becoming aware of any Default or Event of Default in the
performance of any covenant, agreement or condition contained in this Indenture,
the Issuer shall deliver to the Trustee, at its address set forth in Section
1.14 hereof, by registered or certified mail or by telegram, telex or facsimile
transmission followed by hard copy by registered or certified mail, an Officers'
Certificate specifying such event, notice or other action and any action the
Issuer is taking or proposing to take in connection therewith.
35
<PAGE>
SECTION 6.4 Impairment of Security Interest. Each of BI and the
-------------------------------
Issuer shall not, and shall not permit any of its subsidiaries to, take or omit
to take, any action which would have the result of impairing or adversely
affecting the security interest with respect to the Collateral for the benefit
of the Holders of the Notes. Notwithstanding the foregoing, nothing herein or in
the Security Documents shall prohibit (i) the Disposition, at any time and from
time to time, of all or any portion of the Collateral so long as the Net
Proceeds of any such sale are applied in accordance with the provisions of the
Security Documents and this Indenture or (ii) the release of any Collateral or
Lien in accordance with the provisions of the Security Documents and this
Indenture.
SECTION 6.5 Amendments to Security Documents. Each of BI and the
--------------------------------
Issuer shall not, and shall not permit any of its subsidiaries to, amend, modify
or supplement, or permit or consent to any amendment, modification or supplement
of, the Security Documents, other than amendments, modifications or supplements
which are otherwise permitted pursuant to the provisions of this Indenture and
the Security Documents.
SECTION 6.6 Reports of Holders. The Issuer will file with the
------------------
Trustee and provide to the Holders of the Notes, within 15 days after filing is
or would have been required with the SEC, copies of the quarterly and annual
reports (without exhibits) and of the other information, documents and other
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) which the Issuer (i) files with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act or (ii) would have been
required to so file with the SEC if the Issuer was subject to Section 13 or
15(d) of the Exchange Act. Nothing herein shall require the Issuer to provide
financial statements of the Issuer which are separate and unconsolidated from
the financial statements of BI unless such unconsolidated financial statements
are otherwise required to be filed with the SEC.
SECTION 6.7 Limitation on Indebtedness. BI shall not, the Issuer
--------------------------
shall not and the Issuer shall not permit any of its subsidiaries to, incur any
Indebtedness; provided that the Issuer and its subsidiaries may incur the
Indebtedness described in clauses (i) through (v) below and BI may incur the
Indebtedness described in clauses (i) through (iii) below; provided that any
indebtedness incurred by BI pursuant to clause (iii) below shall rank pari passu
with the BI Guarantee:
(i) Indebtedness under the New Credit Facility, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or
in part from time to time by one or more other agreements, instruments or
documents; provided, however, that any such amendment, restatement,
modification, renewal, refunding, replacement or refinancing pursuant to
this Section 6.7(i) shall not cause the amount of such Indebtedness to
exceed $270 million plus any guarantees thereof;
(ii) the Notes, the Guarantees and any other Indebtedness
incurred pursuant to the Plan, as amended, restated, modified, renewed,
refunded, replaced
36
<PAGE>
or refinanced in whole or in part from time to time by one or more other
agreements, instruments or documents;
(iii) Indebtedness, which may be in addition to Indebtedness
incurred pursuant to clause (i) above, incurred in connection with the
acquisition (by purchase, lease or otherwise) of additional store sites
(including Indebtedness incurred under any agreement, instrument or document
referred to under Section 6.7(i) hereof or otherwise) to finance the fixtures,
equipment, inventory and other costs and expenses associated with such store
sites);
(iv) Indebtedness incurred to finance or refinance capital
expenditures; and
(v) Indebtedness incurred in the ordinary course of business
of the Issuer and BI and their subsidiaries as of the date hereof in
accordance with past practices.
SECTION 6.8 Delivery of Title Policies.
---------------------------
(a) The Issuer agrees that it shall deliver to the Trustee the
following documents, in form and substance satisfactory to the Trustee, as
directed by the Holders of a majority of the outstanding aggregate
principal amount of the Notes (the "Majority"), and/or take the following
actions in a manner acceptable to the Trustee, as directed by the Majority:
As promptly as practicable, and in any event within forty-five
(45) days following the Effective Date, the Issuer shall deliver to
the Trustee title policies (and any endorsements thereto reasonably
requested by the Trustee, as directed by the Majority; provided such
endorsements are available from the insurer selected by the Issuer and
provided further that in no event shall the costs of such endorsements
exceed $50,000 in the aggregate) insuring the Liens of the Leasehold
Mortgages on property leased by the Issuer or Yonkers (as the case may
be) located in Yonkers, New York, Saddle Brook, New Jersey and Danbury
and Norwalk, Connecticut with ALTA Extended Coverage Mortgagee Loan
Policies (10-17-92 or if available with respect to New Jersey and
Connecticut properties ALTA 1970 amended 10-17-70 and 10-17-84) as
valid liens prior and superior to all other liens, security interests,
encumbrances or other interests in and to such leaseholds, subject
only to standard printed exceptions therein and to such additional
exceptions that do not adversely affect the value or use of each
mortgaged property or the Trustee's ability to effectively realize the
benefits of the liens and security interests created pursuant to such
Leasehold Mortgages in any material respect. If the Lien of any of the
Leasehold Mortgages is not insurable in accordance with the foregoing
standards for any reason, the Issuer shall, within such forty-five
(45) day period, either (A) correct the condition giving rise to such
title defect or (B) provide the Trustee with (i) an insurable
replacement mortgage or mortgages encumbering other leasehold
interests held by the Issuer and mutually acceptable to the Issuer and
the Trustee, as directed by the Majority, which satisfies the
foregoing requirements, (ii) legal opinions
37
<PAGE>
regarding such replacement mortgages substantially consistent with the
opinions delivered to the Trustee on the Effective Date, and (iii)
title insurance insuring such replacement mortgages consistent with
this Section 6.8(a). The Issuer shall pay all costs and expenses,
including the cost of title insurance, legal opinions, mortgage taxes
and filing fees, incurred in connection with the Leasehold Mortgages
and any replacement mortgages. The Trustee shall respond promptly to
written requests by the Issuer to consent to any proposed title
policies or replacement properties, provided that any failure by the
Trustee to respond to the Issuer within five (5) business days of any
such request shall result in a one (1) day extension of the forty-five
(45) day period for each day or portion thereof that the Trustee fails
to so respond.
(b) If the Issuer fails to timely comply with any of the requirements
set forth in Section 6.8(a) for any reason whatsoever (including, without
limitation, the Issuer's inability to agree on any replacement collateral),
the Noteholders will suffer monetary and other damages. The amount of such
damages, however, will be impossible to determine, and thus the Issuer
agrees to pay to the Trustee as liquidated damages for the ratable benefit
of the Noteholders, $5,000 per day (payable on demand in one or more
payments) commencing on the date of failure to comply with such obligations
and continuing to the date upon which the Issuer's obligations hereunder
have been satisfied.
(c) Upon receipt of any amounts received by the Trustee pursuant to
Section 6.8(b) hereof, the Trustee shall distribute such amounts to the
Noteholders ratably as their interests shall appear on the registrar books
of the Trustee five (5) Business Days prior to such distribution; provided,
however, that such payments shall not be credited towards principal or
interest payable under the Notes. The Trustee may set the date for such
distribution, which shall be at least once a month.
(d) Any and all actions or approvals required to be taken or given by
the Trustee pursuant to Section 6.8 shall be taken or given solely upon the
written direction of the Majority; provided that such direction shall not
be otherwise than in accordance with applicable law.
SECTION 6.9 Disposition of Yonkers Property. If the Yonkers
-------------------------------
Property is not sold to a third party by August 27, 1999, New Horizons shall use
its best efforts to extend the Yonkers Effective Date (as defined in the Plan)
to a date specified by the Trustee and shall seek such further extensions as may
be reasonably requested by the Trustee. The Issuer and New Horizons shall use
reasonable efforts to market and sell the Yonkers Property; provided, however,
that any listing or similar agreement entered into by the Issuer or New Horizons
shall provide that as of August 1, 1999, the Trustee shall have the right to
market the Yonkers Property. The Issuer and New Horizons agree that if they
receive a bona fide cash offer to purchase the Yonkers Property in an amount
equal to or greater than $15,000,000 (excluding customary prorations and
transaction costs), then the Issuer shall seek to cause New Horizons to sell the
Yonkers Property to such offeror. If New Horizons has not conveyed the Yonkers
Property to a third party purchaser on or before July 31, 1999, then, upon
receiving written notice from the Trustee (and, with respect to the following
clauses (i), (ii) and (iii), upon receipt of an
38
<PAGE>
order of the United States Bankruptcy Court with jurisdiction over the Chapter
11 case of New Horizons authorizing clauses (i), (ii) and (iii) or an order of
dismissal of such case),
(i) the Trustee shall have the right to market the Yonkers Property,
(ii) the Trustee shall have the right to negotiate and agree to the sale
price and other terms and conditions relating to the sale of the Yonkers
Property, including, without limitation, the form of sale agreement (the "Sale
Agreement"),
(iii) New Horizons and the Issuer shall promptly execute, deliver and
agree to be bound by any Sale Agreement approved by the Trustee, regardless if
New Horizons and the Issuer did not negotiate and do not approve the terms of
such Sale Agreement,
(iv) at the option of the Trustee and without notice to the Issuer, the
Trustee may transfer to or register in the name of the Trustee or any other
party designated by the Trustee, for the benefit of the Holders, the Pledged
Stock (provided that in no event shall the Trustee be obligated to accept a
conveyance of the Pledged Stock unless the Trustee agrees to accept such
conveyance), in which event,
(a) the Pledged Stock shall remain subject to the Security
Agreement and the Yonkers Property shall remain subject to the Leasehold
Mortgage,
(b) the Issuer shall indemnify the entity accepting the Pledged
Stock for and against all liability and costs relating to the use and ownership
of the Yonkers Property arising from any events or acts occurring prior to the
date the Pledged Stock is conveyed to the party designated by the Trustee,
(c) New Horizons shall, and the entity accepting the conveyance of
the Pledged Stock shall cause New Horizons to, enter into a use agreement with
the Issuer providing, among other things, that the Issuer may operate a Bradlees
store at the Yonkers Property, the Issuer shall comply with the Yonkers
Property lease and all other documents, laws and regulations applicable to the
use and ownership of the Yonkers Property, the Issuer shall pay to and indemnify
New Horizons from and against all costs, expenses, liabilities and claims
relating to the use and ownership of the Yonkers Property, and, subject to any
agreements or laws applicable to the Yonkers Property or such sale, the Issuer
may remove its property from the Yonkers Property (including, without
limitation, (i) all inventory and equipment and (ii) all other personal property
other than fixtures and personal property not subject to a lien in favor of the
Trustee, all as defined or used in the Uniform Commercial Code as in effect in
the State of New York) and/or conduct a going-out-of-business or other public or
private sale at the Yonkers Property during the one hundred twenty (120) day
period prior to the date the Yonkers Property is sold to a third party,
(d) New Horizons shall comply with the terms of the lease with
respect to the Yonkers Property at all times prior to the date the Yonkers
Property is sold to a third party,
39
<PAGE>
(v) if the Trustee collects any money or property pursuant to this
Section 6.9, it shall pay out such money or property in the following order: (a)
First, all costs incurred by the Trustee in connection with the marketing, sale
- -----
and ownership of the Yonkers Property shall be paid from the proceeds resulting
from the sale of the Yonkers Property, including, without limitation, brokerage
and listing fees and costs, attorneys fees and costs, title insurance costs and
recording fees and taxes, and (b) Second, all proceeds from the sale of the
------
Yonkers Property shall be distributed to the Holders in accordance with the
Indenture and the Security Documents,
(vi) the Issuer and New Horizons shall seek to enter into all documents
necessary to effect the obligations set forth in this Section 6.9, which
documents shall be subject to the approval of the Trustee, which approval the
Trustee may withhold in its sole discretion,
(vii) notwithstanding anything to the contrary in this Indenture, the
Trustee, on behalf of the Noteholders, shall exercise its rights set forth in
this Section 6.9 only as authorized in writing by the Holders of a majority of
the then outstanding aggregate principal amount due under the Notes, and
(viii) failure by the Issuer and/or New Horizons to perform their
obligations under this Section 6.9 shall be an Event of Default and shall
entitle the Trustee to exercise any and all rights and remedies available at
law, in equity or pursuant to this Indenture, including, without limitation,
specific performance.
It being understood that the Trustee shall be under no obligation to exercise
any rights or powers described in this Section 6.9 and may refuse to perform any
duty or exercise any such rights or powers unless it shall have received
security or indemnity, in the Trustee's sole discretion, satisfactory to it
against any and all costs, expenses and liabilities which may be incurred
therein or thereby.
ARTICLE 7
SUCCESSOR CORPORATION;
MERGER, CONSOLIDATION AND SALE OF ASSETS
SECTION 7.1 Merger, Consolidation and Sale of Assets. Each of BI
----------------------------------------
and the Issuer (each a "Constituent Entity") will not, in a single transaction
or series of related transactions, consolidate or merge with or into any Person,
or sell, assign, transfer, lease, convey or otherwise dispose all or
substantially all of the Constituent Entity's assets whether as an entirety or
substantially as an entirety to any Person unless: (i) either (1) such
Constituent Entity shall be the surviving or continuing entity or (2) the Person
or Persons (if other than such Constituent Entity) formed by such consolidation
or into which such Constituent Entity is merged or the Person which acquires by
sale, assignment, transfer, lease, conveyance or other disposition of all or
substantially all the properties and assets of such Constituent Entity (the
"Surviving Entity") shall be a Person or Persons organized and existing under
the laws of any jurisdiction of the United States and shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, (a) in the case of a
40
<PAGE>
transaction involving the Issuer, the due and punctual payment of the principal
and interest on all of the Notes and the performance of every covenant and
obligation of the Issuer under the Notes and the Indenture and the Security
Documents to be performed or observed or (b) in the case of a transaction
involving BI, the Guarantee Obligations and the other obligations of BI under
the Indenture; (ii) immediately before and immediately after giving effect to
such transaction and the assumption contemplated above, no Default or Event of
Default shall have occurred or be continuing; and (iii) such Constituent Entity
or the Surviving Entity shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with the applicable provisions of this
Indenture and that all conditions precedent in this Indenture relating to such
transaction have been satisfied. Notwithstanding the preceding sentence, so long
as no Default or Event of Default shall have occurred or be continuing, (a) any
subsidiary of BI or the Issuer may consolidate with, merge into or transfer all
or part of its properties and assets to BI or the Issuer; (b) BI or the Issuer
may merge with an Affiliate incorporated solely for the purpose of
reincorporating in another jurisdiction in the United States; and (c) the Issuer
and BI may merge with or into each other.
SECTION 7.2 Successor Corporation Substituted. Upon any
---------------------------------
consolidation, combination or merger or any transfer of all or substantially all
of the assets of a Constituent Entity in accordance with the foregoing, in which
such Constituent Entity is not the continuing corporation, the successor Person
formed by such consolidation or into which such Constituent Entity is merged or
to which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, such Constituent
Entity under this Indenture and the Notes with the same effect as if such
surviving entity had been named as such; provided that the predecessor entity in
the case of a conveyance, transfer or lease shall not be released from the
obligation to pay the principal of and interest on the Notes or honor the
Guarantee Obligations, as applicable.
ARTICLE 8
DEFAULT
SECTION 8.1 Events of Default. It shall be an Event of Default
-----------------
hereunder if any of the following events shall have occurred and be continuing:
(a) the Issuer fails to pay interest on any Notes when the same
becomes due and payable and such default continues for a period of 15 days; or
(b) failure to pay the principal on any Notes when such principal
becomes due and payable, at maturity, acceleration, upon redemption or
otherwise; or
(c) the Issuer, New Horizons or BI defaults in the observance or
performance of any other covenant or agreement on its part contained in this
Indenture or the Security Documents, which default continues for a period of 30
days after the Issuer, New Horizons or BI, as the case may be, receive written
notice specifying the default
41
<PAGE>
(and demanding that such default be remedied) from the Holders of at least
25% of the principal amount of the Outstanding Notes (it being understood
that the failure to have obtained the United States Bankruptcy Court order
referred to in Section 13.21 hereof shall not result in a Default or Event
of Default hereunder); or
(d) subject to the last paragraph of this Section 8.1, the Issuer,
BI, New Horizons or a Significant Subsidiary (A) commences a voluntary case
or proceeding under any Bankruptcy Law with respect to itself, (B) consents
to the entry of a judgment, decree or order for relief against it in an
involuntary case or proceeding under any Bankruptcy Law, (C) consents to
the appointment of a Custodian of it or for substantially all of its
property, (D) consents to or acquiesces in the institution of a bankruptcy
or an insolvency proceeding against it, (E) makes a general assignment for
the benefit of its creditors, or (F) takes any corporate action to
authorize or effect any of the foregoing; or
(e) subject to the last paragraph of this Section 8.1, a court of
competent jurisdiction enters a judgment, decree or order for relief in
respect of the Issuer, BI, New Horizons or a Significant Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law, which shall (A)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of the Issuer, BI, New Horizons or a
Significant Subsidiary, (B) appoint a Custodian of the Issuer, BI, New
Horizons or a Significant Subsidiary or for substantially all of its
property or (C) order the winding-up or liquidation of the affairs of the
Issuer, BI, New Horizons or a Significant Subsidiary; and such judgment,
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(f) subject to the last paragraph of this Section 8.1, a petition
under any Bankruptcy Law seeking reorganization, arrangement, adjustment or
composition in respect of the Issuer, BI, New Horizons or a Significant
Subsidiary is filed and not controverted within the time prescribed by
applicable law or court order or dismissed within 90 days; or
(g) any one or more judgments or orders as to a liability or debt for
the payment of money (not covered by insurance or workers' compensation
payments) in excess of $5 million in the aggregate shall be rendered
against the Issuer, BI, New Horizons or a Significant Subsidiary and either
(i) enforcement proceedings shall have been commenced and shall be
continuing by any creditor upon such judgment or order or (ii) there shall
be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal, payment or
otherwise, shall not be in effect; or
(h) BI fails to deliver shares of New Common Stock in accordance with
Article 9 hereof when such delivery is required upon conversion of any Note
and such failure continues for a period of three Trading Days; or
(i) the BI Guarantee ceases to be in full force and effect or BI
denies or disaffirms its obligations under the BI Guarantee and such
default continues for a period of 10 days after the notice specified in
clause (c) above; or
42
<PAGE>
(j) any of the Liens created by the Security Documents shall cease to
be enforceable and of the same effect and priority purported to be created
thereby for any reason other than satisfaction in full of all obligations
under this Indenture and discharge of this Indenture or any reason other
than a cessation permitted by and in accordance with this Indenture and the
Security Documents; provided that the Issuer shall have 30 days to cure any
such cessation; or
(k) the collateral agent under the New Credit Facility, has commenced
the exercise of its remedies with respect to amounts outstanding under the
New Credit Facility or the collateral securing the Issuer's obligations
under the New Credit Facility; provided that neither the termination of the
Issuer's right to receive loans, advances and other financial
accommodations under the New Credit Facility nor the acceleration and
demand for payment of Indebtedness under the New Credit Facility shall
constitute or be deemed to constitute an "exercise of remedies" for
purposes of this Section 8.1(k).
For purposes of this Section 8.1, the following conditions or events
which would otherwise constitute a Default or Event of Default under clause (d),
(e) or (f) above shall not so constitute a Default or Event of Default: any
condition or event which is in existence on the issue date of the Notes.
SECTION 8.2 Acceleration. If an Event of Default (other than an
------------
Event of Default specified in Section 8.1(d), (e) or (f) with respect to the
Issuer, New Horizons or BI) occurs and is continuing and has not been waived
pursuant to Section 8.10, then the Holders of at least 25% in principal amount
of Outstanding Notes may declare the principal of and accrued interest on all
the Notes to be due and payable by notice in writing to the Issuer and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same shall become immediately
due and payable after receipt by the Issuer of such Acceleration Notice but only
if such Event of Default is then continuing. Upon any such declaration, but
subject to the immediately preceding sentence, such amount shall be immediately
due and payable.
If an Event of Default specified in Section 8.1(d), (e) or (f) occurs
and is continuing with respect to the Issuer, New Horizons or BI, all unpaid
principal and accrued and unpaid interest on all of the outstanding Notes shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration with respect to the
Notes in accordance with this Section 8.2, the Holders of a majority in
principal amount of the outstanding Notes may, on behalf of the Holders of all
of the Notes, rescind and cancel such declaration and its consequences (i) if
the rescission would not conflict with any judgment or decree, (ii) if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of the acceleration,
(iii) to the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid and (iv) if the Issuer
has paid the Trustee
43
<PAGE>
its reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances, and all other amounts due the Trustee under Section
4.6. No such rescission shall affect any subsequent Event of Default or impair
any right consequent thereto.
SECTION 8.3 Collection of Indebtedness by Trustee; Trustee May
--------------------------------------------------
Prove Debt. If an Event of Default in payment of principal of or interest on
- ----------
any of the Notes specified in clause (a) or (b) of Section 8.1 occurs and is
continuing, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any action or proceedings at law or
in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceedings to judgment or final decree, and may enforce any
such judgment or final decree against the Issuer, New Horizons or BI upon such
Notes or Guarantee Obligations, as the case may be, and collect in the manner
provided by law out of the property of the Issuer (including, without
limitation, the Collateral), New Horizons or BI upon such Notes or Guarantee
Obligations, as the case may be, wherever situated, the moneys adjudged or
decreed to be payable.
All rights of action and of asserting claims under this Indenture, the
Security Documents or under any of the Notes may be enforced by the Trustee
without the possession of any of the Notes or the production thereof on any
trial or other proceedings relative thereto, and any such action or proceedings
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Trustee, each predecessor
Trustee and their respective agents and attorneys, shall be for the ratable
benefit of the Holders of the Notes in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture, the Security
Documents or the Notes to which the Trustee shall be a party), the Trustee
shall be held to represent all the Holders of the Notes in respect to which such
action was taken, and it shall not be necessary to make any Holders of such
Notes parties to any such proceedings.
SECTION 8.4 Application of Proceeds. If the Trustee collects any
-----------------------
money or property pursuant to this Article 8, it shall pay out the money in the
following order:
First: to the Trustee for amounts due under Section 4.6;
-----
Second: to Holders for amounts due and unpaid on the Notes for
------
interest and all other amounts (excluding principal) payable on the Notes to the
Holders hereunder by the Issuer, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for interest and
such other amounts, respectively;
44
<PAGE>
Third: to Holders for amounts due and unpaid on the Notes for
-----
principal, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal; and
Fourth: to the Issuer or any other obligor on the Notes, as their
------
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Issuer, may fix a record date and payment
date for any payment to Holders pursuant to this Section 8.4.
SECTION 8.5 Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of or interest on the Notes or to
enforce the performance of any provision of the Notes, this Indenture or the
Security Documents.
Each Noteholder, by accepting a Note, acknowledges that the exercise
of remedies by the Trustee with respect to the Collateral is subject to the
terms and conditions of the Security Documents and the proceeds received upon
realization of the Collateral shall be applied by the Trustee in accordance with
Section 8.4 hereof and applicable law.
SECTION 8.6 Restoration of Rights on Abandonment of Proceedings.
---------------------------------------------------
In case the Trustee shall have proceeded to enforce any right under this
Indenture or the Security Documents and such proceedings shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee, then and in every such case the Issuer and the Trustee
shall be restored respectively to their former positions and rights hereunder
and under the Security Documents, and all rights, remedies and powers of the
Issuer, the Trustee and the Noteholders shall continue as though no such
proceedings had been taken.
SECTION 8.7 Limitations on Suits by Noteholders. No Holder of any
-----------------------------------
Note shall have any right by virtue or by availing itself of any provision of
this Indenture or of the Notes to institute any action or proceeding at law or
in equity or in bankruptcy or otherwise upon or under or with respect to this
Indenture or the Security Documents, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy hereunder or under the Notes, unless such Holder previously shall have
given to the Trustee written notice of default and of the continuance thereof,
as hereinbefore provided, and unless also the Holders of not less than 25% in
aggregate principal amount of the Notes then Outstanding shall have made written
request upon the Trustee to institute such action or proceedings in its own name
as trustee hereunder and shall have provided to the Trustee such indemnity
satisfactory to it as it may require against the costs, expenses and liabilities
to be incurred therein or thereby and the Trustee for 10 days after its receipt
of such notice, request and indemnity shall have failed to institute any such
action or proceeding and no direction inconsistent with such written request
shall have been given to the Trustee pursuant to Section 8.9, it being
understood and intended, and being expressly covenanted by the taker and Holder
of every Note with every other taker and Holder and the Trustee, that no one or
more Holders of Notes shall
45
<PAGE>
have any right in any manner whatever by virtue or by availing itself of any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holder of Notes, or to obtain or seek to obtain priority over or
preference to any other Holder or to enforce any right under this Indenture or
under the Notes, except in the manner herein provided and for the equal, ratable
and common benefit of all Holders of Notes. For the protection and enforcement
of the provisions of this Section, each and every Noteholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.
SECTION 8.8 Powers and Remedies Cumulative; Delay or Omission Not
-----------------------------------------------------
Waiver of Default. No right or remedy herein conferred upon or reserved to the
- -----------------
Trustee or to the Noteholders is intended to be exclusive or any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Noteholder to exercise
any right or power accruing upon any Event of Default occurring and continuing
as aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein; and every power
and remedy given by this Indenture or the Security Documents or by law to the
Trustee or to the Noteholders may be exercised from time to time, and as often
as shall be deemed expedient, by the Trustee or by the Noteholders.
SECTION 8.9 Control by Noteholders. The Holders of a majority in
----------------------
aggregate principal amount of the Notes at the time Outstanding shall have the
right to direct the time, method, and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee with respect to the Notes by this Indenture or the Security
Documents; provided that such direction shall not be otherwise than in
accordance with applicable law (including, without limitation, the Trust
Indenture Act) and the provisions of this Indenture and provided further that
(subject to the provisions of Section 4.1 hereof) the Trustee shall have the
right to decline to follow any such direction if the Trustee, being advised by
counsel, shall determine that the action or proceeding so directed may not
lawfully be taken or if the Trustee in good faith by action of Responsible
Officers of the Trustee shall determine that the action or proceedings so
directed would involve the Trustee in personal liability or if the Trustee in
good faith shall so determine that the actions or forbearance specified in or
pursuant to such direction would be unduly prejudicial to the interests of
Holders of the Notes not joining in the giving of said direction, it being
understood that (subject to Section 4.1 hereof) the Trustee shall have no duty
to ascertain whether or not such actions or forbearance are unduly prejudicial
to such Holders.
Nothing in this Indenture or the Security Documents shall impair the
right of the Trustee in its discretion to take any action deemed proper by the
Trustee and which is not inconsistent with such direction or directions by
Noteholders.
46
<PAGE>
SECTION 8.10 Waiver of Defaults. The Holders of a majority of the
------------------
aggregate principal amount of the Notes Outstanding (or of such lesser
percentage as may act at a meeting of Noteholders) may on behalf of the Holders
of all the Notes Outstanding waive any past default or Event of Default with
respect to the Notes, except a default in the payment of the principal of or
interest on any Note or a default in respect of a covenant or provision hereof
that cannot be modified or amended without the consent of each Holder affected
as provided in Section 11.2 hereof. Any such waiver shall be accompanied by
notice to the Trustee of such waiver. In case of any such waiver, the Issuer,
the Trustee and the Holders of the Notes shall be restored to their former
positions and rights hereunder, respectively.
Upon any such waiver, such default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 8.11 Unconditional Right of Holders to Receive Principal and
-------------------------------------------------------
Interest. Notwithstanding any other provision in this Indenture, the Holder of
- --------
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest on such Note on its Stated Maturity as
expressed in such Note (or, in the case of redemption, on the Redemption Date)
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.
SECTION 8.12 Undertaking for Costs. All parties to this Indenture
---------------------
agree, and each Holder of any Note by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit other than the Trustee of an
undertaking to pay the costs of such suit and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder or group of Noteholders
holding in aggregate more than 10% in principal amount of Outstanding Notes, or
any suit instituted by a Noteholder for enforcement of payment of the principal
of, or interest on, any Note on or after the date such amount is required to be
paid or for the enforcement of the right to convert any Note in accordance with
Article 9.
SECTION 8.13 Trustee May File Proofs of Claim. In case of any
--------------------------------
judicial proceeding relative to the Issuer (or any other obligor upon the
Notes), its property or its creditors, the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise, to take any and all
actions authorized under the Trust Indenture Act in order to have claims of the
Holders and the Trustee allowed in any such proceeding. In particular, the
Trustee shall be authorized to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the
47
<PAGE>
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments dire ctly to the Holders,
to pay to the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 4.6.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any proceeding; provided, however, that
the Trustee may, on behalf of the Holders, vote for the election of a trustee in
bankruptcy or similar official and be a member of a creditors' or other similar
committee.
SECTION 8.14 New Credit Facility Waivers and Consents. With respect
----------------------------------------
to the Trustee's exercise of its rights and remedies under Sections 8.3, 8.5 and
8.8, the Trustee shall comply with the New Credit Facility Waivers and Consents,
if and to the extent applicable.
ARTICLE 9
CONVERSION OF NOTES
SECTION 9.1 Conversion Privilege. Subject to and upon compliance
--------------------
with the provisions of this Article 9, at the option of the Holder thereof, the
then outstanding principal amount of any Note may at any time after the first
anniversary of the original issuance of the Notes be converted, in whole, or in
part in multiples of $1,000 principal amount, into fully paid and non-assessable
shares of New Common Stock issuable upon conversion of the Notes, at the
Conversion Price in effect at the Date of Conversion, until and including, but
not after the close of business on the second Business Day prior to the Maturity
Date, or unless such Note or some portion thereof shall have been called for
redemption prior to such date and no default is made in making due provision for
the payment of the Redemption Price in accordance with the terms of this Article
9 and the Notes, in which case, with respect to such Note or portion thereof as
has been so called for redemption, such Note or portion thereof may be so
converted until and including, but not after, the close of business on the
second Business Day prior to the Redemption Date for such Note, unless the
Issuer subsequently fails to pay the applicable Redemption Price.
SECTION 9.2 Exercise of Conversion Privilege. In order to exercise
--------------------------------
the conversion privilege, the Holder of any Note to be converted shall surrender
such Note to BI at any time during usual business hours at its office or agency
maintained for the purpose as provided in this Indenture, accompanied by a fully
executed written notice, in substantially the form set forth on the reverse of
the Note, that the Holder elects to convert such Note or a stated portion
thereof constituting a multiple of $1,000 principal amount, and, if such Note is
surrendered for conversion during the period between the close of business on
any Regular Record Date and the opening of business
48
<PAGE>
on the next following Stated Maturity for the payment of interest and has not
been called for redemption on a Redemption Date which occurs within such period,
accompanied also by payment to the Issuer of an amount equal to the interest
payable on such Stated Maturity on the principal amount of the Note being
surrendered for conversion, notwithstanding such conversion. The Holder of any
Note at the close of business on a Regular Record Date will be entitled to
receive the interest payable on such Note on the corresponding Stated Maturity
for the payment of interest notwithstanding the conversion thereof after such
Regular Record Date. The interest payment with respect to a Note called for
redemption on a date during the period from the close of business on or after
any Regular Record Date to the close of business on the Business Day following
the corresponding Stated Maturity will be payable on the corresponding Stated
Maturity to the registered Holder at the close of business on that Regular
Record Date (notwithstanding the conversion of such Note after the corresponding
Stated Maturity) and a Holder who elects to convert need not include funds equal
to the interest paid.
A notice of conversion shall state the name or names (with address) in
which the certificate or certificates for shares of New Common Stock shall be
issued. Notes surrendered for conversion shall (if reasonably required by BI or
the Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to BI duly executed by the Holder
or his attorney duly authorized in writing. As promptly as practicable after
the receipt of such notice and the surrender of such Note as aforesaid, BI
shall, subject to the provisions of Section 9.9 herein, issue and deliver at
such office or agency to such Holder, or in accordance with the written
instruction of the Holder, a certificate or certificates for the number of full
shares of New Common Stock issuable on such conversion of New Notes in
accordance with the provisions of this Article 9 and cash, as provided in
Section 9.3 in respect of any fraction of a share of New Common Stock otherwise
issuable upon such conversion.
Such conversion shall be deemed to have been effected immediately
prior to the close of business on the date (the "Date of Conversion") on which
such Note shall have been surrendered as aforesaid, and the person or persons in
whose name or names any certificate or certificates for shares of New Common
Stock shall be issuable upon such conversion shall be deemed to have become on
the Date of Conversion the holder or holders of record of the shares represented
thereby; provided, however, that any such surrender on any date when the stock
transfer books of BI are closed shall cause the person or persons in whose name
or names the certificate or certificates for such shares are to be issued to be
deemed to have become the recordholder or holders thereof for all purposes at
the opening of business on the next succeeding day on which such stock transfer
books are open but such conversion shall nevertheless be at the Conversion Price
in effect at the close of business on the date when such Note shall have been so
surrendered with the conversion notice. In the case of conversion of a portion,
but less than all, of a Note, the Issuer shall as promptly as practicable
execute, and the Trustee shall authenticate and deliver to the Holder thereof,
at the expense of the Issuer, a Note or Notes in the aggregate principal amount
of the unconverted portion of the Note surrendered. Except as otherwise
expressly provided in this Indenture, no payment or adjustment shall be made for
interest accrued on any Note (or portion thereof) converted
49
<PAGE>
or for dividends or distributions on any New Common Stock issued upon conversion
of any Note.
SECTION 9.3 Fractional Interests. No fractions of shares or scrip
--------------------
representing fractions of shares shall be issued upon conversion of any Note. If
more than one Note shall be surrendered for conversion at one time by the same
holder, the number of full shares which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate principal amount of the
Notes so surrendered. If any fraction of a share of New Common Stock would,
except for the foregoing provisions of this Section 9.3, be issuable on the
conversion of any Note or Notes, The Issuer shall make payment in lieu thereof
in an amount of cash equal to the value of such fraction computed on the basis
of the last sale price of the New Common Stock as reported on the NASDAQ (or if
not listed for trading thereon, then on the principal national securities
exchange on which the New Common Stock is listed or admitted to trading) at the
close of business on the Date of Conversion or if no such sale takes place on
such day, the last sale price for such day shall be the average of the closing
bid and asked prices regular way on the NASDAQ (or if not listed for trading
thereon, on the principal national securities exchange on which the New Common
Stock is listed or admitted to trading) for such day (any such last sale price,
the "Last Sale Price"). If on such Trading Day the New Common Stock is not
quoted by any such organization, the closing price on the prior Trading Day
shall be used.
SECTION 9.4 Conversion Price. The Conversion Price per share of New
----------------
Common Stock issuable upon conversion of the Notes shall initially be the price
equal to the arithmetic unweighted average closing price of such stock (or, for
any day on which no closing price is reported, the average of the bid and ask
prices) during the 20 Business Days prior to the one year anniversary of the
original issuance of the Notes.
SECTION 9.5 Adjustment of Conversion Price; Notice of Adjustments.
-----------------------------------------------------
The Conversion Price shall be subject to adjustment from time to time as
follows:
(a) In case BI shall (1) make or pay a dividend (or other
distribution) in shares of New Common Stock on any class of capital stock of BI,
(2) subdivide its outstanding shares of New Common Stock into a greater number
of shares, or (3) combine or reclassify its outstanding shares of New Common
Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such action shall be adjusted so that the Holder of any
Note thereafter surrendered for conversion shall be entitled to receive the
number of shares of New Common Stock that such Holder would have owned
immediately following such action had such Note been converted immediately prior
thereto. An adjustment made pursuant to this subsection (a) shall become
effective immediately, except as provided in subsection (h) below, after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision or
combination.
(b) In case BI shall issue rights, options or warrants to all holders
of New Common
50
<PAGE>
Stock entitling them to subscribe for or purchase shares of New Common Stock at
a price per share less than the then current market price per share of the New
Common Stock (as determined pursuant to subsection (f) below) on the record date
mentioned below, the Conversion Price shall be adjusted to a price, computed to
the nearest cent, so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date of
issuance of such rights or warrants by a fraction of which:
(i) the numerator shall be (A) the number of shares of New
Common Stock outstanding on the date of issuance of such rights, options or
warrants, immediately prior to such issuance, plus (B) the number of shares
which the aggregate offering price of the total number of shares so offered
for subscription or purchase would purchase at such current market price
(determined by multiplying such total number of shares by the exercise
price of such rights, options or warrants and dividing the product so
obtained by such current market price); and
(ii) the denominator shall be (A) the number of shares of New
Common Stock outstanding on the date of issuance of such rights, options or
warrants, immediately prior to such issuance, plus (B) the number of
additional shares of New Common Stock which are so offered for subscription
or purchase.
Such adjustment shall become effective immediately, except as provided in
subsection (h) below, after the record date for the determination of holders
entitled to receive such rights, options or warrants; provided, however, that if
any such rights, options or warrants issued by BI as described in this
subsection (b) are only exercisable upon the occurrence of certain triggering
events relating to changes in control and provided for in shareholder rights
plans, then the Conversion Price will not be adjusted as provided in this
subsection (b) until such triggering events occur.
(c) In case BI or any subsidiary of BI shall distribute to all
holders of New Common Stock, any of its assets, evidences of Indebtedness, cash
or other assets or shares of capital stock other than New Common Stock
(including securities, but other than (x) dividends or distributions exclusively
in cash or (y) any dividend or distribution for which an adjustment is required
to be made in accordance with subsection (a) or (b) above), then in each such
case the Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the date of such distribution by a fraction of which the numerator shall be
the then current market price per share of the New Common Stock (determined as
provided in subsection (f) below) on the record date mentioned below less the
then fair market value (as reasonably determined in good faith by the Board of
Directors of BI) of the portion of the assets so distributed applicable to one
share of New Common Stock, and of which the denominator shall be such current
market price per share of the New Common Stock. Such adjustment shall become
effective immediately, except as provided in subsection (h) below, after the
record date for the determination of stockholders entitled to receive such
distribution. Notwithstanding the foregoing, in the event that the fair market
value of the assets , evidences of Indebtedness or other securities so
distributed applicable to one share of New Common Stock equals or exceeds
51
<PAGE>
such current market price per share of New Common Stock, or such current market
price exceeds such fair market value by less than $0.10 per share, the
Conversion Price shall not be adjusted pursuant to this subsection (c) and, to
the extent applicable, the provisions of subsection (k) shall apply to such
distribution.
(d) In case BI or any subsidiary of BI shall make any distribution
consisting exclusively of cash (excluding any cash portion of distributions for
which an adjustment is required to be made in accordance with (c) above, or cash
distributed upon a merger or consolidation) to all holders of New Common Stock
in an aggregate amount that, combined together with (i) all other such all-cash
distributions made within the then preceding 12 months in respect of which no
adjustment has been made and (ii) any cash and the fair market value of other
consideration paid or payable in respect of any tender offer by BI or any of its
subsidiaries for New Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 15% of BI's market
capitalization (defined as being the product of the then current market price of
the New Common Stock (determined as provided in subsection (f) below) times the
number of shares of New Common Stock then outstanding) on the record date of
such distribution, then in each such case the Conversion Price shall be adjusted
so that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of such distribution by a fraction
of which the numerator shall be the then current market price per share of the
New Common Stock on such record date less the amount of the cash so distributed
applicable to one share of New Common Stock, and of which the denominator shall
be such current market price per share of the New Common Stock. Such adjustment
shall become effective immediately, except as provided in subsection (h) below,
after the record date for the determination of stockholders entitled to receive
such distribution. Notwithstanding the foregoing, in the event that the cash so
distributed applicable to one share of New Common Stock equals or exceeds such
current market price per share of New Common Stock, or such current market price
exceeds such amount of cash by less than $0.10 per share, the Conversion Price
shall not be adjusted pursuant to this subsection (d), and, to the extent
applicable, the provisions of subsection (k) shall apply to such distribution.
(e) In case there shall be completed a tender or exchange offer made
by BI or any subsidiary of BI for all or any portion of the New Common Stock
(any such tender or exchange offer being referred to as an "Offer") that
involves an aggregate consideration having a fair market value as of the
expiration of such Offer (the "Expiration Date") that, together with (i) any
cash and the fair market value of any other consideration payable in respect of
any other Offer, as of the expiration of such other Offer, expiring within the
12 months preceding the expiration of such Offer and in respect for which no
Conversion Price adjustment pursuant to this subsection (e) has been made and
(ii) the aggregate amount of any all-cash distributions referred to in
subsection (d) of this Section 9.5 to all holders of New Common Stock within the
12 months preceding the expiration of such Offer for which no conversion price
adjustment pursuant to such subsection (d) has been made, exceeds 15% of the
product of the then current market price per share (determined as provided in
subsection (f) below) of the New Common Stock on the Expiration Date times the
number of shares of New Common Stock outstanding (including any tendered shares)
on the Expiration Date, the Conversion
52
<PAGE>
Price shall be reduced by multiplying such Conversion Price in effect
immediately prior to the Expiration Date by a fraction of which the numerator
shall be (i) the product of the then current market price per share (determined
as provided in subsection (f) below) of the New Common Stock on the Expiration
Date times the number of shares of New Common Stock outstanding (including any
tendered shares) on the Expiration Date minus (ii) the fair market value of the
aggregate consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the Offer) of all shares validly tendered
and not withdrawn as of the Expiration Date (the shares deemed so accepted being
referred to as the "Purchased Shares") and the denominator shall be the product
of (i) such current market price per share on the Expiration Date times (ii)
such number of outstanding shares on the Expiration Date less the number of
Purchased Shares, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Date. For purposes of
this subsection (e), the fair market value of any consideration with respect to
an Offer shall be reasonably determined in good faith by the Board of Directors
of BI and described in a Board Resolution.
(f) For the purpose of any computation under subsections (b), (c),
(d) and (e) above, the current market price per share of New Common Stock on any
date shall be deemed to be the average of the Last Sale Prices of a share of New
Common Stock for the five consecutive Trading Days selected by BI commencing not
more than 20 Trading Days before, and ending not later than the earlier of the
date in question and the date before the "'ex' date" with respect to the
issuance, distribution or Offer requiring such computation. If on any such
Trading Day the New Common Stock is not quoted by any organization referred to
in the definition of Last Sale Price in Section 9.3, the fair value of the New
Common Stock on such day, as reasonably determined in good faith by the Board of
Directors of BI, shall be used. For purposes of this paragraph, the term "'ex'
date" when used with respect to any issuance, distribution or payments with
respect to an Offer, means the first date on which the New Common Stock trades
regular way on the NASDAQ (or if not listed or admitted to trading thereon, then
on the principal national securities exchange on which the New Common Stock is
listed or admitted to trading) without the right to receive such issuance,
distribution or Offer.
(g) In addition to the foregoing adjustments in subsections (a), (b),
(c), (d) and (e) above, BI will be permitted to make such reductions in the
Conversion Price as it considers to be advisable in order that any event treated
for Federal income tax purposes as a dividend of stock or stock rights will not
be taxable to the holders of the shares of New Common Stock.
(h) In the event BI elects to make such a reduction in the Conversion
Price, BI will comply with the requirements of Rule 14e-1 of the Exchange Act
and any other Federal and state laws and regulations thereunder if and to the
extent that such laws and regulations are applicable in connection with the
reduction of the Conversion Price of the Notes; provided that any provisions of
this Indenture which conflict with such laws shall be deemed to be superseded by
the relevant provisions of such laws.
53
<PAGE>
(i) In any case in which this Section 9.5 shall require that an
adjustment (including by reason of the last sentence of subsection (a) or (c)
above) be made immediately following a record date, BI may elect to defer the
effectiveness of such adjustment (but in no event until a date later than the
effective time of the event giving rise to such adjustment), in which case BI
shall, with respect to any Note converted after such record date and on and
before such adjustment shall have become effective, (i) defer paying any cash
payment pursuant to Section 9.3 or issuing to the Holder of such Note the number
of shares of New Common Stock and other capital stock of BI (or other assets or
securities) issuable upon such conversion in excess of the number of shares of
New Common Stock and other capital stock of BI issuable thereupon only on the
basis of the Conversion Price prior to adjustment, and (ii) not later than five
Business Days after such adjustment shall have become effective, pay to such
Holder the appropriate cash payment pursuant to Section 9.3 of this Article 9
and issue to such Holder the additional shares of New Common Stock and other
capital stock of BI issuable on such conversion.
(j) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least one percent
(1.0%) of the Conversion Price; provided, that any adjustments which by reason
of this subsection (i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Article 9 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Whenever the Conversion Price is adjusted as herein
provided, BI shall promptly (i) file with the Trustee and each conversion agent
an Officers' Certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment, which certificate shall be conclusive evidence of the correctness of
such adjustment, and (ii) mail or cause to be mailed a notice of such adjustment
to each Holder of Notes at the Holder's address as the same appears on the
Security Register.
(k) In the event that BI distributes rights (including rights to
distributions referred to by paragraphs (c) and (d) of this Section 9.5 to the
extent this paragraph (k) applies thereto) or warrants (other than those
referred to in subsection (b) above) pro rata to holders of New Common Stock, so
long as any such rights or warrants have not expired or been redeemed by BI, BI
shall make proper provision so that the Holder of any Note surrendered for
conversion will be entitled to receive upon such conversion, in addition to the
shares of New Common Stock issuable upon such conversion (the "Conversion
Shares"), a number of rights or warrants to be determined as follows: (i) if
such conversion occurs on or prior to the date for the distribution to the
holders of rights or warrants of separate certificates evidencing such rights or
warrants (the "Distribution Date"), the same number of rights or warrants to
which a holder of a number of shares of New Common Stock equal to the number of
Conversion Shares is entitled at the time of such conversion in accordance with
the terms and provisions of and applicable to the rights or warrants, and (ii)
if such conversion occurs after such Distribution Date, the same number of
rights or warrants to which a holder of the number of shares of New Common Stock
into which the principal amount of such Note so converted was convertible
immediately prior to such Distribution Date would have been
54
<PAGE>
entitled on such Distribution Date in accordance with the terms and provisions
of and applicable to the rights or warrants.
SECTION 9.6 Continuation of Conversion Privilege in Case of
-----------------------------------------------
Reclassification, Change, Merger, Consolidation or Sale of Assets. If any of the
- -----------------------------------------------------------------
following shall occur, namely: (a) any reclassification or change of outstanding
shares of New Common Stock issuable upon conversion of the Notes (other than a
change in par value, or from par value to no par value, or from no par value, to
par value, or as a result of a subdivision or combination), (b) any
consolidation or merger of BI with or into any other Person, or the merger of
any other Person with or into BI (other than a merger which does not result in
any reclassification, change, conversion, exchange or cancellation of
outstanding shares of New Common Stock) or (c) any sale, transfer or conveyance
of all or substantially all of the assets of BI (computed on a consolidated
basis), then BI, or such successor or purchasing entity, as the case may be,
shall, as a condition precedent to such reclassification, change, consolidation,
merger, sale or conveyance, execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Note then outstanding shall have the
right to convert such Note only into the kind and amount of shares of stock and
other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance by
a holder of the number of shares of New Common Stock issuable upon conversion of
such Note immediately prior to such reclassification, change, consolidation,
merger, sale, transfer or conveyance assuming such holder of New Common Stock of
BI failed to exercise his rights of an election, if any, as to the kind or
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance
(provided that if the kind or amount of securities, cash, and other property
receivable upon such reclassification, change, consolidation, merger, sale,
transfer or conveyance is not the same for each share of New Common Stock of BI
held immediately prior to such reclassification, change, consolidation, merger,
sale, transfer or conveyance in respect of which such rights of election shall
not have been exercised ("non-electing share"), then for the purpose of this
Section 9.6 the kind and amount of securities, cash and other property
receivable upon such reclassification, change, consolidation, merger, sale,
transfer or conveyance by each non-electing share shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
Such supplemental indenture shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article 9. If, in the case of any such consolidation, merger, sale or
conveyance, securities and property (including cash) receivable thereupon by a
holder of shares of New Common Stock includes shares of stock or other
securities and property (including cash) of a corporation other than the
successor or purchasing corporation, as the case may be, in such consolidation,
merger, sale or conveyance, then such supplemental indenture shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the Holders of the Notes as the Board of Directors
of BI shall reasonably consider necessary by reason of the foregoing. The
provisions of this Section 9.6 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
55
<PAGE>
Notice of the execution of each such supplemental indenture shall be
mailed to each Holder of Notes at his address as the same appears in the
Security Register.
SECTION 9.7 Notice of Certain Events.
------------------------
In the event (a) BI shall declare a dividend (or any other
distribution) payable to the holders of New Common Stock (other than cash
dividends);
(b) BI shall authorize the grant to holders of New Common Stock of
rights, warrants or options to subscribe for or purchase any shares of stock of
any class or of any other rights;
(c) BI shall authorize any reclassification or change of the New
Common Stock (including a subdivision or combination of its outstanding shares
of New Common Stock), or any consolidation or merger to which BI is a party and
for which approval of any stockholders of BI is required, or the sale or
conveyance of all or substantially all the property or business of BI;
(d) there shall be proposed any voluntary or involuntary dissolution,
liquidation or winding-up of BI; or
(e) BI or any of its subsidiaries shall complete an Offer;
then, BI shall cause to be filed at the office or agency maintained for the
purpose of conversion of the Notes as provided in Section 9.12 and shall cause
to be mailed to each Holder of Notes, at its address as it shall appear on the
registry books of BI, at least 20 days before the date hereinafter specified (or
the earlier of the dates hereinafter specified, in the event that more than one
date is specified), a notice stating the date on which (1) a record is expected
to be taken for the purpose of such dividend, distribution, rights, warrants or
options or Offer, or if a record is not to be taken, the date as of which the
holders of New Common Stock of record to be entitled to such dividend,
distribution, rights, warrants or options or to participate in such Offer are to
be determined, or (2) such reclassification, change, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding-up is expected to become
effective and the date, if any is to be fixed, as of which it is expected that
holders of New Common Stock of record shall be entitled to exchange their shares
of New Common Stock for securities or other property deliverable upon such
reclassification, change, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding-up.
SECTION 9.8 Taxes on Conversion. BI will pay any and all
-------------------
documentary, stamp or similar taxes payable to the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
the issue or delivery of shares of New Common Stock on conversion of Notes
pursuant thereto; provided, however, that BI shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issue or
delivery of shares of New Common Stock in a name other than that of the Holder
of the Notes to be converted and no such issue or delivery shall be made unless
and until the person requesting such issue or delivery has
56
<PAGE>
paid to BI the amount of any such tax or has established, to the satisfaction of
BI, that such tax has been paid. BI extends no protection with respect to any
other taxes imposed in connection with conversion of Notes.
SECTION 9.9 BI to Provide Stock. BI shall reserve, free from
-------------------
preemptive rights, out of its authorized but unissued shares, sufficient shares
to provide for the conversion of the Notes from time to time as such Notes are
presented for conversion, provided, that nothing contained herein shall be
construed to preclude BI from satisfying its obligations in respect of the
conversion of Notes by delivery of repurchased shares of New Common Stock which
are held in the treasury of BI.
If any shares of New Common Stock to be reserved for the purpose of
conversion of Notes hereunder require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then BI covenants that it will in
good faith and as expeditiously as possible use its best efforts to secure such
registration or approval, as the case may be, provided, however, that nothing in
this Section 9.9 shall be deemed to limit in any way the obligations of BI
provided in this Article 9.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the New Common Stock, BI
will take all corporate action which may be necessary in order that BI may
validly and legally issue fully paid and nonassessable shares of New Common
Stock at such adjusted Conversion Price.
BI covenants that all shares of New Common Stock which may be issued
upon conversion of Notes will upon issue be fully paid and nonassessable by BI
and free of preemptive rights.
SECTION 9.10 Disclaimer of Responsibility for Certain Matters.
------------------------------------------------
Neither the Trustee nor any agent of the Trustee shall at any time be under any
duty or responsibility to any Holder of Notes to determine whether any facts
exist which may require any adjustment of the Conversion Price, or with respect
to the Officers' Certificate referred to in Section 9.5 or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. Neither the Trustee nor any agent of the Trustee shall be
accountable with respect to the validity or value (or the kind or amount) of any
shares of New Common Stock, or of any securities or property (including cash),
which may at any time be issued or delivered upon the conversion of any Note;
and neither the Trustee nor any conversion agent makes any representation with
respect thereto. Neither the Trustee nor any agent of the Trustee shall be
responsible for any failure of BI to issue, register the transfer of or deliver
any shares of New Common Stock or stock certificates or other securities or
property (including cash) upon the surrender of any Note for the purpose of
conversion or to comply with any of the covenants of BI contained in this
Article 9.
57
<PAGE>
SECTION 9.11 Return of Funds Deposited for Redemption of Converted
-----------------------------------------------------
Note . Any funds which at any time shall have been deposited with the Trustee or
- ----
any other Paying Agent for the purpose of paying the principal of and interest
on any of the Notes and which shall not be required for such purposes because of
the conversion of such Notes, as provided in this Article 9, shall after such
conversion be repaid to the Issuer by the Trustee or such other Paying Agent
upon receipt of an Officers' Certificate of the Issuer to that effect.
SECTION 9.12 Registrar and Paying Agent. The Issuer shall maintain
--------------------------
or cause to be maintained an office or agency in the Borough of Manhattan, The
City of New York, where Notes may be presented for conversion and where notices
and demands to or upon the Issuer in respect of the conversion of the Notes may
be served. Such office or agency shall initially be the Corporate Trust Office.
ARTICLE 10
SATISFACTION AND DISCHARGE
SECTION 10.1 Defeasance of Notes. Except as otherwise provided in
-------------------
the terms of any Notes, the Issuer shall be deemed to have made all payments due
on the Notes prior to the Maturity Date thereof for all purposes of this
Indenture, and the entire Indebtedness of the Issuer in respect thereof shall be
deemed to have been satisfied and discharged, and the Guarantee Obligations of
BI shall be released, upon satisfaction of each of the following conditions:
(a) The Issuer shall have irrevocably deposited with the Trustee, in
trust, for the benefit of the Holders, cash in Dollars or obligations of the
United States Government, or a combination thereof, in such amount as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and interest on, the Outstanding Notes on
and prior to the Maturity Date thereof as such payments become due or upon
redemption;
(b) If any such deposit of money shall have been made prior to the
Maturity Date or Redemption Date of such Notes, the Issuer shall have delivered
to the Trustee an Issuer Order stating that such money shall be held by the
Trustee, in trust, as provided in Section 10.3 hereof;
(c) In the case of redemption of Notes, the notice requisite to the
validity of such redemption shall have been given, or irrevocable instructions
shall have been given by the Issuer to the Trustee to give such notice, under
arrangements satisfactory to the Trustee;
(d) The Issuer shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such defeasance as set forth in this Section 10.1 and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance had not occurred, and such
opinion must refer to and be based upon a
58
<PAGE>
published ruling of the U.S. Internal Revenue Service or a change in applicable
federal U.S. income tax laws since the date hereof;
(e) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit, both before and after giving effect
thereto and no Event of Default referenced in Section 8.1(d), (e) or (f) shall
occur on or before the 91st day following the deposit referred to above;
(f) The Issuer shall have delivered to the Trustee an Opinion of
Counsel to the effect that, after the 91st day following the deposit referred to
above, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and
(g) The Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel satisfactory to the Trustee which, taken
together, shall state that all conditions precedent under this Indenture to such
defeasance have been complied with.
In the event that Notes which shall be deemed to have been paid as
provided in this Section 10.1 do not mature and are not to be redeemed within
the 60-day period commencing on the date of the deposit with the Trustee of
monies, the Issuer shall, as promptly as practicable, give or cause to be given
a notice, in the same manner as a notice of redemption with respect to such
Notes, to the Holders of such Notes to the effect that the Issuer is deemed to
have made full payment on such Notes and the circumstances thereof.
The Issuer shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against deposited obligations of the United
States Government or the principal and interest received in respect thereof.
Notwithstanding the satisfaction and discharge of any Notes as
aforesaid, the obligations of the Issuer and the Trustee in respect of such
Notes under Sections 2.5, 2.6, 2.7 and 2.12, Section 4.6 and this Article 10
hereof shall survive.
SECTION 10.2 Satisfaction and Discharge of the Indenture. This
-------------------------------------------
Indenture shall upon Issuer Request cease to be of further effect (except as
hereinafter expressly provided), and the Trustee, at the expense of the Issuer,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when:
(a) the Issuer has paid and discharged the entire Indebtedness by (i)
paying in full the outstanding principal of, and accrued and unpaid interest on,
the Notes and all other payment obligations under the Notes, the Indenture and
the Security Documents, as and when payable, (ii) depositing with the Trustee
cash in a sufficient amount (in the opinion of a nationally recognized firm of
independent public accountants) to redeem all Outstanding Notes in accordance
with their terms together with proof that notice of redemption has been given or
waived as required under this Indenture or an irrevocable order of the Issuer
directing the Trustee to give such notice
59
<PAGE>
together with an amount sufficient to pay any and all amounts due and owing to
the Trustee or (iii) delivering to the Trustee for cancellation all Outstanding
Notes; and
(b) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Upon satisfaction of the aforesaid conditions, the Trustee shall, upon
receipt of an Issuer Request, acknowledge in writing the satisfaction and
discharge of this Indenture and take all other action reasonably requested by
the Issuer to evidence the termination of any and all Liens created by or with
respect to this Indenture.
Notwithstanding the satisfaction and discharge of this Indenture as
aforesaid, the obligations of the Issuer and the Trustee under Sections 2.5,
2.6, 2.7 and 2.14, Section 4.6 and this Article 10 hereof shall survive.
Upon satisfaction and discharge of this Indenture as provided in this
Section 10.2, the Trustee shall assign, transfer and turn over to or upon the
order of the Issuer any and all money, securities and other property then held
by the Trustee for the benefit of the Holders, other than money deposited with
the Trustee pursuant to Section 10.1(a) or Section 10.2(a)(ii) hereof and
interest and other amounts earned or received thereon.
SECTION 10.3 Application of Trust Money. The money deposited with
--------------------------
the Trustee pursuant to Section 10.1 or Section 10.2(a)(ii) hereof shall not be
withdrawn or used for any purpose other than, and shall be held in trust for,
the payment of the principal of, and interest on, the Notes or portions of
principal amount thereof in respect of which such deposit was made.
SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent
-------------------------------------------------
Unclaimed for One Year. Unless otherwise required by mandatory
- ----------------------
provisions of the applicable escheat or abandoned or unclaimed property law, any
moneys deposited with or paid to the Trustee or any Paying Agent for the payment
of principal of, or interest on, any Note, other than amounts held pursuant to
Section 10.1 or Section 10.2(a)(ii) hereof, and not applied but remaining
unclaimed for one year after the date upon which such principal or interest
shall have become due and payable, shall, upon written request of the Issuer,
unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law, be repaid to the Issuer by the Trustee or
such Paying Agent, and the Holder of such Note shall thereafter look only to the
Issuer for any payment that such Holder may be entitled to collect, and all
liability of the Trustee or any paying agent with respect to such moneys shall
thereupon cease.
ARTICLE 11
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.1 Without Consent of Holders. The Issuer, when authorized
--------------------------
by a Board Resolution, BI, when authorized by a Board Resolution, and the
60
<PAGE>
Trustee, together, may amend or supplement this Indenture, any Security Document
or the Notes without notice to or consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency, provided that
such amendment or supplement does not, in the opinion of the Trustee, adversely
affect the rights of any Holder in any respect; in formulating its opinion on
such matters, the Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely an Opinion of Counsel;
(b) to give effect to the release of any Collateral or of any Lien in
accordance with the provisions of the Security Documents;
(c) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(d) to make any other change that does not adversely affect the
rights of any Noteholder hereunder in any respect;
(e) to maintain compliance with any requirements of the SEC in order
to effect or maintain the qualification of this Indenture under the Trust
Indenture Act;
(f) to evidence the succession of another Person to the Issuer as
obligor under the Indenture to the extent permitted under this Indenture;
(g) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trust under the Indenture by
more than one Trustee; or
(h) to make any change that would provide any additional benefit or
rights to the Holders or that does not adversely affect the rights of any
Holder;
provided that the Issuer has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 11.1.
SECTION 11.2 With Consent of Holders. The Issuer, when authorized by
-----------------------
a Board Resolution, BI and the Trustee, together, with the written consent of
the Holder or Holders of at least a majority in aggregate principal amount of
the outstanding Notes, may amend or supplement this Indenture, any Security
Document or the Notes, and the Holder or Holders of a majority in aggregate
principal amount of the outstanding Notes may waive compliance by the Issuer
with any provision of this Indenture or the Notes; provided, however, no
amendment, supplement or waiver, including a waiver pursuant to Section 8.10,
shall, without the consent of each Holder of each Note:
(a) reduce the percentage of any outstanding Notes necessary to
modify or amend the Indenture with respect to such Notes or to waive compliance
with certain provisions thereof or certain Events of Default and consequences
thereunder;
61
<PAGE>
(b) reduce the rate of interest or change or have the effect of
changing the Stated Maturity for payment of interest on any Notes;
(c) reduce the principal of or change or have the effect of changing
the Stated Maturity of any Notes, or change the date on which any Notes may be
subject to redemption, or reduce the Redemption Price therefor;
(d) change the Place of Payment or make any Notes payable in money
other than that stated in the Notes;
(e) make any change in the provisions of this Indenture protecting
the right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Notes to waive
Events of Default;
(f) change any material provision of any of the Security Documents
that releases the Collateral securing the Notes (other than a release in
accordance with the provisions of the Security Documents) or adversely affects
the interest of any Holder of the Notes;
(g) adversely affect the right of the Holders of the Notes to convert
the Notes into New Common Stock as provided in Article 9;
(h) waive a Default in the payment of principal of or interest on any
Note (except payment Defaults resulting from acceleration where acceleration has
been rescinded);
(i) release BI from any of its Guarantee Obligations or release
Collateral in either case other than pursuant to the terms of this Indenture and
the Security Documents; or
(j) amend, modify, change or waive any provision of this Section
11.2.
It shall not be necessary for the consent of the Holders under this
Section 11.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 11.2
becomes effective, the Issuer shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver and a copy of the
supplemental indenture relating thereto. At the Issuer's request, such notice
shall be given in the name and at the expense of the Issuer, provided that the
Issuer shall have delivered to the Trustee an Officers' Certificate requesting
that the Trustee give such notice and setting forth the information to be stated
in such notice. Any failure to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such amendment,
supplement or waiver.
62
<PAGE>
SECTION 11.3 Compliance with Trust Indenture Act. Every amendment,
-----------------------------------
waiver or supplement of this Indenture or the Notes shall comply with the Trust
Indenture Act as then in effect.
SECTION 11.4 Revocation and Effect of Consents. Until an amendment,
---------------------------------
waiver or supplement becomes effective, a consent to it by a Holder is a
continuing consent by the Holder and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note,
even if notation of the consent is not made on any Note. Subject to the
following paragraph, any such Holder or subsequent Holder may revoke the consent
as to such Holder's Note or portion of such Note by written notice to the
Trustee or the Issuer received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of outstanding Notes have consented (and not theretofore revoked such
consent) to the amendment, supplement or waiver (at which time such amendment,
supplement or waiver shall become effective).
The Issuer may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to revoke any consent previously given, whether or not such
Persons continue to be Holders after such record date. No such consent shall be
valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (a)
through (h) of Section 11.2, in which case, the amendment, supplement or waiver
shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note; provided that any such waiver shall not impair or
affect the right of any Holder to receive payment of principal of and interest
on a Note, on or after the respective due dates expressed in such Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates without the consent of such Holder.
SECTION 11.5 Notation on or Exchange of Notes. If an amendment,
--------------------------------
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder of such Note to deliver it to the Trustee. The Trustee may place an
appropriate notation on the Note about the changed terms and return it to the
Holder. Alternatively, if the Issuer or the Trustee so determines, the Issuer in
exchange for the Note shall issue and the Trustee shall authenticate a new Note
that reflects the changed terms. Any such notation or exchange shall be made at
the sole cost and expense of the Issuer.
SECTION 11.6 Trustee to Sign Amendments, Etc. The Trustee shall
-------------------------------
execute any amendment, supplement or waiver authorized pursuant to this Article
11; provided that the Trustee may, but shall not be obligated to, execute any
such amendment, supplement or waiver which affects the Trustee's own rights,
duties or
63
<PAGE>
immunities under this Indenture. The Trustee shall be entitled to receive, and
shall be fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate each complying with Sections 11.4 and 11.5 and stating that the
execution of any amendment, supplement or waiver authorized pursuant to this
Article 11 is authorized or permitted by this Indenture. Such Opinion of Counsel
shall not be an expense of the Trustee.
SECTION 11.7 Payment for Consent. Neither the Issuer nor any
-------------------
subsidiary of the Issuer shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture, the Security Documents or the Notes unless such
consideration is offered to be paid to all Holders that so consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
ARTICLE 12
COLLATERAL AND SECURITY DOCUMENTS
SECTION 12.1 Collateral and Security Documents.
---------------------------------
(a) To secure the due and punctual payment of the principal of and
interest on the Notes when and as the same shall become due and payable, whether
on an interest payment date, at maturity, by acceleration, redemption or
otherwise, and the performance of all other obligations of the Issuer to the
Holders under this Indenture and the Notes, the Issuer, New Horizons and the
Trustee have entered into the Security Documents pursuant to which (i) New
Horizons has granted to the Trustee, for the benefit of the Holders, a first
priority mortgage Lien on the Yonkers Property and the Net Proceeds of the
Disposition of the Yonkers Property, (ii) subject to Section 12.1(b) below, the
Issuer has granted to the Trustee, for the benefit of the Holders, a first
priority mortgage Lien on the Additional Collateral and the Net Proceeds of the
Disposition of the Additional Collateral and (iii) the Issuer has granted to the
Trustee, for the benefit of the Holders, a first priority Lien on the Pledged
Stock. Each such Lien shall be subject to modification, and certain portions of
the Collateral shall be subject to release, upon the terms and provisions set
forth herein and in the Security Documents.
(b) The Additional Collateral only shall secure Indebtedness under
the Notes in an amount equal to the sum of (A) $6.5 million (the "Differential
Amount") plus (B) an amount (the "Assumed Unpaid Interest Amount") from time to
time equal to the amount of interest (including interest on interest to the
extent payable under the Notes) that would accrue on $6.5 million of Outstanding
Notes from January 29, 1999 to the date of calculation of the extent of the Lien
on the Additional Collateral (but excluding any period for which interest has in
fact been paid under the Notes) and all costs and expenses payable by the Issuer
under the Leasehold Mortgages encumbering the Additional Collateral. The Issuer
shall not be under any obligation to seek to Dispose of the Additional
Collateral to prepay the Notes.
64
<PAGE>
(c) The Lien on the Pledged Stock shall be terminated and released
upon the Disposition of the Yonkers Property and the application of the Net
Proceeds of such Disposition in accordance with Article 3 hereof.
(d) With respect to any Leasehold Mortgage, if (i) all of the
outstanding principal of and interest on all of the Notes shall be paid in
accordance with the terms thereof and hereof and any and all sums payable by the
Issuer or the Mortgagor hereunder and under the Security Documents shall be paid
or (ii) if all of the interests of the Mortgagor in the Mortgaged Property under
such Leasehold Mortgage shall be Disposed of and if each of the Issuer and the
Mortgagor shall be in compliance with all the terms, covenants and conditions
applicable to it to be complied with under the Notes, the Indenture and the
Security Documents (including, without limitation, payment of the Net Proceeds
(subject, in the case of Additional Collateral, to Section 12.1(b)) to the
Trustee), then in either such case, such Leasehold Mortgage shall be null and
void and of no further force and effect and the Mortgaged Property thereunder
shall thereupon be, and shall be deemed to have been, reconveyed, released and
discharged from such Leasehold Mortgage without further notice on the part of
the Mortgagor or Mortgagee thereunder, and the Mortgagee, at the Mortgagor's
expense, will execute and deliver such reasonable or necessary instruments, if
any, as the Mortgagor may request evidencing or confirming the reconveyance,
release and discharge of the Mortgaged Property from such Leasehold Mortgage,
and any such instrument, when duly executed by the Mortgagee and duly recorded
in the place where such Leasehold Mortgage is recorded, shall conclusively
evidence such reconveyance, release and discharge. Notwithstanding the
foregoing, if (i) or (ii) above shall occur, then the Mortgagor shall have the
option to request an assignment of such Leasehold Mortgage, without recourse,
representation or warranty in lieu of the satisfaction of such Leasehold
Mortgage as described above, and, at the Mortgagor's written request, the
Leasehold Mortgage shall remain in full force and effect and the Mortgagee shall
assign such Leasehold Mortgage, and the Mortgagee, at the Mortgagor's expense,
will execute and deliver such reasonable or necessary instruments, if any, as
the Mortgagor may request evidencing or confirming the assignment of such
Leasehold Mortgage, and any such instrument, when duly executed by the Mortgagee
and duly recorded in the place where such Leasehold Mortgage is recorded, shall
conclusively evidence the assignment of such Leasehold Mortgage, and the release
and discharge of the Mortgagor from its obligations thereunder. Notwithstanding
the foregoing, any release of such Leasehold Mortgage in connection with a sale
of the Mortgaged Property shall not include a release of the security interest
of the Mortgagee in the proceeds of such sale and shall expressly reserve the
Mortgagee's security interests in such proceeds unless and until such proceeds
are actually received by the Mortgagee.
(e) Each Holder of a Note, by accepting a Note, agrees to all of the
terms and provisions of the Security Documents, as the same may be amended from
time to time pursuant to the provisions of the Security Documents and this
Indenture.
SECTION 12.2 Release of Lien. The Trustee, in its capacity as
---------------
trustee for the Holders under this Indenture, will not at any time permit the
release of any Collateral from the security interest created by the Security
Documents unless such
65
<PAGE>
release is in accordance with the provisions of this Indenture and the Security
Documents. To the extent applicable, the Issuer shall cause (S) 314(d) of the
Trust Indenture Act relating to the release of property or securities from the
security interest pursuant hereto and the Security Documents to be complied
with. Any certificate or opinion required by (S) 314(d) of the Trust Indenture
Act may be made by an Officer of the Issuer, except in cases which (S) 314(d) of
the Trust Indenture Act requires that such certificate or opinion be made by an
independent person.
SECTION 12.3 Recording, Certificates and Opinions.
------------------------------------
(a) The Issuer will take or cause to be taken all action required to
perfect, maintain, preserve and protect the security interest in the Collateral
granted by or pursuant to this Indenture and the Security Documents.
(b) The Issuer shall deliver to the Trustee promptly after the
execution and delivery of this Indenture, an Opinion of Counsel either stating
that in the opinion of such counsel the Indenture and the Security Documents
have been properly recorded and filed so as to perfect and make effective the
mortgage liens and security interests intended to be created for the benefit of
the Holders of Notes, and reciting the details of such action, or stating that
in the opinion of such counsel no such action is necessary to perfect and make
effective such mortgage liens and security interests.
(c) The Issuer shall deliver to the Trustee on or before January 1 of
each year, an Opinion of Counsel either stating that in the opinion of such
counsel such action has been taken with respect to the recording, filing,
re-recording and re-filing of the Indenture and the Security Documents as is
necessary to maintain the security interests intended to be created thereby for
the benefit of the Holders of Notes, and reciting the details of such action, or
stating that in the opinion of such counsel no such action is necessary to
maintain such security interest.
(d) The Issuer shall comply with Trust Indenture Act (S) 314(d),
relating to, among other matters, the release of Collateral from the Liens of
the Security Documents and Officers' Certificates or other documents regarding
fair value of the Collateral, to the extent such provisions are applicable. Any
certificate or opinion required by Trust Indenture Act (S) 314(d) may be
executed and delivered by an Authorized Representative of the Issuer to the
extent permitted by Trust Indenture Act (S) 314(d).
SECTION 12.4 Authorization of Actions to Be Taken by the Trustee
---------------------------------------------------
Under the Security Documents. Subject to the provisions of the Security
- ----------------------------
Documents, (i) the Trustee, in its sole discretion and without the consent of
the Holders, may take all actions it deems necessary or appropriate in order to
(x) enforce any of the terms of the Security Documents, and (y) collect and
receive any and all amounts payable in respect of the obligations of the Issuer;
and (ii) the Trustee may institute and maintain such suits and proceedings, as
it may deem expedient to prevent any impairment of the Collateral by any acts
that may be unlawful or in violation of this Indenture or the Security
Documents, and such suits and proceedings as the Trustee may deem expedient to
66
<PAGE>
preserve or protect its interests and the interests of the Holders in the
Collateral (including the power to institute and maintain suits or proceedings
to restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid if the enforcement of, or compliance with, such enactment, rule or order
would impair the security interest thereunder or be prejudicial to the interests
of the Holders or of the Trustee). Article 4 of this Indenture applies to all
duties and obligations of the Trustee with respect to the Security Documents and
the Collateral.
SECTION 12.5 Authorization of Receipt of Funds by the Trustee Under
------------------------------------------------------
the Security Documents. The Trustee is authorized to receive any funds for the
- ----------------------
benefit of Holders received under the Security Documents, and to make further
distributions of such funds to the Holders in accordance with the provisions of
this Indenture, the Security Documents and applicable law.
SECTION 12.6 Trustee's Disclaimer. The Trustee shall not be
--------------------
responsible for and makes no representation as to the validity or adequacy of
the Security Documents, the Collateral or the perfection of the Collateral
(except with respect to taking the actions specifically set forth in Opinions of
Counsel delivered to the Trustee pursuant to Section 12.3(b) with respect to the
perfection of the Collateral) and it shall not be responsible for any statement
contained in the Security Documents.
SECTION 12.7 Release upon Termination of the Issuer's Obligations.
----------------------------------------------------
In the event that the Issuer delivers an Officers' Certificate certifying that
all the obligations under this Indenture, the Notes and the Security Documents
have been satisfied and discharged by complying with the provisions of Article
10 (and all such obligations have been satisfied and discharged as provided in
this Indenture), the Trustee shall deliver to the Issuer a notice stating that
the Trustee, on behalf of the Holders, disclaims and gives up any and all rights
it has in or to the Collateral and any rights it has under the Security
Documents, and, upon and after receipt by the Issuer of such notice, the Trustee
shall not be deemed to hold any Liens in the Collateral for the benefit of the
Holders.
ARTICLE 13
GUARANTEE
SECTION 13.1 Guarantee. Each of BI and New Horizons (each a
---------
"Guarantor") hereby severally fully and unconditionally guarantees to each
Holder of a Note, and to the Trustee on behalf of each such Holder, the due and
punctual payment of the principal of and interest on such Note, and the due and
punctual payment of any redemption payment with respect to such Note, when and
as the same shall become due and payable, whether at Stated Maturity, upon
redemption, upon acceleration or otherwise, according to the terms thereof and
of this Indenture and all other payment obligations of the Issuer to the Trustee
for the benefit of the Holders under the Indenture, the Notes and the Security
Documents (the "BI Guarantee Obligations" and the "New Horizons Guarantee
Obligations", respectively and collectively the "Guarantee Obligations"). In
case of the failure of the Issuer punctually to pay any such Guarantee
67
<PAGE>
Obligations, each Guarantor hereby agrees to cause any such payment to be made
punctually when and as the same shall become due and payable, whether at Stated
Maturity, upon redemption, upon declaration of acceleration or otherwise, as if
such payment were made by the Issuer.
Each Guarantor hereby agrees that its Guarantee Obligations hereunder
shall be as if it were principal debtor and not merely surety and shall be
absolute and unconditional, irrespective of the granting of time, renewals,
extensions, compromises, concessions, waivers, releases, discharges and other
indulgences to the Issuer or any other Person, the validity, regularity or
enforceability of any such Note, this Indenture or any Security Documents, the
absence of any action to enforce the same, any waiver, consent or extension by
the Holder of any such Note with respect to any provisions thereof, the recovery
of any judgment against the Issuer or any action to enforce the same, or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Issuer, any right to require a proceeding first
against the Issuer, protest, notice and all demands whatsoever and covenants
that its Guarantee will not be discharged except by complete performance of its
obligations contained in such Note and in this Guarantee. Each Guarantor's
Guarantee shall be a guaranty of payment and not of collection.
Each Guarantor agrees, to the fullest extent that it may lawfully do
so, that, as between such Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, the maturity of the obligations guaranteed hereby
may be accelerated as provided in Article 8 hereof for the purposes of the
applicable Guarantee, notwithstanding any stay, injunction or other prohibition
extant under any applicable Bankruptcy Law preventing such acceleration in
respect of the obligations guaranteed hereby.
Each Guarantor shall be subrogated to all rights of the Holders of the
Notes against the Issuer in respect of any amounts paid by the applicable
Guarantor on account of such Notes or this Indenture; provided, however, that
such Guarantor shall not be entitled to enforce or to receive any payments
arising out of, or based upon, such right of subrogation until the principal of
and interest, if any, on all such Notes shall have been paid in full.
SECTION 13.2 Guarantees Subordinated to Credit Facility Guarantees.
-----------------------------------------------------
Each Guarantor and the Trustee covenant and agree, and each Holder, by its
acceptance of a Note and the corresponding Guarantee, likewise covenants and
agrees, that the BI Guarantee Obligations and the New Horizons Guarantee
Obligations shall, to the extent and in the manner set forth in this Article 13,
be obligations of the corresponding Guarantor, ranking equally in right of
payment with other nonsubordinated Indebtedness of such Guarantor, except that
(i) the BI Guarantee Obligations and the New Horizons Guarantee Obligations
shall be junior and expressly subordinated in right of payment to the BI Credit
Facility Guarantee and the New Horizons Credit Facility Guarantee, respectively;
(ii) this subordination is for the benefit of the holders of the BI Credit
68
<PAGE>
Facility Guarantee and the New Horizons Credit Facility Guarantee, respectively;
and (iii) such subordination shall not in any way apply to any shares of BI
stock distributed to the Trustee for the benefit of the Holders or directly to
any Holder upon exercise of conversion rights under this Indenture or to the Net
Proceeds of a Disposition of the Yonkers Property.
SECTION 13.3 Liquidation, Dissolution, Bankruptcy. Upon any payment
------------------------------------
or distribution of the assets of BI or New Horizons to creditors upon a
liquidation or dissolution of BI or New Horizons or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to BI or
New Horizons or its property (other than any such bankruptcy, reorganization,
insolvency or similar proceedings in existence on the issue date of the Notes):
(1) holders of the BI Credit Facility Guarantee or the New Horizons
Credit Facility Guarantee, as the case may be, shall be entitled to receive
payment in full of such Credit Facility Guarantee (including interest after
the commencement of any such proceedings at the rate specified in such
Credit Facility Guarantee) from BI or New Horizons, as the case may be, in
cash before Noteholders shall be entitled to receive any payment pursuant
to the corresponding Guarantee Obligations; and
(2) until the BI Credit Facility Guarantee or the New Horizons Credit
Facility Guarantee, as the case may be, is paid or discharged in full, any
distribution to which Noteholders would be entitled but for this Article 13
shall be made to holders of such Credit Facility Guarantee as their
interests may appear, except that Noteholders may receive (i) shares of
stock as provided in Section 13.2(iii) above, and (ii) any debt securities
of BI or New Horizons, as the case may be, that are subordinated to the
corresponding Credit Facility Guarantee, and to any debt securities
received by holders of such Credit Facility Guarantee, of BI or New
Horizons, as the case may be, to at least the same extent as the
corresponding Guarantee Obligations are subordinated to such Credit
Facility Guarantee.
SECTION 13.4 Execution and Delivery of Guarantees. To evidence its
------------------------------------
Guarantee with respect to the Notes, each Guarantor hereby agrees to execute its
Guarantee, substantially in the form of Exhibit B hereto, to be endorsed on each
Note authenticated and delivered by the Trustee. Each such Guarantee shall be
executed on behalf of such Guarantor by an Authorized Representative and
attested by its Secretary or one of its Assistant Secretaries or Assistant
Clerks or an Authorized Representative. The signature of any of these officers
on such Guarantee may be manual or facsimile.
A Guarantee bearing the manual or facsimile signatures of the
individuals who were the proper officers of the Guarantor thereof shall bind
such Guarantor, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of the Notes upon
which such Guarantee is endorsed or did not hold such offices at the date of
such Notes.
69
<PAGE>
The delivery of any Notes by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantees endorsed
thereon on behalf of the Guarantors. Each Guarantor hereby agrees that its
Guarantee set forth in this Article shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Guarantee.
SECTION 13.5 Obligations Reinstated. The obligations of each
----------------------
Guarantor under its Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment which would otherwise
have reduced such obligations of such Guarantor (whether such payment shall have
been made by or on behalf of the Issuer or by or on behalf of such Guarantor) is
rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy,
liquidation or reorganization of the Issuer or such Guarantor or otherwise, all
as though such payment had not been made. If demand for, or acceleration of the
time for, payment by the Issuer is stayed upon the insolvency, bankruptcy,
liquidation or reorganization of the Issuer, all such Indebtedness otherwise
subject to demand for payment or acceleration shall nonetheless be payable by
such Guarantor as provided herein subject to Section 13.3.
SECTION 13.6 When Distribution Must Be Paid Over. If a distribution
-----------------------------------
is made to Noteholders that because of this Article 13 should not have been made
to them, the Noteholders who receive the distribution shall hold it in trust for
holders of the Credit Facility Guarantees and pay it over to them or their
representative as their interests may appear.
SECTION 13.7 Relative Rights. This Article 13 defines the relative
---------------
rights of holders of Notes and holders of the Credit Facility Guarantees.
Nothing in this Indenture shall:
(1) impair, as between each Guarantor and the holders of Notes, the
obligation of such Guarantor, which is absolute and unconditional, to pay
its Guarantee Obligations to the extent set forth in this Article 13; or
(2) prevent the Trustee or any holder of Notes from exercising its
available remedies upon a default by a Guarantor under its Guarantee
Obligations, subject to the rights of holders of the corresponding Credit
Facility Guarantee to receive certain distributions otherwise payable to
holders of Notes.
SECTION 13.8 Rights of Trustee and Paying Agent. The Trustee or
----------------------------------
Paying Agent may continue to make distributions pursuant to a Guarantee and
shall not be charged with knowledge of the existence of facts that would
prohibit the making of any such payments unless the corresponding Guarantor and
a trust officer of the Trustee receives written notice from the representative
of the corresponding Credit Facility Guarantee that payments may not be made
under this Article 13. The Trustee or Paying Agent shall make inquiry with the
representative of the corresponding Credit Facility Guarantee prior to making
any distributions pursuant to the corresponding Guarantee as to whether such
payment may be made under this Article 13, but if no written response thereon is
received by the Trustee or Paying Agent within 24 hours after making such
70
<PAGE>
inquiry, the Trustee and Paying Agent shall continue to make payment pursuant to
such Guarantee in accordance with the first sentence of this Section 13.11. The
representative of the corresponding Credit Facility Guarantee shall keep on file
with the Trustee and any Paying Agent its address, telephone and facsimile
information.
SECTION 13.9 Trustee Entitled to Rely. Upon any payment or
------------------------
distribution pursuant to this Article 13, the Trustee and the holders of Notes
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 13.3
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
holders of Notes or (iii) upon the representative for the holders of the Credit
Facility Guarantees for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of such Credit Facility
Guarantees, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 13.
In the event that the Trustee determines, in good faith, that evidence is
required with respect to the right of any Person as a holder of a Credit
Facility Guarantee to participate in any payment or distribution pursuant to
this Article 13, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of the Credit Facility
Guarantee held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article 13, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such person to receive such payment.
SECTION 13.10 Trustee to Effectuate Subordination. Each holder of
-----------------------------------
Notes by accepting a Note authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate to acknowledge or effectuate
the subordination between the holders of Notes and the holders of the Credit
Facility Guarantees as provided in this Article 13 and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION 13.11 Trustee not Fiduciary for Holders of the Credit
-----------------------------------------------
Facility Guarantees. The Trustee shall not be deemed to owe any fiduciary duty
- -------------------
to the holders of the Credit Facility Guarantees and shall not be liable to any
such holders if it shall mistakenly pay over or distribute to holders of Notes
or the Issuer or any other Person money or assets to which any holders of a
Credit Facility Guarantee shall be entitled by virtue of this Article 13 or
otherwise, except if such payment is made as a result of the willful misconduct
of the Trustee.
SECTION 13.12 Notice by Issuer. The Issuer shall promptly notify the
----------------
Trustee of any facts known to the Issuer that would cause a payment of the
Guarantee Obligations to violate this Article 13, but failure to give such
notice shall not affect the subordination of the Guarantees to the Credit
Facility Guarantees as provided in this Article 13.
71
<PAGE>
SECTION 13.13 Acceleration of Notes. For so long as Indebtedness is
---------------------
outstanding under the New Credit Facility, if payment of the Notes is
accelerated because of a Default or Event of Default, the Issuer shall promptly
notify the Administrative Agent (as defined in the New Credit Facility) of such
acceleration.
SECTION 13.14 Default on Credit Facility Guarantee. Other than as
------------------------------------
provided in Section 13.2(ii) hereof, a Guarantor may not make any payment
pursuant to its Guarantee Obligations ("pay its Guarantee") and may not acquire
from the Trustee or any holder of Notes any Notes or any Guarantee for cash or
property if the corresponding Credit Facility Guarantee is not paid when due
unless the corresponding Credit Facility Guarantee has been paid or discharged
in full; provided, however, that such Guarantor may pay its Guarantee without
regard to the foregoing if such Guarantor and the Trustee receive written notice
approving such payment from the representative of the holders of the
corresponding Credit Facility Guarantee.
SECTION 13.15 Waiver. Without in any way limiting the provisions of
------
Section 13.1 hereof, each Guarantor hereby waives notice of acceptance hereof,
notice of any liability of such Guarantor under its Guarantee, notice or proof
of reliance by the Holders upon the obligations of such Guarantor under its
Guarantee, and diligence, presentment demand for payment on the Issuer, protest,
notice of dishonor or nonpayment of any of the Issuer's or any other Person's
obligations under this Indenture, the Notes or the Security Documents, or other
notice or formalities to the Issuer or such Guarantor of any kind whatsoever.
SECTION 13.16 Survival of Obligations. To the extent the Trustee
-----------------------
receives any payment by or on behalf of the Issuer, which payment or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to the Issuer, its estate, trustee, receiver,
custodian or any other party under any Bankruptcy Law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
the obligation or part thereof which has been paid, reduced or satisfied by the
amount so repaid shall be reinstated by the amount so repaid and shall be
included within the liabilities of the Issuer to the Trustee as of the date such
initial payment, reduction or satisfaction occurred.
SECTION 13.17 Subordination may not be impaired by the Issuer or a
----------------------------------------------------
Guarantor. No right of any holder of a Credit Facility Guarantee to enforce the
- ---------
subordination of the Indebtedness evidenced by the corresponding Guarantee shall
be impaired by any act or failure to act by the applicable Guarantor or any
holder of such Guarantee or by the failure of such Guarantor or any holder of
such Guarantee to comply with this Indenture.
SECTION 13.18 Guarantees in Addition to Other Obligations. The
-------------------------------------------
obligations of each Guarantor under its Guarantee and this Indenture are in
addition to and not in substitution for any other obligations to the Trustee or
to any of the Holders in relation to this Indenture, the Notes or the Security
Documents and any guarantees or security at any time held by or for the benefit
of any of them.
72
<PAGE>
SECTION 13.19 Limitation of Guarantor's Liability. Each Guarantor,
-----------------------------------
and by its acceptance of a Note each Holder, hereby confirms that it is the
intention of all such parties that in no event shall any Guarantee Obligations
under such Guarantor's Guarantee constitute or result in a fraudulent transfer
or conveyance for purposes of, or result in a violation of, any United States
federal, or applicable United States state, fraudulent transfer or conveyance or
similar law. To effectuate the foregoing intention, in the event that any
Guarantee Obligations in respect of the Notes would, but for this sentence,
constitute or result in such a fraudulent transfer or conveyance or violation,
then the liability of the Guarantor under the corresponding Guarantee in respect
of the Notes shall be reduced to the extent necessary to eliminate such
fraudulent transfer or conveyance or violation under the applicable fraudulent
transfer or conveyance or similar law.
SECTION 13.20 Amendments. If any Indebtedness is outstanding under
----------
the New Credit Facility, the provisions of this Article 13 relating to the
Credit Facility Guarantees or the subordination of the Guarantees (including,
without limitation, Sections 13.2, 13.3, 13.5, 13.6, 13.7, 13.8, 13.9, 13.10,
13.11, 13.12, 13.13, 13.14, 13.16, 13.17 and 13.20) shall not be amended or
modified without the prior written consent of the Administrative Agent (as
defined in the New Credit Facility).
SECTION 13.21 Acknowledgement. The Issuer, the Guarantors, the
---------------
Trustee and, by its acceptance of a Note, each Holder hereby acknowledge that
the Issuer and the Guarantors have made no representation or warranty regarding
whether approval of or authorization by the United States Bankruptcy Court with
jurisdiction over the Chapter 11 case of New Horizons is necessary with respect
to the effectiveness of the New Horizons Guarantee and the other obligations of
New Horizons under this Indenture or the effect of receiving or not receiving
any such approvals or authorizations, and the Trustee is not and, by its
acceptance of a Note, each Holder is deemed not to be, relying on the Issuer or
the Guarantors with respect to the same. The Issuer and the Guarantors shall
take such actions as they deem necessary or advisable to seek to obtain such
court order, and the Issuer shall use reasonable efforts to provide advance
written notice to the Trustee at the commencement of any such action.
73
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed by their respective officers duly authorized as of the day and year
first above written.
BRADLEES STORES, INC., as the Issuer
By:_________________________________
Name:____________________________
Title:___________________________
BRADLEES, INC.
By:_________________________________
Name:____________________________
Title:___________________________
NEW HORIZONS OF YONKERS, INC.
By:_________________________________
Name:____________________________
Title:___________________________
IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee
By:_________________________________
Name:____________________________
Title:___________________________
74
<PAGE>
EXHIBIT A
---------
FORM OF NOTE
<PAGE>
EXHIBIT B
---------
FORM OF NOTATION RELATING TO GUARANTEES
<PAGE>
________________________________________________________
INDENTURE
dated as of February 2, 1999
between
BRADLEES STORES, INC.,
as Issuer,
BRADLEES, INC.,
as Guarantor,
NEW HORIZONS OF YONKERS, INC.,
as Guarantor,
and
IBJ WHITEHALL BANK & TRUST COMPANY,
as Trustee
$28,995,000
________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 2
SECTION 1.1 Definitions; Construction............................... 2
SECTION 1.2 Compliance Certificates and Opinions.................... 11
SECTION 1.3 Form of Documents Delivered to Trustee.................. 11
SECTION 1.4 When Securities Disregarded............................. 12
SECTION 1.5 Conflict with Trust Indenture Act....................... 12
SECTION 1.6 Execution in Counterparts............................... 12
SECTION 1.7 Effect of Headings and Table of Contents................ 12
SECTION 1.8 Successors and Assigns.................................. 12
SECTION 1.9 Severability Clause..................................... 13
SECTION 1.10 Benefits of Indenture................................... 13
SECTION 1.11 GOVERNING LAW........................................... 13
SECTION 1.12 Legal Holidays.......................................... 13
SECTION 1.13 No Recourse Against Others.............................. 13
SECTION 1.14 Notices................................................. 13
ARTICLE 2 THE NOTES 15
SECTION 2.1 Title and Terms......................................... 15
SECTION 2.2 Execution, Authentication, Delivery and Dating.......... 15
SECTION 2.3 Temporary Notes......................................... 16
SECTION 2.4 Registration; Registration of Transfer and
Exchange.............................................. 17
SECTION 2.5 Mutilated, Destroyed, Lost and Stolen Notes............. 19
SECTION 2.6 Payments; Interest and Principal Rights
Preserved............................................. 20
SECTION 2.7 Persons Deemed Owners................................... 20
SECTION 2.8 Cancellation; Purchase by the Issuer.................... 20
SECTION 2.9 Dating of Notes......................................... 21
SECTION 2.10 CUSIP Numbers........................................... 21
SECTION 2.11 Parity and Ranking of Notes............................. 21
SECTION 2.12 Book Entry.............................................. 21
ARTICLE 3 REDEMPTION OF NOTES 21
SECTION 3.1 Mandatory Redemption of Notes........................... 21
SECTION 3.2 Optional Redemption of Notes............................ 22
SECTION 3.3 Delivery of Notices, Certificates and Opinions.......... 22
SECTION 3.4 Redemption of and Payment on Notes...................... 23
SECTION 3.5 Notes Redeemed in Part.................................. 24
SECTION 3.6 Cancellation of Notes................................... 24
ARTICLE 4 CONCERNING THE TRUSTEE 24
SECTION 4.1 Duties and Responsibilities of Trustee; During
Default; Prior to Default............................. 24
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 4.2 Certain Rights and Duties of Trustee.................... 25
SECTION 4.3 Trustee Not Responsible for Recitals, Etc............... 27
SECTION 4.4 Trustee and Others May Hold Notes....................... 27
SECTION 4.5 Monies Held by Trustee or Paying Agent.................. 27
SECTION 4.6 Compensation of Trustee and Its Lien.................... 27
SECTION 4.7 Right of Trustee to Rely on Officers'
Certificates and Opinions of Counsel.................. 28
SECTION 4.8 Persons Eligible for Appointment as Trustee............. 28
SECTION 4.9 Conflicting Interests; Resignation and Removal
of Trustee; Appointment of Successor.................. 29
SECTION 4.10 Acceptance of Appointment by Successor Trustee.......... 30
SECTION 4.11 Merger, Conversion or Consolidation of Trustee.......... 30
SECTION 4.12 Preferential Collection of Claims Against
Issuer and BI......................................... 31
SECTION 4.13 Maintenance of Offices and Agencies..................... 31
SECTION 4.14 Trustee Risk............................................ 33
SECTION 4.15 Appointment of a Co-Trustee............................. 33
ARTICLE 5 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER 34
SECTION 5.1 Issuer to Furnish Trustee Names and Addresses
of Holders............................................ 34
SECTION 5.2 Preservation of Information; Communications
to Holders............................................ 34
SECTION 5.3 Reports by Trustee...................................... 34
SECTION 5.4 Reports by Issuer and BI................................ 35
ARTICLE 6 COVENANTS 35
SECTION 6.1 Payment of Notes........................................ 35
SECTION 6.2 Corporate Existence..................................... 35
SECTION 6.3 Compliance Certificate; Notice of Default............... 35
SECTION 6.4 Impairment of Security Interest......................... 36
SECTION 6.5 Amendments to Security Documents........................ 36
SECTION 6.6 Reports of Holders...................................... 36
SECTION 6.7 Limitation on Indebtedness.............................. 36
SECTION 6.8 Delivery of Title Policies.............................. 37
SECTION 6.9 Disposition of Yonkers Property......................... 38
ARTICLE 7 SUCCESSOR CORPORATION; MERGER, CONSOLIDATION AND SALE OF ASSETS 40
SECTION 7.1 Merger, Consolidation and Sale of Assets................ 40
SECTION 7.2 Successor Corporation Substituted....................... 41
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 8 DEFAULT 41
SECTION 8.1 Events of Default....................................... 41
SECTION 8.2 Acceleration............................................ 43
SECTION 8.3 Collection of Indebtedness by Trustee; Trustee
May Prove Debt........................................ 44
SECTION 8.4 Application of Proceeds................................. 44
SECTION 8.5 Other Remedies.......................................... 45
SECTION 8.6 Restoration of Rights on Abandonment of
Proceedings........................................... 45
SECTION 8.7 Limitations on Suits by Noteholders..................... 45
SECTION 8.8 Powers and Remedies Cumulative; Delay or
Omission Not Waiver of Default........................ 46
SECTION 8.9 Control by Noteholders.................................. 46
SECTION 8.10 Waiver of Defaults...................................... 47
SECTION 8.11 Unconditional Right of Holders to Receive
Principal and Interest................................ 47
SECTION 8.12 Undertaking for Costs................................... 47
SECTION 8.13 Trustee May File Proofs of Claim........................ 47
SECTION 8.14 New Credit Facility Waivers and Consents................ 48
ARTICLE 9 CONVERSION OF NOTES 48
SECTION 9.1 Conversion Privilege.................................... 48
SECTION 9.2 Exercise of Conversion Privilege........................ 48
SECTION 9.3 Fractional Interests.................................... 50
SECTION 9.4 Conversion Price........................................ 50
SECTION 9.5 Adjustment of Conversion Price; Notice of
Adjustments........................................... 50
SECTION 9.6 Continuation of Conversion Privilege in Case
of Reclassification, Change, Merger,
Consolidation or Sale of Assets....................... 55
SECTION 9.7 Notice of Certain Events................................ 56
SECTION 9.8 Taxes on Conversion..................................... 56
SECTION 9.9 BI to Provide Stock..................................... 57
SECTION 9.10 Disclaimer of Responsibility for Certain
Matters............................................... 57
SECTION 9.11 Return of Funds Deposited for Redemption
of Converted Notes.................................... 58
SECTION 9.12 Registrar and Paying Agent.............................. 58
ARTICLE 10 SATISFACTION AND DISCHARGE 58
SECTION 10.1 Defeasance of Notes..................................... 58
SECTION 10.2 Satisfaction and Discharge of the Indenture............. 59
SECTION 10.3 Application of Trust Money.............................. 60
SECTION 10.4 Return of Moneys Held by Trustee and Paying
Agent Unclaimed for One Year.......................... 60
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 11 AMENDMENTS, SUPPLEMENTS AND WAIVERS 60
SECTION 11.1 Without Consent of Holders.............................. 60
SECTION 11.2 With Consent of Holders................................. 61
SECTION 11.3 Compliance with Trust Indenture Act..................... 63
SECTION 11.4 Revocation and Effect of Consents....................... 63
SECTION 11.5 Notation on or Exchange of Notes........................ 63
SECTION 11.6 Trustee to Sign Amendments, Etc......................... 63
SECTION 11.7 Payment for Consent..................................... 64
ARTICLE 12 COLLATERAL AND SECURITY DOCUMENTS 64
SECTION 12.1 Collateral and Security Documents....................... 64
SECTION 12.2 Release of Lien......................................... 65
SECTION 12.3 Recording, Certificates and Opinions.................... 66
SECTION 12.4 Authorization of Actions to Be Taken
by the Trustee Under the Security Documents........... 66
SECTION 12.5 Authorization of Receipt of Funds by the
Trustee Under the Security Documents.................. 67
SECTION 12.6 Trustee's Disclaimer.................................... 67
SECTION 12.7 Release upon Termination of the Issuer's
Obligations........................................... 67
ARTICLE 13 GUARANTEE 67
SECTION 13.1 Guarantee............................................... 67
SECTION 13.2 Guarantees Subordinated to Credit Facility
Guarantees............................................ 68
SECTION 13.3 Liquidation, Dissolution, Bankruptcy.................... 69
SECTION 13.4 Execution and Delivery of Guarantees.................... 69
SECTION 13.5 Obligations Reinstated.................................. 70
SECTION 13.6 When Distribution Must Be Paid Over..................... 70
SECTION 13.7 Relative Rights......................................... 70
SECTION 13.8 Rights of Trustee and Paying Agent...................... 70
SECTION 13.9 Trustee Entitled to Rely................................ 71
SECTION 13.10 Trustee to Effectuate Subordination..................... 71
SECTION 13.11 Trustee not Fiduciary for Holders of the
Credit Facility Guarantees............................ 71
SECTION 13.12 Notice by Issuer........................................ 71
SECTION 13.13 Acceleration of Notes................................... 72
SECTION 13.14 Default on Credit Facility Guarantee.................... 72
SECTION 13.15 Waiver.................................................. 72
SECTION 13.16 Survival of Obligations................................. 72
SECTION 13.17 Subordination may not be impaired by the
Issuer or a Guarantor................................. 72
SECTION 13.18 Guarantees in Addition to Other Obligations............. 72
SECTION 13.19 Limitation of Guarantor's Liability..................... 73
SECTION 13.20 Amendments.............................................. 73
SECTION 13.21 Acknowledgement......................................... 73
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF NOTATION RELATING TO GUARANTEES
</TABLE>
<PAGE>
FORM OF NOTE
BRADLEES STORES, INC.
9% SECURED CONVERTIBLE NOTE DUE 2004
Number: CUSIP Number: 104500AA1
Principal
Amount Maturity Date Issue Date
------ ------------- ----------
$ ________ February 3, 2004 February 2, 1999
INTEREST RATE: Nine percent (9%) per annum
BRADLEES STORES, INC., a corporation duly organized and existing under
the laws of the Commonwealth of Massachusetts (hereinafter called the "Issuer",
which term includes any successor or assign under the Indenture referred to
below), for value received hereby promises to pay to [_____________], or its
registered assigns, the outstanding Principal Amount hereof on the Maturity Date
set forth above, and to pay interest on the unpaid portion of the Principal
Amount semi-annually on each of January 1 and July 1 of each year (each of such
dates and the Maturity Date are hereinafter individually referred to as the
"Stated Maturity") at the Interest Rate set forth above from the most recent
Stated Maturity for which interest has been paid or duly provided for or, if no
interest has been paid, from the Issue Date set forth above, until the Principal
Amount is paid in full. The Issuer shall pay interest on overdue principal from
time to time on demand at the rate of interest borne by the Notes and it shall
pay interest on overdue installments of interest (without regard to any
applicable grace periods) at the rate of interest borne by the Notes to the
extent lawful. It is acknowledged and agreed that the principal of the Notes
may not be repaid prior to the Maturity Date except as specifically provided in
the Indenture (as hereinafter defined). The principal and interest so payable
on any Stated Maturity shall, as provided in the Indenture, be paid to the
person in whose name this Note is registered in the Security Register at the
close of business on the Regular Record Date for such payment of principal and
interest, which shall be the fifteenth day preceding each Stated Maturity,
respectively. Any such principal and interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the person in whose name
this Note was registered in the Security Register at the close of business on
such Regular Record Date, and may be paid to the person in whose name this Note
is registered at the close of business on a special record date for the payment
of such overdue interest and/or overdue principal, to be fixed by the Trustee,
notice of which shall be given to the Holder hereof at least 15 days prior to
such special
82
<PAGE>
record date, or may be paid at any time in any other lawful manner.
Notwithstanding the foregoing, payment of the principal amount of this Note (or
any outstanding installment thereof) upon final maturity (whether by redemption,
acceleration or otherwise) shall be made instead only upon presentation and
surrender of this Note. All payments in respect of this Note shall be made in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of debts.
Whenever any amount to be paid hereunder is stated to be due on a day
that is not a Business Day, such amount shall be payable on the next succeeding
Business Day.
This Note is one of an authorized issue of Notes of the Issuer known
as its 9% Secured Convertible Notes Due 2004 (the "Notes") and ranks equally in
right of payment with other non-subordinated indebtedness of the Issuer. The
Notes are issued under the Indenture, dated as of February 2, 1999 (the
"Indenture"), among the Issuer, IBJ Whitehall Bank & Trust Company (the
"Trustee," which term includes any successor indenture trustee under the
Indenture), Bradlees, Inc. ("BI") and New Horizons of Yonkers, Inc. All
capitalized terms used herein, unless defined herein, shall have the meanings
ascribed to them in the Indenture. All rights, powers and remedies available to
any Holder of this Note shall be subject to the provisions of the Indenture.
Reference is hereby made to the Indenture for a description of the nature and
extent of the Notes and the respective rights of the Holders of the Notes, the
Indenture Trustee, the Issuer, BI and New Horizons in respect of the Notes and
the terms upon which the Notes are made and are to be authenticated and
delivered.
The principal of, and interest on, and all other amounts payable under
this Note are secured by (A) a first priority mortgage Lien on (i) the Yonkers
Property and the Net Proceeds of the Disposition of the Yonkers Property and
(ii) subject to Section 12.1(b) of the Indenture, the Additional Collateral and
the Net Proceeds of the Disposition of the Additional Collateral and (B) a first
priority Lien on the Pledged Stock, in each case as described in the Indenture
and the Security Documents. Such Liens shall be subject to modification, and
certain portions of the Collateral shall be subject to release, upon the terms
and provisions set forth in the Security Documents. Each Holder of a Note, by
accepting a Note, shall be deemed to have agreed to all of the terms and
provisions of the Security Documents, as the same may be amended from time to
time pursuant to the provisions thereof, the Notes and the Indenture.
Payment and performance of the BI Guarantee Obligations and the New
Horizons Guarantee Obligations in connection with the Notes are severally fully
and unconditionally guaranteed by BI and New Horizons, respectively, in
accordance with the terms of Article 13 of the Indenture.
The Indenture permits, with certain exceptions, as therein provided,
the amendment thereof and the Security Documents and the modification of the
rights and obligations of the Issuer and the rights of the Holders of the Notes
to be affected under the Indenture or the Security Documents at any time by the
Issuer with the consent of the Holders of a majority in aggregate principal
amount of the Outstanding Notes. The Indenture also contains provisions
permitting the Holders of a majority in aggregate principal amount of the
Outstanding Notes, on behalf of the
83
<PAGE>
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver or direction by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any security issued upon the transfer hereof or in
exchange hereof or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
The Notes shall be redeemed pro rata with (a) the Net Proceeds of the
Disposition of the Yonkers Property, (b) subject to Section 12.1(b) of the
Indenture, the Net Proceeds of the Disposition of the Additional Collateral and
(c) the Net Proceeds of any Equity Offering, in each case at a Redemption Price
equal to 100% of the unpaid principal amount of the Notes to be redeemed plus
accrued and unpaid interest thereon to the Redemption Date.
The Notes may be redeemed in whole or in part at any time at the
option of the Issuer at a Redemption Price equal to 100% of the unpaid principal
amount thereof plus accrued and unpaid interest thereon to the Redemption Date.
Notice of any redemption of Notes will be given at least 10 days
before the Redemption Date to each Holder at its registered address. Notes (or
portions thereof as aforesaid) redeemed in accordance with the Indenture shall
thereupon cease to be entitled to the Liens of the Security Documents and shall
cease to bear interest from and after the Redemption Date.
If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed pro rata or by lot or by a method that complies
with applicable requirements, and that the Trustee considers fair and
appropriate; provided that in the case of a mandatory redemption, selection of
the portion of Notes for redemption shall be made by the Trustee only on a pro
rata basis unless prohibited by law.
The Notes are, subject to the terms of the Indenture, convertible in
whole or in part at the option of the Holder thereof into shares of New Common
Stock of BI at any time after the first anniversary of the original issuance of
the Notes. The Conversion Price per share of New Common Stock shall initially
be equal to the arithmetic unweighted average closing price of such stock during
the 20 Business Days prior to the first anniversary of the original issuance of
the Notes. The Conversion Price shall be adjusted from time to time in the case
of certain dividends and distributions in respect of the New Common Stock, in
the event of certain tender or exchange offers for the New Common Stock and
under certain other circumstances, as further provided in the Indenture.
If an Event of Default occurs and is continuing, the Holders of at
least 25% in aggregate principal amount of the Notes Outstanding may declare the
principal amount of, and any accrued and unpaid interest on, all the Notes to be
due and payable immediately; provided, that in the case of an Event of Default
--------
arising from certain events of bankruptcy or insolvency with respect to the
Issuer, the principal amount of and any accrued and unpaid interest on all
outstanding Notes shall become due and payable immediately without further
action or notice.
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. The transfer of Notes may be
registered and Notes may be exchanged
84
<PAGE>
as provided in the Indenture. The Registrar and the Trustee may require a
Noteholder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or the Indenture.
The person in whose name this Note is registered shall be deemed to be
the owner and holder hereof for the purpose of receiving payment as herein
provided and for all other purposes.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
A director, officer, employee, stockholder or incorporator, as such,
of the Issuer or BI shall not have any liability for any obligations of the
Issuer under the Notes or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. Such waiver and release are part
of the consideration for the issuance of the Notes. Such waiver and release
shall not affect the Guarantee Obligations of BI or New Horizons pursuant to the
Indenture.
85
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee by manual or facsimile signature, this Note shall not be
entitled to any benefit under such Indenture, or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
BRADLEES STORES, INC.
By:
------------------------------------
Name: Paul R. McKelvey
Title: Vice President & Treasurer
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned
Indenture.
IBJ Whitehall Bank & Trust Company, as Trustee
By:
-------------------------------------
Authorized Signatory
86
<PAGE>
CONVERSION NOTICE
To BRADLEES STORES, INC. and BRADLEES, INC.
The undersigned registered holder of this Note hereby irrevocably exercises
the option to convert this Note, or portion hereof, which is $1,000 or a
multiple thereof below designated into shares of common stock of BRADLEES, INC.
in accordance with the terms of the Indenture referred to in this Note and
directs that the shares issuable and deliverable upon the conversion, together
with any check in payment for fractional shares be issued and delivered to the
registered holder hereof unless a different name has been indicated below.
Unless otherwise directed, a new Note representing any unconverted principal
amount hereof shall be delivered to the registered holder hereof. If shares are
to be issued in the name of a person other than the undersigned, this Note must
be duly endorsed by or accompanied by instruments of transfer in form reasonably
satisfactory to BRADLEES STORES, INC. and BRADLEES, INC. duly executed by the
undersigned and the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Note.
<TABLE>
<S> <C> <C>
Dated:
If different from that of Noteholder,
print name, address (including ZIP ----------------------------
code) and Social Security or other Signature of Noteholder
taxpayer identification number of
person in whose name the New Common Signature Guaranteed
Stock will be issued.
Signature must be guaranteed by a participant
in a recognized signature guarantee
medallion program or other signature
guarantor acceptable to the Trustee.
SOCIAL SECURITY OR OTHER Principal amount to be
TAXPAYER IDENTIFYING NUMBER converted (if less than all)
Name ($1,000 or an integral
multiple thereof)
- ----------------------------------------
Address $
- ----------------------------------------
</TABLE>
87
<PAGE>
TRANSFER FORM
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
Please print or typewrite name and address including postal zip code of
assignee the within Note and all rights thereunder, hereby irrevocably
constituting and appointing attorney to transfer said Note on the books of the
Company, with full power of substitution in the premises.
Signature: Dated:
Signature Guaranteed:
Signature must be guaranteed by a participant in a recognized
signature guarantee medallion program or other signature
guarantor acceptable to the Trustee.
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.
88
<PAGE>
FORM OF NOTATION RELATING
TO GUARANTEES
Bradlees, Inc. ("BI") and New Horizons of Yonkers, Inc. ("New Horizons")
have severally fully and unconditionally guaranteed, to the extent set forth in
Article 13 of the Indenture and subject to the provisions of the Indenture, the
complete and punctual payment by the Issuer of the BI Guarantee Obligations and
the New Horizons Guarantee Obligations, respectively, in connection with the
Notes. The BI Guarantee Obligations shall rank equally in right of payment with
other non-subordinated indebtedness of BI, except that the BI Guarantee
Obligations shall be expressly subordinated in right of payment to the BI Credit
Facility Guarantee, as more particularly set forth in the Indenture. The New
Horizons Guarantee Obligations shall rank equally in right of payment with other
non-subordinated indebtedness of New Horizons, except that the New Horizons
Guarantee Obligations shall be expressly subordinated in right of payment to New
Horizons Credit Facility Guarantee, as more particularly set forth in the
Indenture.
The obligations of BI and New Horizons to the Holders of Notes and to the
Trustee pursuant to the Guarantees are expressly set forth in Article 13 of the
Indenture and reference is hereby made to the Indenture for the precise terms of
the Guarantees. Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in the Indenture.
BRADLEES, INC.
By:
------------------------------
Name: Paul R. McKelvey
Title: Vice-President & Treasurer
Attest:
--------------------------
Name: Raymond C. Zemlin
Title: Assistant Clerk
NEW HORIZONS OF YONKERS, INC.
By:
------------------------------
Name: Paul R. McKelvey
Title: Vice-President & Treasurer
Attest:
--------------------------
Name: Raymond C. Zemlin
Title: Assistant Secretary
89
<PAGE>
Exhibit 2.4
-----------
SECTION: 4
BLOCK: 4877
LOTS: 20, 100, 200, 250
Premises: 2500 Central Park Avenue
Yonkers, New York
===============================================================================
MORTGAGE AMOUNT: $17,760,000
LEASEHOLD MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES RENTS AND PROFITS AND
FIXTURE FINANCING STATEMENT
from
NEW HORIZONS OF YONKERS, INC.
to
IBJ WHITEHALL BANK & TRUST COMPANY
as Trustee
Dated as of February 2, 1999
===============================================================================
WHEN RECORDED, RETURN TO:
Matthew R. Hartley, Esq.
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606
THIS MORTGAGE DOES NOT COVER REAL PROPERTY PRINCIPALLY IMPROVED OR TO BE
IMPROVED BY ONE (1) OR MORE STRUCTURES CONTAINING IN THE AGGREGATE NOT MORE THAN
SIX (6) RESIDENTIAL DWELLING UNITS, EACH HAVING ITS OWN SEPARATE COOKING
FACILITIES.
<PAGE>
MORTGAGE AMOUNT: $17,760,000
LEASEHOLD MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT
OF LEASES, RENTS AND PROFITS AND FIXTURE FINANCING STATEMENT
------------------------------------------------------------
THIS LEASEHOLD MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES,
RENTS AND PROFITS AND FIXTURE FINANCING STATEMENT, made as of February 2, 1999,
by, NEW HORIZONS OF YONKERS, INC., a Delaware corporation, having an address at
One Bradlees Circle, P.O. Box 9051, Braintree, Massachusetts 02184-9051
(together with its permitted successors and assigns, the "Mortgagor"), in favor
---------
of IBJ WHITEHALL BANK & TRUST COMPANY, having an address at One State Street,
New York, New York 10004, as Trustee for the benefit of the Noteholders (as such
terms are defined in the Indenture, hereinafter defined, together with its
successors in interest, the "Mortgagee").
---------
WITNESSETH:
----------
WHEREAS, the Mortgagee, Bradlees Stores, Inc. (the "Issuer") and
------
Bradlees, Inc. have entered into an Indenture of even date herewith (as the same
may be amended, supplemented, renewed or extended from time to time, the
"Indenture") pursuant to which the Issuer issued the Notes in the aggregate
- ----------
principal amount of $29,000,000, dated the date hereof. (ALL CAPITALIZED TERMS
USED IN THIS MORTGAGE AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS
SET FORTH IN THE INDENTURE.)
NOW, THEREFORE, to secure (i) payment of a portion of the indebtedness
evidenced by the Notes, in the Mortgage Amount (as defined above), together with
all interest accrued thereon as provided for in the Notes, and (ii) payment of
all other amounts due under the Indenture and the other Security Documents, and
(iii) the performance of the covenants and agreements contained herein and in
the Indenture and the other Security Documents; and also in consideration of the
sum of Ten Dollars in hand paid, the receipt and sufficiency of which are hereby
acknowledged:
GRANTING CLAUSE
The Mortgagor, intending to be legally bound, hereby mortgages, gives,
grants, assigns, transfers, pledges, grants a security interest and sets over to
the Mortgagee, to secure (i) payment of a portion of the indebtedness evidenced
by the Notes, in the Mortgage Amount, together with all interest accrued thereon
as provided for in the Notes, and (ii) payment of all other amounts due under
the Indenture and the other Security Documents, and (iii) the performance of the
covenants and agreements contained herein and in the Indenture and the other
Security Documents, any and all of the Mortgagor's right, title and interest in
and to the following property (collectively as set forth in this Granting Clause
the "Mortgaged Property"):
------------------
2
<PAGE>
(a) the leasehold estate of the Mortgagor created pursuant to the lease (the
"Lease") described in Schedule A hereto covering the property described in
------
Schedule A hereto and any additions thereto covered by the Lease
(collectively the "Premises");
--------
(b) all buildings, plants, structures and other improvements now or hereafter
constructed or located on the Premises, or within the Easement Areas (as
hereinafter defined) to the extent constructed and/or owned by the
Mortgagor, and all right, title and interest of the Mortgagor, if any, in
and to all fixtures now or hereafter located on the Premises, within the
Easement Areas or in any such improvements (such of the Mortgaged Property
as is referred to in this paragraph (b) being hereinafter collectively
called the "Improvements"), including, without limitation, all heating,
------------
lighting, pipes, pipelines, pumps, conduits, plumbing, lifting, cleaning,
fire prevention, fire extinguishing, refrigerating, ventilating,
communications, air cooling and air conditioning apparatus, elevators,
escalators, shades, awnings, screens, storm doors and windows, permanently
attached cabinets, partitions, ducts and compressors, and all of the right,
title and interest of the Mortgagor in and to any Improvements which may be
subject to any title retention or security agreement superior in lien to
the lien of this Mortgage; it being understood and agreed that all
Improvements are part and parcel of the Premises and appropriated to the
use of the Premises and, whether affixed or annexed or not, shall for the
purpose of this Mortgage be deemed conclusively to be real estate and
conveyed hereby;
(c) any insurance proceeds, and the right to receive the same, and any and all
awards or payments, including interest thereon, and the right to receive
the same, which may be made with respect to the Mortgaged Property as a
result of (i) the exercise of the right of eminent domain, (ii) the
alteration of the grade of any street, or (iii) any other injury to or
decrease in the value of the Mortgaged Property;
(d) to the extent permitted by law, all franchises, permits, licenses and
contract rights regarding the use, occupancy or operation of the Mortgaged
Property, including, without limitation, all warranties, all rights with
respect to contracts for utilities, maintenance, service or repair of the
Mortgaged Property and all development and water rights, if any;
(e) all and singular the easements, rights-of-way or use, licenses, privileges,
servitudes, tenements, hereditaments and appurtenances now or hereafter
belonging to or in anywise appertaining to any of the foregoing, including,
without limitation, all easements, interests and rights created and granted
pursuant to the terms of the Lease(all of the foregoing hereinafter
collectively being referred to the "Easements" and the areas subject to the
---------
Easements being referred to as the "Easement Areas"); all rents, income,
--------------
issues, profits and proceeds thereof; and all the estate, right, title,
interest, property, claim and demand whatsoever, in law as well as in
equity, which the Mortgagor now has or may hereafter acquire, in and to any
of the foregoing;
3
<PAGE>
(f) all other title, estates, interests or rights of the Mortgagor in the
Premises, the Improvements and the Easement Areas, whether now existing or
hereafter acquired; and
(g) any proceeds, and the right to receive the same, arising from or relating
to any conversion (voluntary or involuntary) of the Mortgaged Property,
including, without limitation, proceeds of any sale, assignment, sublease
or transfer of the Lease, Premises or Improvements.
AND without limiting any of the other provisions of this Mortgage, the
Mortgagor expressly grants to the Mortgagee, as secured party, a security
interest in all of those portions of the Mortgaged Property (for the avoidance
of doubt, expressly excluding any and all "inventory", "equipment" and other
personal property (other than, with respect to such other personal property, as
expressly set forth in paragraphs (a) through (g) above) as such terms are
defined or used in the New York Uniform Commercial Code (the "New York UCC"))
------------
which are or may be subject to the New York UCC provisions applicable to secured
transactions (including, without limitation, Article 9 of the New York UCC).
The Mortgagor agrees to execute and deliver, from time to time such further
instruments (including, without limitation, further security agreements, as
defined in subdivision (1) of Section 9-105 of the New York UCC) as may be
reasonably requested by the Mortgagee to confirm the security interest and lien
of this Mortgage on the Mortgagor's interest in such portions of the Mortgaged
Property.
SUBJECT, HOWEVER, to the encumbrances, if any, listed in the title
insurance policies issued to and approved by the Mortgagee in connection
herewith (which encumbrances are hereinafter collectively referred to as the
"Permitted Encumbrances").
- -----------------------
TO HAVE AND TO HOLD the Mortgaged Property with all privileges and
appurtenances hereby granted, pledged, transferred, conveyed, mortgaged and
assigned, or agreed or intended so to be, unto the Mortgagee and its successor
and assigns, forever.
The Mortgagor covenants that (i) it is lawfully seized and possessed
of good and marketable title to the Premises, the Easement Areas and the
Improvements; (ii) the Mortgaged Property is subject only to the Permitted
Encumbrances; (iii) it has a good right and full power and authority to make
this Mortgage; and (iv) the Mortgagor at its expense will warrant and defend to
the Mortgagee such title to the Mortgaged Property and the lien and interest of
the Mortgagee thereon and therein against all claims and demands and will
maintain and preserve such lien and will keep this Mortgage a first lien upon
the Mortgaged Property subject only to Permitted Encumbrances.
The Mortgagor further represents, warrants, covenants and agrees as
follows:
4
<PAGE>
ARTICLE I
Payment of Taxes, Insurance, etc.
---------------------------------
1.1. Certain Definitions.
- ---- -------------------
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Indenture.
1.2. Payment of Taxes and Claims.
- ---- ---------------------------
The Mortgagor shall pay, or cause to be paid when due, all taxes assessments or
similar charges, payments in lieu of taxes, assessments, or similar charges and
all charges, betterments, or other assessments relating to or imposed upon the
Mortgaged Property and all other lawful claims required to be paid by the
Mortgagor (including, without limitation, claims for labor, services, materials
and supplies) pursuant to the terms and provisions of the Lease.
1.3. Compliance with Insurance Requirements Instruments.
- ---- --------------------------------------------------
The Mortgagor shall at all times (a) obtain and maintain, or cause to be
obtained and maintained, the types and amounts of insurance required by the
Lease, and (b) comply or cause compliance with any instruments of record at the
time in force affecting the Mortgaged Property or any part thereof.
1.4. Compliance with Laws.
- ---- --------------------
The Mortgagor shall comply with all Laws, and shall not do or permit any act or
thing to be done which is contrary to any Law in respect of the ownership and
use of the Mortgaged Property, provided, however, that the Mortgagor shall have
the right to contest same in good faith.
1.5. Government Approvals.
- ---- --------------------
The Mortgagor shall maintain all Government Approvals as required by Law
relating to the Premises.
1.6. Liens.
- ---- -----
The Mortgagor shall not create, incur, assume or suffer to exist, directly or
indirectly, any Lien on or with respect to the Mortgaged Property or any portion
thereof, or the Mortgagor's or the Mortgagee's interest therein, or any income
or profits arising therefrom, except for the Permitted Encumbrances.
1.7. The Lease.
- ---- ---------
1.7.1. Modifications. The Mortgagor shall neither cancel, terminate or
- ------ -------------
surrender the Lease, nor amend or modify the Lease in any respect, nor request
or grant any consent or waiver thereunder.
1.7.2. Performance. The Mortgagor shall faithfully keep and perform all of its
- ------ -----------
obligations as lessee under the Lease. The Mortgagor, on behalf of the
Mortgagee, shall send written notice (by certified mail, return receipt
requested) to the Landlord, with a copy to the Mortgagee, setting forth (i) the
terms of this Section 1.7, (ii) the name and address of the
5
<PAGE>
Mortgagee, and (iii) the recording date and other recording information for this
Mortgage, together with a true copy of this Mortgage, within sixty (60) days
after the execution of this Mortgage. (The Premises being located in New York
State, reference is made to Section 291-f of the Real Property Law in applying
the provisions of Section 1.7.) Mortgagor shall provide copies to Mortgagee of
all material notices and communications to or from the Landlord.
1.8. Utility Services.
- ---- ----------------
The Mortgagor shall (i) pay or cause to be paid all charges for all public and
private utility services, all public or private rail and highway services and
all other public or private transportation services, if any, all public or
private communications services, and all sprinkler systems and protective
services at any time rendered to or in connection with the Premises to the
extent required by the Lease, (ii) comply or cause compliance with all contracts
relating to any such services, and (iii) do all other things required for the
maintenance and continuance of all such services.
1.9. Maintenance and Repair, etc.
- ---- ----------------------------
The Mortgagor shall maintain and operate (or cause to be maintained and
operated) the Premises and the Easement Areas in accordance with good business
practices consistent with those used by prudent operators of similar facilities.
The Mortgagor shall keep, or cause to be kept, in good working order and
condition, ordinary wear and tear excepted, the Improvements necessary or useful
in the proper conduct of its business on the Premises. The Mortgagor shall not
permit the Improvements or any portion thereof to be removed, demolished or
materially altered, except where such events involve less than $250,000 per
event or $1,000,000 in the aggregate in any fiscal year. To the extent required
by Law, the Lease or the Easements, the Mortgagor shall keep or cause to be kept
the adjoining sidewalks, curbs, vaults and vault space, if any, and streets and
ways located on or adjacent to the same, and all means of access to the
Premises, in good and clean order and condition and in such a fashion that the
value and utility of the Premises will not be diminished, subject only to
ordinary wear and tear. The Mortgagor promptly, at its own expense, shall make
or cause to be made all necessary or appropriate repairs, replacements and
renewals of the Improvements, whether interior or exterior, structural or
nonstructural, ordinary or extraordinary, foreseen or unforeseen to the extent
required pursuant to the Lease. All repairs, replacements and renewals shall be
equal or superior in quality, utility and class to the original work. The
Mortgagor, at its expense, shall do or cause others to do every act necessary or
appropriate for the preservation and safety of the Premises by reason of or in
connection with any excavation or other building operation upon the Premises and
upon any adjoining property, whether or not the Mortgagor or any other Person
shall be required to take such action or be liable for failure to do so.
1.10. Alterations, Changes, etc.
- ----- --------------------------
So long as no Event of Default shall have occurred and be continuing, the
Mortgagor shall have the right to make or cause to be made reasonable
replacements in the ordinary course of business for, alterations of and
additions to the Premises or any part thereof,
6
<PAGE>
provided that any replacement, alteration or addition (a) shall not change the
general character or affect adversely the structural integrity of the Premises,
or reduce the fair market value thereof below its value immediately before such
replacement, alteration or addition or impair the usefulness of the Premises,
(b) is effected with due diligence, in a good and workmanlike manner and in
compliance with all Laws and insurance requirements, as set forth in the
Indenture, (c) is promptly and fully paid for, or caused to be paid for, by the
Mortgagor, (d) is made, if the estimated cost of such replacement, alteration or
addition exceeds $2,000,000, (i) under the supervision of an engineer or
architect and in accordance with the plans, specifications and cost estimates
reasonably satisfactory to the Mortgagee, and (ii) only after the Mortgagor
shall have furnished or caused to be furnished to the Mortgagee a contractor's
payment and performance bond. In any event in which the Mortgagor shall furnish
the Mortgagee with plans and specifications for any such replacement, alteration
or addition, the Mortgagee may engage, at the Mortgagor's reasonable expense, an
architect or engineer to review such plans and specifications on the Mortgagee's
behalf. All replacements for, alterations of and additions to the Premises shall
immediately constitute a part of the Mortgaged Property subject to this
Mortgage.
1.11. Acquired Property Subject to Lien.
- ----- ---------------------------------
All property at any time acquired by the Mortgagor which is located at the
Premises and required by this Mortgage to become subject to the lien hereof,
including any property acquired as provided in Section 1.11, whether such
property is acquired by exchange, purchase, construction or otherwise, shall
forthwith become subject to the lien of this Mortgage without further action on
the part of the Mortgagor or the Mortgagee. The Mortgagor, at its expense, will
execute and deliver to the Mortgagee, upon request (and will record and file as
provided in the Granting Clause), an instrument supplemental to this Mortgage,
satisfactory in substance and form to the Mortgagee, whenever such an instrument
is, in the opinion of the Mortgagee, necessary or desirable under applicable law
to subject to the lien of this Mortgage all right, title and interest of the
Mortgagor in and to all property required by this Mortgage to be subjected to
the lien hereof and acquired by the Mortgagor since the date of this Mortgage or
the date of the most recent supplemental instrument so subjecting property to
the lien hereof, whichever is later.
ARTICLE II
Covenants of the Mortgagor
--------------------------
2.1. Compliance with Indenture.
- ---- -------------------------
The Mortgagor shall comply or cause compliance with all of the covenants,
conditions and agreements contained in the Indenture applicable to the
Mortgagor, all of which covenants, conditions and agreements are hereby
incorporated herein by reference as though set forth herein in their entirety.
2.2. Obligations Secured by Mortgage.
- ---- -------------------------------
This Mortgage shall secure the payment of the principal sum of, interest on,
additional
7
<PAGE>
interest as provided in and any prepayment premiums due under, the Notes and
shall further secure all advances for the payment of taxes, assessments,
insurance premiums and all other costs incurred for the protection of the
Mortgaged Property, together with interest thereon from the date of such
advances at the highest rate then borne by any of the Notes or at the highest
rate permitted by law, whichever is less.
2.3. Prohibitions on Sale Transfer etc.
- ---- ----------------------------------
Except as provided herein or permitted under the Indenture, the Mortgagor shall
not, directly or indirectly, voluntarily sell, lease, assign, transfer or
convey, or permit the sale, lease, assignment, transfer or conveyance of the
Premises or Improvements or any additions, alterations or changes to existing
improvements on, the Mortgaged Property or any part thereof or interest therein.
If the Mortgaged Property is sold, transferred, assigned or conveyed by
operation of law without compliance with the terms of the Indenture, the
Mortgagee may, at its option as provided in the Indenture, declare the entire
indebtedness secured hereby to be immediately due and payable. Subject to the
terms of the Lease and except for the assignment effected hereby, by the
Security Documents and the liens created by the Permitted Encumbrances, the
Mortgagor will not assign the whole or any part of the rents, income or profits
arising from the Mortgaged Property, and all other assignments thereof shall be
null and void.
2.4. Recordation.
- ---- -----------
The Mortgagor agrees that, at its expense, it will cause this Mortgage and all
Security Documents, UCC-1 Financing Statements and each supplement or extension
hereto or thereto to be recorded, registered and filed, as applicable, and shall
cause the recording, registering and filing, of the same to be kept current in
the same manner and in such places, and will pay or cause to be paid all such
recording, registration, filing or other taxes, fees and other charges. The
Mortgagor shall comply or cause compliance with all such statutes and
regulations, as may be required by law in order to establish, preserve and
protect the lien of this Mortgage as a valid, direct first mortgage lien on the
Mortgaged Property, including all right, title and interest of the Mortgagor in
and to all property required by this Mortgage to be subject to the lien hereof
and acquired by the Mortgagor after the date of this Mortgage, subject only to
the Permitted Encumbrances. The Mortgagor hereby indemnifies the Mortgagee in
respect of any of such costs which may at any time be incurred by the Mortgagee.
2.5. No Waste.
- ---- --------
The Mortgagor shall not commit or permit to be committed any physical waste upon
the Mortgaged Property, or do any act that would materially impair or depreciate
the value of the Mortgaged Property.
2.6. Inspection, etc.
- ---- ----------------
The Mortgagor shall permit the Mortgagee and any representatives designated by
the Mortgagee to visit and inspect the Mortgaged Property or any part thereof,
to inspect all property, books of record and account and other records of the
Mortgagor relating to the Mortgaged Property and to make copies thereof and
extracts therefrom, and to discuss its
8
<PAGE>
affairs, finances and accounts with, and to be advised as to the same by, any
officer and any employee or independent accountant or the Mortgagor, all at such
reasonable times and intervals as from time to time may be requested upon two
(2) days' prior notice. The Mortgagee shall not have any duty to make any such
inspection and shall not incur any liability or obligation for not making the
same carefully or properly, or for not completing the same; nor shall the fact
that such inspection may not have been made by the Mortgagee relieve the
Mortgagor of any obligations that it may otherwise have under this Mortgage.
2.7. Notice of Event of Default, Default or Claimed Default.
- ---- ------------------------------------------------------
The Mortgagor shall deliver, without request or demand, a notice to the
Mortgagee within four (4) business days of becoming aware of the existence of
any condition or event which constitutes an Event of Default or which, after
notice or lapse of time or both, would constitute an Event of Default, which
notice shall specify (i) the nature and period of existence thereof, and (ii)
what action the Mortgagor is taking, or causing to be taken, or intends to take,
or to cause to be taken, with respect thereto.
2.8. No Credit for Payment of Taxes.
- ---- ------------------------------
The Mortgagor shall not be entitled to any credit against the principal or
premium, if any, or interest or additional interest on the Notes or any other
sum which may become payable under the terms of the Indenture or any Security
Document by reason of the payment of any tax on the Mortgaged Property or any
part thereof or by reason of the payment of any other taxes, assessments or
similar charges, and shall not apply for or claim any deduction from the taxable
value of the Mortgaged Property or any part thereof by reason of this Mortgage.
2.9. Use of Mortgagee's Name.
- ---- -----------------------
The Mortgagor shall not use the Mortgagee's name or the name of any Person
controlling, controlled by or under common control with the Mortgagee in
connection with the Mortgaged Property, or any part thereof, or any of the
Mortgagor's activities, except as such use may be required by applicable
requirements of law.
2.10. The Lease.
- ----- ---------
(a) The Mortgagor shall:
(i) pay all rents, additional rents and other sums required to be paid
by the Mortgagor under and pursuant to the provisions of the Lease;
(ii) diligently perform and observe before the expiration of applicable
cure periods all of the terms, covenants and conditions of the Lease on the
part of the Mortgagor, as tenant thereunder, to be performed and observed,
unless such performance or observance shall be waived or not required by
the Landlord;
9
<PAGE>
(iii) promptly advise the Mortgagee of any default under the Lease on the
part of the Landlord or any successor landlord; and
(iv) upon written request of Mortgagee, use reasonable efforts to obtain a
certificate of estoppel of the Landlord or any successor landlord at such
intervals as the same may be obtained under the Lease.
(b) The Mortgagor shall not surrender the leasehold estate created by the Lease
or terminate or cancel the Lease or modify, change, supplement, alter or
amend the Lease, in any respect, either orally or in writing, and the
Mortgagor hereby assigns to the Mortgagee, as further security for the
payment and performance of the obligations and indebtedness secured hereby
and for the performance and observance of the terms, covenants and
conditions of this Mortgage, all of the rights, privileges and prerogatives
of the Mortgagor, as tenant under the Lease, to surrender the leasehold
estate created by the Lease or to terminate, cancel, modify, change,
supplement, alter or amend the Lease, and any such surrender of the
leasehold estate created by the Lease or termination, cancellation,
modification, change, supplement, alteration or amendment of the Lease
shall be void and of no force and effect. Simultaneously with the
execution of this Mortgage, the Mortgagor has delivered to the Mortgagee a
true copy of an executed counterpart of the Lease, together with a true
copy of an executed counterpart of any and all assignments thereof and
amendments thereto and an executed counterpart of any memorandum of lease
recorded in connection therewith, all of which shall be retained by the
Mortgagee until the entire indebtedness secured hereby has been paid in
full.
(c) If the Mortgagor shall default in the performance or observance of any
term, covenant or condition of the Lease on the part of the Mortgagor, as
tenant thereunder, to be performed or observed, then, without limiting the
generality of the other provisions of this Mortgage, and without waiving or
releasing the Mortgagor from any of its obligations hereunder, the
Mortgagee shall have the right, but shall be under no obligation, to pay
any sums and to perform any act or take any action as may be appropriate to
cause all of the terms, covenants and conditions of the Lease on the part
of the Mortgagor, as tenant thereunder, to be promptly performed or
observed on behalf of the Mortgagor, to the end that the rights of the
Mortgagor in, to and under the Lease shall be kept unimpaired and free from
default. If the Mortgagee shall make any payment or perform any act or
take action in accordance with the preceding sentence, the Mortgagee will
use its diligent efforts to notify the Mortgagor of the making of any such
payment, the performance of any such act, or taking of any such action.
All sums so paid and expended by the Mortgagee and the interest thereon
shall be secured by the lien of this Mortgage. In any such event, the
Mortgagee and any person designated by the Mortgagee shall have, and are
hereby granted, the right to enter upon the Mortgaged Property at any time
and from time to time for the purpose of taking any such action.
(d) If the Landlord shall deliver to the Mortgagee a copy of any notice of
default sent by the Landlord to the Mortgagor, as tenant under the Lease,
such notice shall constitute full protection to the Mortgagee for any
action taken or omitted to be taken by the Mortgagee, in good faith, in
reliance thereon.
10
<PAGE>
(e) The Mortgagor shall, from time to time, use reasonable efforts to obtain
from the Landlord such certificates of estoppel with respect to compliance
by the Mortgagor with the terms of the Lease as may be requested by the
Mortgagee.
(f) If the Lease is for any reason whatsoever terminated prior to the natural
expiration of its term, and if, pursuant to any provision of the Lease or
otherwise, the Mortgagee or its designee shall acquire from the Landlord a
new lease of the Premises, the Mortgagor shall have no right, title or
interest in or to such new lease or the leasehold estate created thereby.
(g) No release or forbearance of any of the "Tenant" obligations under the
Lease, pursuant to the Lease or otherwise, shall release the Mortgagor from
any of its obligations under this Mortgage.
(h) In the event of any arbitration or court proceedings pursuant to the Lease,
the Mortgagor hereby authorizes the Mortgagee to participate in such
arbitration or court proceedings in order to protect the Mortgagee's
interests hereunder and provided same shall not be exercised prior to an
Event of Default hereby irrevocably appoints the Mortgagee its agent and
attorney-in-fact (which appointment shall be deemed to be an agency coupled
with an interest) to exercise all of its rights in connection with such
arbitration or court proceedings, including the right to appoint
arbitrators and to conduct arbitration proceedings on its behalf, after the
occurrence of any event of default, but nothing contained herein shall
obligate the Mortgagee to participate in any such arbitration or court
proceedings.
(i) (i) The Mortgagor shall not, without the Mortgagee's prior written
consent, elect to treat the Lease or the leasehold estate created thereby as
terminated under Subsection 365(h)(1) of the Bankruptcy Code, after rejection or
disaffirmance of the Lease by the Landlord thereunder or by any trustee of such
party, and any such election made without such consent shall be void and
ineffective.
(ii) The Mortgagor hereby unconditionally assigns, transfers and sets
over to the Mortgagee all of the Mortgagor's claims and rights to the
payment of damages that may hereafter arise as a result of any rejection or
disaffirmance of the Lease by the Landlord thereunder or by any trustee of
such party, pursuant to the Bankruptcy Code. The Mortgagee shall have and
is hereby granted the right to proceed, in its own name or in the name of
the Mortgagor, in respect of any claim, suit, action or proceeding relating
to the rejection or disaffirmance of the Lease (including, without
limitation, the right to file and prosecute, to the exclusion of the
Mortgagor, any proofs of claim, complaint, motions, applications, notices
and other documents) in any case in respect of the Landlord under the
Bankruptcy Code. This assignment constitutes a present, irrevocable and
unconditional assignment of the foregoing claims, rights and remedies, and
shall continue in effect until all of the indebtedness and obligations
secured by this Mortgage shall have been satisfied and discharged in full.
Any amounts received by the Mortgagee as damages arising out of any such
rejection of the Lease shall be applied first to all reasonable costs and
expenses of the Mortgagee (including, without limitation, reasonable legal
fees) in connection with the exercise of its rights under this paragraph
and then, in such manner as the Mortgagee shall determine, to the reduction
and payment of the indebtedness secured by this Mortgage, and thereafter
any balance shall be remitted to the Mortgagor.
11
<PAGE>
(iii) The Mortgagee shall not, pursuant to Subsection 365(h)(2) of
the Bankruptcy Code, offset against the rent payable under the Lease the amount
of any damages caused by the nonperformance by the Landlord of such party's
obligations under the Lease after rejection or disaffirmance thereof under the
Bankruptcy Code, without the prior written consent of the Mortgagee if such
offset would result in a forfeiture of the Lease. The Mortgagee shall have the
right to object to all or any part of such offset, and, in the event of such
objection, the Mortgagor shall not effect any offset of the amounts so objected
to by the Mortgagee. The Mortgagor shall indemnify and hold the Mortgagee
harmless from and against any and all claims, demands, actions, suits,
proceedings, damages, losses, costs and expenses of every nature whatsoever
(including, without limitation, reasonable legal fees) arising from or relating
to any such offset by the Mortgagor.
(iv) The Mortgagor shall, promptly after obtaining knowledge thereof,
give written notice to the Mortgagee of any actual filing by or against the
Landlord of a petition under the Bankruptcy Code. The aforesaid written notice
shall set forth any information possessed by the Mortgagor concerning the date
of such filing and the court in which such petition was filed.
(v) In the event that any action, proceeding, motion or notice shall
be commenced or filed in respect of the Landlord under the Lease or the
Mortgaged Property or any part thereof, in connection with any case under the
Bankruptcy Code, following an Event of Default hereunder the Mortgagee shall
have, and is hereby granted, the option, to the exclusion of the Mortgagor,
exercisable upon notice from the Mortgagee to the Mortgagor, to conduct and
control any such litigation with counsel of the Mortgagee's choice. The
Mortgagee may proceed, in its own name or in the name of the Mortgagor, in
connection with any such litigation, and the Mortgagor agrees to execute any and
all powers, authorizations, consents and other documents required by the
Mortgagee in connection therewith. The Mortgagor shall, upon demand, pay to the
Mortgagee all reasonable costs and expenses (including, without limitation,
reasonable legal fees) paid or incurred by the Mortgagee in connection with the
prosecution or conduct of any such proceedings, and, to the extent permitted by
law, such costs and expenses shall be added to the indebtedness secured by this
Mortgage. The Mortgagor shall not, without the prior written consent of the
Mortgagee, commence any action, suit, proceeding or case, or file any
application or make any motion, in respect of the Lease in any such case under
the Bankruptcy Code.
(vi) In the event that a petition under the Bankruptcy Code shall be
filed by or against the Mortgagor, and the Mortgagor or any trustee of the
Mortgagor shall decide to reject the Lease pursuant to Section 365(a) of the
Bankruptcy Code or the Lease shall be subject to rejection pursuant to Section
365(d)(4) of the Bankruptcy Code,
12
<PAGE>
the Mortgagor shall give the Mortgagee at least ten (10) days' prior written
notice of the date on which application shall be made to the court for authority
to reject the Lease. The Mortgagee shall have the right, but not the obligation,
to serve upon the Mortgagor or such trustee within such ten (10) day period a
notice stating that (A) the Mortgagee demands that the Mortgagor or such trustee
assume and assign the Lease to the Mortgagee pursuant to Section 365 of the
Bankruptcy Code, and (B) the Mortgagee covenants to cure, or provide adequate
assurance of prompt cure of, all defaults and provide adequate assurance of
future performance under the Lease. In the event that the Mortgagee serves such
notice upon the Mortgagor or such trustee, neither the Mortgagor nor such
trustee shall seek to reject the Lease, and the Mortgagor and such trustee shall
comply with such demand within thirty (30) days after such notice shall have
been given, subject to the Mortgagee's performance of such covenant.
(vii) In the event that a petition under the Bankruptcy Code shall be
filed by or against the Mortgagor, neither the Mortgagor nor any trustee of the
Mortgagor shall seek to extend any of the deadlines set forth in Section 365 of
the Bankruptcy Code without the written consent of the Mortgagee.
(viii) The Mortgagor hereby assigns, transfers and sets over to the
Mortgagee a nonexclusive right to apply to the Bankruptcy Court under Subsection
365(d)(4) of the Bankruptcy Code for an order extending the period during which
the Lease may be rejected or assumed after the entry of any order for relief in
respect to the Mortgagor under Chapter 7 or Chapter 11 of the Bankruptcy Code.
2.11. The Easements.
- ----- -------------
(a) The Mortgagor shall:
(i) pay or cause to be paid all sums required to be paid by the
Mortgagor under and pursuant to the provisions of the Easements;
(ii) diligently perform and observe before the expiration of
applicable cure periods all of its obligations under the Easements; and
(iii) promptly notify the Mortgagee of the giving of any notice to the
Mortgagor of any default by the Mortgagor in the performance or observance of
any of its obligations under the Easements and promptly deliver to the Mortgagee
a true copy of each such notice.
(b) The Mortgagor shall not terminate or cancel any Easement or modify,
change, supplement, alter or amend any Easement, in any respect either orally or
in writing, and the Mortgagor hereby assigns to the Mortgagee, as further
payment and performance of the obligations and indebtedness secured hereby and
for the performance and observance of the terms, covenants and conditions of
this Mortgage, all
13
<PAGE>
of the rights, privileges and prerogatives of the Mortgagor to terminate,
cancel, modify, change, supplement, alter or amend any Easement and any
termination, cancellation, modification, change, supplement, alteration or
amendment of any Easement shall be void and of no force and effect.
Simultaneously with the execution of this Mortgage, the Mortgagor has delivered
to the Mortgagee true and complete certified copies of the Easements, together
with certified copies of any and all assignments thereof and amendments thereto.
(c) If the Mortgagor shall default in the performance or observance of its
obligations under the Easements, then without limiting the generality of the
other provisions of this Mortgage, and without waiving or releasing the
Mortgagor from any of its obligations hereunder, the Mortgagee shall have the
right, but shall be under no obligation, to pay any sums and to perform any act
or take any action as may be appropriate to cause all of the terms, covenants
and conditions of the Easements on the part of the Mortgagor to be promptly
performed or observed on behalf of the Mortgagor, to the end that the rights of
the Mortgagor in, to and under the Easements shall be kept unimpaired and free
from default. All sums so paid and expended by the Mortgagee and the interest
thereon shall be secured by the lien of this Mortgage. In any such event, the
Mortgagee and any Person designated by the Mortgagee shall have, and are hereby
granted, the right to enter upon the Mortgaged Property at any time and from
time to time for the purpose of taking any such action.
ARTICLE III
Eminent Domain, Insurance Proceeds, Etc.
----------------------------------------
3.1. Damage, Destruction or Taking; the Mortgagor to Give Notice; Assignment of
- ---- --------------------------------------------------------------------------
Awards. In case of (a) any damage to or destruction of the Premises or any
- ------
part thereof, or (b) any condemnation proceedings or exercise of any right of
eminent domain (hereinafter a "Taking") of all or any part of the Premises, or
to the commencement of any proceedings or negotiations which might result in any
such Taking, the Mortgagor will promptly give or cause to be given written
notice thereof to the Mortgagee, generally describing the nature and extent of
such damage or destruction or of such Taking or the nature of such proceedings
or negotiations and the nature and extent of the Taking which might result
therefrom, as the case may be. Subject to the terms and provisions of the Lease,
the Mortgagee shall be entitled to all insurance proceeds payable on account of
such damage or destruction and to all awards or payments allocable to the
Mortgaged Property on account of such Taking and the Mortgagor hereby
irrevocably assigns, transfers and sets over to the Mortgagee all rights of the
Mortgagor to any such proceeds, award or payment and irrevocably authorizes and
empowers the Mortgagee, at its option, in the name of the Mortgagor or
otherwise, to file and prosecute what would otherwise be the Mortgagor's claim
for any such proceeds, award or payment and to collect, receipt for and retain
the same for disposition in accordance with Section 3.2, in the case of proceeds
received in connection with damage or destruction to the Premises, and Section
3.3, in the case of proceeds received in connection with a Taking. The Mortgagor
will pay or cause to be
14
<PAGE>
paid all reasonable costs and expenses incurred by the Mortgagee in connection
with any such damage, destruction or Taking and seeking and obtaining any
insurance proceeds, award or payment in respect thereof. Notwithstanding the
foregoing, provided no Event of Default exists, the Mortgagor shall be entitled
to file and prosecute all claims and to apply any proceeds or awards to
restoration.
3.2. Application of Insurance Proceeds.
- ---- ---------------------------------
All insurance proceeds received by or payable to the Mortgagee on account of any
damage to or destruction of the Premises or any part thereof (less the actual
costs, fees and expenses incurred by the Mortgagee, including, without
limitation, attorneys' fees and expenses, in connection therewith, for which the
Person incurring the same shall be reimbursed from such proceeds) shall be paid
to the Mortgagee and applied in accordance with Section 8.4 of the Indenture.
3.3. Application of Awards, etc.
- ---- ---------------------------
All awards and payments received by or payable to the Mortgagor and the
Mortgagee or either of them on account of a Taking (less the actual costs, fees
and expenses incurred by the Mortgagee, including, without limitation,
attorneys' fees and expenses, in connection therewith, for which the Person
incurring the same shall be reimbursed from such award or payment), together
with any interest or other income earned on such awards from the investment
thereof and any other interest paid on any such awards prior to disbursement
hereunder shall be paid to the Mortgagee and applied in accordance with Section
8.4 of the Indenture, provided, however, that if the terms of the Indenture are
inconsistent or conflict with the terms and provisions of the Lease, the terms
and provisions of the Lease shall control.
ARTICLE IV
Events of Default
-----------------
4.1. Events of Default; Indebtedness Due.
- ---- -----------------------------------
If any one or more of the following events (herein sometimes called "Events of
---------
Default") shall occur:
- -------
(a) if there shall occur any "Event of Default" as defined in the Indenture or
in any other Security Documents; or
(b) if the Mortgagor defaults in the observance or performance of any covenant
or agreement on its part to be performed contained in this Mortgage beyond
applicable cure or grace periods; or
(c) if subsequent to the date of this Mortgage the law of the State of New York
shall be changed by statutory enactment judicial decision, regulation or
otherwise, so as (i) to tax the holder of any lien or charge upon real
property (for state, county, municipal or other purpose) based on the value
of the real property subject to such lien or charge, or (ii) to change the
15
<PAGE>
taxation (other than income taxes imposed on the income of the holder
thereof) of deeds of trust, mortgages or debts secured by land or property
or the manner of collecting any such taxation, in either such case in a
manner such as to affect adversely this Mortgage or the indebtedness
secured hereby or the holder of this Mortgage, unless, within thirty (30)
days following receipt of a written request from the Mortgagee, the
Mortgagor shall have entered into a lawful and binding agreement
satisfactory in substance and form to the Mortgagee, obligating the
Mortgagor to pay or reimburse the Mortgagee for any tax (other than income
taxes imposed on the income of the holder thereof) imposed on the Mortgagee
by reason of any of the foregoing; then, (1) if such event is an Event of
Default specified in the Indenture in Section 8.1 (d),(e) or (f) with
respect to the Mortgagor, the outstanding principal of the Notes (with
accrued interest thereon) and all other amounts owing under the Indenture
or any other Security Document shall automatically become immediately due
and payable at par together with interest accrued thereon without
presentment, demand, protest or notice of any kind all of which are hereby
waived by the Mortgagor, and (2) in the case of any other Event of Default,
the Mortgagee may, in addition to any right, power or remedy permitted by
law or equity, by Acceleration Notice and in accordance with Section 8.2 of
the Indenture, declare the outstanding principal of the Notes (with accrued
interest thereon) and all other amounts owing under the Indenture or any
Security Document to be, and the outstanding principal of the Notes and
such amounts shall thereupon be and become, immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Mortgagor. The Mortgagor shall pay on
demand all reasonable costs and expenses (including, without limitation,
attorneys' fees) incurred by or on behalf of the Mortgagee in enforcing the
payment of such Notes or other obligations, or occasioned by any default or
Event of Default under this Mortgage.
The Mortgagor hereby waives any notice of default except as
specifically required hereby or in the Indenture.
Notwithstanding the foregoing, if the Event of Default occurs solely
as a result of a notice of default by Landlord to the Mortgagor, the Mortgagor
shall have the right to cure the default so noticed within applicable grace
periods under the Lease. The foregoing is not intended to limit the rights of
the Mortgagee pursuant to Section 4.12 hereof and in the event the Mortgagee
exercises such rights, the Mortgagor shall have ten (10) days after notice from
the Mortgagee within which to reimburse the Mortgagee for all costs and expenses
incurred by the Mortgagee in the exercise thereof.
4.2. Enforcement; Foreclosure.
- ---- ------------------------
If an Event of Default shall have occurred and be continuing beyond any
applicable grace or cure period provided for herein or in the Indenture, the
Mortgagee, at any time, at its election may, subject to Sections 8.3, 8.5, and
8.8 of the Indenture, proceed at law or in equity or otherwise to enforce the
payment of any outstanding Notes in accordance with the terms hereof and
thereof, obtain specific performance of any agreement contained herein, obtain
an injunction against the violation of any of the terms hereof, or in the aid
16
<PAGE>
of the exercise of any power granted hereby, or by law, in accordance with the
terms hereof or institute foreclosure or other proceedings according to law.
All procedural errors in said proceedings, together with any stay of or
exemption from execution, or extension of time of payment, which may be given by
any statute now in force or enacted hereafter, are hereby forever irrevocably
waived and released.
4.3. Power of Sale.
- ---- -------------
If the unpaid principal amount of and the premium, if any, and interest on the
Notes at the time outstanding shall have become due and payable and shall not
have been paid, the Mortgagee may, subject to Sections 8.3, 8.5, and 8.8 of the
Indenture, sell, assign, transfer and deliver the whole or, from time to time,
any part of the Mortgaged Property, or any interest in any part thereof, at any
private sale or at public auction, with or without demand, advertisement or
notice, for cash, on credit or for other property, for immediate or future
delivery, and for such price or prices and on such terms as the Mortgagee in its
uncontrolled discretion may determine, or as may be required by law.
4.4. The Mortgagee Authorized to Execute Deeds, etc.
- ---- -----------------------------------------------
The Mortgagor irrevocably appoints the Mortgagee the true and lawful attorney of
the Mortgagor, coupled with an interest, in its name and stead and on its
behalf, for the purpose of effectuating any sale, assignment, transfer or
delivery for the enforcement hereof, whether pursuant to power of sale,
foreclosure or otherwise, upon the occurrence and during the continuance of an
Event of Default to execute and deliver all such deeds, bills of sale,
assignments and other instruments as the Mortgagee may consider necessary or
appropriate, with full power of substitution, the Mortgagor hereby ratifying and
confirming all that its said attorney or any substitute shall lawfully do by
virtue hereof. Nevertheless, if so requested by the Mortgagee or any purchaser,
the Mortgagor will ratify and confirm any such sale, assignment, transfer or
delivery by executing and delivering to the Mortgagee or such purchaser all such
proper deeds, bills of sale, assignments, releases and other instruments as may
be designated in any such request.
4.5. Purchase of Mortgaged Property by the Mortgagee.
- ---- -----------------------------------------------
Any Holder may be a purchaser of the Mortgaged Property or of any part thereof
or of any interest therein at any sale thereof, whether pursuant to power of
sale, foreclosure or otherwise, and may apply upon the purchase price thereof
the indebtedness secured hereby owing to such Holder, to the extent of such
Holder's distributive share of the purchase price. Any such Holder shall, upon
any such purchase, acquire good title to the properties so purchased, free of
the lien of this Mortgage and free of all rights of redemption in the Mortgagor.
4.6. Receipt a Sufficient Discharge to Purchaser.
- ---- -------------------------------------------
Upon any sale of the Mortgaged Property or any part thereof or any interest
therein, whether pursuant to power of sale, foreclosure or otherwise, the
receipt of the Mortgagee or the officer making the sale under judicial
proceedings shall be a sufficient discharge to the purchaser for the purchase
money, and such purchaser shall not be obliged to see to the application
thereof.
17
<PAGE>
4.7. Waiver of Appraisement, Valuation, etc.
---------------------------------------
The Mortgagor hereby waives, to the fullest extent it may lawfully do so, the
benefit of all appraisement, valuation, stay, extension and redemption laws now
or hereafter in force and all rights of marshalling in the event of any sale of
the Mortgaged Property or any part thereof or any interest therein.
4.8. Sale a Bar Against the Mortgagor.
--------------------------------
Any sale of the Mortgaged Property or any part thereof or any interest therein
under or by virtue of this Mortgage, whether pursuant to foreclosure or power of
sale or otherwise, shall forever be a perpetual bar against the Mortgagor.
4.9. Application of Proceeds of Sale and Other Monies.
------------------------------------------------
The proceeds of any sale of the Mortgaged Property or any part thereof or any
interest therein upon foreclosure of this Mortgage or otherwise and all other
sums at any time received or held by the Mortgagee hereunder, shall (except as
otherwise provided herein or by law) be applied as follows:
First: to the payment of all court costs, all reasonable expenses of
-----
sale, all reasonable costs and expenses of any receiver and any taxes,
assessments or charges, which are prior to the lien of this Mortgage;
Second: to the payment of any indebtedness secured by this Mortgage
------
other than indebtedness evidenced by the Notes; and
Third: to the Mortgagee for pay out in accordance with Section 8.4
-----
of the Indenture.
4.10. Appointment of Receiver.
-----------------------
If an Event of Default shall have occurred and be continuing, the Mortgagee
shall, as a matter of right, be entitled to the appointment of a receiver for
all or any part of the Mortgaged Property, whether such receivership be
incidental to an action of foreclosure or otherwise, and the Mortgagor hereby
consents to the appointment of such a receiver and will not oppose any such
appointment. Such appointment may be made either before or after sale, without
notice, without regard to the solvency of the Mortgagor at the time of
application for such receiver and without regard to the then value of the
Mortgaged Property or whether the same shall be then occupied as a homestead or
not, and the Mortgagee or any other person may be appointed as such receiver.
Such receiver shall have the power to collect the rents, issues and profits of
the Mortgaged Property during the pendency of such foreclosure suit and, in case
of a sale and a deficiency, during the full statutory period of redemption, if
any, whether there be redemption or not, as well as during any further times
when the Mortgagor, except for the intervention of such receiver, would be
entitled to collect such rents, issues and profits, and all other powers which
may be necessary or are usual in such cases for the protection, possession,
control, management and operation of the Mortgaged Property during the whole of
said period. All sums paid by such receiver and all costs and expenses
(including, without limitation, reasonable attorneys' fees) incurred by such
receiver in exercising such powers, together with interest thereon at the
highest rate then borne by any of the Notes from the date of payment or
incurring, shall constitute additional indebtedness secured by this Mortgage.
18
<PAGE>
4.11. Possession, Management and Income.
---------------------------------
At any time after the occurrence of an Event of Default, the Mortgagee, upon
notice to the Mortgagor and without the appointment of a receiver or an
application therefor, may enter upon and take possession of the Mortgaged
Property or any part thereof by force, summary proceedings, ejectment or
otherwise and may remove the Mortgagor and all other Persons and any and all
property therefrom and may hold, operate, maintain, repair, preserve, lease
either in its name or in the name of the Mortgagor) and manage the same and
receive all earnings, income, rents, issues, proceeds and profits accruing with
respect thereto or any part thereof. The Mortgagee shall be under no liability
(other than liability for its own gross negligence or willful misconduct) for or
by reason of any such taking of possession, entry, removal, holding, operation
or management, except that any amounts so received by the Mortgagee shall be
applied to pay all reasonable costs and expenses of so entering upon, taking
possession of, holding, operating, maintaining, repairing, preserving, leasing
and managing the Mortgaged Property or any part thereof, and any taxes,
assessments or other charges prior to the lien of this Mortgage which the
Mortgagee may consider it necessary or desirable to pay, and any balance of such
amounts shall be applied as provided in Section 4.9 hereof.
4.12. Right to Perform the Mortgagor's Covenants.
------------------------------------------
If the Mortgagor shall fail to make any payment or perform any term, covenant or
condition required to be performed hereunder or under the Notes, the Indenture
or any Security Document and such failure either constitutes an Event of Default
hereunder or thereunder, the Mortgagee, without waiving or releasing any
obligation or default, may (but shall be under no obligation to) at any time
thereafter upon five days' prior written notice to the Mortgagor (which notice
shall not be deemed to be required in the event that the Mortgagee reasonably
believes that any delay will impair the value of the Mortgaged Property or its
rights hereunder) make such payment or perform such act for the account and at
the expense of the Mortgagor, and may enter upon the Mortgaged Property for such
purpose and take all such action thereon as may be necessary or appropriate
therefor. No such entry and no such action shall be deemed an eviction of any
lessee of the Mortgaged Property or any part thereof. All sums so paid by the
Mortgagee and all costs and expenses (including, without limitation, reasonable
attorneys' fees) so incurred, together with interest thereon at the highest rate
per annum applicable to the Notes, from the date of payment or incurring, shall
constitute additional indebtedness secured by this Mortgage, and the Mortgagor
agrees to pay such sums to the person incurring the same on demand.
4.13. Cumulative Remedies.
-------------------
Each right, power and remedy of the Mortgagee provided for in this Mortgage, the
Indenture or the other Security Documents or now or hereafter existing at law or
in equity or by statute or otherwise shall be separate, distinct, cumulative and
concurrent and shall be in addition to every other right, power or remedy
provided for in this Mortgage, the
19
<PAGE>
Indenture or the other Security Documents now or hereafter existing at law or in
equity or by statute or otherwise, and the exercise or beginning of the exercise
by the Mortgagee of any one or more of the rights, powers or remedies provided
for in this Mortgage, the Indenture or the other Security Documents or now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Mortgagee of any or all such
other rights, powers or remedies, and no act of the Mortgagee shall be construed
as an election to exercise any one such right, power or remedy to the exclusion
of any other such right, power or remedy, anything herein or otherwise to the
contrary notwithstanding. The Mortgagor expressly waives (i) all demands,
presentments, notices of protest and of dishonor and notices of every kind or
nature (other than notices expressly provided for in the Indenture, the Notes or
the Security Documents), including without limitation those of any action or
non-action on the part of the Mortgagee or any guarantor, or any other person
whomsoever, (ii) the right to require the Mortgagee to proceed against any
guarantor or any other party, (ii) the right to require the Mortgagee to proceed
against or apply any other security it may hold, and (iv) the right to require
the Mortgagee to pursue any other remedy for the benefit of the Mortgagor.
Furthermore, the Mortgagor agrees that the Mortgagee may in its sole discretion
without prejudice to or in any way limiting or lessening its rights hereunder,
and without affecting or impairing in any way the liability of the Mortgagor
hereunder or under any obligation secured hereby (A) exercise its rights under
this Mortgage without taking any action against any guarantor or any other
party, and without proceeding against or applying any other security it may
hold, (B) at its election, exercise any right or remedy it may have against any
security held by the Mortgagee, including without limitation the right to
foreclose upon any such security by judicial or non-judicial sale, and the
Mortgagor hereby irrevocably and unconditionally waives, releases and forever
agrees not to assert any defense arising out of the absence, impairment or loss
of any right of reimbursement or subrogation or any other right or remedy of the
Mortgagor against any such security, whether resulting from such election by the
Mortgagee or otherwise, and (C) take or give up, or modify, vary, exchange,
renew or abstain from perfecting or taking advantage of, any security for any
such obligation secured hereby.
4.14. Provisions Subject to Applicable Law.
- ----- ------------------------------------
All rights, powers and remedies provided in this Mortgage may be exercised only
to the extent that the exercise thereof does not violate any provisions of
applicable law and are intended to be limited to the extent necessary so that
they will not render this Mortgage invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law. If
any term of this Mortgage or any application thereof shall be invalid or
unenforceable, the remainder of this Mortgage and any other application of such
term shall not be affected thereby.
4.15. No Waiver.
- ----- ---------
Any failure by the Mortgagee to insist upon the strict performance by the
Mortgagor of any of the terms and provisions hereof shall not constitute a
waiver of any such term or provision or of any Event of Default. The Mortgagee,
notwithstanding any such failure, shall have the right thereafter to insist upon
the strict performance by the Mortgagor of
20
<PAGE>
any and all of the terms and provisions of this Mortgage to be performed by the
Mortgagor and no waiver of any Event of Default shall affect or alter this
Mortgage, which shall continue in full force and effect with respect to any
other then existing or subsequent Event of Default. By accepting payment of any
amount secured hereby after its due date, the Mortgagee shall not be deemed to
waive its right either to require prompt payment when due of all other amounts
payable hereunder or otherwise secured hereby or to declare a default for
failure to effect such prompt payment. Regardless of consideration and without
the necessity for any notice to or consent by the holder of any subordinate lien
on the Mortgaged Property, the obligation of anyone at any time liable for any
of the indebtedness secured by this Mortgage or any part of the security held
for the indebtedness may be released and the time of payment may be extended and
the terms of any of the Notes and/or this Mortgage may otherwise be modified
without, as to the security for the remainder thereof, in anywise impairing or
affecting the lien of this Mortgage or the priority of such lien, as security
for the payment of the indebtedness as it may be so extended or modified, over
any subordinate lien. The Mortgagee may resort for the payment of the
indebtedness secured hereby to any other security therefor, including without
limitation the Security Documents, in such order and manner as the Mortgagee may
elect. By exercising or failing to exercise any right, power or remedy under
this Mortgage or the Indenture or any of the other Security Documents separately
from or independent of any other of such instruments, no such person or persons
shall be deemed to have waived, released or in any way limited its or their
right to exercise any right, power or remedy under any other of such
instruments. In no event shall the indebtedness secured by this Mortgage be
deemed to be discharged, released or reduced by the exercise of any right, power
or remedy hereunder, except to the extent of the actual net proceeds received by
the Mortgagee from such enforcement of any said right, power or remedy
(including without limitation judicial or non-judicial sale or deed in lieu of
foreclosure), after deducting all legally permitted costs of such sale or other
disposition.
4.16. Compromise of Actions.
- ----- ---------------------
Following an Event of Default any action, suit or proceeding brought by the
Mortgagee pursuant to any of the terms of this Mortgage or otherwise, and any
claim made by the Mortgagee hereunder (other than against Mortgagor) may be
compromised, withdrawn or otherwise dealt with without any notice to or approval
of the Mortgagor.
4.17. Expenses Incurred in Protecting or Enforcing Rights.
- ----- ---------------------------------------------------
If the Mortgagee shall incur or expend any sums, including reasonable attorneys'
fees, to the extent permitted by law, whether in connection with any action or
proceeding or not, to sustain the lien of this Mortgage or its priority, or to
protect or enforce any of its rights hereunder, or to recover any indebtedness
hereby secured, or for any title examination or title insurance policy relating
to the title to the Mortgaged Property if obtained for any of the purposes
herein above in this paragraph set forth, all such sums, to the extent permitted
by law, shall on notice and demand be paid by the Mortgagor, together with
interest thereon at the rate per annum applicable to the Notes, and shall be a
lien on the Mortgaged Property, if and to the extent permitted by applicable
law, prior to any right of title to, interest in, or claim upon, the Mortgaged
Property subordinate to the lien of this Mortgage, and shall be deemed to be
part of the indebtedness secured hereby.
21
<PAGE>
4.18. Power of Attorney.
- ----- -----------------
The Mortgagor hereby irrevocably and unconditionally appoints the Mortgagee as
the Mortgagor's true and lawful attorney-in-fact, to act for the Mortgagor in
the Mortgagor's name, place and stead, and for the Mortgagor's use and benefit,
to execute, deliver and file all applications and any and all other necessary
documents or things, to effect a transfer, reinstatement, renewal and/or
extension of any and all licenses, permits, certifications, consents and
approvals from all applicable governmental agencies or authorities
("Governmental Authorizations") issued to the Mortgagor in connection with the
- -----------------------------
Mortgagor's use or occupancy of the Mortgaged Property or operation of the
Premises, to permit any transferee of the Premises to operate under the
authority of the Governmental Authorizations issued to the Mortgagor, and to do
any and all other acts incidental to any of the foregoing. The Mortgagor
irrevocably and unconditionally grants to the Mortgagee, as its attorney-in-
fact, full power and authority to do and perform every act necessary and proper
to be done in the exercise of any of the foregoing powers as fully as the
Mortgagor might or could do if personally present or acting, with full power of
substitution, hereby ratifying and confirming all that said attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney is
coupled with an interest and is irrevocable prior to payment in full of the
obligations secured hereby. The Mortgagee agrees not to exercise such powers as
attorney-in-fact of the Mortgagor unless an Event of Default under the Indenture
has occurred and is continuing.
ARTICLE V
Financing Statement and Miscellaneous Provisions
------------------------------------------------
5.1. Further Assurances.
- ---- ------------------
The Mortgagor, at its expense shall execute, acknowledge and deliver all such
instruments and take all such action as the Mortgagee may from time to time
reasonably request for assuring to the Mortgagee the properties and rights now
or hereafter subjected to the lien hereof or assigned hereunder or intended so
to be, including without limitation, the execution of a supplemental mortgage or
mortgages relating to any land or other interest in real estate acquired after
the date hereof and referred to in clause (ii) of paragraph (a) of the granting
clause hereof.
5.2. Fixtures; Financing Statement.
- ---- -----------------------------
This Mortgage constitutes a security agreement under the Uniform Commercial Code
as enacted in the State of New York. The Mortgagor covenants and agrees that,
upon the request of the Mortgagee or upon the subsequent acquisition of any
proceeds, fixtures and other real property, the Mortgagor will provide to the
Mortgagee such further assurances and take such further actions as may be
required by the Mortgagee to establish the Mortgagee's first and prior security
interest in any such proceeds, fixtures and other real property, including,
without limitation, execution and filing or recording in all necessary public
offices, at the Mortgagor's sole cost and expense, any UCC financing statements
in
22
<PAGE>
form acceptable to the Mortgagee. Upon request, the Mortgagor shall execute,
deliver and cause to be recorded and filed from time to time with all necessary
public offices, at the Mortgagor's sole cost and expense, continuances and such
other instruments as will maintain the Mortgagee's priority of security in all
such proceeds, fixtures and other property. IT IS INTENDED BY THE MORTGAGOR AND
THE MORTGAGEE THAT THIS MORTGAGE BE EFFECTIVE AS A FINANCING STATEMENT FILED
WITH THE REAL ESTATE RECORDS AS A FIXTURE FILING. FOR THIS PURPOSE, THE
FOLLOWING INFORMATION IS SET FORTH:
(a) Debtor shall mean the Mortgagor, and the address of Debtor shall be its
address set forth on the cover hereof.
(b) Secured Party shall mean the Mortgagee, and the address of Secured Party
shall be its address set forth on the cover hereof.
(c) This document covers goods which are or are to become fixtures related to
the real estate.
(d) The record owners of the real estate are set forth in Schedule A.
5.3. Assignment of Leases, Rents and Profits.
- ---- ---------------------------------------
To further secure the Obligations, the Mortgagor hereby sells, assigns and
transfers unto the Mortgagee all the rents, issues and profits of the Mortgaged
Property (collectively, "Rents") now due and which may hereafter become due
-----
under or by virtue of any lease, whether written or verbal, or any letting of,
or of any agreement for the use or occupancy of the Mortgaged Property or any
part thereof, which may have been heretofore or may be hereafter made or agreed
to or which may be made or agreed to by the Mortgagee under the powers herein
granted, it being the intention hereby to establish an absolute transfer and
assignment of all such leases and agreements, and all the avails thereunder, to
the Mortgagee and not merely the passing of a security interest. The Mortgagor,
to the extent permitted by applicable law, hereby irrevocably appoints the
Mortgagee its true and lawful attorney (coupled with an interest) in its name,
place and stead (with or without taking possession of the Premises) to rent,
lease or let all or any portion of the Mortgaged Property to any party or
parties at such rental and upon such terms as the Mortgagee shall, in its
reasonable discretion, determine, and to collect all of said Rents arising from
or accruing at any time hereafter, and all now due or that may hereafter become
due under each and every one of the leases and agreements, written or verbal, or
other tenancy existing, or which may hereafter exist on the Mortgaged Property,
with the same rights and powers and subject to the same immunities, exoneration
of liability and rights of recourse and indemnity as the Mortgagee would have
upon taking possession pursuant to the provisions of Article 4 hereof. The
Mortgagor represents and agrees that no Rent has been or will be paid by any
person or entity in possession of any portion of the Mortgaged Property for more
than one installment in advance and that the payment of none of the Rents to
accrue for any portion of the Mortgaged Property will be waived, released,
reduced, discounted or otherwise discharged or compromised by the Mortgagor. As
between the Mortgagor and the Mortgagee, the Mortgagor waives any rights to set-
off disputed amounts due from any person or entity in possession of any portion
of the
23
<PAGE>
Mortgaged Property against sums due to the Mortgagee (but the Mortgagor
shall not be deemed hereunder to have waived any rights or remedies against such
person or entity). The Mortgagor agrees that it will not assign any of the
Rents of the Mortgaged Property. Nothing herein contained shall be construed as
constituting the Mortgagee a mortgagee in possession in the absence of the
taking of actual possession of the Mortgaged Property by the Mortgagee pursuant
to Article 4 hereof. In the exercise of the powers herein granted the
Mortgagee, no liability shall be asserted or enforced against the Mortgagee, all
such liability being expressly waived and released by the Mortgagor, except
liability arising out of the gross negligence or willful misconduct of the
Mortgagee. The Mortgagor further agrees to assign and transfer to the Mortgagee
all future leases upon all or any part of the Mortgaged Property and to execute
and deliver, at the request of the Mortgagee, all such further assurances and
assignments in the Mortgaged Property as the Mortgagee shall from time to time
reasonably require. Although it is the intention of the parties that the
assignment contained in this section shall be a present absolute assignment, it
is expressly understood and agreed, anything herein contained to the contrary
notwithstanding, that the Mortgagee shall not exercise any of the rights or
powers conferred upon it by this section except after the occurrence and during
the continuance of an Event of Default and until such time the Mortgagor may
continue to collect and use the rents and operate and manage the Mortgaged
Property.
5.4. Partial Release.
- ---- ---------------
The Mortgagee, at any time and from time to time, without liability therefor,
without prior notice to the Mortgagor and without affecting the lien of this
Mortgage on any Mortgaged Property or the liability of the Mortgagor except as
expressly provided by such release, easement or other agreement, may release any
part of the Mortgaged Property, consent to the making of any map or plat of all
or any part of the Mortgaged Property, join in granting any easement thereon or
join in any extension agreement or agreement subordinating the lien of this
Mortgage or enter into any other agreement in connection with the Mortgaged
Property.
5.5. Release and Discharge of Mortgage.
- ---- ---------------------------------
If (i) all of the outstanding principal of and interest on all of the Notes
shall be paid in accordance with the terms thereof and of the Indenture and any
and all sums payable by the Issuer or the Mortgagor under the Indenture and
under the Security Documents shall be paid or (ii) if all of the interests of
the Mortgagor in the Mortgaged Property under the Mortgage shall be Disposed of
and if each of the Issuer and the Mortgagor shall be in compliance with all the
terms, covenants and conditions applicable to it to be complied with under the
Notes, the Indenture and the Security Documents, including, without limitation,
payment of the Net Proceeds to the Trustee, then in either such case, this
Mortgage shall be null and void and of no further force and effect and the
Mortgaged Property hereunder shall thereupon be, and shall be deemed to have
been, reconveyed, released and discharged from the lien of this Mortgage without
further notice on the part of the Mortgagor or Mortgagee hereunder, and the
Mortgagee, at the Mortgagor's expense, will execute and deliver such reasonable
or necessary instruments, if any, as the Mortgagor may request evidencing or
confirming the reconveyance, release and discharge
24
<PAGE>
of the Mortgaged Property from the lien of this Mortgage, and any such
instrument, when duly executed by the Mortgagee and duly recorded in the place
where this Mortgage is recorded, shall conclusively evidence such reconveyance,
release and discharge, all as set forth in Section 12.1(d) of the Indenture.
Notwithstanding the foregoing, if (i) or (ii) above shall occur, then the
Mortgagor shall have the option to request to request an assignment of this
Mortgage without recourse, representation or warranty in lieu of the termination
of this Mortgage as described above, and, at the Mortgagor's written request,
which request may be denied in Mortgagee's sole discretion, this Mortgage shall
remain in full force and effect and the Mortgagee shall assign this Mortgage,
and the Mortgagee, at the Mortgagor's expense, will execute and deliver such
reasonable or necessary instruments, if any, as the Mortgagor may request
evidencing or confirming the assignment of this Mortgage, and any such
instrument, when duly executed by the Mortgagee and duly recorded in the place
where this Mortgage is recorded, shall conclusively evidence the assignment of
this Mortgage, and the release and discharge of the Mortgagor from its
obligations hereunder, as set forth in Section 12.1(d) of the Indenture.
Notwithstanding the foregoing, any release of this Mortgage in connection with a
sale of the Mortgaged Property shall not include a release of the security
interests of the Mortgagee in the proceeds of such sale and shall expressly
reserve the Mortgagee's security interests in such proceeds unless and until
such proceeds are actually received by the Mortgagee.
5.6. Mortgagor, Mortgagee, Person(s).
- ---- -------------------------------
Wherever used in this Mortgage, unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, the word "the
Mortgagor" shall mean "the Mortgagor or any subsequent owner or owners of the
Mortgaged Property, or both", and the word "the Mortgagee" shall mean "the
Mortgagee or any holder or holders from time to time of the Notes."
5.7. Cessation of Mortgagor's Interest.
- ---- ---------------------------------
No cessation of the Mortgagor's interest in the Mortgaged Property shall affect
this Mortgage or any of the Notes.
5.8. Notices.
- ---- -------
All notices, demands, requests, consents, approvals and other instruments under
this Mortgage or any of the Notes shall be in writing and shall be sent by first
class mail, registered mail or overnight courier and, if to the Mortgagee,
addressed to the Mortgagee at the address set forth for communications in the
Indenture, and, if to the Mortgagor, addressed to it at the address set forth
for communications in the Indenture, or to such other address with respect to
any party as such party shall notify the other in writing; provided any such
--------
communication to the Mortgagor may also, at the option of the Mortgagee, be hand
delivered to the Mortgagor at its address set forth above.
5.9. No Merger of Fee and Leasehold Estates.
- ---- --------------------------------------
So long as any portion of the obligations and indebtedness secured hereby
remains unpaid or has not been performed, unless the Mortgagee shall otherwise
consent, the fee title to
25
<PAGE>
the Premises and the leasehold estate therein created pursuant to the provisions
of the Lease shall not merge but shall always be kept separate and distinct,
notwithstanding the union of such estates in the Mortgagor, or in any other
person by purchase, operation of law or otherwise. If the Mortgagee shall
acquire the fee title to the Premises and the leasehold estate therein created
pursuant to the provisions of the Lease, by foreclosure of this Mortgage or
otherwise, such estates shall not merge as a result of such acquisition and
shall remain separate and distinct for all purposes after such acquisition
unless and until the Mortgagee shall elect to merge such estates.
5.10. No Claims Against the Mortgagee, etc.
- ----- -------------------------------------
Nothing contained in this Mortgage shall constitute any consent or request by
the Mortgagee, express or implied, for the performance of any labor or services
or the furnishing of any materials or other property in respect of the Mortgaged
Property or any part thereof, or shall be construed to permit the making of any
claim against the Mortgagee in respect of labor or services or the furnishing of
any materials or other property or any claim that any lien based on the
performance of such labor or services or the furnishing of any such materials or
other property is prior to the lien of this Mortgage.
5.11. Waiver of Right to Bring Counterclaim in Foreclosure Action.
- ----- -----------------------------------------------------------
In any action to foreclose the lien or liens of this Mortgage, including a
partial foreclosure, no defense, counterclaim, or setoff shall be available to
the Mortgagor other than a compulsory counterclaim or one which denies the
existence or sufficiency of the facts upon which the action is grounded. If any
defense, counterclaim or setoff, other than one permitted by the preceding
sentence, is timely raised in such foreclosure action, such defense,
counterclaim, or setoff shall be dismissed; provided, however, that if such
-------- -------
defense, counterclaim, or setoff is based on a claim which could be tried in an
action for money damages, such claim may be brought in a separate action which
shall not thereafter be consolidated with such foreclosure action. The bringing
of such separate action for money damages shall not be deemed to afford any
grounds for staying the foreclosure action. Any assignee of this Mortgage and
the Notes shall take the same free and clear of all offsets, counterclaims, or
defenses of any nature whatsoever which the Mortgagor may have against any
assignor of this Mortgage and the Notes and no such offset, counterclaim, or
defense shall be interposed or asserted by the Mortgagor in any action or
proceeding brought by any such assignee upon this Mortgage or the Notes and any
such right to interpose or assert any such offset, counterclaim, or defense in
any such action or proceeding is hereby expressly waived by the Mortgagor. In
addition, the Mortgagor shall not make, nor be entitled to make, any claim for
money damages against the Mortgagee based upon any claim or assertion that the
Mortgagee has unreasonably withheld or delayed the Mortgagee's consent and/or
approval with respect to any provision contained in the Notes, this Mortgage or
the other Security Documents which provides, in effect, that the Mortgagee's
consent and/or approval is required and shall not be unreasonably withheld or
delayed. The Mortgagor's sole remedy in such event shall be limited to an
action or proceeding to enforce any such provision pursuant to specific
performance, injunction, or declaratory judgment.
26
<PAGE>
5.12. Usury Laws.
- ----- ----------
It is the intent of the Mortgagor and the Mortgagee to comply at all times with
applicable usury laws. If at any time such laws would render usurious any
amounts called for under the Notes or any of the Security Documents, then it is
the Mortgagor's and the Mortgagee's express intention that such excess amount be
immediately credited on the principal balance of the Notes (or, if the Notes
have been fully paid, refunded by the Mortgagee to the Mortgagor and the
Mortgagor shall accept such refund), and the provisions hereof and thereof be
immediately deemed to be reformed to comply with the then applicable laws,
without the necessity of the execution of any further documents, but so as to
permit the recovery of the fullest amount otherwise called for hereunder and
thereunder. Any such crediting or refund shall not cure or waive any default by
the Mortgagor under the Notes or under the Security Documents. If, at any time
following any such reduction in the interest rate payable by the Mortgagor,
there remains unpaid any principal amounts under the Notes and the maximum
interest rate permitted by applicable law is increased or eliminated, then the
interest rate payable hereunder shall be readjusted, to the extent permitted by
applicable law, so that the total dollar amount of interest payable hereunder
shall be equal to the dollar amount of interest which would have been paid by
the Mortgagor without giving effect to the applicable usury laws theretofore in
effect. The Mortgagor agrees, however, that in determining whether or not any
interest payable under the Notes or any of the Security Documents exceeds the
highest rate permitted by law, any non-principal payment (except payments
specifically stated in the Notes or in any Security Document to be "interest"),
including, without limitation, prepayment fees and late charges, shall be
deemed, to the extent permitted by law, to be an expense, fee, premium, or
penalty rather than interest.
5.13. FIRPTA.
- ----- ------
If the Mortgagee purchases the Mortgaged Property pursuant to a foreclosure
under this Mortgage, or accepts an assignment of the Mortgaged Property in lieu
of the foreclosure, the Mortgagor hereby authorizes the Mortgagee to withhold
the amount of tax, if any, required to be withheld under Section 1445 of the
Internal Revenue Code of 1986, as amended (or any successor provision thereto),
out of any sums payable to the Mortgagor from such foreclosure sale or
assignment in lieu thereof, as the case may be, after payment of all parties
other than the Mortgagor who are entitled to be paid out of any foreclosure or
assignment proceeds, as if the Mortgagor were a foreign person, unless the
Mortgagor certifies its nonforeign status at the time of such foreclosure sale
or assignment, as the case may be, by executing and delivering to the Mortgagee
a certificate satisfactory to the Mortgagee.
5.14. Conflicts with Indenture.
- ----- ------------------------
Notwithstanding any other provision hereof, in the event of any conflict between
the terms of this Mortgage and the Indenture, the provisions of the Indenture
will apply.
5.15. Trust Funds.
- ----- -----------
The Mortgagor shall receive the advances secured hereby subject to the trust
fund provisions of Section 13 of the Lien Law of the State of New York.
27
<PAGE>
5.16. Miscellaneous.
- ----- -------------
All the terms of this Mortgage shall apply to and be binding upon and inure to
the benefit of the successors and assigns of the Mortgagor and all persons
claiming under or through the Mortgagor or any such successor or assign and the
Mortgagee and its successors in interest. The headings in this Mortgage are for
convenient reference only and shall not limit or otherwise affect any of the
terms hereof. This Mortgage may be executed in several counterparts, each of
which shall be an original, but all of which shall constitute one and the same
instrument. This Mortgage is to be construed according to the laws of the State
of New York. The clauses and covenants contained in this Mortgage which are
construed by Section 254 of the Real Property Law of the State of New York shall
be construed as provided in those sections, except that the provisions of
subsection 4 of said Section 254 shall not in any manner apply to or construe
the provisions of this Mortgage; the additional clauses and covenants contained
herein shall afford rights supplemental to and not exclusive of the rights
conferred by the clauses and covenants construed by said Section 254 and shall
not impair, modify, alter or defeat such rights (except that the provisions
hereof shall be exclusive of and shall be in substitution for the rights which
would be conferred by the clauses and covenants construed by said subsection 4
of said Section 254), notwithstanding that such additional clauses and covenants
may relate to the are subject matter or provide for different or additional
rights in the same or similar contingencies as the clauses and covenants
construed by said Section 254; in the event of any inconsistencies between the
provisions of Section 254 and the provisions of this Mortgage, the provisions of
this Mortgage shall prevail.
5.17. Mortgagee Waiver and Consent Agreement.
- ----- --------------------------------------
A Mortgagee Waiver and Consent Agreement, among the Mortgagee, the Mortgagor and
BankBoston Retail Finance, Inc. exists with respect to the Mortgaged Property.
5.18. WAIVER OF JURY TRIAL.
- ----- --------------------
BOTH THE MORTGAGOR AND THE MORTGAGEE HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS MORTGAGE.
28
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed by the
Mortgagor on the day and year first above written.
WITNESS: NEW HORIZONS OF YONKERS, INC.
By By
----------------------------- ------------------------------
Title: Cornelius F. Moses, III
Senior Vice President and
Chief Financial Officer
By By
----------------------------- ------------------------------
Title: David L. Schmidt
Senior Vice President and
General Counsel
[Corporate Seal]
29
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 29th day of January, 1999, before me, the undersigned officer,
personally appeared Cornelius F. Moses, III, having an address c/o New Horizons
of Yonkers, Inc., One Bradlees Circle, P.O. Box 9051, Braintree, Massachusetts
02184, personally known and acknowledged himself to me to be the Senior Vice
President and Chief Financial Officer of New Horizons of Yonkers, Inc., and that
as such officer, being duly authorized to do so pursuant to its bylaws or a
resolution of its board of directors, executed, subscribed and acknowledged the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by himself in his authorized capacity as such officer as his
free and voluntary act and deed and the free and voluntary act and deed of said
corporation.
IN WITNESS WHEREOF, hereunto set my hand and official seal.
Notary Public
NOTARIAL SEAL
My Commission Expires:
/s/
----------------------
30
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 29th day of January, 1999, before me, the undersigned officer,
personally appeared David L. Schmitt, having an address c/o New Horizons of
Yonkers, Inc., One Bradlees Circle, P.O. Box 9051, Braintree, Massachusetts
02184, personally known and acknowledged himself to me to be the Senior Vice
President and General Counsel of New Horizons of Yonkers, Inc., and that as such
officer, being duly authorized to do so pursuant to its bylaws or a resolution
of its board of directors, executed, subscribed and acknowledged the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself in his authorized capacity as such officer as his free
and voluntary act and deed and the free and voluntary act and deed of said
corporation.
IN WITNESS WHEREOF, hereunto set my hand and official seal.
Notary Public
NOTARIAL SEAL
My Commission Expires:
/s/
- --------------------------
31
<PAGE>
Schedule A
----------
Lease
32
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I PAYMENT OF TAXES, INSURANCE, ETC........................... 5
1.1. Certain Definitions........................................ 5
1.2. Payment of Taxes and Claims................................ 5
1.3. Compliance with Insurance Requirements Instruments......... 5
1.4. Compliance with Laws....................................... 5
1.5. Government Approvals....................................... 5
1.6. Liens...................................................... 5
1.7. The Lease.................................................. 5
1.8. Utility Services........................................... 6
1.9. Maintenance and Repair, etc................................ 6
1.10. Alterations, Changes, etc.................................. 6
1.11. Acquired Property Subject to Lien.......................... 7
ARTICLE II COVENANTS OF THE MORTGAGOR................................. 7
2.1. Compliance with Indenture.................................. 7
2.2. Obligations Secured by Mortgage............................ 7
2.3. Prohibitions on Sale Transfer etc.......................... 8
2.4. Recordation................................................ 8
2.5. No Waste................................................... 8
2.6. Inspection, etc............................................ 8
2.7. Notice of Event of Default, Default or Claimed Default..... 9
2.8. No Credit for Payment of Taxes............................. 9
2.9. Use of Mortgagee's Name.................................... 9
2.10. The Lease.................................................. 9
2.11. The Easements.............................................. 13
ARTICLE III EMINENT DOMAIN, INSURANCE PROCEEDS, ETC.................... 14
3.1. Damage, Destruction or Taking; the Mortgagor to
Give Notice; Assignment of Awards.......................... 14
3.2. Application of Insurance Proceeds.......................... 15
3.3. Application of Awards, etc................................. 15
ARTICLE IV EVENTS OF DEFAULT.......................................... 15
4.1. Events of Default; Indebtedness Due........................ 15
4.2. Enforcement; Foreclosure................................... 16
4.3. Power of Sale.............................................. 17
4.4. The Mortgagee Authorized to Execute Deeds, etc............. 17
4.5. Purchase of Mortgaged Property by the Mortgagee............ 17
<PAGE>
4.6. Receipt a Sufficient Discharge to Purchaser................ 17
4.7. Waiver of Appraisement, Valuation, etc..................... 18
4.8. Sale a Bar Against the Mortgagor........................... 18
4.9. Application of Proceeds of Sale and Other Monies........... 18
4.10. Appointment of Receiver.................................... 18
4.11. Possession, Management and Income.......................... 19
4.12. Right to Perform the Mortgagor's Covenants................. 19
4.13. Cumulative Remedies........................................ 19
4.14. Provisions Subject to Applicable Law....................... 20
4.15. No Waiver.................................................. 20
4.16. Compromise of Actions...................................... 21
4.17. Expenses Incurred in Protecting or Enforcing Rights........ 21
4.18. Power of Attorney.......................................... 22
ARTICLE V FINANCING STATEMENT AND MISCELLANEOUS PROVISIONS........... 22
5.1. Further Assurances......................................... 22
5.2. Fixtures; Financing Statement.............................. 22
5.3. Assignment of Leases, Rents and Profits.................... 23
5.4. Partial Release............................................ 24
5.5. Release and Discharge of Mortgage.......................... 24
5.6. Mortgagor, Mortgagee, Person(s)............................ 25
5.7. Cessation of Mortgagor's Interest.......................... 25
5.8. Notices.................................................... 25
5.9. No Merger of Fee and Leasehold Estates..................... 25
5.10. No Claims Against the Mortgagee, etc....................... 26
5.11. Waiver of Right to Bring Counterclaim in
Foreclosure Action......................................... 26
5.12. Usury Laws................................................. 27
5.13. FIRPTA..................................................... 27
5.14. Conflicts with Indenture................................... 27
5.15. Trust Funds................................................ 27
5.16. Miscellaneous.............................................. 28
5.17. Mortgagee Waiver and Consent Agreement..................... 28
5.18. WAIVER OF JURY TRIAL....................................... 28
SCHEDULE A - Lease
<PAGE>
Exhibit 2.10
SECURITY AGREEMENT
(Pledge)
Between
BRADLEES STORES, INC.
And
IBJ WHITEHALL BANK & TRUST COMPANY,
As Trustee
February 2, 1999
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made as of February 2, 1999, between BRADLEES
STORES, INC., a Massachusetts corporation, as reorganized pursuant to the Plan
described below ("Pledgor"), and IBJ WHITEHALL BANK & TRUST COMPANY, a New York
-------
banking corporation as trustee for itself, and on behalf of each holder (as
defined below) ("Secured Party").
-------------
RECITALS
--------
A. Reference is made to the 9% Notes Due 2004 (the "Notes") issued pursuant to
-----
that certain Indenture, dated as of February 2, 1999 (the "Indenture") among
---------
Pledgor, Secured Party and Bradlees, Inc., a Massachusetts corporation, as
reorganized pursuant to the Plan ("BI"). For purposes of this Agreement,
"Holders" means the registered owners of the Notes as shown on the Security
Register (as defined in the Indenture) maintained for that purpose.
B. Reference is also made to the Second Amended Joint Plan of Reorganization of
Bradlees Stores, Inc. and Certain Affiliates under Chapter 11 of the Bankruptcy
Code confirmed on January 27, 1999 by the United States Bankruptcy Court
Southern District of New York (the "Plan").
----
C. Pursuant to the Plan and the Indenture, the Pledgor has agreed to enter into
this Security Agreement.
D. Therefore, in order to comply with the terms and conditions of the Plan and
the Indenture and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
ARTICLE 1.
Security Interest
-----------------
Section 1.01 Pledge. Pledgor hereby pledges, assigns, and grants to Secured
- ------------ ------
Party a security interest in all of Pledgor's right, title and interest in the
assets referred to in Section 1.02 (the "Collateral") to secure the prompt
----------
payment when due (whether for principal, interest or otherwise at stated
maturity, by acceleration or otherwise) of the payment obligations of the
Pledgor under the Indenture (the "Obligations").
-----------
Section 1.02 Collateral. The Collateral consists of the following:
- ------------ ----------
(i) 100% of the common stock of New Horizons of Yonkers, Inc., a Delaware
corporation ("New Horizons"), whether now or hereafter existing,
including without limitation 1,000 shares of common stock, no par
value, of New Horizons registered in the name of the Pledgor on the
books of New Horizons (such 1,000 shares represented by Certificate
No. 3).
2
<PAGE>
(ii) (i) the certificates or instruments, if any, representing such
securities, (ii) all dividends (cash, stock or otherwise), cash,
instruments, rights to subscribe, purchase or sell and all other
rights and property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such securities, and (iii) the proceeds, interest, profits and other
income on any of the property referred to in this Section 1.02.
Section 1.03 Additional Shares. Pledgor agrees that it will cause New
- ------------ -----------------
Horizons not to issue any additional shares of common stock. Notwithstanding
the foregoing, (i) if any stock dividend, stock split, reclassification,
readjustment or other change is declared or made in the capital structure of New
Horizons, all new, substituted and additional shares issued by reason thereof
and received by Pledgor shall be promptly delivered to Secured Party in
accordance with the provisions of Section 1.04 below and (ii) if any
subscriptions or other rights shall be issued in connection with the Pledged
Securities, all new stock acquired through such subscriptions or rights shall be
promptly delivered to Secured Party in accordance with the provisions of Section
1.04 below.
Section 1.04 Transfer of Collateral. All certificates or instruments
- ------------ ----------------------
representing or evidencing the Pledged Securities (as hereinafter defined) shall
be delivered to and held pursuant hereto by Secured Party or a Person designated
by Secured Party and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to Secured Party. After the
occurrence and continuance of an Event of Default (as hereinafter defined),
Secured Party shall have the right, at any time in its discretion and without
notice to Pledgor, to transfer to or to register in the name of Secured Party or
any of its nominees any or all of the Pledged Securities, subject only to the
revocable rights of Pledgor specified in Section 6.04, and to exchange
certificates or instruments representing or evidencing Pledged Securities for
certificates or instruments of smaller or larger denominations.
ARTICLE 2.
Definitions
-----------
Section 2.01 Terms Defined Herein. As used in this Agreement, the terms
- ------------ --------------------
defined herein shall have the meanings respectively assigned to them. Other
capitalized terms which are defined in the Indenture but which are not defined
herein shall have the same meanings as defined in the Indenture.
3
<PAGE>
Section 2.02 Certain Definitions. As used in this Agreement, the following
- ------------ -------------------
terms shall have the following meanings, unless the context otherwise requires:
"Agreement" means this Security Agreement, as the same may from time
---------
to time be amended or supplemented.
"Code" means the Uniform Commercial Code as presently in effect in the
----
State of New York; provided that, if by reason of mandatory provisions of
-------- ----
law, the perfection or the effect of perfection or nonperfection of the
assignment and security interest in any Collateral is governed by the
Uniform Commercial Code or similar legislation as in effect in a
jurisdiction other than New York, "Code" means the Uniform Commercial Code
----
or similar legislation as in effect in such other jurisdiction for purposes
of the provisions hereof relating to such perfection or effect of
perfection or nonperfection. Unless otherwise indicated by the context
herein, all uncapitalized terms which are defined in the Code shall have
their respective meanings as used in Articles 8 and 9 of the Code.
"Event of Default" has the meaning set forth in the Indenture.
----------------
"Pledged Securities" means all of the securities and other property
------------------
(whether or not the same constitutes a "security" under the Code) referred
to in Section 1.02 and all additional securities (as that term is defined
in the Code), if any, constituting Collateral under this Agreement.
ARTICLE 3.
Representations and Warrants
----------------------------
In order to induce Secured Party to accept this Agreement, Pledgor
represents and warrants to Secured Party that:
Section 3.01 Execution, Delivery and Performance. The execution, delivery
- ------------ -----------------------------------
and performance by Pledgor of this Agreement do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of Pledgor or of any agreement,
judgment, injunction, order, decree or other instrument, binding upon Pledgor or
result in the creation or imposition of any Lien on any assets of Pledgor,
except for the security interests granted under this Agreement.
Section 3.02 Binding Obligations. This Agreement has been duly executed and
- ------------ -------------------
delivered by Pledgor and constitutes a legal, valid and binding obligation of
Pledgor, enforceable against Pledgor in accordance with its terms, except as
such enforceability may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar law affecting creditors'
rights generally or general principles of equity.
4
<PAGE>
Section 3.03 Ownership of Collateral. Pledgor is the legal and beneficial
- ------------ -----------------------
owner of the Collateral free and clear of any adverse claim, lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement.
Section 3.04 Pledged Securities. The Pledged Securities have been duly
- ------------ ------------------
authorized and validly issued, and are fully paid and non-assessable.
Section 3.05 Valid Security Interest. The pledge of the Pledged Securities
- ------------ -----------------------
(together with physical delivery of the certificates representing the Pledged
Securities in accordance with Section 1.04 hereof) pursuant to this Agreement
creates a valid and perfected security interest in the Collateral.
ARTICLE 4.
Covenants and Agreements
------------------------
Section 4.01 Sale, Disposition or Encumbrance of Collateral. Pledgor will
- ------------ ----------------------------------------------
not in any way encumber any of the Collateral (or permit or suffer any of the
Collateral to be encumbered) or sell, pledge, assign, lend or otherwise dispose
of or transfer any of the Collateral to or in favor of any Person other than
Secured Party, in each case other than the Disposition of all of the Pledged
Securities in connection with the Disposition of the Yonkers Property and other
than as permitted pursuant to Section 6.9 of the Indenture.
Section 4.02 Dividends or Distributions. So long as no Event of Default
- ------------ --------------------------
shall have occurred and be continuing, Pledgor shall be entitled to receive and
retain any and all dividends and distributions paid in respect of the
Collateral.
Section 4.03 Records and Information. Pledgor shall keep accurate and
- ------------ -----------------------
complete records of the Collateral (including proceeds, payments, distributions,
income and profits). Pledgor shall permit Secured Party to have access to,
examine, audit, make extracts from and inspect Pledgor's records and files with
respect to the Collateral at such reasonable times during normal business hours
as may be reasonably requested by Secured Party. Pledgor will promptly provide
written notice to Secured Party of all information which in any way relates to
or affects the filing of any financing statement or other public notices or
recordings, or the delivery and possession of items of Collateral for the
purpose of perfecting a security interest in the Collateral.
Section 4.04 Stock Powers. Pledgor shall furnish to Secured Party such
- ------------ ------------
stock powers and other instruments as may be required by Secured Party to assure
the transferability of the Collateral pursuant to Section 6.02 when and as often
as may be requested by Secured Party. Secured Party shall furnish to Pledgor
such stock powers and other instruments as may be required by Pledgor in order
to permit Pledgor to receive dividends and distributions pursuant to Section
4.02 above and exercise its voting and other rights pursuant to Section 4.05
below.
5
<PAGE>
Section 4.05 Voting and Other Consensual Rights. Except to the extent
- ------------ ----------------------------------
otherwise provided in subsection 6.04(c), Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Collateral or
any part thereof for any purpose which does not violate the terms of this
Agreement.
Section 4.06 Further Assurances. Pledgor at its own expense, as promptly as
- ------------ ------------------
practical, will execute and deliver to Secured Party upon request all such
instruments and take all such action in order fully to effectuate the purposes
of this Agreement.
ARTICLE 5.
Rights, Duties, and Powers of Secured Party
-------------------------------------------
Section 5.01 Transfer of Collateral. Subject to the provisions of the
- ------------ ----------------------
Indenture, Secured Party may resign or be removed as Trustee under the
Indenture, and, upon any such resignation or removal, the interest of Secured
Party in any or all of the Collateral shall automatically be transferred to the
successor Trustee under the Indenture and Secured Party shall be fully
discharged thereafter from all liability therefor. Any successor Trustee shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.02 Cumulative and Other Rights. The rights, powers and remedies
- ------------ ---------------------------
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party of any one or more of
the rights, powers and remedies herein shall not be construed as a waiver of any
other rights, powers and remedies, including, without limitation, any other
rights of set-off.
Section 5.03 Disclaimer of Certain Duties.
- ------------ ----------------------------
(a) The powers conferred upon Secured Party by this Agreement are to protect its
interest in the Collateral and shall not impose any duty upon Secured Party or
any Holder to exercise any such powers. Pledgor hereby agrees that Secured Party
shall not be liable for, nor shall the indebtedness evidenced by the Obligations
be diminished by, Secured Party's delay or failure to collect upon, foreclose,
sell, take possession of or otherwise obtain value for the Collateral.
(b) Except as may be required pursuant to the Indenture, Secured Party shall be
under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Person.
Section 5.04 Custody and Preservation of the Collateral. Secured Party
- ------------ ------------------------------------------
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which comparable secured parties accord
comparable collateral.
6
<PAGE>
Section 5.05 Waivers. Except to the extent such matters are required
- ------------ -------
pursuant to the Indenture, Pledgor waives diligence, presentment, protest,
demand for payment, and notice of default or nonpayment, notice of intention to
accelerate maturity, and notice of acceleration of maturity to or upon Pledgor
with respect to the Obligations.
ARTICLE 6.
Events of Default
-----------------
Section 6.01 Events. It shall constitute an Event of Default under this
- ------------ ------
Agreement if an Event of Default occurs and is continuing under the Indenture.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
- ------------ --------
any Event of Default, Secured Party, in accordance with the terms of the
Indenture, may take any or all of the following actions:
(a) Sell, in one or more sales and in one or more parcels, or otherwise
dispose of any or all of the Collateral in any commercially reasonable manner as
Secured Party may elect, in a public or private transaction, at any location as
deemed reasonable by Secured Party for cash or for future delivery at such price
as Secured Party may deem fair, and (unless prohibited by the Code, as adopted
in any applicable jurisdiction) Secured Party or any Holder may be the purchaser
of any or all Collateral so sold and may apply the purchase price therefor
towards the payment of any Obligations secured hereby. Upon any such sale or
transfer, Secured Party shall have the right to deliver, assign and transfer to
the purchaser or transferee thereof the Collateral so sold or transferred. If
Secured Party deems it advisable to do so, it may restrict the bidders or
purchasers of any such sale or transfer to Persons or entities who will
represent and agree that they are purchasing the Collateral for their own
account and not with the view to the distribution or resale of any of the
Collateral. Secured Party may, at its discretion, provide for a public sale, and
any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as Secured Party may fix in the
notice of such sale. Secured Party shall not be obligated to make any sale
pursuant to any such notice. Secured Party may adjourn any public or private
sale by announcement at any time and place fixed for such sale, and such sale
may be made at any time or place to which the same may be so adjourned. In the
event that Secured Party elects not to sell the Collateral, Secured Party
retains its rights to dispose of or utilize the Collateral or any part or parts
thereof in any manner authorized or permitted by law or in equity, and to apply
the proceeds of the same towards payment of the Obligations.
(b) Apply proceeds of the disposition of the Collateral to the Obligations in
any manner elected by Secured Party and permitted by the Code or otherwise
permitted by law or in equity. Any surplus of proceeds held by Secured Party and
remaining after payment of all of the Obligations shall be paid over to Pledgor
or to whomever may be lawfully entitled to receive such surplus.
7
<PAGE>
(c) Appoint any Person as agent to perform any act or acts necessary or
incident to any sale or transfer by Secured Party of the Collateral.
(d) Exercise all other rights and remedies permitted by law or in equity.
Section 6.03 Attorney-in-Fact. Pledgor hereby irrevocably appoints Secured
- ------------ ----------------
Party as Pledgor's attorney-in-fact, with full authority in the place and stead
of pledgor and in the name of Pledgor or otherwise, from time to time in Secured
Party's discretion upon the occurrence and during the continuance of an Event of
Default, but at Pledgor's cost and expense, to take any action and to execute
any assignment, certificate, financing statement, stock power, notification,
document or instrument which Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, to
receive, endorse and collect all instruments made payable to Pledgor
representing any dividend, interest payment or other distribution in respect of
the Collateral or any part thereof and to give full discharge for the same.
Section 6.04 Pledged Securities. Upon the occurrence and during the
- ------------ ------------------
continuance of an Event of Default:
(a) All rights of Pledgor to receive the dividends and interest payments which
it would otherwise be authorized to receive and retain pursuant to this
Agreement shall cease, and all such rights shall thereupon become vested in
Secured Party who shall thereupon have the sole right to receive and hold as
Collateral such dividends and interest payments.
(b) All dividends and interest payments which are received by Pledgor contrary
to the provisions of this Section 6.04 shall be received in trust for the
benefit of Secured Party, shall be segregated from other funds of Pledgor and
shall be forthwith paid over to Secured Party as Collateral in the same form as
so received (with any necessary endorsement).
(c) If the issuer of any Pledged Securities is the subject of bankruptcy,
insolvency, receivership, custodianship or other proceedings under the
supervision of any court or governmental agency or instrumentality (other than
any proceedings in existence as of the date of this Agreement), then all rights
of Pledgor to exercise the voting and other consensual rights which Pledgor
would otherwise be entitled to exercise pursuant to Section 4.05 with respect to
the Pledged Securities issued by such issuer shall cease, and all such rights
shall thereupon become vested in Secured Party who shall thereupon have the sole
right to exercise such voting or other consensual rights.
8
<PAGE>
ARTICLE 7.
Miscellaneous Provisions
------------------------
Section 7.01 Notices. Any notice required or permitted to be given under or
- ------------ -------
in connection with this Agreement shall be given in accordance with the notice
provisions of the Indenture.
Section 7.02 Amendments and Waivers. Secured Party's acceptance of partial
- ------------ ----------------------
or delinquent payments or any forbearance, failure or delay by Secured Party in
exercising any right, power or remedy hereunder shall not be deemed a waiver of
any obligation of Pledgor, or of any right, power or remedy of Secured Party;
and no partial exercise of any right, power or remedy shall preclude any other
or further exercise thereof. Secured Party may remedy any Event of Default
hereunder or in connection with the Obligations without waiving the Event of
Default so remedied. Pledgor hereby agrees that if Secured Party agrees to a
waiver of any provision hereunder, or an exchange of or release of the
Collateral, or the addition or release of any other Person, any such action
shall not constitute a waiver of any of Secured Party's other rights or of
Pledgor's obligations hereunder. This Agreement may be amended only by an
instrument in writing executed jointly by Pledgor and Secured Party and may be
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof.
Section 7.03 Governing Law; Jurisdiction. This Agreement and the security
- ------------ ---------------------------
interest granted hereby shall be construed in accordance with and governed by
the laws of the State of New York (except to the extend that the laws of any
other jurisdiction govern the perfection and priority of the security interest
granted hereby).
Section 7.04 Continuing Security Agreement.
- ------------ -----------------------------
(a) This Agreement shall create a continuing security interest in the
Collateral and shall, unless otherwise provided in the Indenture or this
Agreement, (i) remain in full force and effect until payment in full is made of
all Obligations in accordance with the terms of the Indenture, (ii) be binding
upon Pledgor, its successors and assigns, and (iii) inure, together with the
rights and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders and each of their respective successors, transferees and assigns.
(b) To the extent that any payments on the Obligations or proceeds of the
Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not be received by
Secured Party or the Holders, and Secured Party's and the Holders' security
interests, rights, powers and remedies hereunder shall continue in full force
and effect. In such event, this Agreement shall be automatically reinstated if
it shall theretofore have been terminated pursuant to Section 7.05.
Section 7.05 Termination. The grant of a security interest hereunder and
- ------------ -----------
all of the Secured Party's and the Holders' rights, powers and remedies in
connection therewith shall remain in full force and effect until Secured Party
has (a) retransferred and delivered
9
<PAGE>
all Collateral in its possession to Pledgor, and (b) executed a written release
or termination statement and reassigned to Pledgor without recourse or warranty
any remaining Collateral and all rights conveyed hereby. Upon (i) the complete
payment of the Obligations, (ii) satisfaction and discharge of the Obligations
pursuant to Article 10 of the Indenture or (iii) the Disposition of the Yonkers
Property and the application of the Net Proceeds of such Disposition in
accordance with Article 3 of the Indenture, Secured Party will release, reassign
and transfer the Collateral to Pledgor and declare this Agreement to be of no
further force or effect.
Section 7.06 Invalidity. In case any provision of this Agreement shall be
- ------------ ----------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 7.07 Counterparts, Effectiveness. This Agreement may be executed in
- ------------ ---------------------------
two or more counterparts. Each counterpart is deemed an original, but all such
counterparts taken together constitute one and the same instrument.
10
<PAGE>
PLEDGOR: BRADLEES STORES, INC.
- -------
By:
----------------------------------
Name:
Title:
TRUSTEE: IBJ WHITEHALL BANK & TRUST COMPANY
- -------
By:
----------------------------------
Name:
Title:
11
<PAGE>
Exhibit 3.1
FEDERAL IDENTIFICATION
NO. __________________
__________ The Commonwealth of Massachusetts
Examiner William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
__________
Name
Approved
We, Robert G. Lynn, , *President
----------------------------------------------------------------
and David L. Schmitt , *Clerk
--------------------------------------------------------------------
of Bradlees, Inc. ,
-----------------------------------------------------------------------------
(Exact name of corporation)
located at One Bradlees Circle, Braintree, MA 02184 ,
--------------------------------------------------------------------
(Street address of corporation Massachusetts)
do hereby certify that the following Restatement of the Articles of Organization
was duly adopted on February 2, 1999 by order of the Bankruptcy Court
____ shares of ________________________________ of ____ shares outstanding,
(type, class & series, if any)
____ shares of ________________________________ of ____ shares outstanding, and
(type, class & series, if any)
____ shares of ________________________________ of ____ shares outstanding,
(type, class & series, if any)
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon: /**being at least two-thirds of each type, class or
series outstanding and entitled to vote thereon and each type, class or series
of stock whose rights are adversely affected thereby:
C [_] ARTICLE I
P [_] The name of the corporation is:
M [_]
R.A. [_] Bradlees, Inc.
ARTICLE II
The purpose of the corporation is to engage in the following
business activities:
1. To own, operate and maintain discount department stores, and
2. to conduct all lawful acts and activities for which corporations may be
organized under the Massachusetts Business Corporation Law.
__________
P.C.
*Delete the inapplicable words. **Delete the inapplicable clause.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than one article
may be made on a single sheet so long as each article requiring each addition is
clearly indicated.
<PAGE>
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: Common: 40,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 1,000,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Addendum A.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Addendum B.
**If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
One Bradlees Circle, Braintree, MA 02184
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President: Robert G. Lynn 35 Cattle Pen Lane One Bradlees Circle
Ridgefield, CT 06877 Braintree, MA 02184
Treasurer: Paul R. McKelvey 30 Planting Field Road One Bradlees Circle
Medfield, MA 02052 Braintree, MA 02184
Clerk: David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle
Weymouth, MA 02191 Braintree, MA 02184
Directors: See Addendum C.
c. The fiscal year (i.e., tax year) of the corporation shall end on the
Saturday nearest January 31 of each year.
d. The name and business address of the resident agent, if any, of the
corporation is:
** We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following articles. Briefly
describe amendments below:
See Addendum D.
SIGNED UNDER THE PENALTIES OF PERJURY, this 2/nd/ day of February ,1999.
/s/ Robert G. Lynn , *President
- --------------------------------------------------------------
/s/ David L. Schmitt , *Clerk
- -----------------------------------------------------------------
*Delete the inapplicable words. **If there are no amendments, state "None".
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
================================================================================
I hereby approve the within Restated Articles of Organization and, the filing
fee in the amount of $ __________ having been paid, said articles are deemed to
have been filed with me this _______ day of _______________, 19__.
Effective Date: February 2, 1999
_______________________________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
William V. Buccella
- --------------------------------------------------------------------------------
Goodwin, Procter & Hoar LLP
- --------------------------------------------------------------------------------
53 State Street
- --------------------------------------------------------------------------------
Exchange Place
Boston, MA 02109-2881
Telephone: (617) 570-1000
----------------------------------------------------------------------
<PAGE>
ADDENDA TO THE RESTATED
ARTICLES OF ORGANIZATION OF
BRADLEES, INC.
Addendum A
----------
ARTICLE IV
CAPITAL STOCK
-------------
The authorized capital stock of BRADLEES, INC. (the "Corporation") shall
consist of (i) common stock, $.01 par value per share (the "Common Stock"), and
(ii) preferred stock, $.01 par value per share (the "Preferred Stock").
A. Common Stock
------------
1. The holders of shares of Common Stock shall be entitled to one
vote for each share so held with respect to all matters voted on by the
stockholders of the Corporation, subject in all cases to the voting rights of
any holders of Preferred Stock.
2. Subject to the rights of the Preferred Stock upon any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the net assets of the Corporation shall be distributed pro rata to
the holders of the Common Stock in accordance with their respective rights and
interests.
3. Subject to the rights, if any, of any holders of Preferred Stock,
dividends may be paid on the Common Stock as and when declared by the Board of
Directors of the Corporation (the "Board of Directors") out of funds legally
available therefor.
B. Preferred Stock
---------------
Subject to any limitations prescribed by law or these Articles, the Board
of Directors or any authorized committee thereof is expressly authorized to
provide for the issuance of up to 1,000,000 shares of Preferred Stock in one or
more series of stock, and by filing a certificate pursuant to applicable law of
the Commonwealth of Massachusetts, to establish or change from time to time the
number of shares to be included in each series, and to fix the designation,
voting powers, preferences, qualifications, privileges and rights of the shares
of each series and any qualifications, limitations and restrictions thereof. The
Board of Directors or any authorized committee thereof shall have the right to
determine or fix by vote or votes providing for the issuance of the shares
thereof one or more of the following with respect to each series of such
Preferred Stock:
<PAGE>
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
3. The voting powers, full or limited, of the shares of such series;
4. Whether the shares of such series shall be redeemable (at the
option of the holder or of the Corporation or otherwise) and, if so, the price
or prices at which, and the terms and conditions on which, such shares may be
redeemed;
5. The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other series of the same or any other class or
classes of stock of the Corporation or the securities of any other entity or any
other assets and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued;
9. Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Preferred Stock and
whether such shares may be reissued as shares of the same or any other class or
series of stock; and
10. Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
2
<PAGE>
Subject to the authority of the Board of Directors or any authorized
committee thereof as set forth in Paragraph 9 above, any shares of Preferred
Stock shall, upon reacquisition thereof by the Corporation, be restored to the
status of authorized but unissued Preferred Stock under this Section B.
Except as specifically provided in these Articles, the holders of Preferred
Stock or Common Stock shall not be entitled to any vote and shall not have any
voting rights concerning the designation or issuance of any shares of Preferred
Stock authorized by and complying with the conditions of these Articles, and
subject to the authority of the Board of Directors or any authorized committee
thereof as set forth above, the right to any such vote is expressly waived by
all present and future holders of the capital stock of the Corporation.
C. Issuance of Capital Stock
-------------------------
The Corporation shall not (a) issue non-voting equity securities, (b)
create a class of equity securities having a preference over any other class of
equity securities with respect to dividends unless adequate provision is made
for the election of Directors representing the preferred class in the event of a
default in the payment of its dividends, or (c) create any other class of equity
securities unless an appropriate distribution of voting power is made among all
such classes.
3
<PAGE>
Addendum B
----------
ARTICLE VI (A)
CLASSIFICATION OF DIRECTORS
---------------------------
The initial Directors shall serve for a term expiring at the annual meeting
of stockholders to be held in the year ending December 31, 2000, which meeting
shall be held no sooner than following the close of the 1999 fiscal year. At
each annual meeting of stockholders, the successors of the Directors whose term
expires at such meeting shall be elected by a plurality of the votes cast at
such meeting and shall hold office for a term expiring at the annual meeting of
stockholders held in the year following the year of their election. The
Directors elected shall hold office until their successors are duly elected and
qualified or until their earlier resignation or removal.
ARTICLE VI (B)
LIMITATION OF LIABILITY OF DIRECTORS
------------------------------------
A. No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director notwithstanding any provision of law imposing such liability;
provided, however, that this Article shall not eliminate or limit any liability
of a Director (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Sections 61 or 62 of Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or (iv) with respect to any transaction from which the Director
derived an improper personal benefit.
B. No amendment or repeal of this Article shall adversely affect the
rights and protection afforded to a Director of this Corporation under this
Article for acts or omissions occurring prior to such amendment or repeal. If
the Massachusetts Business Corporation Law is hereafter amended to further
eliminate or limit the personal liability of Directors or to authorize corporate
action to further eliminate or limit such liability, then the liability of the
Directors of this Corporation shall be eliminated or limited to the fullest
extent permitted by the Massachusetts Business Corporation Law as so amended.
4
<PAGE>
ARTICLE VI (C)
TRANSACTIONS WITH INTERESTED PERSONS
------------------------------------
A. Unless entered into in bad faith, no contract or transaction by the
Corporation shall be void, voidable or in any way affected by reason of the fact
that it is with an Interested Person.
B. For the purposes of this Article, "Interested Person" means any person
or organization in any way interested in the Corporation whether as an officer,
Director, stockholder, employee or otherwise, and any other entity in which any
such person or organization or the Corporation is in any way interested.
C. Unless such contract or transaction was entered into in bad faith, no
Interested Person, because of such interest, shall be liable to the Corporation
or to any other person or organization for any loss or expense incurred by
reason of such contract or transaction or shall be accountable for any gain or
profit realized from such contract or transaction.
D. The provisions of this Article shall be operative notwithstanding the
fact that the presence of one or more Interested Persons was necessary to
constitute a quorum at a meeting of Directors or stockholders of the Corporation
at which such contract or transaction was authorized or that the vote of one or
more Interested Persons was necessary for the authorization of such contract or
transaction.
E. Business Combination with Interested Shareholders. The provisions of
-------------------------------------------------
Chapter 110F of the General Laws of the Commonwealth of Massachusetts ("Chapter
110F"), as it may be amended from time to time, shall, except to the extent set
forth in Chapter 110F, not apply to "business combinations with interested
shareholders" of the Corporation within the meaning of Chapter 110F.
F. Control Share Acquisition. The provisions of Chapter 110D of the
-------------------------
General Laws of the Commonwealth of Massachusetts ("Chapter 110D"), as it may be
amended from time to time, shall not apply to "control share acquisitions" of
the Corporation within the meaning of Chapter 110D.
ARTICLE VI (D)
STOCKHOLDERS' MEETINGS
----------------------
A. Action by Written Consent
-------------------------
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, provided that all (or
such lesser percentage as may be permitted by the law of The Commonwealth of
Massachusetts) stockholders entitled to vote on the matter consent to the action
in writing and the written consents are filed with the records of the meetings
of stockholders. Such consents shall be treated for all purposes as a vote at a
meeting of stockholders.
B. Location of Meetings
--------------------
Meetings of stockholders of the Corporation may be held anywhere within the
United States.
5
<PAGE>
ARTICLE VI (E)
ACTING AS A PARTNER
-------------------
The Corporation may be a partner in any business enterprise which it would
have power to conduct by itself.
ARTICLE VI (F)
EXAMINATION OF BOOKS
--------------------
Except as otherwise provided by law, no stockholder shall have any right to
examine any property or any books, accounts or other writings of the Corporation
if there is reasonable ground for belief that such examination will for any
reason be adverse to the interests of the Corporation, and a vote of the
Directors refusing permission to make such examination and setting forth that in
the opinion of the Directors such examination would be adverse to the interests
of the Corporation shall be prima facie evidence that such examination would be
adverse to the interests of the Corporation. Every such examination which is
permitted shall be subject to such reasonable requirements as the Corporation
may establish in regard thereto.
ARTICLE VI (G)
AMENDMENT OF BY-LAWS
--------------------
A. Amendment by Directors
----------------------
Except as otherwise required by law, the By-laws of the Corporation may be
amended or repealed by the affirmative vote of a majority of the Directors then
in office. Not later than the time of giving notice of the annual meeting of
stockholders next following the amending or repealing by the Directors of any
By-law, notice thereof stating the substance of such change shall be given to
all stockholders entitled to vote on amending the By-laws.
B. Amendment by Stockholders
-------------------------
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least two-thirds of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class; provided, however, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
6
<PAGE>
ARTICLE VI (H)
STOCKHOLDER VOTE REQUIRED FOR AMENDMENT OF
------------------------------------------
ARTICLES OF ORGANIZATION
------------------------
Except as otherwise required by law, these Articles may be amended at any
annual meeting of stockholders, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least two-thirds of the total votes
eligible to be cast on such amendment by holders of voting stock, voting
together as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment at such meeting of
stockholders, such amendment shall only require the affirmative vote of a
majority of the total votes eligible to be cast on such amendment by holders of
voting stock, voting together as a single class.
7
<PAGE>
Addendum C
----------
<TABLE>
<CAPTION>
POST OFFICE
NAME RESIDENTIAL ADDRESS ADDRESS
---- ------------------- -----------
<S> <C> <C> <C>
Directors Peter Thorner 1243 Adams Street Bradlees, Inc.
Dorchester, MA 02124 One Bradlees Circle
Braintree, MA 02184
Robert G. Lynn 35 Cattle Pen Lane Bradlees, Inc.
Ridgefield, CT 06877 One Bradlees Circle
Braintree, MA 02184
Robert Altschuler 200 Long Lots Road Marx Realty &
Westport, CT 06880 Improvement Co., Inc.
708 Third Avenue
New York, NY 10017
Lawrence Lieberman 64 Wright Street 888 Broadway
Westport, CT 06880 New York, NY 10003
William H. Roth 144 East 84th Street 36 West 44th Street
New York, NY 10028 New York, NY 10036
Charles K. MacDonald 5120 NE 29th Avenue Mongandane Management Corp.
Lighthouse Point, FL 33064 5120 NE 29th Avenue
Lighthouse Point, FL 33064
Stephen J. Blauner 449 Hudson Street One Chase Manhattan Plaza
New York, NY 10014 New York, NY 10005
W. Edward Clingman, Jr. 7371 Beulah Church Road c/o Best Products Co., Inc.
Mechanicsville, VA 23111 P. O. Box 26303
Richmond, VA 23260
John M. Friedman, Jr. 62 Barner Road 62 Barner Road
New Milford, CT 06776 New Milford, CT 06776
</TABLE>
8
<PAGE>
Addendum D
----------
Article IV(A) Description of Voting Rights, Liquidation Rights, and
Dividends of Common Stock.
Article IV(B) Description of powers and rights of Board of Directors
with respect to Preferred Stock.
Article IV(C) Description of the Corporation's rights with respect to
issuance of capital stock.
Article VI(A) Provision regarding classification of directors.
Article VI(B) Provision regarding the limitation of liability of directors.
Article VI(C) Provision regarding transactions with interested persons.
Article VI(D) Provision regarding action of stockholders by written
consent and location of stockholder meetings.
Article VI(E) Provision permitting the Corporation to act as a
partner in any business enterprise.
Article VI(F) Provision regarding stockholders' rights to examine
books of the Corporation.
Article VI(G) Provision regarding amendment of the By-laws of the
Corporation.
Article VI(H) Provision describing stockholder vote required for
amendment of the Articles of Organization of the Corporation.
9
<PAGE>
Exhibit 3.2
FEDERAL IDENTIFICATION
NO. __________________
__________ The Commonwealth of Massachusetts
Examiner William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
__________
Name
Approved
We, Robert G. Lynn, , *President
----------------------------------------------------------------
and David L. Schmitt , *Clerk
--------------------------------------------------------------------
of Bradlees Stores, Inc. ,
-----------------------------------------------------------------------------
(Exact name of corporation)
located at One Bradlees Circle, Braintree, MA 02184 ,
--------------------------------------------------------------------
(Street address of corporation Massachusetts)
do hereby certify that the following Restatement of the Articles of Organization
was duly adopted on February 2, 1999 order of the Bankruptcy
____ shares of ________________________________ of ____ shares outstanding,
(type, class & series, if any)
____ shares of ________________________________ of ____ shares outstanding, and
(type, class & series, if any)
____ shares of ________________________________ of ____ shares outstanding,
(type, class & series, if any)
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon: /**being at least two-thirds of each type, class or
series outstanding and entitled to vote thereon and each type, class or series
of stock whose rights are adversely affected thereby:
C [_] ARTICLE I
P [_] The name of the corporation is:
M [_]
R.A. [_] Bradlees Stores, Inc.
ARTICLE II
The purpose of the corporation is to engage in the following
business activities:
1. To own, operate and maintain discount department stores, and
2. to conduct all lawful acts and activities for which corporations may be
organized under the Massachusetts Business Corporation Law.
__________
P.C.
*Delete the inapplicable words. **Delete the inapplicable clause.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than one article
may be made on a single sheet so long as each article requiring each addition is
clearly indicated.
<PAGE>
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: Common: 150,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 50,000 $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See Addendum A.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Addendum B.
**If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty days after the date of filing.
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
One Bradlees Circle, Braintree, MA 02184
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C>
President: Robert G. Lynn 35 Cattle Pen Lane One Bradlees Circle
Ridgefield, CT 06877 Braintree, MA 02184
Treasurer: Paul R. McKelvey 30 Planting Field Road One Bradlees Circle
Medfield, MA 02052 Braintree, MA 02184
Clerk: David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle
Weymouth, MA 02191 Braintree, MA 02184
Directors: Peter Thorner 1243 Adams Street One Bradlees Circle
Dorchester, MA 02124 Braintree, MA 02184
David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle
Weymouth, MA 02191 Braintree, MA 02184
Cornelius F. Moses, III 8 Quail Run One Bradlees Circle
Medfield, MA 02052 Braintree, MA 02184
</TABLE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the
Saturday nearest January 31 of each year.
d. The name and business address of the resident agent, if any, of the
corporation is:
** We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following articles. Briefly
describe amendments below:
See Addendum C.
SIGNED UNDER THE PENALTIES OF PERJURY, this 2/nd/ day of February, 1999.
/s/ Robert G. Lynn , *President
- --------------------------------------------------------------
/s/ David L. Schmitt , *Clerk
- -----------------------------------------------------------------
*Delete the inapplicable words. **If there are no amendments, state "None".
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
================================================================================
I hereby approve the within Restated Articles of Organization and, the filing
fee in the amount of $ __________ having been paid, said articles are deemed to
have been filed with me this _______ day of _______________, 19__.
Effective Date: February 2, 1999
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
William V. Buccella
- --------------------------------------------------------------------------------
Goodwin, Procter & Hoar LLP
- --------------------------------------------------------------------------------
53 State Street
- --------------------------------------------------------------------------------
Exchange Place
Boston, MA 02109-2881
Telephone: (617) 570-1000
----------------------------------------------------------------------
<PAGE>
ADDENDA TO THE RESTATED
ARTICLES OF ORGANIZATION OF
BRADLEES STORES, INC.
Addendum A
----------
ARTICLE IV
CAPITAL STOCK
-------------
The authorized capital stock of BRADLEES STORES, INC. (the
"Corporation") shall consist of (i) common stock, $.01 par value per share (the
"Common Stock"), and (ii) preferred stock, $.01 par value per share (the
"Preferred Stock").
A. Common Stock
------------
1. The holders of shares of Common Stock shall be entitled to
one vote for each share so held with respect to all matters voted on by the
stockholders of the Corporation, subject in all cases to the voting rights of
any holders of Preferred Stock.
2. Subject to the rights of the Preferred Stock upon any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the net assets of the Corporation shall be distributed pro
rata to the holders of the Common Stock in accordance with their respective
rights and interests.
3. Subject to the rights, if any, of any holders of Preferred
Stock, dividends may be paid on the Common Stock as and when declared by the
Board of Directors of the Corporation (the "Board of Directors") out of funds
legally available therefor.
B. Preferred Stock
---------------
Subject to any limitations prescribed by law or these Articles, the
Board of Directors or any authorized committee thereof is expressly authorized
to provide for the issuance of up to 50,000 shares of Preferred Stock in one or
more series of stock, and by filing a certificate pursuant to applicable law of
the Commonwealth of Massachusetts, to establish or change from time to time the
number of shares to be included in each series, and to fix the designation,
voting powers, preferences, qualifications, privileges and rights of the shares
of each series and any qualifications, limitations and restrictions thereof. The
Board of Directors or any authorized committee thereof shall have the right to
determine or fix by vote or votes providing for the issuance of the shares
thereof one or more of the following with respect to each series of such
Preferred Stock:
<PAGE>
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
3. The voting powers, full or limited, of the shares of such
series;
4. Whether the shares of such series shall be redeemable (at the
option of the holder or of the Corporation or otherwise) and, if so, the price
or prices at which, and the terms and conditions on which, such shares may be
redeemed;
5. The amount or amounts payable upon the shares of such series
and any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other series of the same or any other class
or classes of stock of the Corporation or the securities of any other entity or
any other assets and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued;
9. Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of Preferred
Stock and whether such shares may be reissued as shares of the same or any other
class or series of stock; and
10. Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
2
<PAGE>
Subject to the authority of the Board of Directors or any authorized
committee thereof as set forth in Paragraph 9 above, any shares of Preferred
Stock shall, upon reacquisition thereof by the Corporation, be restored to the
status of authorized but unissued Preferred Stock under this Section B.
Except as specifically provided in these Articles, the holders of
Preferred Stock or Common Stock shall not be entitled to any vote and shall not
have any voting rights concerning the designation or issuance of any shares of
Preferred Stock authorized by and complying with the conditions of these
Articles, and subject to the authority of the Board of Directors or any
authorized committee thereof as set forth above, the right to any such vote is
expressly waived by all present and future holders of the capital stock of the
Corporation.
C. Issuance of Capital Stock
-------------------------
The Corporation shall not (a) issue non-voting equity securities, (b)
create a class of equity securities having a preference over any other class of
equity securities with respect to dividends unless adequate provision is made
for the election of Directors representing the preferred class in the event of a
default in the payment of its dividends, or (c) create any other class of equity
securities unless an appropriate distribution of voting power is made among all
such classes.
3
<PAGE>
Addendum B
----------
ARTICLE VI (A)
CLASSIFICATION OF DIRECTORS
---------------------------
The initial Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in the year ending December 31, 2000, which
meeting shall be held no sooner than following the close of the 1999 fiscal
year. At each annual meeting of stockholders, the successors of the Directors
whose term expires at such meeting shall be elected by a plurality of the votes
cast at such meeting and shall hold office for a term expiring at the annual
meeting of stockholders held in the year following the year of their election.
The Directors elected shall hold office until their successors are duly elected
and qualified or until their earlier resignation or removal.
ARTICLE VI (B)
LIMITATION OF LIABILITY OF DIRECTORS
------------------------------------
A. No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director notwithstanding any provision of law imposing such liability;
provided, however, that this Article shall not eliminate or limit any liability
of a Director (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Sections 61 or 62 of Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or (iv) with respect to any transaction from which the Director
derived an improper personal benefit.
B. No amendment or repeal of this Article shall adversely affect the
rights and protection afforded to a Director of this Corporation under this
Article for acts or omissions occurring prior to such amendment or repeal. If
the Massachusetts Business Corporation Law is hereafter amended to further
eliminate or limit the personal liability of Directors or to authorize corporate
action to further eliminate or limit such liability, then the liability of the
Directors of this Corporation shall be eliminated or limited to the fullest
extent permitted by the Massachusetts Business Corporation Law as so amended.
4
<PAGE>
ARTICLE VI (C)
TRANSACTIONS WITH INTERESTED PERSONS
------------------------------------
A. Unless entered into in bad faith, no contract or transaction by the
Corporation shall be void, voidable or in any way affected by reason of the fact
that it is with an Interested Person.
B. For the purposes of this Article, "Interested Person" means any
person or organization in any way interested in the Corporation whether as an
officer, Director, stockholder, employee or otherwise, and any other entity in
which any such person or organization or the Corporation is in any way
interested.
C. Unless such contract or transaction was entered into in bad faith,
no Interested Person, because of such interest, shall be liable to the
Corporation or to any other person or organization for any loss or expense
incurred by reason of such contract or transaction or shall be accountable for
any gain or profit realized from such contract or transaction.
D. The provisions of this Article shall be operative notwithstanding
the fact that the presence of one or more Interested Persons was necessary to
constitute a quorum at a meeting of Directors or stockholders of the Corporation
at which such contract or transaction was authorized or that the vote of one or
more Interested Persons was necessary for the authorization of such contract or
transaction.
E. Business Combination with Interested Shareholders. The provisions of
-------------------------------------------------
Chapter 110F of the General Laws of the Commonwealth of Massachusetts ("Chapter
110F"), as it may be amended from time to time, shall, except to the extent set
forth in Chapter 110F, not apply to "business combinations with interested
shareholders" of the Corporation within the meaning of Chapter 110F.
F. Control Share Acquisition. The provisions of Chapter 110D of the
-------------------------
General Laws of the Commonwealth of Massachusetts ("Chapter 110 D"), as it may
be amended from time to time, shall not apply to "control share acquisitions" of
the Corporation within the meaning of Chapter 110D.
ARTICLE VI (D)
STOCKHOLDERS' MEETINGS
----------------------
A. Action by Written Consent
-------------------------
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, provided that all (or
such lesser percentage as may be permitted by the laws of The Commonwealth of
Massachusetts) stockholders entitled to vote on the matter consent to the action
in writing and the written consents are filed with the records of the meetings
of stockholders. Such consents shall be treated for all purposes as a vote at a
meeting of stockholders.
B. Location of Meetings
--------------------
Meetings of stockholders of the Corporation may be held anywhere within
the United States.
5
<PAGE>
ARTICLE VI (E)
ACTING AS A PARTNER
-------------------
The Corporation may be a partner in any business enterprise which it
would have power to conduct by itself.
ARTICLE VI (F)
EXAMINATION OF BOOKS
--------------------
Except as otherwise provided by law, no stockholder shall have any
right to examine any property or any books, accounts or other writings of the
Corporation if there is reasonable ground for belief that such examination will
for any reason be adverse to the interests of the Corporation, and a vote of the
Directors refusing permission to make such examination and setting forth that in
the opinion of the Directors such examination would be adverse to the interests
of the Corporation shall be prima facie evidence that such examination would be
adverse to the interests of the Corporation. Every such examination which is
permitted shall be subject to such reasonable requirements as the Corporation
may establish in regard thereto.
ARTICLE VI (G)
AMENDMENT OF BY-LAWS
--------------------
A. Amendment by Directors
----------------------
Except as otherwise required by law, the By-laws of the Corporation may
be amended or repealed by the affirmative vote of a majority of the Directors
then in office. Not later than the time of giving notice of the annual meeting
of stockholders next following the amending or repealing by the Directors of any
By-law, notice thereof stating the substance of such change shall be given to
all stockholders entitled to vote on amending the By-laws.
B. Amendment by Stockholders
-------------------------
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least two-thirds of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class; provided, however, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
6
<PAGE>
ARTICLE VI (H)
STOCKHOLDER VOTE REQUIRED FOR AMENDMENT OF
------------------------------------------
ARTICLES OF ORGANIZATION
------------------------
Execpt as otherwise may be required by law, these Articles may be amended
at any annual meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the total
votes eligible to be cast on such amendment by holders of voting stock, voting
together as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment at such meeting of
stockholders, such amendment shall only require the affirmative vote of a
majority of the total votes eligible to be cast on such amendment by holders of
voting stock, voting together as a single class.
7
<PAGE>
Addendum C
----------
Article IV(A) Description of Voting Rights, Liquidation Rights, and
Dividends of Common Stock.
Article IV(B) Description of powers and rights of Board of Directors with
respect to Preferred Stock.
Article IV(C) Description of the Corporation's rights with respect to
issuance of capital stock.
Article VI(A) Provision regarding classification of directors.
Article VI(B) Provision regarding the limitation of liability of directors.
Article VI(C) Provision regarding transactions with interested persons.
Article VI(D) Provision regarding action of stockholders by written
consent and location of stockholder meetings.
Article VI(E) Provision permitting the Corporation to act as a partner in
any business enterprise.
Article VI(F) Provision regarding stockholders' rights to examine books
of the Corporation.
Article VI(G) Provision regarding amendment of the By-laws of the
Corporation.
Article VI(H) Provision describing stockholder vote required for
amendment of the Articles of Organization of the Corporation.
8
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED BY-LAWS
----------------------------
of
BRADLEES, INC.
ARTICLE I
---------
Stockholders
------------
1. Annual Meeting. The annual meeting of stockholders shall be held at
--------------
the hour, date and place within or without the United States which is fixed by
the majority of the Board of Directors, the Chairman of the Board or the
President, which time, date and place may subsequently be changed at any time by
vote of the Board of Directors. The purposes for which such annual meeting is
to be held, in addition to those prescribed by law, by the Articles of
Organization (which, as used herein, means the Restated Articles of Organization
of the Corporation, as amended and restated from time to time), or by these By-
laws (which, as used herein, means the Amended and Restated By-laws of the
Corporation, as amended and restated from time to time) may be specified by the
Board of Directors, the Chairman of the Board or the President. If no annual
meeting of stockholders has been held within six months after the end of the
fiscal year of the Corporation, a special meeting in lieu thereof may be held,
and such special meeting shall have, for purposes of these By-laws or otherwise,
all the force and effect of an annual meeting. Any and all references hereafter
in these By-laws to an annual meeting or annual meetings shall be deemed to
refer also to any special meeting(s) in lieu thereof.
2. Special Meetings. Special meetings of stockholders may be called by
----------------
the Board of Directors. Special meetings shall be called by the Clerk or in
case of the death, absence, incapacity or refusal of the Clerk, by any other
officer, upon written application of one or more stockholders who hold at least
(i) a majority in interest of the capital stock entitled to vote at such meeting
or (ii) such lesser percentage, if any, as shall be determined to be the maximum
percentage which the Corporation is permitted by applicable law to establish for
the call of such a meeting. Application to a court pursuant to Section 34(b) of
Chapter 156B of the General Laws of the Commonwealth of Massachusetts requesting
the call of a special meeting of stockholders because none of the officers is
able and willing to call such a meeting may be made only by stockholders who
hold at least (i) a majority in interest of the capital stock entitled to vote
at such meeting or (ii) such lesser percentage, if any, as shall be determined
to be the maximum percentage which the Corporation is permitted by applicable
law to establish for the call of such a meeting. The hour, date and place of any
special meeting and the record date for determining the stockholders having the
right to notice of and to vote at such meeting shall be determined by the Board
of Directors or the President. At a special meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been stated in the written notice of the special meeting and
otherwise properly brought before the special meeting.
<PAGE>
3. Matters to be Considered at Annual Meetings. At any annual meeting of
-------------------------------------------
stockholders or any special meeting in lieu of annual meeting of stockholders
(the "Annual Meeting"), only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly brought before such
Annual Meeting. To be considered as properly brought before an Annual Meeting,
business must be: (a) specified in the notice of meeting, (b) otherwise
properly brought before the meeting by, or at the direction of, the Board of
Directors, or (c) otherwise properly brought before the meeting by any holder of
record (both as of the time notice of such proposal is given by the stockholder
as set forth below and as of the record date for the Annual Meeting in question)
of any shares of capital stock of the Corporation entitled to vote at such
Annual Meeting who complies with the requirements set forth in this By-law.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this By-law to the
Clerk of the Corporation and (ii) be present at such meeting, either in person
or by a representative. For the first Annual Meeting following the Effective
Date of the Joint Plan of Reorganization of Bradlees Stores, Inc. and Affiliates
under Chapter 11 of the Bankruptcy Code (the "Effective Date"), a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Clerk shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder
2
<PAGE>
desires to bring before such Annual Meeting and the reasons for conducting such
business at such Annual Meeting, (ii) the name and address, as they appear on
the Corporation's stock transfer books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation's capital
stock beneficially owned by the stockholder proposing such business, (iv) the
names and addresses of the beneficial owners, if any, of any capital stock of
the Corporation registered in such stockholder's name on such books, and the
class and number of shares of the Corporation's capital stock beneficially owned
by such beneficial owners, (v) the names and addresses of other stockholders
known by the stockholder proposing such business to support such proposal, and
the class and number of shares of the Corporation's capital stock beneficially
owned by such other stockholders, and (vi) any material interest of the
stockholder proposing to bring such business before such meeting (or any other
stockholders known to be supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this By-law or that the information provided in a stockholder's
notice does not satisfy the information requirements of this By-law in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to the validity of any stockholder proposal in the manner set
forth above, the presiding officer of the Annual Meeting shall determine whether
the stockholder proposal was made in accordance with the terms of this By-law.
If the presiding officer determines that any stockholder proposal was not made
in a timely fashion in accordance with the provisions of this By-law or that the
information provided in a stockholder's notice does not satisfy the information
requirements of this By-law in any material respect, such proposal shall not be
presented for action at the Annual Meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a stockholder proposal was made in accordance with the requirements of this
By-law, the presiding officer shall so declare at the Annual Meeting and ballots
shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this By-law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this By-law and nothing in
this By-law shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
4. Notice of Meetings. A written notice of each meeting of stockholders
------------------
(other than adjournments governed by Section 5 of this Article I) stating the
place, date and hour and the purpose or purposes of such meeting shall be given
by the Clerk or an Assistant Clerk (or other officer designated by the Board of
Directors) at least 7 days before the meeting to each stockholder entitled to
vote thereat and to each stockholder who, by law, under the Articles of
Organization or under these By-laws, is entitled to such notice, by delivering
such notice
3
<PAGE>
to him or by mailing it, postage prepaid, and addressed to such stockholder at
his address as it appears in the Corporation's stock transfer books. Such notice
shall be deemed to be delivered when hand delivered to such address or deposited
in the mail so addressed, with postage prepaid.
Notice of an annual or special meeting of stockholders need not be given to
a stockholder if a written waiver of notice is signed before or after such
meeting by such stockholder or such stockholder's authorized attorney, if
communication with such stockholder is unlawful, or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual Meeting or special meeting of
stockholders need be specified in any written waiver of notice.
5. Rescheduling of Meetings; Adjournments. The Board of Directors may
--------------------------------------
postpone and reschedule any previously scheduled annual or special meeting of
stockholders, and a record date with respect thereto, regardless of whether any
notice or public disclosure with respect to any such meeting or record date has
been sent or made pursuant to Section 3 of this Article I or Section 3 of
Article II hereof or otherwise. In no event shall the public announcement of an
adjournment, postponement or rescheduling of any previously scheduled Annual
Meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 3 of Article I and Section 3 of Article II of
these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any annual Meeting or special meeting
of stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned.
6. Quorum. The holders of a majority in interest of all capital stock of
------
the Corporation issued, outstanding and entitled to vote at a meeting of
stockholders shall constitute a quorum, but if a quorum is not present, a
majority in interest of the stockholders present or the presiding officer may
adjourn the meeting from time to time and the meeting may be held as adjourned
without further notice other than an announcement at the meeting at which the
adjournment is taken of the hour, date and place to which the meeting is
adjourned. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
4
<PAGE>
7. Voting and Proxies. Unless otherwise provided by law or by the
------------------
Articles of Organization, stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
Corporation. Stockholders entitled to vote may vote either in person or by
written proxy dated not more than six months before the meeting named therein,
unless the proxy is coupled with an interest and provides otherwise. Except as
otherwise permitted by law or limited therein, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting but shall not be
valid after final adjournment of such meeting. A proxy with respect to stock
held in the name of two or more persons shall be valid if executed by one of
them unless at or prior to exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. The Corporation shall not directly or
indirectly vote any share of its own stock.
8. Action at Meeting. When a quorum is present, any matter before a
-----------------
meeting of stockholders shall be decided by vote of the holders of a majority of
the shares of stock voting on such matter, except where a larger vote is
required by law, by the Articles of Organization or by these By-laws. Any
election by stockholders shall be determined by a plurality of the votes cast,
except where a greater vote is required by law, by the Articles of Organization
or by these By-laws. No ballot shall be required for any election unless
requested by a stockholder present or represented at the meeting and entitled to
vote in the election.
9. Action without Meeting. Any action required or permitted to be taken
----------------------
at any annual or special meeting of stockholders (including any actions or
powers reserved to the stockholders under these By-laws) may be taken without a
meeting, provided that all stockholders entitled to vote on the matter consent
to the action in writing and the written consents are filed with the records of
the meetings of stockholders. Such consents shall be treated for all purposes
as a vote at a meeting.
10. Presiding Officer. The Chairman or, in his absence, the President or,
-----------------
in his absence, such other officer as shall be designated by the Board of
Directors, shall preside at all annual or special meetings of stockholders and
shall have the power, among other things, to
5
<PAGE>
adjourn such meetings at any time and from time to time in accordance with the
provisions of Sections 5 and 6 of this Article I. The order of business and all
other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
11. Voting Procedures and Inspectors of Elections. In advance of any
---------------------------------------------
meeting of stockholders, the Board of Directors may appoint one or more
inspectors to act at an annual or special meeting of stockholders and make a
written report thereon. Any inspector may, but need not, be an officer,
employee or agent of the Corporation. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability. The inspector(s) shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspector(s) may appoint
or retain other persons or entities to assist the inspector(s) in the
performance of the duties of the inspector(s). The presiding officer may review
all determinations made by the inspector(s), and in so doing the presiding
officer shall be entitled to exercise his sole judgment and discretion and he
shall not be bound by any determinations made by the inspector(s). All
determinations by the inspector(s) and, if applicable, presiding officer shall
be subject to further review by any court of competent jurisdiction.
ARTICLE II
----------
Directors
---------
1. Classes of Directors; Term of Office; Qualification. The number of
---------------------------------------------------
Directors of the Corporation shall be fixed at nine or such larger number of
directors as may be fixed by the Board of Directors from time to time after the
annual meeting of the Corporation for the fiscal year 1999. The Directors shall
hold office in the manner provided in the Articles. No Director need be a
stockholder of the Corporation.
2. Powers. The business of the Corporation shall be managed by a Board
------
of Directors who may exercise all the powers of the Corporation except as
otherwise provided by law, by the Articles of Organization or by these By-laws.
In particular, and without limiting the generality of the foregoing, the
Directors may at any time issue all or from time to time any part of the
unissued capital stock of the Corporation from time to time authorized under the
Articles of Organization and may determine, subject to any requirements of law,
the consideration for which stock is to be issued and the manner of allocating
such consideration between capital and surplus.
6
<PAGE>
3. Director Nominations. Nominations of candidates for election as
--------------------
Directors of the Corporation at any Annual Meeting may be made only (a) by, or
at the direction of, the Nominating Committee established in accordance with
Article II, Section 14 of these By-laws or (b) by any holder of record (both as
of the time notice of such nomination is given by the stockholder as set forth
below and as of the record date for the Annual Meeting in question) of any
shares of the capital stock of the Corporation entitled to vote at such Annual
Meeting who complies with the timing, informational and other requirements set
forth in this By-law. Any stockholder who has complied with the timing,
informational and other requirements set forth in this By-law and who seeks to
make such a nomination, or his, her or its representative, must be present in
person at the Annual Meeting. Only persons nominated in accordance with the
procedures set forth in this By-law shall be eligible for election as Directors
at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Nominating Committee, shall be made pursuant to timely notice in writing to the
Clerk of the Corporation as set forth in this By-law. For the first Annual
Meeting following the Effective Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation. For all subsequent Annual Meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not less than 75 days nor
more than 120 days prior to the Anniversary Date; provided, however, that in the
event the Annual Meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Clerk shall set forth as to each person whom
the stockholder proposes to nominate for election or re-election as a Director
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the class and
number of shares of the Corporation's capital stock which are beneficially owned
by such person on the date of such stockholder notice, and (iv) the consent of
each nominee to serve as a Director if elected. A stockholder's notice to the
Clerk shall further set forth as to the stockholder giving such notice (i) the
name and address, as they appear on the Corporation's stock transfer books, of
such stockholder and of the beneficial owners (if any) of the Corporation's
capital stock registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s),
(ii) the class and number of shares of the Corporation's capital stock which are
held of record, beneficially owned or represented by proxy by such
7
<PAGE>
stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the Annual Meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice, and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this By-
law or that the information provided in a stockholder's notice does not satisfy
the informational requirements of this By-law in any material respect, then such
nomination shall not be considered at the Annual Meeting in question. If
neither the Board of Directors nor such committee makes a determination as to
whether a nomination was made in accordance with the provisions of this By-law,
the presiding officer of the Annual Meeting shall determine whether a nomination
was made in accordance with such provisions. If the presiding officer
determines that any stockholder nomination was not made in accordance with the
terms of this By-law or that the information provided in a stockholder's notice
does not satisfy the informational requirements of this By-law in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a nomination was made in accordance with the
terms of this By-law, the presiding officer shall so declare at the Annual
Meeting and ballots shall be provided for use at the meeting with respect to
such nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this By-law, in the event that the number of Directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 75
days prior to the Anniversary Date, a stockholder's notice required by this By-
law shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if such notice shall be delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the 15th day following the day on which such
public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
By-law. Election of Directors at the Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
8
<PAGE>
4. Application of Section 50A of Chapter 156B of the General Laws of the
---------------------------------------------------------------------
Commonwealth of Massachusetts. Notwithstanding anything to the contrary in the
- -----------------------------
Articles of Organization or these By-laws, the provisions of Section 50A of
Chapter 156B of Massachusetts General Laws shall not be applicable to the
Corporation.
5. Vacancies. The Board of Directors may act notwithstanding a vacancy
---------
or vacancies in its membership. Any and all vacancies in the Board of
Directors, however occurring including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director shall be nominated by the Nominating
Committee and shall be filled by the affirmative vote of a majority of the
Directors then in office, even though less than a quorum. Any Director elected
in accordance with this Section 5 shall hold office for the remainder of the
full term of the vacancy filled and until his or her successor is duly elected
and qualified.
6. Resignation. Any Director may resign by delivering his written
-----------
resignation to the Corporation at its principal executive office or to the
President or Clerk. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
7. Removal.
-------
(a) Removal by Directors. Except as set forth in the following sentence,
--------------------
a Director may not be removed by the other Directors then in office. A Director
who (i) is the subject of any regulatory or judicial order or decree barring or
suspending such individual from engaging in any activity related to the
purchase, sale or trading of securities or commodities, or (ii) is indicted for
any criminal charge relating to the purchase, sale or trading of securities or
commodities, may be removed by a vote of a majority of the other Directors then
in office.
(b) Removal by Stockholders. Stockholders may remove a Director only by
-----------------------
the affirmative vote of at least two-thirds of the total votes which would be
eligible to be cast by stockholders in the election of such Director.
8. Meetings. Regular meetings of the Board of Directors may be held
--------
without notice at such time, date and place as the Board of Directors may from
time to time determine provided that reasonable notice of the first regular
meeting following such determination shall be given to absent Directors. A
regular meeting of the Board of Directors may be held without notice at the same
place as the annual meeting of stockholders, or the special meeting held in lieu
thereof, following such meeting of stockholders.
9
<PAGE>
Special meetings of the Board of Directors may be called, orally or in
writing, by the Board of Directors, by the Chairman of the Board or by the
President designating the time, date and place thereof.
9. Notice of Meetings. Notice of the time, date and place of all special
------------------
meetings of the Board of Directors shall be given to each Director by the Clerk
or Assistant Clerk, or in case of the death, absence, incapacity or refusal of
such persons, by the officer or one of the Directors calling the meeting.
Notice shall be given to each Director in person or by telephone or by facsimile
sent to his business or home address, at least twenty-four hours in advance of
the meeting, or by written notice mailed to his business or home address at
least forty-eight hours in advance of the meeting. Notice need not be given to
any Director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
10. Quorum. At any meeting of the Board of Directors, a majority of the
------
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
11. Action at Meeting. At any meeting of the Board of Directors at which
-----------------
a quorum is present, a majority of the Directors present may take any action on
behalf of the Board of Directors, unless a larger number is required by law, by
the Articles of Organization or by these By-laws.
12. Presence Through Communications Equipment. Unless otherwise provided
-----------------------------------------
by law or the Articles of Organization, members of the Board of Directors may
participate in a meeting of the Board of Directors by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
13. Action by Consent. Unless the Articles of Organization otherwise
-----------------
provide, any action by the Board of Directors may be taken without a meeting if
all the Directors consent to the action in writing and the written consents are
filed with the records of the meetings of the Board of Directors. Such consents
shall be treated for all purposes as a vote at a meeting of the Board of
Directors.
14. Nominating Committee. The Board of Directors shall establish and at
--------------------
all times maintain a Nominating Committee consisting of the Chairman of the
Board and two non-employee Directors proposed by the Chairman of the Board and
approved by a majority of the Board of Directors. The duties and
responsibilities of the Nominating Committee shall be to select and nominate
candidates for election as Directors of the Corporation.
10
<PAGE>
15. Audit Committee. The Board of Directors shall establish and at all
---------------
times maintain an Audit Committee consisting of at least three non-employee
Directors selected by a vote of a majority of the members of the Board of
Directors. The duties and responsibilities of the Audit Committee shall be
determined by the Board of Directors from time to time.
16. Compensation Committee. The Board of Directors shall establish and at
----------------------
all times maintain a Compensation Committee consisting of at least three
non-employee Directors selected by a vote of a majority of the members of the
Board of Directors. The duties and responsibilities of the Compensation
Committee shall be determined by the Board of Directors from time to time.
17. Other Committees. In addition to the Nominating Committee provided
----------------
for in Article III, Section 14 of these By-laws, the Audit Committee provided
for in Article III, Section 15 of these By-laws and the Compensation Committee
provided for in Article III, Section 16 of these By-laws, the Board of
Directors, by vote of a majority of the Directors then in office, may elect from
its number an Executive Committee or other committees and may delegate thereto
some or all of its powers except those which by law, by the Articles of
Organization, or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors by vote of a majority of the Directors then in
office may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
ARTICLE III
-----------
Officers
--------
1. Enumeration. The officers of the Corporation shall consist of a
-----------
Chairman of the Board, a President, a Treasurer, a Clerk, and such other
officers, including a Chairman of the Board or one or more Vice Presidents,
Assistant Treasurers or Assistant Clerks, as the Board of Directors may
determine.
2. Election. The Chairman of the Board, President, Treasurer and Clerk
--------
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders. Other officers may be chosen by
the Board of Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a Director of the Corporation
-------------
except for the Chairman of the Board. Any two or more offices may be held by
any person. The Clerk shall be a resident of Massachusetts unless the
Corporation has a resident agent appointed for the purpose of service of
process. Any officer may be required by the Board of Directors to give bond for
the faithful performance of his duties in such amount and with such sureties as
the Board of Directors may determine.
4. Tenure. Except as otherwise provided by law, by the Articles of
------
Organization or by these By-laws, the Chairman of the Board, the President,
Treasurer and Clerk shall hold office until the first meeting of the Board of
Directors following the next annual meeting of stockholders and until their
respective successors are chosen and qualified; and all other officers shall
hold office until the first meeting of the Board of Directors following the next
11
<PAGE>
annual meeting of stockholders and until their successors are chosen and
qualified, or for such shorter term as the Board of Directors may fix at the
time such officers are chosen.
5. Resignation. Any officer may resign by delivering his written
-----------
resignation to the Corporation at its principal office, to the Chairman of the
Board or to the President or Clerk, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
6. Removal. The Board of Directors may remove any officer with or
-------
without cause by a vote of a majority of the entire number of Directors then in
office; provided, that an officer may be removed for cause only after reasonable
notice and opportunity to be heard by the Board of Directors.
7. Vacancies. Any vacancy in any office may be filled for the unexpired
---------
portion of the term by the Board of Directors. The Board of Directors shall
elect a successor if the office of Chairman of the Board, President, Treasurer
or Clerk becomes vacant and may elect a successor if any other office becomes
vacant.
8. Chairman of the Board. The Chairman of the Board shall preside at all
---------------------
meetings of the Stockholders and of the Board of Directors. Unless the Board of
Directors shall otherwise determine, the Chairman of the Board shall be the
Chief Executive Officer and general manager of the Corporation, shall in general
supervise and control all of the business and affairs of the Corporation, and
shall perform all duties incident to the office of Chairman of the Board and
such other duties as may be prescribed by the Board of Directors from time to
time.
9. President and Vice Presidents. The President shall, in the absence of
-----------------------------
the Chairman of the Board preside, when present, at all meetings of stockholders
and, if the Chairman of the Board is absent, at meetings of the Board of
Directors. The President shall exercise and perform such other powers and
duties as the Board of Directors or these By-laws may designate.
Any Vice President shall have such powers and shall perform such duties as
the Board of Directors may from time to time designate.
10. Chief Financial Officer, Treasurer and Assistant Treasurers. The
-----------------------------------------------------------
Chief Financial Officer or the Treasurer shall, subject to the direction of the
Board of Directors, have general charge of the financial affairs of the
Corporation and shall cause to be kept accurate books of account. Such officer
shall have custody of all funds, securities, and valuable documents of the
Corporation, except as the Board of Directors may otherwise provide.
12
<PAGE>
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
11. Clerk and Assistant Clerks. The Clerk shall keep a record of the
--------------------------
meetings of stockholders. In case a Clerk is not elected or is absent, the
Clerk or an Assistant Clerk shall keep a record of the meetings of the Board of
Directors. In the absence of the Clerk from any meeting of stockholders, an
Assistant Clerk if one be elected, otherwise a Temporary Clerk designated by the
person presiding at the meeting, shall perform the duties of the Clerk.
12. Other Powers and Duties. Subject to these By-laws, each officer of
-----------------------
the Corporation shall have in addition to, and to the extent not inconsistent
with, the duties and powers specifically set forth in these By-laws, such duties
and powers as are customarily incident to his office, and such duties and powers
as may be designated from time to time by the Board of Directors.
ARTICLE IV
----------
Capital Stock
-------------
1. Certificates of Stock. The Board of Directors may provide by
---------------------
resolution that some or all of any or all classes and series of shares shall be
uncertificated shares. Unless such a resolution has been adopted, each
stockholder shall be entitled to a certificate of the capital stock of the
Corporation in such form as may from time to time be prescribed by the Board of
Directors. Such certificate shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer. Such signatures may
be facsimile if the certificate is signed by a transfer agent, or by a
registrar, other than a Director, officer or employee of the Corporation. In
case any officer who has signed or whose facsimile signature has been placed on
such certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the time of its issue. Every certificate for shares of stock
which are subject to any restriction on transfer and every certificate issued
when the Corporation is authorized to issue more than one class or series of
stock shall contain such legend with respect thereto as is required by law.
2. Transfers. Subject to any restrictions on transfer, shares of stock
---------
may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the Corporation or its transfer agent may
reasonably require.
3. Record Holders. Except as may be otherwise required by law, by the
--------------
Articles of Organization or by these By-laws, the Corporation shall be entitled
to treat the record holder
13
<PAGE>
of stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to vote with respect thereto,
regardless of any transfer, pledge or other disposition of such stock, until the
shares have been transferred on the books of the Corporation in accordance with
the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
post office address.
4. Record Date. The Board of Directors may fix in advance a time of not
-----------
more than sixty days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Corporation after the record date. Without fixing
such record date the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
5. Replacement of Certificates. In case of the alleged loss, destruction
---------------------------
or mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms as the Board of Directors may prescribe.
6. Issuance of Capital Stock. The Board of Directors shall have the
-------------------------
authority to issue or reserve for issue from time to time the whole or any part
of the capital stock of the Corporation which may be authorized from time to
time, to such persons or organizations, for such consideration, whether cash,
property, services or expenses, and on such terms as the Board of Directors may
determine, including without limitation the granting of options, warrants, or
conversion or other rights to subscribe to said capital stock. The Board of
Directors may delegate some or all of its authority under this Section 6 to one
or more committees of Directors.
14
<PAGE>
ARTICLE V
---------
Indemnification
---------------
1. Actions, Suits and Proceedings. The Corporation shall indemnify each
------------------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a Director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a Director or officer of, or in a similar capacity with, another
organization or in any capacity with respect to any employee benefit plan of the
Corporation or any subsidiary of the Corporation (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted to be taken in such capacity, against all expenses
(including reasonable attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit, proceeding or investigation,
and any appeal therefrom, unless the Indemnitee shall be finally adjudicated in
such action, suit, proceeding or investigation, not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Corporation or, to the extent such matter relates to service with respect to an
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan. Notwithstanding anything to the
contrary in this Article V, except as set forth in Section 7 of this Article V,
the Corporation shall not indemnify an Indemnitee seeking indemnification in
connection with an action, suit, proceeding or investigation (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation.
2. Employees and Agents. The Corporation may, at the discretion of the
--------------------
Board of Directors, indemnify employees and agents of the Corporation as if they
were included in Section 1 of this Article V.
3. Settlements. The right to indemnification conferred in this Article V
-----------
shall include the right to be paid by the Corporation for amounts paid in
settlement of any such action, suit, proceeding or investigation and any appeal
therefrom, and all expenses (including reasonable attorneys' fees) incurred in
connection with such settlement, pursuant to a consent decree or otherwise,
unless and to the extent it is determined pursuant to Section 6 of this Article
V that the Indemnitee did not act in good faith in the reasonable belief that
his or her action was in the best interests of the Corporation or, to the extent
such matter relates to service with respect to an employee benefit plan, in the
best interests of the participants or beneficiaries of such employee benefit
plan.
4. Notification and Defense of Claim. As a condition precedent to his or
---------------------------------
her right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving such Indemnitee or with respect to which indemnity will or could be
sought. With respect to any action, suit, proceeding or
15
<PAGE>
investigation of which the Corporation is so notified, the Corporation will be
entitled to participate therein at its own expense and/or to assume the defense
thereof at its own expense, with legal counsel reasonably acceptable to the
Indemnitee. After notice from the Corporation to the Indemnitee of its election
so to assume such defense, the Corporation shall not be liable to the Indemnitee
for any legal or other expenses subsequently incurred by the Indemnitee in
connection with such claim, other than as provided below in this Section 4 of
this Article V. The Indemnitee shall have the right to employ his of her own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article V. The Corporation shall not be entitled, without the consent of
the Indemnitee, to assume the defense of any claim brought by or in the right of
the Corporation or as to which counsel for the Indemnitee shall have reasonably
made the conclusion provided for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 of this
-------------------
Article V, in the event that the Corporation does not assume the defense, or
unless and until the Corporation assumes the defense, pursuant to Section 4 of
this Article V of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article V, any expenses (including
reasonable attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expenses incurred by an Indemnitee
- -------- -------
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article V. Such undertaking may be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Sections 1, 3 or 5 of this Article V, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification pursuant to Section 1 of this Article V shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless a court of competent jurisdiction
finally adjudicates that the Indemnitee did not meet the applicable standard of
conduct set forth in Section 1 of this
16
<PAGE>
Article V. Any such indemnification pursuant to Section 3 of this Article V or
advancement of expenses pursuant to Section 5 of this Article V shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless the Corporation determines, by
clear and convincing evidence, within such 60-day period that the Indemnitee did
not meet the applicable standard of conduct set forth in Sections 1 or 3 of this
Article V, as the case may be. Such determination by the Corporation shall be
made in each instance by (a) a majority vote of a quorum of the Directors of the
Corporation, (b) a majority vote of a quorum of the outstanding shares of stock
of all classes entitled to vote for Directors, voting as a single class, which
quorum shall consist of stockholders who are not at that time parties to the
action, suit, proceeding or investigation in question, or (c) independent legal
counsel (who may be regular legal counsel to the Corporation).
7. Remedies. The right to indemnification or advances as granted by this
--------
Article V shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6 of this Article V. Unless otherwise provided by law, the Corporation
shall have the burden of proving that the Indemnitee is not entitled to
indemnification or advancement of expenses under this Article V. Neither the
failure of the Corporation to have made a determination prior to the
commencement of any such action by the Indemnitee that indemnification is proper
in the circumstances because the Indemnitee has met the applicable standard of
conduct, nor an actual determination by the Corporation pursuant to Section 6 of
this Article V that the Indemnitee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. The Indemnitee's
expenses (including attorneys' fees) incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article V or of the relevant provisions of Chapter 156B of the Massachusetts
General Laws or any other applicable laws shall affect or diminish in any way
the rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article V shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or Directors or otherwise, both as to action in his or her official capacity and
as to action in any other capacity while holding office for the Corporation, and
shall continue as to an Indemnitee who has ceased to be a Director or officer,
and shall inure to the benefit of the estate, heirs, executors, personal
representatives and administrators of the Indemnitee. Nothing contained in this
Article V shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers
17
<PAGE>
and Directors providing indemnification rights and procedures different from
those set forth in this Article V. In addition, the Corporation may, to the
extent authorized from time to time by its Board of Directors pursuant to
Section 2 of this Article V or otherwise, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article V.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article V to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by such Indemnitee or on
such Indemnitee's behalf in connection with any action, suit, proceeding or
investigation and any appeal therefrom but not, however, for the total amount
thereof, the Corporation shall nevertheless indemnify the Indemnitee for the
portion of such expenses (including reasonable attorneys' fees), judgments,
fines or amounts paid in settlement to which such Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any Director, officer, employee or agent of
the Corporation, any subsidiary, another organization or employee benefit plan
against any expense, liability or loss incurred by him of her in any such
capacity, or arising out of his of her status as such, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Chapter 156B of the Massachusetts General Laws.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving Corporation shall assume the obligations of the
Corporation under this Article V with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring at or prior to the date of such merger or consolidation.
13. Savings Clause. If this Article V or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement in connection with any action, suit, proceeding or investigation,
whether civil, criminal or administrative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article V that shall not have been invalidated and to the
fullest extent permitted by applicable law.
14. Subsequent Legislation. If the Massachusetts General Laws are amended
----------------------
after adoption of this Article V to expand further the indemnification permitted
to Indemnitees, then the Corporation shall indemnify such persons to the fullest
extent permitted by the Massachusetts General Laws, as so amended.
18
<PAGE>
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
1. Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Corporation shall be the year ending on the
Saturday nearest January 31 of each year.
2. Seal. The Board of Directors shall have power to adopt and alter the
----
seal of the Corporation.
3. Execution of Instruments. All deeds, leases, transfers, contracts,
------------------------
bonds, notes and other obligations to be entered into by the Corporation in the
ordinary course of its business without Director action, may be executed on
behalf of the Corporation by the Chairman of the Board, the President, any Vice
President or the Treasurer except as the Board of Directors may generally or in
particular cases otherwise determine.
4. Voting of Securities. Unless otherwise provided by the Board of
--------------------
Directors, the President or Treasurer may waive notice of and act on behalf of
this Corporation, or appoint another person or persons to act as proxy or
attorney in fact for this Corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
Corporation.
5. Resident Agent. The Board of Directors may appoint a resident agent
--------------
upon whom legal process may be served in any action or proceeding against the
Corporation. Said resident agent shall be either an individual who is a
resident of and has a business address in Massachusetts, a corporation organized
under the laws of Massachusetts, or a corporation organized under the laws of
any other state of the United States, which has qualified to do business in, and
has an office in, Massachusetts.
6. Corporate Records. The original, or attested copies, of the Articles
-----------------
of Organization, By-laws and records of all meetings of the incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the principal office of the Corporation, or at
an office of its transfer agent, Clerk or resident agent, and shall be open at
all reasonable times to the inspection of any stockholder for any proper
purpose, but not to secure a list of stockholders for the purpose of selling
said list or copies thereof or of using the same for a purpose other than in the
interest of the applicant, as a stockholder, relative to the affairs of the
Corporation.
19
<PAGE>
7. Articles of Organization. All references in these By-laws to the
------------------------
Articles of Organization shall be deemed to refer to the Amended and Restated
Articles of Organization of the Corporation, as amended and in effect from time
to time.
8. Amendment
---------
(a) Amendment by Directors. Except with respect to any provisions of these
----------------------
By-laws which by law, the Articles of Organization or these By-laws require
action by the stockholders, these By-Laws may be amended or repealed by the
affirmative vote of a majority of the Directors then in office. Not later than
the time of giving notice of the annual meeting of stockholders next following
the amending or repealing by the Directors of any By-law, notice thereof stating
the substance of such change shall be given to all stockholders entitled to vote
on amending the By-laws.
(b) Amendment by Stockholders. These By-laws may be amended or repealed at
-------------------------
any annual meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the total
votes eligible to be cast on such amendment or repeal by holders of voting
stock, voting together as a single class; provided, however, that if the Board
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class. Notwithstanding the foregoing, no shareholder approval shall be required
unless mandated by the Articles of Organization, these By-laws, or other
applicable law.
20
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
----------------------------
of
BRADLEES STORES, INC.
ARTICLE I
---------
Stockholders
------------
1. Annual Meeting. The annual meeting of stockholders shall be
--------------
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board or
the President, which time, date and place may subsequently be changed at any
time by vote of the Board of Directors. The purposes for which such annual
meeting is to be held, in addition to those prescribed by law, by the Articles
of Organization (which, as used herein, means the Restated Articles of
Organization of the Corporation, as amended and restated from time to time), or
by these By-laws (which, as used herein, means the Amended and Restated By-laws
of the Corporation, as amended and restated from time to time) may be specified
by the Board of Directors, the Chairman of the Board or the President. If no
annual meeting of stockholders has been held within six months after the end of
the fiscal year of the Corporation, a special meeting in lieu thereof may be
held, and such special meeting shall have, for purposes of these By-laws or
otherwise, all the force and effect of an annual meeting. Any and all references
hereafter in these By-laws to an annual meeting or annual meetings shall be
deemed to refer also to any special meeting(s) in lieu thereof.
2. Special Meetings. Special meetings of stockholders may be
----------------
called by the Board of Directors. Special meetings shall be called by the Clerk
or in case of the death, absence, incapacity or refusal of the Clerk, by any
other officer, upon written application of one or more stockholders who hold at
least (i) a majority in interest of the capital stock entitled to vote at such
meeting or (ii) such lesser percentage, if any, as shall be determined to be the
maximum percentage which the Corporation is permitted by applicable law to
establish for the call of such a meeting. Application to a court pursuant to
Section 34(b) of Chapter 156B of the General Laws of the Commonwealth of
Massachusetts requesting the call of a special meeting of stockholders because
none of the officers is able and willing to call such a meeting may be made only
by stockholders who hold at least (i) a majority in interest of the capital
stock entitled to vote at such meeting or (ii) such lesser percentage, if any,
as shall be determined to be the maximum percentage which the Corporation is
permitted by applicable law to establish for the call of such a meeting. The
hour, date and place of any special meeting and the record date for determining
the stockholders having the right to notice of and to vote at such meeting shall
be determined by the Board of Directors or the President. At a special meeting
of stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been stated in the written notice of the
special meeting and otherwise properly brought before the special meeting.
<PAGE>
3. Matters to be Considered at Annual Meetings. At any annual
-------------------------------------------
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
By-law.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this By-law to the
Clerk of the Corporation and (ii) be present at such meeting, either in person
or by a representative. For the first Annual Meeting following the Effective
Date of the Joint Plan of Reorganization of Bradlees Stores, Inc. and Affiliates
under Chapter 11 of the Bankruptcy Code (the "Effective Date"), a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Clerk shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the stockholder
2
<PAGE>
desires to bring before such Annual Meeting and the reasons for conducting such
business at such Annual Meeting, (ii) the name and address, as they appear on
the Corporation's stock transfer books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation's capital
stock beneficially owned by the stockholder proposing such business, (iv) the
names and addresses of the beneficial owners, if any, of any capital stock of
the Corporation registered in such stockholder's name on such books, and the
class and number of shares of the Corporation's capital stock beneficially owned
by such beneficial owners, (v) the names and addresses of other stockholders
known by the stockholder proposing such business to support such proposal, and
the class and number of shares of the Corporation's capital stock beneficially
owned by such other stockholders, and (vi) any material interest of the
stockholder proposing to bring such business before such meeting (or any other
stockholders known to be supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this By-law or that the information provided
in a stockholder's notice does not satisfy the information requirements of this
By-law in any material respect, such proposal shall not be presented for action
at the Annual Meeting in question. If neither the Board of Directors nor such
committee makes a determination as to the validity of any stockholder proposal
in the manner set forth above, the presiding officer of the Annual Meeting shall
determine whether the stockholder proposal was made in accordance with the terms
of this By-law. If the presiding officer determines that any stockholder
proposal was not made in a timely fashion in accordance with the provisions of
this By-law or that the information provided in a stockholder's notice does not
satisfy the information requirements of this By-law in any material respect,
such proposal shall not be presented for action at the Annual Meeting in
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal was made in accordance
with the requirements of this By-law, the presiding officer shall so declare at
the Annual Meeting and ballots shall be provided for use at the meeting with
respect to such proposal.
Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set forth in this By-law and
nothing in this By-law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
4. Notice of Meetings. A written notice of each meeting of
------------------
stockholders (other than adjournments governed by Section 5 of this Article I)
stating the place, date and hour and the purpose or purposes of such meeting
shall be given by the Clerk or an Assistant Clerk (or other officer designated
by the Board of Directors) at least 7 days before the meeting to each
stockholder entitled to vote thereat and to each stockholder who, by law, under
the Articles of Organization or under these By-laws, is entitled to such notice,
by delivering such notice to
3
<PAGE>
him or by mailing it, postage prepaid, and addressed to such stockholder at his
address as it appears in the Corporation's stock transfer books. Such notice
shall be deemed to be delivered when hand delivered to such address or deposited
in the mail so addressed, with postage prepaid.
Notice of an annual or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or such stockholder's authorized attorney, if
communication with such stockholder is unlawful, or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual Meeting or special meeting of
stockholders need be specified in any written waiver of notice.
5. Rescheduling of Meetings; Adjournments. The Board of Directors
--------------------------------------
may postpone and reschedule any previously scheduled annual or special meeting
of stockholders, and a record date with respect thereto, regardless of whether
any notice or public disclosure with respect to any such meeting or record date
has been sent or made pursuant to Section 3 of this Article I or Section 3 of
Article II hereof or otherwise. In no event shall the public announcement of an
adjournment, postponement or rescheduling of any previously scheduled Annual
Meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 3 of Article I and Section 3 of Article II of
these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned.
6. Quorum. The holders of a majority in interest of all capital
------
stock of the Corporation issued, outstanding and entitled to vote at a meeting
of stockholders shall constitute a quorum, but if a quorum is not present, a
majority in interest of the stockholders present or the presiding officer may
adjourn the meeting from time to time and the meeting may be held as adjourned
without further notice other than an announcement at the meeting at which the
adjournment is taken of the hour, date and place to which the meeting is
adjourned. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
4
<PAGE>
7. Voting and Proxies. Unless otherwise provided by law or by the
------------------
Articles of Organization, stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
Corporation. Stockholders entitled to vote may vote either in person or by
written proxy dated not more than six months before the meeting named therein,
unless the proxy is coupled with an interest and provides otherwise. Except as
otherwise permitted by law or limited therein, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting but shall not be
valid after final adjournment of such meeting. A proxy with respect to stock
held in the name of two or more persons shall be valid if executed by one of
them unless at or prior to exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. The Corporation shall not directly or indirectly
vote any share of its own stock.
8. Action at Meeting. When a quorum is present, any matter before
-----------------
a meeting of stockholders shall be decided by vote of the holders of a majority
of the shares of stock voting on such matter, except where a larger vote is
required by law, by the Articles of Organization or by these By-laws. Any
election by stockholders shall be determined by a plurality of the votes cast,
except where a greater vote is required by law, by the Articles of Organization
or by these By-laws. No ballot shall be required for any election unless
requested by a stockholder present or represented at the meeting and entitled to
vote in the election.
9. Action without Meeting. Any action required or permitted to be
----------------------
taken at any annual or special meeting of stockholders (including any actions or
powers reserved to the stockholders under these By-laws) may be taken without a
meeting, provided that all stockholders entitled to vote on the matter consent
to the action in writing and the written consents are filed with the records of
the meetings of stockholders. Such consents shall be treated for all purposes as
a vote at a meeting.
10. Presiding Officer. The Chairman or, in his absence, the
-----------------
President or, in his absence, such other officer as shall be designated by the
Board of Directors, shall preside at all annual or special meetings of
stockholders and shall have the power, among other things, to
5
<PAGE>
adjourn such meetings at any time and from time to time in accordance with the
provisions of Sections 5 and 6 of this Article I. The order of business and all
other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
11. Voting Procedures and Inspectors of Elections. In advance of
---------------------------------------------
any meeting of stockholders, the Board of Directors may appoint one or more
inspectors to act at an annual or special meeting of stockholders and make a
written report thereon. Any inspector may, but need not, be an officer, employee
or agent of the Corporation. Each inspector, before entering upon the discharge
of his duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector(s) shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspector(s) may appoint or retain other
persons or entities to assist the inspector(s) in the performance of the duties
of the inspector(s). The presiding officer may review all determinations made by
the inspector(s), and in so doing the presiding officer shall be entitled to
exercise his sole judgment and discretion and he shall not be bound by any
determinations made by the inspector(s). All determinations by the inspector(s)
and, if applicable, presiding officer shall be subject to further review by any
court of competent jurisdiction.
ARTICLE II
----------
Directors
---------
1. Classes of Directors; Term of Office; Qualification. The number
---------------------------------------------------
of Directors of the Corporation shall be fixed at three or such larger number of
directors as may be fixed by the Board of Directors from time to time after the
annual meeting of the Corporation for the fiscal year 1999. The Directors shall
hold office in the manner provided in the Articles. No Director need be a
stockholder of the Corporation.
2. Powers. The business of the Corporation shall be managed by a
------
Board of Directors who may exercise all the powers of the Corporation except as
otherwise provided by law, by the Articles of Organization or by these By-laws.
In particular, and without limiting the generality of the foregoing, the
Directors may at any time issue all or from time to time any part of the
unissued capital stock of the Corporation from time to time authorized under the
Articles of Organization and may determine, subject to any requirements of law,
the consideration for which stock is to be issued and the manner of allocating
such consideration between capital and surplus.
6
<PAGE>
3. Director Nominations. Nominations of candidates for election as
--------------------
Directors of the Corporation at any Annual Meeting may be made only (a) by, or
at the direction of, the Nominating Committee established in accordance with
Article II, Section 14 of these By-laws or (b) by any holder of record (both as
of the time notice of such nomination is given by the stockholder as set forth
below and as of the record date for the Annual Meeting in question) of any
shares of the capital stock of the Corporation entitled to vote at such Annual
Meeting who complies with the timing, informational and other requirements set
forth in this By-law. Any stockholder who has complied with the timing,
informational and other requirements set forth in this By-law and who seeks to
make such a nomination, or his, her or its representative, must be present in
person at the Annual Meeting. Only persons nominated in accordance with the
procedures set forth in this By-law shall be eligible for election as Directors
at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Nominating Committee, shall be made pursuant to timely notice in writing to the
Clerk of the Corporation as set forth in this By-law. For the first Annual
Meeting following the Effective Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation. For all subsequent Annual Meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not less than 75 days nor
more than 120 days prior to the Anniversary Date; provided, however, that in the
event the Annual Meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Clerk shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a Director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) the consent of each nominee to serve as a Director if elected. A
stockholder's notice to the Clerk shall further set forth as to the stockholder
giving such notice (i) the name and address, as they appear on the Corporation's
stock transfer books, of such stockholder and of the beneficial owners (if any)
of the Corporation's capital stock registered in such stockholder's name and the
name and address of other stockholders known by such stockholder to be
supporting such nominee(s), (ii) the class and number of shares of the
Corporation's capital stock which are held of record, beneficially owned or
represented by proxy by such
7
<PAGE>
stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the Annual Meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice, and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof
determines that any stockholder nomination was not made in accordance with the
terms of this By-law or that the information provided in a stockholder's notice
does not satisfy the informational requirements of this By-law in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this By-law, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this By-law or that the information provided in a
stockholder's notice does not satisfy the informational requirements of this By-
law in any material respect, then such nomination shall not be considered at the
Annual Meeting in question. If the Board of Directors, a designated committee
thereof or the presiding officer determines that a nomination was made in
accordance with the terms of this By-law, the presiding officer shall so declare
at the Annual Meeting and ballots shall be provided for use at the meeting with
respect to such nominee.
Notwithstanding anything to the contrary in the second sentence of
the second paragraph of this By-law, in the event that the number of Directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
75 days prior to the Anniversary Date, a stockholder's notice required by this
By-law shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if such notice shall be delivered
to, or mailed to and received by, the Corporation at its principal executive
office not later than the close of business on the 15th day following the day on
which such public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
By-law. Election of Directors at the Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
8
<PAGE>
4. Application of Section 50A of Chapter 156B of the General Laws
--------------------------------------------------------------
of the Commonwealth of Massachusetts. Notwithstanding anything to the contrary
- ------------------------------------
in the Articles of Organization or these By-laws, the provisions of Section 50A
of Chapter 156B of Massachusetts General Laws shall not be applicable to the
Corporation.
5. Vacancies. The Board of Directors may act notwithstanding a
---------
vacancy or vacancies in its membership. Any and all vacancies in the Board of
Directors, however occurring including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director shall be nominated by the Nominating
Committee and shall be filled by the affirmative vote of a majority of the
Directors then in office, even though less than a quorum. Any Director elected
in accordance with this Section 5 shall hold office for the remainder of the
full term of the vacancy filled and until his or her successor is duly elected
and qualified.
6. Resignation. Any Director may resign by delivering his written
-----------
resignation to the Corporation at its principal executive office or to the
President or Clerk. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
7. Removal.
-------
(a) Removal by Directors. Except as set forth in the following
--------------------
sentence, a Director may not be removed by the other Directors then in office. A
Director who (i) is the subject of any regulatory or judicial order or decree
barring or suspending such individual from engaging in any activity related to
the purchase, sale or trading of securities or commodities, or (ii) is indicted
for any criminal charge relating to the purchase, sale or trading of securities
or commodities, may be removed by a vote of a majority of the other Directors
then in office.
(b) Removal by Stockholders. Stockholders may remove a Director
-----------------------
only by the affirmative vote of at least two-thirds of the total votes which
would be eligible to be cast by stockholders in the election of such Director.
8. Meetings. Regular meetings of the Board of Directors may be
--------
held without notice at such time, date and place as the Board of Directors may
from time to time determine
9
<PAGE>
provided that reasonable notice of the first regular meeting following such
determination shall be given to absent Directors. A regular meeting of the Board
of Directors may be held without notice at the same place as the annual meeting
of stockholders, or the special meeting held in lieu thereof, following such
meeting of stockholders.
Special meetings of the Board of Directors may be called, orally or
in writing, by the Board of Directors, by the Chairman of the Board or by the
President designating the time, date and place thereof.
9. Notice of Meetings. Notice of the time, date and place of all
------------------
special meetings of the Board of Directors shall be given to each Director by
the Clerk or Assistant Clerk, or in case of the death, absence, incapacity or
refusal of such persons, by the officer or one of the Directors calling the
meeting. Notice shall be given to each Director in person or by telephone or by
facsimile sent to his business or home address, at least twenty-four hours in
advance of the meeting, or by written notice mailed to his business or home
address at least forty-eight hours in advance of the meeting. Notice need not be
given to any Director if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Director
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. A notice or waiver of notice of a meeting of the
Board of Directors need not specify the purposes of the meeting.
10. Quorum. At any meeting of the Board of Directors, a majority of
------
the Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
11. Action at Meeting. At any meeting of the Board of Directors at
-----------------
which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless a larger number is required
by law, by the Articles of Organization or by these By-laws.
12. Presence Through Communications Equipment. Unless otherwise
-----------------------------------------
provided by law or the Articles of Organization, members of the Board of
Directors may participate in a meeting of the Board of Directors by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
13. Action by Consent. Unless the Articles of Organization
-----------------
otherwise provide, any action by the Board of Directors may be taken without a
meeting if all the Directors consent to the action in writing and the written
consents are filed with the records of the meetings of the Board of Directors.
Such consents shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
10
<PAGE>
14. Nominating Committee. The Board of Directors shall establish and
--------------------
at all times maintain a Nominating Committee consisting of the Chairman of the
Board and two other Directors selected by the Chairman of the Board. The duties
and responsibilities of the Nominating Committee shall be to select and nominate
candidates for election as Directors of the Corporation.
15. Other Committees. In addition to the Nominating Committee
----------------
provided for in Article III, Section 14 of these By-laws, the Board of
Directors, by vote of a majority of the Directors then in office, may elect from
its number an Executive Committee or other committees and may delegate thereto
some or all of its powers except those which by law, by the Articles of
Organization, or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors by vote of a majority of the Directors then in
office may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
ARTICLE III
-----------
Officers
--------
1. Enumeration. The officers of the Corporation shall consist of a
-----------
Chairman of the Board, a President, a Treasurer, a Clerk, and such other
officers, including a Chairman of the Board or one or more Vice Presidents,
Assistant Treasurers or Assistant Clerks, as the Board of Directors may
determine.
2. Election. The Chairman of the Board, President, Treasurer and
--------
Clerk shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders. Other officers may be chosen by
the Board of Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a Director of the Corporation
-------------
except for the Chairman of the Board. Any two or more offices may be held by any
person. The Clerk shall be a resident of Massachusetts unless the Corporation
has a resident agent appointed for the purpose of service of process. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his duties in such amount and with such sureties as the Board of
Directors may determine.
11
<PAGE>
4. Tenure. Except as otherwise provided by law, by the Articles of
------
Organization or by these By-laws, the Chairman of the Board, the President,
Treasurer and Clerk shall hold office until the first meeting of the Board of
Directors following the next annual meeting of stockholders and until their
respective successors are chosen and qualified; and all other officers shall
hold office until the first meeting of the Board of Directors following the next
annual meeting of stockholders and until their successors are chosen and
qualified, or for such shorter term as the Board of Directors may fix at the
time such officers are chosen.
5. Resignation. Any officer may resign by delivering his written
-----------
resignation to the Corporation at its principal office, to the Chairman of the
Board or to the President or Clerk, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
6. Removal. The Board of Directors may remove any officer with or
-------
without cause by a vote of a majority of the entire number of Directors then in
office; provided, that an officer may be removed for cause only after reasonable
notice and opportunity to be heard by the Board of Directors.
7. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors. The Board of Directors
shall elect a successor if the office of Chairman of the Board, President,
Treasurer or Clerk becomes vacant and may elect a successor if any other office
becomes vacant.
8. Chairman of the Board. The Chairman of the Board shall preside
---------------------
at all meetings of the Stockholders and of the Board of Directors. Unless the
Board of Directors shall otherwise determine, the Chairman of the Board shall be
the Chief Executive Officer and general manager of the Corporation, shall in
general supervise and control all of the business and affairs of the
Corporation, and shall perform all duties incident to the office of Chairman of
the Board and such other duties as may be prescribed by the Board of Directors
from time to time.
9. President and Vice Presidents. The President shall, in the
-----------------------------
absence of the Chairman of the Board preside, when present, at all meetings of
stockholders and, if the Chairman of the Board is absent, at meetings of the
Board of Directors. The President shall exercise and perform such other powers
and duties as the Board of Directors or these By-laws may designate.
Any Vice President shall have such powers and shall perform such
duties as the Board of Directors may from time to time designate.
10. Chief Financial Officer, Treasurer and Assistant Treasurers. The
-----------------------------------------------------------
Chief Financial Officer or the Treasurer shall, subject to the direction of the
Board of Directors, have general charge of the financial affairs of the
Corporation and shall cause to be kept
12
<PAGE>
accurate books of account. Such officer shall have custody of all funds,
securities, and valuable documents of the Corporation, except as the Board of
Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors may from time to time designate.
11. Clerk and Assistant Clerks. The Clerk shall keep a record of the
--------------------------
meetings of stockholders. In case a Clerk is not elected or is absent, the Clerk
or an Assistant Clerk shall keep a record of the meetings of the Board of
Directors. In the absence of the Clerk from any meeting of stockholders, an
Assistant Clerk if one be elected, otherwise a Temporary Clerk designated by the
person presiding at the meeting, shall perform the duties of the Clerk.
12. Other Powers and Duties. Subject to these By-laws, each officer
-----------------------
of the Corporation shall have in addition to, and to the extent not inconsistent
with, the duties and powers specifically set forth in these By-laws, such duties
and powers as are customarily incident to his office, and such duties and powers
as may be designated from time to time by the Board of Directors.
ARTICLE IV
----------
Capital Stock
-------------
1. Certificates of Stock. The Board of Directors may provide by
---------------------
resolution that some or all of any or all classes and series of shares shall be
uncertificated shares. Unless such a resolution has been adopted, each
stockholder shall be entitled to a certificate of the capital stock of the
Corporation in such form as may from time to time be prescribed by the Board of
Directors. Such certificate shall be signed by the President or a Vice President
and by the Treasurer or an Assistant Treasurer. Such signatures may be facsimile
if the certificate is signed by a transfer agent, or by a registrar, other than
a Director, officer or employee of the Corporation. In case any officer who has
signed or whose facsimile signature has been placed on such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
time of its issue. Every certificate for shares of stock which are subject to
any restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
2. Transfers. Subject to any restrictions on transfer, shares of
---------
stock may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such
13
<PAGE>
proof of the authenticity of signature as the Corporation or its transfer agent
may reasonably require.
3. Record Holders. Except as may be otherwise required by law, by
--------------
the Articles of Organization or by these By-laws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of
his post office address.
4. Record Date. The Board of Directors may fix in advance a time of
-----------
not more than sixty days preceding the date of any meeting of stockholders, or
the date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Corporation after the record date. Without fixing
such record date the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed,
(a) the record date for determining stockholders having the right to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
6. Issuance of Capital Stock. The Board of Directors shall have the
-------------------------
authority to issue or reserve for issue from time to time the whole or any part
of the capital stock of the Corporation which may be authorized from time to
time, to such persons or organizations, for such consideration, whether cash,
property, services or expenses, and on such terms as the Board of Directors may
determine, including without limitation the granting of options, warrants, or
conversion or other rights to subscribe to said capital stock. The Board of
Directors may delegate some or all of its authority under this Section 6 to one
or more committees of Directors.
14
<PAGE>
ARTICLE V
---------
Indemnification
---------------
1. Actions, Suits and Proceedings. The Corporation shall indemnify
------------------------------
each person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a Director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a Director or officer of, or in a similar capacity with, another
organization or in any capacity with respect to any employee benefit plan of the
Corporation or any subsidiary of the Corporation (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted to be taken in such capacity, against all expenses
(including reasonable attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit, proceeding or investigation,
and any appeal therefrom, unless the Indemnitee shall be finally adjudicated in
such action, suit, proceeding or investigation, not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Corporation or, to the extent such matter relates to service with respect to an
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan. Notwithstanding anything to the
contrary in this Article V, except as set forth in Section 7 of this Article V,
the Corporation shall not indemnify an Indemnitee seeking indemnification in
connection with an action, suit, proceeding or investigation (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation.
2. Employees and Agents. The Corporation may, at the discretion of
--------------------
the Board of Directors, indemnify employees and agents of the Corporation as if
they were included in Section 1 of this Article V.
3. Settlements. The right to indemnification conferred in this
-----------
Article V shall include the right to be paid by the Corporation for amounts paid
in settlement of any such action, suit, proceeding or investigation and any
appeal therefrom, and all expenses (including reasonable attorneys' fees)
incurred in connection with such settlement, pursuant to a consent decree or
otherwise, unless and to the extent it is determined pursuant to Section 6 of
this Article V that the Indemnitee did not act in good faith in the reasonable
belief that his or her action was in the best interests of the Corporation or,
to the extent such matter relates to service with respect to an employee benefit
plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
4. Notification and Defense of Claim. As a condition precedent to
---------------------------------
his or her right to be indemnified, the Indemnitee must notify the Corporation
in writing as soon as practicable of any action, suit, proceeding or
investigation involving such Indemnitee or with respect to which indemnity will
or could be sought. With respect to any action, suit, proceeding or
15
<PAGE>
investigation of which the Corporation is so notified, the Corporation will be
entitled to participate therein at its own expense and/or to assume the defense
thereof at its own expense, with legal counsel reasonably acceptable to the
Indemnitee. After notice from the Corporation to the Indemnitee of its election
so to assume such defense, the Corporation shall not be liable to the Indemnitee
for any legal or other expenses subsequently incurred by the Indemnitee in
connection with such claim, other than as provided below in this Section 4 of
this Article V. The Indemnitee shall have the right to employ his of her own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article V. The Corporation shall not be entitled, without the consent of
the Indemnitee, to assume the defense of any claim brought by or in the right of
the Corporation or as to which counsel for the Indemnitee shall have reasonably
made the conclusion provided for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 of
-------------------
this Article V, in the event that the Corporation does not assume the defense,
or unless and until the Corporation assumes the defense, pursuant to Section 4
of this Article V of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article V, any expenses (including
reasonable attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article V. Such undertaking may be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain
-----------------------------
indemnification or advancement of expenses pursuant to Sections 1, 3 or 5 of
this Article V, the Indemnitee shall submit to the Corporation a written
request, including in such request such documentation and information as is
reasonably available to the Indemnitee and is reasonably necessary to determine
whether and to what extent the Indemnitee is entitled to indemnification or
advancement of expenses. Any such indemnification pursuant to Section 1 of this
Article V shall be made promptly, and in any event within 60 days after receipt
by the Corporation of the written request of the Indemnitee, unless a court of
competent jurisdiction finally adjudicates that the Indemnitee did not meet the
applicable standard of conduct set forth in Section 1 of this
16
<PAGE>
Article V. Any such indemnification pursuant to Section 3 of this Article V or
advancement of expenses pursuant to Section 5 of this Article V shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless the Corporation determines, by
clear and convincing evidence, within such 60-day period that the Indemnitee did
not meet the applicable standard of conduct set forth in Sections 1 or 3 of this
Article V, as the case may be. Such determination by the Corporation shall be
made in each instance by (a) a majority vote of a quorum of the Directors of the
Corporation, (b) a majority vote of a quorum of the outstanding shares of stock
of all classes entitled to vote for Directors, voting as a single class, which
quorum shall consist of stockholders who are not at that time parties to the
action, suit, proceeding or investigation in question, or (c) independent legal
counsel (who may be regular legal counsel to the Corporation).
7. Remedies. The right to indemnification or advances as granted by
--------
this Article V shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6 of this Article V. Unless otherwise provided by law, the Corporation
shall have the burden of proving that the Indemnitee is not entitled to
indemnification or advancement of expenses under this Article V. Neither the
failure of the Corporation to have made a determination prior to the
commencement of any such action by the Indemnitee that indemnification is proper
in the circumstances because the Indemnitee has met the applicable standard of
conduct, nor an actual determination by the Corporation pursuant to Section 6 of
this Article V that the Indemnitee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. The Indemnitee's
expenses (including attorneys' fees) incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of
--------------------
this Article V or of the relevant provisions of Chapter 156B of the
Massachusetts General Laws or any other applicable laws shall affect or diminish
in any way the rights of any Indemnitee to indemnification under the provisions
hereof with respect to any action, suit, proceeding or investigation arising out
of or relating to any actions, transactions or facts occurring prior to the
final adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article V shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or Directors or otherwise, both as to action in his or her official capacity and
as to action in any other capacity while holding office for the Corporation, and
shall continue as to an Indemnitee who has ceased to be a Director or officer,
and shall inure to the benefit of the estate, heirs, executors, personal
representatives and administrators of the Indemnitee. Nothing contained in this
Article V shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers
17
<PAGE>
and Directors providing indemnification rights and procedures different from
those set forth in this Article V. In addition, the Corporation may, to the
extent authorized from time to time by its Board of Directors pursuant to
Section 2 of this Article V or otherwise, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article V.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article V to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by such Indemnitee or on
such Indemnitee's behalf in connection with any action, suit, proceeding or
investigation and any appeal therefrom but not, however, for the total amount
thereof, the Corporation shall nevertheless indemnify the Indemnitee for the
portion of such expenses (including reasonable attorneys' fees), judgments,
fines or amounts paid in settlement to which such Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance,
---------
at its expense, to protect itself and any Director, officer, employee or agent
of the Corporation, any subsidiary, another organization or employee benefit
plan against any expense, liability or loss incurred by him of her in any such
capacity, or arising out of his of her status as such, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Chapter 156B of the Massachusetts General Laws.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving Corporation shall assume the obligations of the
Corporation under this Article V with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring at or prior to the date of such merger or consolidation.
13. Savings Clause. If this Article V or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement in connection with any action, suit, proceeding or investigation,
whether civil, criminal or administrative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article V that shall not have been invalidated and to the
fullest extent permitted by applicable law.
14. Subsequent Legislation. If the Massachusetts General Laws are
----------------------
amended after adoption of this Article V to expand further the indemnification
permitted to Indemnities, then the Corporation shall indemnify such persons to
the fullest extent permitted by the Massachusetts General Laws, as so amended.
18
<PAGE>
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
1. Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Corporation shall be the year ending on the
Saturday nearest January 31 of each year.
2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action, may
be executed on behalf of the Corporation by the Chairman of the Board, the
President, any Vice President or the Treasurer except as the Board of Directors
may generally or in particular cases otherwise determine.
4. Voting of Securities. Unless otherwise provided by the Board of
--------------------
Directors, the President or Treasurer may waive notice of and act on behalf of
this Corporation, or appoint another person or persons to act as proxy or
attorney in fact for this Corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
Corporation.
5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation. Said resident agent shall be either an individual who is a
resident of and has a business address in Massachusetts, a corporation organized
under the laws of Massachusetts, or a corporation organized under the laws of
any other state of the United States, which has qualified to do business in, and
has an office in, Massachusetts.
6. Corporate Records. The original, or attested copies, of the
-----------------
Articles of Organization, By-laws and records of all meetings of the
incorporators and stockholders, and the stock and transfer records, which shall
contain the names of all stockholders and the record address and the amount of
stock held by each, shall be kept in Massachusetts at the principal office of
the Corporation, or at an office of its transfer agent, Clerk or resident agent,
and shall be open at all reasonable times to the inspection of any stockholder
for any proper purpose, but not to secure a list of stockholders for the purpose
of selling said list or copies thereof or of using the same for a purpose other
than in the interest of the applicant, as a stockholder, relative to the affairs
of the Corporation.
19
<PAGE>
7. Articles of Organization. All references in these By-laws to the
------------------------
Articles of Organization shall be deemed to refer to the Amended and Restated
Articles of Organization of the Corporation, as amended and in effect from time
to time.
8. Amendment
---------
(a) Amendment by Directors. Except with respect to any provisions of
----------------------
these By-laws which by law, the Articles of Organization or these By-laws
require action by the stockholders, these By-Laws may be amended or repealed by
the affirmative vote of a majority of the Directors then in office. Not later
than the time of giving notice of the annual meeting of stockholders next
following the amending or repealing by the Directors of any By-law, notice
thereof stating the substance of such change shall be given to all stockholders
entitled to vote on amending the By-laws.
(b) Amendment by Stockholders. These By-laws may be amended or
-------------------------
repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the total votes eligible to be cast on such amendment or repeal by
holders of voting stock, voting together as a single class; provided, however,
that if the Board of Directors recommends that stockholders approve such
amendment or repeal at such meeting of stockholders, such amendment or repeal
shall only require the affirmative vote of a majority of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class. Notwithstanding the foregoing, no shareholder
approval shall be required unless mandated by the Articles of Organization,
these By-laws, or other applicable law.
20
<PAGE>
Exhibit 3.5
CERTIFICATE OF INCORPORATION
OF
New Horizons of Yonkers, Inc.
* * * * *
1. The name of the corporation is
New Horizons of Yonkers, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000); all of such shares shall be without
par value.
5. The name and mailing address of the sole incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Bruce L. Dove One Bradlees Circle
Braintree, MA 02184
</TABLE>
6. The corporation is to have perpetual existence.
1
<PAGE>
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or
repeal the by-laws of the corporation.
8. Elections of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
9. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10. A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
2
<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 6th day of October, 1992.
/s/ Bruce L. Dove
---------------------------
Bruce L. Dove, Incorporator
3
<PAGE>
Exhibit 3.6
New Horizons of Yonkers, Inc.
* * * * *
B Y - L A W S
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at any place as may be fixed from time to time by the
board of directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at the principal executive office of the corporation such
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
1
<PAGE>
Section 2. Annual meetings of stockholders, commencing with the year
1993, shall be designated from time to time by the board of directors and stated
in the notice of the meeting, at which they shall elect by a plurality vote a
board of directors, and transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than 10 nor more than 60 days before the date of
the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by
2
<PAGE>
the president and shall be called by the president or secretary at the request
in writing of a majority of the board of directors, or at the request in writing
of stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than 10 nor more than 60 days before the date
of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as
3
<PAGE>
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of
4
<PAGE>
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than 1 nor more than 10. The first board shall consist
of 2 directors. Thereafter, within the limits above specified, the number of
directors shall be determined by resolution of the board of directors or by the
stockholders at the annual meeting. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in
5
<PAGE>
the manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these by-laws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
6
<PAGE>
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on one day notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors unless the
board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board of directors, a majority
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
7
<PAGE>
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
8
<PAGE>
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which require it; but no such committee shall have the power or authority
in reference to amending the certificate of incorporation, (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation) adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation
9
<PAGE>
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
10
<PAGE>
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors
11
<PAGE>
may also choose additional vice-presidents, and one or more assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these by-laws otherwise
provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
12
<PAGE>
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the vice-president (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when
13
<PAGE>
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and shall perform
such other duties as may be prescribed by the board of directors or president,
under whose supervision he shall be. He shall have custody of the corporate seal
of the corporation and he, or an assistant secretary, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such assistant secretary. The
board of directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
14
<PAGE>
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
15
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
16
<PAGE>
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporation seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the
17
<PAGE>
board of directors by the certificate of incorporation at any regular meeting of
the stockholders or of the board of directors or at any special meeting of the
stockholders or of the board of directors if notice of such alteration,
amendment, repeal or adoption of new by-laws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal by-laws is conferred
upon the board of directors by the certificate of incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal by-laws.
18
<PAGE>
EXHIBIT 4.1
BRADLEES
NUMBER SHARES
BRADLEES, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR
IN BOSTON, MA OR NEW YORK, NY CERTAIN DEFINITIONS
AND TRANSFER RESTRICTIONS
COMMON STOCK
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT CUSIP 104499 20 7
IS THE OWNER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF
BRADLEES, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation by the holder of record hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed or assigned.
This Certificate and the shares represented hereby are issued and held subject
to the laws of the Commonwealth of Massachusetts and the Amended and Restated
Articles of Organization and Amended and Restated Bylaws of the Corporation,
each as from time to time amended (copies of which are on file with the
Corporation), to all of which the holder, by acceptance hereof, assents.
This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
IN WITNESS WHEREOF, Bradlees, Inc. has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and sealed with the
facsimile seal of the Corporation.
Dated
/s/ Paul R. McKelvey /s/ Peter Thorner
__________________________ ---------------------------
TREASURER CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[SEAL OF BRADLEES, INC. APPEARS HERE]
<PAGE>
BRADLEES, INC.
The Corporation has more than one class of stock authorized to be issued.
The Corporation will furnish without charge to each stockholder upon written
request a copy of the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class of
stock (and any series thereof) authorized to be issued by the Corporation as set
forth in the Amended and Restated Articles of Organization and amendments
thereto filed with the Secretary of State of the Commonwealth of Massachusetts.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties UNIF GIFT MIN ACT--....... Custodian...............
JT TEN -- as joint tenants with right - (Cust) (Minor)
or survivorship and not as under Uniform Gifts to Minors
tenants in common Act..........................................
(State)
</TABLE>
Additional abbreviations may also be used through not in the above list.
For Value Received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common shares represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said shares on the books of the within named Corporation with
full power or substitution in the premises.
Dated___________________
______________________________________________________________________
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed: __________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO SEC RULE 17Ad-15.
<PAGE>
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is entered into as of
February 2, 1999 by and between Bradlees, Inc., a Massachusetts corporation
("BI"), Bradlees Stores, Inc., a Massachusetts corporation ("BSI" and,
collectively with BI, the "Companies") and each of the parties executing a
signature page hereto (each a "Holder" and collectively the "Holders").
WHEREAS, the Holders are to receive, either directly pursuant to the Plan
of Reorganization of BI and BSI or as a result of the Holders' ownership of
participation interests in claims resulting in the issuance of such securities,
a number of shares of common stock, $.01 par value (together with any additional
shares of Common Stock that may be issued upon the conversion of the Notes (as
defined below), the "Common Stock") of BI and certain 9% Convertible Notes, due
2004, of BSI (the "Notes"), issued in connection with the Plan of Reorganization
of BI and BSI on the date prescribed therein (the "Effective Date") without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to the exemption under Section 1145 of the Bankruptcy Code from
the registration requirements of Section 5 of the Securities Act.
WHEREAS, the Holders may, as a result of the amount of Common Stock and/or
Notes they hold, be restricted under applicable securities laws in their ability
to freely transfer or resell the shares of Common Stock or Notes held by them
absent the registration of such transfer or resale of such securities under the
Securities Act.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Registration of Securities.
--------------------------
(a) Filing of Registration Statement. As of or prior to the Effective
--------------------------------
Date, the Companies shall cause to be filed a registration statement (the
"Registration Statement") under Rule 415 promulgated under the Securities Act
relating to the sale by such Holders of their shares of Common Stock and their
Notes (the "Registered Securities") in accordance with the terms hereof.
Thereupon, the Companies shall use their best efforts to cause such Registration
Statement to be filed and declared effective by the Securities and Exchange
Commission (the "SEC") for all Registered Securities as soon as practicable
thereafter, but in any event prior to the Effective Date. The Companies agree,
subject to the provisions of Sections 2, 5, 6 and 7 hereof, to use their best
efforts to maintain the continuous effectiveness of the Registration Statement,
and to update and correct the information contained in the Registration
Statement, until the date on which no Holder holds 10% or more of the BI's
outstanding Common Stock, provided that if one or more Holders hold less than
10% of BI's outstanding Common Stock but greater than 5% of BI's outstanding
Common Stock, such Holder or Holders may request that the Companies continue to
attempt to maintain the
<PAGE>
effectiveness of the Registration Statement at the expense of such Holder or
Holders as provided in Section 3.
(b) Conditions to Companies' Obligations. The Companies shall have no
------------------------------------
obligation to a Holder under Section 1(a) unless such Holder provides to the
Companies all of the information regarding the Holders and their affiliates
reasonably required to be included in the Registration Statement for it to be
complete.
2. Registration Procedures.
-----------------------
(a) The Companies shall notify each Holder of the effectiveness of the
Registration Statement and shall furnish to each such Holder such number of
copies of the Registration Statement (including any amendments, supplements and
exhibits), the prospectus contained therein, any documents incorporated by
reference in the Registration Statement and such other documents as such Holder
may reasonably request in order to facilitate its sale of the Registered
Securities in the manner described in the Registration Statement.
(b) The Companies shall prepare and file with the SEC from time to
time such amendments and supplements to the Registration Statement and
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all the Registered Securities
until the date on which the Registration Statement ceases to be effective in
accordance with the terms of Section 1. The Companies shall promptly respond to
all comments from the SEC regarding the Registration Statement and any
amendments and/or supplements thereto. Upon twenty (20) business days' written
notice from any Holder, the Companies shall file any supplement or post-
effective amendment to the Registration Statement with respect to such Holder's
interests in or plan of distribution of Registered Securities that is reasonably
necessary to permit the sale of the Holder's Registered Securities pursuant to
the Registration Statement. For so long as the Companies are obligated to
maintain the effectiveness of the Registration Statement with respect to
Registered Securities owned by any Holder under this Agreement, such Holder
shall be afforded a reasonable opportunity to review the Registration Statement
and any amendments and/or supplements thereto not less than 5 days prior to
filing.
(c) The Companies shall notify each Holder of any request by the SEC
for amendments or supplements to the Registration Statement or the prospectus
related thereto or for additional information. In addition, the Companies shall
notify each such Holder of the filing of the Registration Statement, any
prospectus supplement related thereto or any post-effective amendment to the
Registration Statement and the effectiveness of any post-effective amendment.
(d) The Companies represent and warrant to the Holders that, upon the
effectiveness of the Registration Statement, the prospectus included in the
Registration Statement shall not include an untrue statement of a material fact
or omit to state a material fact
2
<PAGE>
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading. For so
long as the Registration Statement remains effective, the Companies shall
promptly notify each Holder of the happening of any event as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. In
such event and subject to Sections 2(b), 6 and 7 of this Agreement, the
Companies shall prepare and furnish to each such Holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of Registered Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(e) Subject to the conditions set forth in this Agreement, the
Companies shall, upon the reasonable request of any Holder, file such documents
as may be necessary to register or qualify the Registered Securities under the
state securities or "Blue Sky" laws of such states as any Holder requesting
registration may reasonably request, and the Companies shall use their best
efforts to cause such filings to become qualified; provided, however, that
-------- -------
neither of the Companies shall be obligated to qualify as a foreign corporation
to do business under the laws of any such state in which it is not then
qualified or to file any general consent to service of process in any such
state. Once qualified, the Companies shall use their best efforts to keep such
filings qualified until the earlier of (a) such time as all of the Registered
Securities have been disposed of in accordance with the intended methods of
disposition by the Holder as set forth in the Registration Statement, (b) in the
case of a particular state, a Holder has notified the Companies that it no
longer requires qualified filing in such state in accordance with its original
request for filing or (c) the date on which the Registration Statement ceases to
be effective with the SEC. The Companies shall promptly notify each Holder
requesting registration of, and confirm in writing, the receipt by the Companies
of any notification with respect to the suspension of the qualification of the
Registered Shares for sale under the securities or "Blue Sky" laws of any
jurisdiction or the initiation or threat of any proceeding for such purpose, and
shall use their best efforts to cause the termination of any such suspension or
proceeding.
(f) BI will use its best efforts to cause the listing of the Common
Stock on the NASDAQ National Market System ("NASDAQ") and prepare any related
filings necessary to maintain such listing.
3
<PAGE>
3. Expenses.
--------
(a) Subject to the provisions of Section 3(b), the Companies shall
bear all expenses incurred in connection with the registration of the Registered
Securities until such time as no Holder holds 10% or more of the outstanding
Common Stock of BI. Such expenses shall include, without limitation, all
printing, legal and accounting expenses incurred by the Companies and all
registration and filing fees imposed by the SEC or the principal national
securities exchange or national market system on which the Registered Securities
are then traded or quoted (the "Registration Expenses"). The Holders shall be
responsible for any brokerage or underwriting commissions and taxes of any kind
(including, without limitation, transfer taxes) with respect to any disposition,
sale or transfer of Registered Securities and for any legal and other expenses
specifically incurred by them in connection with the Registration Statement.
(b) After such time as no Holder holds 10% or more of the outstanding
Common Stock of BI, in the event that one or more Holders hold less than 10% of
the BI's outstanding Common Stock but greater than 5% of the BI's outstanding
Common Stock, such Holder or Holders may request that the Companies continue to
maintain the effectiveness of the Registration Statement, provided that such
Holder or Holders bear all of the Registration Expenses associated with such
maintenance of the effectiveness of the Registration Statement.
(c) For the purposes of Section 1(a) and this Section 3, Holders that
would constitute a group for the purposes of Section 13(d) of the Securities
Exchange Act of l934, as amended, shall be aggregated to determine whether the
5% or 10% ownership levels referred therein are met.
4. Indemnification by the Companies. Each of the Companies jointly and
--------------------------------
severally agrees to indemnify each of the Holders and their respective officers,
directors, employees, agents, representatives, partners and affiliates, and each
person or entity, if any, that controls a Holder within the meaning of the
Securities Act, and each other person or entity, if any, subject to liability
because of his, her or its connection with a Holder, and any underwriter and any
person who controls the underwriter within the meaning of the Securities Act (an
"Indemnitee") against any and all losses, claims, damages, actions, liabilities,
costs and expenses (including without limitation reasonable attorneys' fees,
expenses and disbursements documented in writing), joint or several, arising out
of or based upon any untrue or alleged untrue statement of material fact
contained in the Registration Statement or any prospectus contained therein, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as and
to the extent that such statement or omission arose out of or was based upon
information regarding the Indemnitee or its plan of distribution which was
furnished to the Companies in writing by the Indemnitee for use therein,
provided, further that the Companies shall not be liable to any person who
participates as an underwriter in the offering or sale of Registered Securities
or any other person, if any, who controls such underwriter within the meaning of
the Securities Act, in any
4
<PAGE>
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of or is based upon
(i) an untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement, final prospectus, amendment or
supplement in reliance upon and in conformity with information furnished to the
Companies for use in connection with the Registration Statement or the
prospectus contained therein by such Indemnitee or (ii) such Indemnitee's
failure to send or give a copy of the prospectus, amendment or supplement
furnished to it by the Companies at or prior to the time such action is required
by the Securities Act to the person claiming an untrue statement or alleged
untrue statement or omission or alleged omission if such statement or omission
was corrected in such prospectus, amendment or supplement. The obligations of
the Companies under this Section 4 shall survive the completion of any offering
of Registered Securities pursuant to the Registration Statement and shall
survive the termination of this Agreement.
5. Covenants of Holders. Each of the Holders hereby severally and not
--------------------
jointly agrees (a) to cooperate with the Companies and to furnish to the
Companies all such information in connection with the preparation of the
Registration Statement as the Companies may reasonably request, (b) to the
extent required by the Securities Act, to deliver or cause delivery of the
prospectus contained in the Registration Statement to any purchaser of the
securities covered by the Registration Statement from the Holder, (c) to
promptly notify the Companies of any sale of Registered Securities by such
Holder that results in such Holder holding less than either 10% or 5% of BI's
outstanding Common Stock and upon any change in the information regarding such
Holder in the Registration Statement that would require amendment of the
Registration Statement and (d) to indemnify the Companies, their respective
officers, directors, employees, agents, representatives and affiliates, and each
person, if any, who controls either of the Companies within the meaning of the
Securities Act, and each other person, if any, subject to liability because of
his connection with the Companies, against any and all losses, claims, damages,
actions, liabilities, costs and expenses arising out of or based upon (i) any
untrue statement or alleged untrue statement of material fact contained in
either the Registration Statement or the prospectus contained therein, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, if and to the extent
that such statement or omission was based upon information regarding the Holder
or its plan of distribution which was furnished to the Companies in writing by
the Holder for use therein, or (ii) the failure by the Holder to deliver or
cause to be delivered the prospectus contained in the Registration Statement (as
amended or supplemented, if applicable) furnished by the Companies to the Holder
to any purchaser of the Securities covered by the Registration Statement from
the Holder. Notwithstanding the foregoing, the total amount for which a Holder
shall be liable under this Section 5 shall not in any event exceed the aggregate
proceeds received by him or it from the sale of the Holder's Registered
Securities in such registration. The obligations of the Holders under this
Section 5 shall survive the completion of any offering of Registered Securities
pursuant to the Registration Statement and shall survive the termination of this
Agreement.
5
<PAGE>
6. Suspension of Registration Requirement.
--------------------------------------
(a) The Companies shall promptly notify each Holder requesting
registration of, and confirm in writing, the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or the threat
of or initiation of any proceedings for that purpose. The Companies shall use
their best efforts to prevent the issuance of or to obtain the withdrawal of any
SEC order suspending the effectiveness of the Registration Statement at the
earliest possible time.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Companies' obligation under this Agreement to use their best
efforts to amend or supplement the Registration Statement shall be suspended in
the event of the occurrence of an event that would require additional disclosure
of material information by the Companies in the Registration Statement and the
Board of Directors of the Companies in good faith determine that the disclosure
relating to such event or pending transaction would have a material adverse
effect upon the Companies (such circumstances being hereinafter referred to as a
"Suspension Event"), but such suspension shall continue only for so long as such
event or pending transaction is continuing and the Companies shall use their
best efforts to cause any such suspension to terminate at the earliest possible
date. In any event, the Companies agree not to exercise the rights set forth in
this Section 7(b) more than three times in any twelve month period, one period
which shall not exceed thirty (30) days and two periods each of which shall not
exceed fifteen (15) days; provided that, in only the first twelve month period
following the date of this Agreement, the Companies shall be entitled to
exercise the rights set forth in this Section 7(b) for one additional period of
fifteen (15) days, and provided further that no two such Suspension Event
periods in any twelve month period shall relate to the same circumstances.
(c) Each holder of Registered Securities agrees if requested by the
managing underwriter or underwriters in a fixed price, firm commitment
underwritten offering by either of the Companies of any of its securities (an
"Offering"), not to effect any public sale or distribution of any of the
Registered Securities, during the 5-day period prior to, and during the 10-day
period (or such longer period as may be required by the managing underwriter or
underwriters) beginning on, the date of pricing of each Offering, to the extent
timely notified in writing by the Companies or the managing underwriters.
7. Black-Out Period. Following the effectiveness of the Registration
----------------
Statement, the Holders agree that they will not effect any sales of the
Registered Securities pursuant to the Registration Statement at any time after
they have received notice from the Companies to suspend sales (i) as a result of
the occurrence or existence of any Suspension Event, (ii) pursuant to Section
6(c) hereof as a result of any Offering for the 15-day period referred to in
Section 6(c), or (iii) so that the Companies may correct or update the
Registration Statement or such filing pursuant to Section 2(c) or 2(d) of this
Agreement. The Holder may recommence effecting sales of the Registered
Securities pursuant to the Registration Statement following
6
<PAGE>
further notice to such effect from the Companies as soon as practicable after
the conclusion of any such Suspension Event or Offering.
8. Remedies.
--------
(a) In the event that the Registration Statement has not been
declared effective on or prior to the Effective Date, then the Companies shall
pay in cash to each Holder, on the request of such Holder, a default payment
equal to one-thirtieth (1/30) of one percent (1%) for each day of the first 30-
day period or portion thereof and one-thirtieth (1/30) of two percent (2%) for
each day of each subsequent 30-day period or portion thereof, beginning on the
1st day after the Effective Date, of (a) the outstanding principal amount of
the Notes held by such Holder, together with any accrued and unpaid interest
thereon (the "Note Amount"); and (b) the Fair Market Value of the shares of
Common Stock held by such Holder. The "Fair Market Value" shall be (i) the
average of the closing or last sale price of the Common Stock on NASDAQ reported
for the thirty (30) business days immediately prior to the date that the
relevant 30-day period commenced, or (ii) if the Common Stock is not then traded
on NASDAQ but is traded on the over-the-counter market or other similar market,
then the average of the closing bid and asked prices on such market reported for
the thirty (30) business days immediately prior to the date that the relevant
30-day period commenced, or (iii) if the Common Stock is not traded on either
the NASDAQ or an over-the-counter market, the price determined in good faith by
BI's Board of Directors.
(b) In the event that the Companies fail, refuse or for any other
reason are unable to cause the Registered Securities covered by the Registration
Statement to be listed on NASDAQ at all times during the period ("Listing
Period") from the Effective Date until the date the Registration Statement is no
longer required to be effective with respect to such Holder's Registered
Securities pursuant to Section 1(a) or 1(b) hereunder, then the Companies shall
pay in cash to each Holder, at the request of such Holder, a default payment at
a rate equal to one-thirtieth (1/30) of one percent (1%) for each day of the
first 30-day period (or portion thereof), and equal to one-thirtieth (1/30) of
two percent (2%) for each subsequent day during the Listing Period from and
after such failure, refusal or inability to so list the Registered Securities
until the Registered Securities are so listed, of (a) as to the Notes held by
such Holder, the Note Amount and of (b) as to the shares of Common Stock held by
such Holder, the Fair Market Value of such shares.
(c) In the event that any Holder's ability to sell Registered
Securities under the Registration Statement is suspended more than three times
in any twelve month period, one period which shall not exceed thirty (30) days
and two periods each which shall not exceed fifteen (15) days, provided that, in
only the first twelve month period following the date of this Agreement, the
Companies shall be entitled to exercise the rights set forth in this Section
7(b) for one additional period of fifteen (15) days, and provided further that
no two such Suspension Event periods in any twelve month period shall relate to
the same circumstances (any such period, a "Suspension Grace Period"), including
without limitation by reason of a suspension of trading of the Common Stock on
NASDAQ, any suspension or stop order with
7
<PAGE>
respect to the Registration Statement or the fact that an event has occurred as
a result of which the prospectus (including any supplements thereto) included in
such Registration Statement then in effect includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein no misleading in light of the
circumstances then existing, or is undeliverable for any other reason, then,
commencing with the expiration of the Suspension Grace Period, the Company shall
pay in cash to each Holder a default payment at a rate equal to one-thirtieth
(1/30) of one percent (1%) for each day of the first 30-day period (or portion
thereof), and equal to one-thirtieth (1/30) of two percent (2%) for each
subsequent day, of the Note Amount for the Notes held by such Holder and of the
Fair Market Value of the shares of Common Stock held by such Holder.
(d) In the event that the Company does not have a sufficient number of
shares of Common Stock available to satisfy BI's obligations to any Holder upon
receipt of a Conversion Notice (as defined in the Note) or is otherwise unable
or unwilling to issue such shares of Common Stock (each, a "Conversion
Deficiency") in accordance with the terms of the Note for any reason after
receipt of a Conversion Notice, then the Companies shall pay in cash to each
Holder a default payment at a rate equal to one-thirtieth (1/30) of one percent
(1%) for each day of the first 30-day period (or portion thereof), and equal to
one-thirtieth (1/30) of two percent (2%) for each subsequent day, of the Note
Amount for the Notes held by such Holder, commencing on the date that BI fails
or refuses to issue the shares of Common Stock in accordance with the Note.
(e) Notwithstanding the foregoing, in no event shall the Companies be
liable for any default payments which arise hereunder solely as a result of the
actions (or inactions) of the SEC, any other governmental agency, or NASDAQ with
respect to the Common Stock or the Notes.
(f) The Companies acknowledge that any failure, refusal or inability
by the Companies to perform the obligations described in the foregoing
paragraphs (a) through (d) will cause the Holders to suffer damages in an amount
that will be difficult to ascertain, including without limitation damages
resulting from the loss of liquidity in the Registered Securities and the
additional investment risk in holding the Registered Securities. Accordingly,
the parties agree, after consulting with counsel, that it is appropriate to
include in this Agreement the foregoing provisions for default adjustments in
order to compensate the Holders for such damages.
(g) The default adjustments and payments provided for above are in
addition to and not in lieu or limitation of any other rights the Holders may
have at law, in equity or under the terms of the Note and any other relevant
agreements, or this Agreement, including without limitation the rights to
specific performance. Each Holder shall be entitled to specific performance of
any and all obligations of the Companies in connection with the registration
rights of the Holders hereunder.
8
<PAGE>
9. Contribution. If the indemnification provided for in Sections 4 and 5
------------
is unavailable to an indemnified party with respect to any losses, claims,
damages, actions, liabilities, costs or expenses referred to therein or is
insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or expenses
in such proportion as is appropriate to reflect the relative fault of the
Companies, on the one hand, and the Holder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
actions, liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Companies, on the one hand, and of
the Holder, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the
Companies or by the Holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission;
provided, however, that in no event shall the obligation of any indemnifying
- -------- -------
party to contribute under this Section 9 exceed the amount that such
indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Sections 4 or 5 hereof had been available
under the circumstances.
The Companies and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
The obligation of the parties under this Section 9 shall survive the
completion of any offering of Registered Securities pursuant to the Registration
Statement and the termination of this Agreement.
10. Certificates. All certificates evidencing shares of Common Stock and
------------
the Notes issued to the Holders shall be delivered free of any legends or stop
transfer restrictions.
11. Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented without the prior written consent of each of
the Companies and each Holder that holds in excess of 5% of the outstanding
shares of Common Stock or principal amount of the Notes, provided that each
Holder shall receive prompt notice of such amendment or modification.
12. Notices. Except as set forth below, all notices and other
-------
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return
9
<PAGE>
receipt requested), postage prepaid or courier or overnight delivery service to
the Companies at the following addresses and to the Holder at the address set
forth on his or her signature page to this Agreement (or at such other address
for any party as shall be specified by like notice, provided that notices of a
change of address shall be effective only upon receipt thereof), and further
provided that in case of notifications to amend the Registration Statement
pursuant to Sections 2(b) or 2(c) or notifications pursuant to Sections 2(e) or
5, the sender must confirm such notice in writing by overnight express delivery:
If to BI or BSI: Bradlees, Inc.
Bradlees Stores, Inc.
One Bradlees Circle
Braintree, MA 02184
Attn: Peter Thorner, Chief Executive Officer
David Schmitt, Senior Vice President and
General Counsel
Telephone: (781) 380-3000
Telecopy: (781) 380-8096
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Raymond C. Zemlin, P.C.
Telephone: (617) 570-1000
Telecopy: (617) 523-1231
13. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the successors and assigns of the Companies. This
Agreement may not be assigned by any Holder other than as permitted by Section
16 and any attempted assignment hereof by any Holder other than as permitted by
Section 16 will be void and of no effect and shall terminate all obligations of
the Companies hereunder with respect to such Holder.
14. Information by Holders. Each Holder shall furnish to the Companies
----------------------
such information regarding such Holder and the distribution and/or sale proposed
by such Holder as the Companies may reasonably request in writing and as shall
be reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement. If necessary for the Holder to effect
such disposition and/or sale covering the Registered Securities, the intended
method or methods of disposition and/or sale of such securities as so provided
by such Holder shall be included without alteration in the Registration
Statement and shall not be changed without written consent of such Holder.
15. Replacement Certificates. The certificate(s) representing the shares
------------------------
of Common Stock held by any Holder may be exchanged by such Holder at any time
and from time to time
10
<PAGE>
for certificates with different denominations representing an equal aggregate
number of shares of Common Stock, as reasonably requested by such Holder upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange.
16. Transfer or Assignment. Except as otherwise provided herein, this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Holders by
the Companies under this Agreement may only be transferred or assigned (in whole
or in part) to a transferee or assignee of Registered Securities that receives
an amount of Registered Securities equal to at least 50,000 shares of Common
Stock of BI (or, in the case of Notes after February 2, 2000, which are
convertible into at least 50,000 shares of Common Stock of BI; or in the case of
the Notes prior to February 2, 2000, a principal amount of Notes equal to
$250,000); provided that the Companies must be given written notice by such
Holder at the time of or within a reasonable time after said transfer or
assignment, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned; and provided further that the transferee or
assignee of such rights agrees in writing to be bound by the registration
provisions of this Agreement.
17. Miscellaneous.
-------------
(a) Remedies. The Companies and the Holders acknowledge and agree
that irreparable damage would occur in the event that any of the provisions
of this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions thereof, in addition to any other
remedy to which any of them may be entitled by law or equity.
(b) Jurisdiction. The Companies and each of the Holders (i) hereby
irrevocably submit to the exclusive jurisdiction of the United States
District Court, the Massachusetts State Courts and other courts of the
United States sitting in Boston, Massachusetts for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and
(ii) hereby waive, and agree not to assert in any such suit action or
proceeding, any claim that it is not personally subject to the jurisdiction
of such court, suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. The
Companies and each of the Holders consent to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at
the address in effect for notices to it under this Agreement and agree that
such service shall constitute good and sufficient serve of process and
notice thereof. Nothing in this paragraph shall affect or limit any right
to serve process in any other manner permitted by law.
(c) Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed
to be a
11
<PAGE>
continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any
party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
(d) Severability. The parties acknowledge and agree that the Holders
are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Holders
hereunder are several and not joint, that no Holder shall have any
responsibility or liability for the representations, warrants, agreements,
acts or omissions of any other Holder, and that any rights granted to
"Holders" hereunder shall be enforceable by each Holder hereunder.
(e) Titles. The titles used in this Agreement are for convenience
only and are not to be considered in construing or interpreting this
Agreement.
(f) No Strict Construction. The language used in this Agreement will
be deemed to be the language chose by the parties to express their mutual
intent, and no rule of strict consideration will be applied against any
party.
(g) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY
JURY.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
19. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of The Commonwealth of Massachusetts applicable to
contracts made and to be performed wholly within said Commonwealth.
20. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
21. Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
12
<PAGE>
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
BRADLEES, INC.
/s/
----------------------------------------------
Name:
Title:
BRADLEES STORES, INC.
/s/
----------------------------------------------
Name:
Title:
13
<PAGE>
Registration Rights Agreement
Holder Signature Page
HOLDER
/s/
----------------------------------------------
Name:
Address for Notice:
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
14
<PAGE>
Exhibit 10.41
[EXECUTION COPY]
================================================================================
REVOLVING CREDIT AND GUARANTY AGREEMENT
================================================================================
Among
BRADLEES STORES, INC.,
as Borrower,
-----------
BRADLEES, INC.,
and
EACH OF THE SUBSIDIARIES OF
THE BORROWER OR BRADLEES, INC., NAMED HEREIN,
each as a Guarantor,
-------------------
THE LENDERS PARTY HERETO,
BANKBOSTON, N.A.,
as Administrative Agent, as Issuing Bank and as Tranche B Agent,
---------------------------------------------------------------
BANKBOSTON RETAIL FINANCE, INC.,
as Collateral Agent,
-------------------
THE CIT GROUP/BUSINESS CREDIT INC.
and
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND),
each as Co-Agent
----------------
================================================================================
Dated as of February 2, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTORY STATEMENT............................................................................... 1
I. DEFINITIONS..................................................................................... 2
SECTION 1.01. Defined Terms................................................................... 2
SECTION 1.02. Terms Generally................................................................. 25
II. AMOUNT AND TERMS OF CREDIT...................................................................... 25
SECTION 2.01. Commitment of the Lenders....................................................... 25
SECTION 2.02. Letters of Credit............................................................... 27
SECTION 2.03. Making of Loans................................................................. 30
SECTION 2.04. Notes; Repayment of Loans....................................................... 32
SECTION 2.05. Interest on Loans............................................................... 33
SECTION 2.06. Default Interest................................................................ 34
SECTION 2.07. Optional Termination or Reduction of Commitments................................ 34
SECTION 2.08. Alternate Rate of Interest...................................................... 35
SECTION 2.09. Refinancing of Loans............................................................ 35
SECTION 2.10. Mandatory Prepayment; Commitment Termination; Cash Collateral................... 36
SECTION 2.11. Optional Prepayment of Loans; Reimbursement of Lenders.......................... 37
SECTION 2.12. Maintenance of Loan Account; Statements of Account.............................. 39
SECTION 2.13. Cash Receipts................................................................... 39
SECTION 2.14. Application of Payments......................................................... 41
SECTION 2.15. Increased Costs................................................................. 42
SECTION 2.16. Change in Legality.............................................................. 43
SECTION 2.17. Payments; No Setoff............................................................. 44
SECTION 2.18. Taxes........................................................................... 44
SECTION 2.19. Certain Fees.................................................................... 47
SECTION 2.20. Unused Commitment Fee........................................................... 47
SECTION 2.21. Letter of Credit Fees........................................................... 48
SECTION 2.22. Nature of Fees.................................................................. 48
SECTION 2.23. Security Interest in Collateral................................................. 48
SECTION 2.24. Right of Set-Off................................................................ 48
SECTION 2.25. Security Interest in Bank Accounts.............................................. 49
SECTION 2.26. Payment of Obligations.......................................................... 49
III. REPRESENTATIONS AND WARRANTIES.................................................................. 49
SECTION 3.01. Organization and Authority...................................................... 49
SECTION 3.02. Due Execution................................................................... 50
SECTION 3.03. Statements Made................................................................. 50
SECTION 3.04. Ownership....................................................................... 50
SECTION 3.05. Financial Statements and Bankruptcy Court Filings............................... 50
SECTION 3.06. Liens........................................................................... 51
SECTION 3.07. Compliance with Law............................................................. 52
SECTION 3.08. Insurance....................................................................... 52
SECTION 3.09. The Confirmation Order.......................................................... 53
SECTION 3.10. Use of Proceeds................................................................. 53
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 3.11. Store Locations; Bank Accounts; Inventory................................................. 54
SECTION 3.12. Litigation and Claims..................................................................... 54
SECTION 3.13. Material Adverse Change................................................................... 55
SECTION 3.14. Payment of Obligations.................................................................... 55
SECTION 3.15. Taxes and Tax Returns..................................................................... 55
SECTION 3.16. Franchises, Licenses, Permits, Leases, Patents, Copyrights, Trademarks and Trade Names.... 55
SECTION 3.17. Labor Matters............................................................................. 56
SECTION 3.18. ERISA..................................................................................... 56
SECTION 3.19. Accounts Receivable Financing............................................................. 57
SECTION 3.20. Investment Company: Holding Company....................................................... 57
SECTION 3.21. Year 2000................................................................................. 58
IV. CONDITIONS OF LENDING..................................................................................... 58
SECTION 4.01. Conditions Precedent to Initial Loans and Initial Letters of Credit....................... 58
SECTION 4.02. Conditions Precedent to Each Tranche A Loan and Each Letter of Credit..................... 65
SECTION 4.03. Conditions Precedent to Each Tranche B Loan............................................... 66
V. AFFIRMATIVE COVENANTS..................................................................................... 67
SECTION 5.01. Financial Statements, Reports, etc........................................................ 67
SECTION 5.02. Corporate Existence....................................................................... 69
SECTION 5.03. Insurance................................................................................. 69
SECTION 5.04. Obligations and Taxes..................................................................... 70
SECTION 5.05. Notice of Event of Default, etc........................................................... 71
SECTION 5.06. Borrowing Base Certificate................................................................ 71
SECTION 5.07. Access to Books and Records; Inspections.................................................. 71
SECTION 5.08. Fees...................................................................................... 72
SECTION 5.09. Projections; Business Plan................................................................ 72
SECTION 5.10. ERISA..................................................................................... 72
SECTION 5.11. Environmental and Other Matters........................................................... 72
SECTION 5.12. Maintain Cash Concentration System........................................................ 73
SECTION 5.13. Maintain Security Interest................................................................ 73
SECTION 5.14. Collateral Access Agreements.............................................................. 73
SECTION 5.15. Inventory................................................................................. 74
SECTION 5.16. Further Assurances........................................................................ 74
SECTION 5.17. Use of Proceeds........................................................................... 74
SECTION 5.18. Permitted Note Debt and Trade Lien Debt................................................... 74
SECTION 5.19. Yonkers................................................................................... 74
SECTION 5.20. Mortgagee Waivers......................................................................... 74
VI. NEGATIVE COVENANTS........................................................................................ 75
SECTION 6.01. Liens..................................................................................... 75
SECTION 6.02. Merger, etc............................................................................... 75
SECTION 6.03. Indebtedness.............................................................................. 75
SECTION 6.04. Capital Expenditures...................................................................... 76
SECTION 6.05. EBITDA.................................................................................... 76
SECTION 6.06. Accounts Payable to Inventory Ratio....................................................... 76
SECTION 6.07. Debt Coverage Ratio....................................................................... 77
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 6.08. Guarantees and Other Liabilities.............................. 77
SECTION 6.09. Dividends; Capital Stock...................................... 77
SECTION 6.10. Transactions with Affiliates.................................. 77
SECTION 6.11. Investments, Loans and Advances............................... 78
SECTION 6.12. Disposition of Assets......................................... 78
SECTION 6.13. Nature of Business............................................ 78
SECTION 6.14. Conflicting Agreements or Actions............................. 78
SECTION 6.15. Prepayments and Amendment of Debt Documents................... 79
SECTION 6.16. Amendments to Credit Plan Agreement........................... 80
VII. EVENTS OF DEFAULT.............................................................. 80
SECTION 7.01. Events of Default............................................. 80
SECTION 7.02. Events of Super-Default....................................... 84
SECTION 7.03. When Continuing............................................... 85
VIII. THE AGENTS.................................................................... 85
SECTION 8.01. Administration by Administrative Agent........................ 85
SECTION 8.02. The Collateral Agent.......................................... 86
SECTION 8.03. Advances and Payments......................................... 86
SECTION 8.04. Sharing of Excess Payments.................................... 86
SECTION 8.05. Agreement of Required Lenders................................. 87
SECTION 8.06. Liability of Agents........................................... 88
SECTION 8.07. Reimbursement and Indemnification............................. 88
SECTION 8.08. Rights of Agents.............................................. 89
SECTION 8.09. Independent Lenders and Issuing Bank.......................... 89
SECTION 8.10. Notice of Transfer............................................ 89
SECTION 8.11. Successor Administrative Agent and Tranche B Agent............ 89
SECTION 8.12. Reports and Financial Statements.............................. 90
IX. GUARANTY........................................................................ 90
SECTION 9.01. Guaranty...................................................... 90
SECTION 9.02. No Impairment of Guaranty..................................... 92
SECTION 9.03. Subrogation................................................... 92
SECTION 9.04. Credit Agreement.............................................. 92
SECTION 9.05. Maximum Guaranteed Amount..................................... 92
SECTION 9.06. Release of Yonkers Guarantee and Liens........................ 92
X. MISCELLANEOUS.................................................................... 93
SECTION 10.01. Notices...................................................... 93
SECTION 10.02. Survival of Agreement, Representations and Warranties, etc... 93
SECTION 10.03. Successors and Assigns....................................... 93
SECTION 10.04. Confidentiality.............................................. 97
SECTION 10.05. Expenses; Documentary Taxes.................................. 97
SECTION 10.06. Indemnity.................................................... 98
SECTION 10.07. CHOICE OF LAW................................................ 98
SECTION 10.08. No Waiver.................................................... 98
SECTION 10.09. Extension of Maturity........................................ 98
SECTION 10.10. Amendments, etc.............................................. 99
SECTION 10.11. SUBMISSION TO JURISDICTION; WAIVER........................... 100
SECTION 10.12. Severability................................................. 101
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 10.13. Headings..................................................... 101
SECTION 10.14. Execution in Counterparts.................................... 101
SECTION 10.15. Prior Agreements............................................. 101
SECTION 10.16. Further Assurances........................................... 102
SECTION 10.17. Master Lease Agreement....................................... 102
SECTION 10.18. WAIVER OF JURY TRIAL......................................... 102
</TABLE>
<PAGE>
ANNEXES
Annex A Commitment Amounts
EXHIBITS
Exhibit A-1 Form of Borrowing Base Certificate (Weekly)
Exhibit A-2 Form of Borrowing Base Certificate (Monthly)
Exhibit B-1 Form of Tranche A Note
Exhibit B-2 Form of Agent Advance Note
Exhibit B-3 Form of Tranche B Note
Exhibit C-1 Form of Confirmation Order
Exhibit C-2 Form of Yonkers Confirmation Order
Exhibit D-1 Form of Opinion of Dewey Ballantine LLP
Exhibit D-2 Form of Opinion of Borrower's Massachusetts
Counsel
Exhibit D-3 Form of Opinion of Borrower's Connecticut Counsel
Exhibit D-4 Form of Opinion of Borrower's New Jersey Counsel
Exhibit E Form of Security Agreement
Exhibit F Form of Trademark Security Agreement
Exhibit G BTM Stipulation
Exhibit H Form of Compliance Certificate
SCHEDULES
Schedule 1.01(a) Additional Collateral
Schedule 1.01(b) Actuarial Methods and Assumptions
Schedule 2.02(i) Existing Letters of Credit
Schedule 2.13(a) Cash Deposit Procedures (Depository Accounts)
Schedule 2.13(e) Coin Orders Accounts Procedures
Schedule 3.01 Jurisdictions of Qualification
Schedule 3.04 Subsidiaries
Schedule 3.10 Sources and Uses of Funds
Schedule 3.11(a) Location of Stores, Warehouses and Distribution
Centers (Inventory Locations)
Schedule 3.11(b) Bank Accounts and Cash Baskets
Schedule 3.11(c) Assets of Guarantors
Schedule 3.12 Claims and Pending Litigation
Schedule 3.18 ERISA Plans
Schedule 4.01(bb) Closing Documents List
ATTACHMENTS
Attachment I Terms of CAP Notes
Attachment II Terms of Cure Notes
Attachment III Terms of New Notes
Attachment IV Terms of Trade Lien
<PAGE>
REVOLVING CREDIT AND GUARANTY AGREEMENT (as amended, supplemented or
otherwise modified from time to time, this "Agreement"), dated as of February 2,
---------
1999, among reorganized BRADLEES STORES, INC., a Massachusetts corporation (the
"Borrower"), reorganized BRADLEES, INC., a Massachusetts corporation ("BI"), and
-------- --
each of the other guarantors listed in Schedule 3.04 (together with BI, each a
"Guarantor" and collectively, the "Guarantors"), the Lenders named on Annex A
- ---------- ----------
hereto and each other Person from time to time party hereto as a Lender,
BANKBOSTON, N.A., a national banking association ("BBNA"), as the issuer of
----
Letters of Credit (in such capacity, together with any successor issuer of
Letters of Credit hereunder, the "Issuing Bank"), as administrative agent for
------------
the Issuing Bank, the Collateral Agent, the Tranche B Agent and the Lenders (in
such capacity, the "Administrative Agent"), and as agent for the Tranche B
--------------------
Lenders (in such capacity, the "Tranche B Agent"), BANKBOSTON RETAIL FINANCE,
---------------
INC., a subsidiary of BBNA ("BBRF"), as collateral agent (in such capacity, the
----
"Collateral Agent"), and THE CIT GROUP/BUSINESS CREDIT, INC. and CONGRESS
----------------
FINANCIAL CORPORATION (NEW ENGLAND), each as co-agents (collectively, the "Co-
---
Agents").
- ------
INTRODUCTORY STATEMENT
On June 23, 1995, Bradlees Stores, Inc., Bradlees, Inc., and certain
affiliated entities (collectively, the "Debtors") filed voluntary petitions with
-------
the Bankruptcy Court, each initiating a case under Chapter 11 of the Bankruptcy
Code (the cases of the Debtors, each a "Case" and collectively, the "Cases"),
---- -----
and have continued in the possession of their assets and in the management of
their businesses pursuant to Sections 1107 and 1108 of the Bankruptcy Code. The
Debtors currently are parties to a $250,000,000 debtor-in-possession Revolving
Credit and Guaranty Agreement (as amended, the "Existing Credit Facility"),
------------------------
dated as of December 23, 1997, with certain of the Lenders, the Issuing Bank,
the Administrative Agent, the Co-Agents and the Collateral Agent.
On January 27, 1999 (the "Confirmation Date"), the Bankruptcy Court
-----------------
confirmed the Debtors' Second Amended Joint Plan of Reorganization of Bradlees
Stores, Inc. and Affiliates Under Chapter 11 of the Bankruptcy Code (as amended
with the written consent of the Administrative Agent, the "Confirmed Plan"). As
--------------
part of the implementation of the Confirmed Plan, the Debtors on behalf of the
Borrower have applied to the Lenders and the Issuing Bank for a revolving credit
and letter of credit facility in an aggregate principal amount not to exceed
$270,000,000, all of the Borrower's obligations under which are to be guaranteed
by the Guarantors and secured by substantially all assets (other than Real
Property (as defined below)) of the Borrower and the Guarantors (other than the
Yonkers Common Stock Collateral).
The extensions of credit hereunder will be used, first, to repay in full
all amounts outstanding under the Existing Credit Facility and thereafter to
provide working capital for and to finance Inventory purchases by the Borrower
and otherwise for general corporate purposes.
Accordingly, the parties hereto hereby agree as follows:
<PAGE>
I. DEFINITIONS
SECTION 1.01. DEFINED TERMS.
-------------
As used in this Agreement, the following terms shall have the meanings
specified below:
"ABR Loan" shall mean any Tranche A Loan bearing interest at a rate
--------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Accounts Payable" shall mean amounts owing by the Borrower on open account
----------------
to creditors for purchases of goods and services, determined on a consolidated
basis pursuant to GAAP.
"Additional Collateral" shall mean the Borrower's leasehold interest in
---------------------
those of its leases listed on Schedule 1.01(a) and any replacements of such
leases as provided in the New Notes Indenture (provided that any such
replacements shall not cause the aggregate appraised value of the Additional
Collateral to exceed $10,500,000, subject to adjustments deemed appropriate by
the Administrative Agent).
"Adjusted LIBOR Rate" shall mean, with respect to any Eurodollar Borrowing
-------------------
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the quotient of (a) the LIBOR Rate
in effect for such Interest Period divided by (b) a percentage (expressed as a
decimal) equal to 100% minus Statutory Reserves.
"Administrative Agent" shall have the meaning set forth in the first
--------------------
paragraph of this Agreement.
"Affiliate" shall mean, as to any Person, any other Person which, directly
---------
or indirectly, is in control of, is controlled by, or is under common control
with such Person. For purposes of this definition, a Person (a "Controlled
----------
Person") shall be deemed to be "controlled by" another Person (a "Controlling
- ------ -----------
Person") if the Controlling Person possesses, directly or indirectly, power to
- ------
direct or cause the direction of the management and policies of the Controlled
Person whether by contract or otherwise.
"Agent Advance" shall mean a Tranche A Loan or a Tranche B Loan made by the
-------------
Administrative Agent to the Borrower pursuant to Section 2.03(c) hereof.
"Agents" shall mean, collectively, the Administrative Agent, the Collateral
------
Agent and the Tranche B Agent.
"Agreement" shall mean this Revolving Credit and Guaranty Agreement, as the
---------
same may from time to time be amended, modified or supplemented.
"Alternate Base Rate" shall mean, for any day, the higher of (a) the annual
-------------------
rate of interest then most recently announced by BBNA at its head office in
Boston, Massachusetts as its "Base
2
<PAGE>
Rate" and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of
1% (0.50%) per annum. If for any reason the Administrative Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal Funds Effective Rate for any reason,
including the inability or failure of the Administrative Agent to obtain
sufficient quotations thereof in accordance with the terms hereof, the Alternate
Base Rate shall be determined without regard to clause (b) of the first sentence
of this definition, until the circumstances giving rise to such inability no
longer exist. Any change in the Alternate Base Rate due to a change in BBNA's
Base Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in BBNA's Base Rate or the Federal Funds Effective
Rate, respectively.
"Amounts" shall have the meaning set forth in Section 2.18(a).
-------
"Appraised Value" shall have the meaning set forth in the definition of
---------------
"Loan to Value Ratio."
"Assignment and Acceptance" shall mean an assignment and acceptance entered
-------------------------
into by a Lender and an Eligible Assignee, and accepted by the Administrative
Agent, in a form supplied by the Administrative Agent.
"Bankruptcy Code" shall mean The Bankruptcy Reform Act of 1978, codified as
---------------
11 U.S.C. Section 101 et seq., as heretofore and hereafter amended from time to
time, and any successor act or statute.
"Bankruptcy Court" shall mean the United States Bankruptcy Court for the
----------------
Southern District of New York, or any other court having jurisdiction over the
Cases.
"Base Advance Rate" shall have the meaning set forth in the definition of
-----------------
"Borrowing Base."
"BBNA" shall have the meaning set forth in the first paragraph of this
----
Agreement.
"BBNA Concentration Account" shall have the meaning set forth in Section
--------------------------
2.13(a).
"BBNA Disbursement Accounts" shall have the meaning set forth in Section
--------------------------
2.13(d).
"BBRF" shall have the meaning set forth in the first paragraph of this
----
Agreement.
"BI" shall have the meaning set forth in the first paragraph of this
--
Agreement.
"Blocked Account Agreements" has the meaning set forth in Section 2.13(a).
--------------------------
"Blocked Account Banks" shall mean the banks with whom the Borrower has
---------------------
entered into Blocked Account Agreements.
"Blocked Accounts" shall have the meaning set forth in Section 2.13(a).
----------------
3
<PAGE>
"Board" shall mean the Board of Governors of the Federal Reserve System of
-----
the United States.
"Borrowing" shall mean the incurrence of Loans of a single Type made from
---------
all the Tranche A Lenders or Tranche B Lenders, as the case may be, on a single
date and having, in the case of Eurodollar Loans, a single Interest Period (with
any ABR Loan made pursuant to Section 2.16 being considered a part of the
related Borrowing of Eurodollar Loans).
"Borrowing Base" shall mean, on any day, an amount equal to (a) 80% of the
--------------
then Loan Value of the then Eligible Receivables, plus (b) 72% (the "Base
---- ----
Advance Rate") of the then Loan Value of Eligible Inventory plus (without
- ------------
duplication) 72% of the lesser of (i) the then Loan Value of Eligible LC
Inventory and (ii) the then applicable Eligible LC Inventory Sublimit (provided
--------
that, in no event shall the calculation under this clause (b) result in a Loan
to Value Ratio in excess of 80%), plus (c) the Overadvance Amount, if any, minus
---- -----
(d) the then amount of all Borrowing Base Reserves.
"Borrowing Base Certificate" shall mean a certificate substantially in the
--------------------------
form of Exhibit A-1 or, in the case of the first Borrowing Base Certificate that
is delivered after the close of each of the Borrower's fiscal months, Exhibit A-
2 (in each case with such changes therein as may be required by the
Administrative Agent to reflect the components of, and reserves against, the
Borrowing Base and the Tranche B Borrowing Base as provided for hereunder from
time to time), executed and certified by a Financial Officer of the Borrower,
which shall include appropriate exhibits and schedules as referred to therein.
"Borrowing Base Reserves" shall mean such reserves against the Borrowing
-----------------------
Base and the Tranche B Borrowing Base as the Administrative Agent from time to
time may elect (with the consent of the Tranche B Agent), in its reasonable
discretion and on seven (7) days' notice to the Borrower, to apply for purposes
of determining the Borrowing Base and the Tranche B Borrowing Base on account of
any matter, contingency or risk which the Administrative Agent may in good faith
deem potentially material to the prospect of payment of the Credit Extensions,
including (by way solely of illustration and without in any manner limiting the
Administrative Agent's right to apply a reserve on account of any other matter,
contingency or risk, whether similar or not) such items as the Customer Credits
Reserve.
"Breakage Costs" shall have the meaning set forth in Section 2.11(b).
--------------
"BRS" shall mean BancBoston Robertson Stephens (f/k/a BancBoston Securities
---
Inc.).
"Business Day" shall mean any day other than a Saturday, Sunday or other
------------
day on which banks in the State of New York or the Commonwealth of Massachusetts
are required or permitted to close (and, for a Letter of Credit, other than a
day on which the bank issuing such Letter of Credit is closed); provided,
--------
however, that when used in connection with a Eurodollar Loan, the term "Business
- -------
Day" shall also exclude any day on which banks are not open for dealings in
dollar deposits on the London interbank market.
4
<PAGE>
"Business Plan" shall mean a three year business plan prepared by the
-------------
Borrower on or about September 1998 setting forth the business objectives for
the Credit Parties for the 1998, 1999 and 2000 fiscal years, which plan
includes, among other things: for the first fiscal year, a monthly, and for the
following two fiscal years, a yearly (i) balance sheet, (ii) income statement,
and (iii) statement of cash flows.
"CAP Notes" shall mean the Borrower's notes (i) in an aggregate principal
---------
amount not to exceed $628,000 in favor of the holder of the Class BSI-CAP Claim
and (ii) with terms as set forth on Attachment I hereto and incorporated herein
------------
and otherwise in form and substance reasonably satisfactory to the
Administrative Agent.
"Capital Expenditures" shall mean, for any period, the aggregate of all
--------------------
expenditures (whether paid in cash or accrued as liabilities during such period
and excluding that portion of Capitalized Leases which is capitalized on the
consolidated balance sheet of the Credit Parties by the Credit Parties during
such period that, in conformity with GAAP, are required to be included in or
reflected by the property, plant, equipment or intangibles or similar fixed
asset accounts reflected in the consolidated balance sheet of the Credit Parties
net of cash amounts received during such period in reimbursement of Capital
Expenditures made by the Credit Parties, excluding interest capitalized during
construction, by the Credit Parties during such period that, in conformity with
GAAP, are required to be included in or reflected by the property, plant,
equipment or intangibles or similar fixed asset accounts reflected in the
consolidated balance sheet of the Credit Parties (including equipment which is
purchased simultaneously with the trade-in of existing equipment owned by the
Borrower or any of the other Credit Parties to the extent of the gross amount of
such purchase price less the book value of the equipment being traded in at such
time), but excluding expenditures made in connection with the replacement or
restoration of assets to the extent reimbursed or financed from insurance
proceeds paid on account of the loss of or the damage to the assets being
replaced or restored, or from awards of compensation arising from the taking by
condemnation or eminent domain of such assets being replaced.
"Capitalized Lease" shall mean, as applied to any Person, any lease of
-----------------
property by such Person as lessee which would be capitalized on a balance sheet
of such Person prepared in accordance with GAAP.
"Cases" shall have the meaning set forth in the introductory statement of
-----
this Agreement.
"Cash Collateral Account" shall mean an interest-bearing account
-----------------------
established by the Borrower with the Administrative Agent at BBNA under the sole
and exclusive dominion and control of the Administrative Agent at the office of
BBNA at 100 Federal Street, Boston, Massachusetts 02110 designated as the
"Bradlees Stores, Inc., Cash Collateral Account" that shall be used solely for
the purposes set forth in Sections 2.02, 2.10(a) and 2.14.
"Cash Receipts" shall have the meaning set forth in Section 2.13(a).
-------------
5
<PAGE>
"Change of Control" shall mean one or more of the following events: (a) a
-----------------
Person or group of Persons (within the meaning of Rule 13d-S under the
Securities Exchange Act of 1934, as amended) (other than Gabriel and Elliott and
their respective Affiliates) shall, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise, have become
the direct or indirect beneficial owner (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of securities of BI
representing more than 30% (or, in the case only of direct purchasers from
Gabriel or Elliott of shares of voting securities of BI owned by Gabriel or
Elliott on the Plan Effective Date, 50%) of the combined voting power of the
outstanding voting securities for the election of the directors or shall have
the right to elect a majority of the Board of Directors of BI; or (b) less than
a majority of the members of BI's Board of Directors then in office shall be
persons who either (i) were serving as directors on the Plan Effective Date or
(ii) were nominated as directors and approved by the vote of the majority of the
directors who are directors referred to in clause (i) above or this clause (ii).
"Class BSI-CAP Claim" shall have the meaning set forth in the Confirmed
-------------------
Plan.
"Closing Date" shall mean the date on which this Agreement has been
------------
executed and the conditions precedent to the making of the initial Loans set
forth in Sections 4.01 and 4.02 have been satisfied or waived in writing by the
Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, the Required Lenders and the Required Tranche B Lenders, which date shall
occur on or within one (1) Business Day after the Plan Effective Date (provided
that all conditions precedent set forth in Sections 4.01 and 4.02 have been
satisfied or waived as provided above).
"Closing Documents List" shall mean the list of required closing documents
----------------------
attached hereto as Schedule 4.01(bb).
"Co-Agents" shall have the meaning set forth in the first paragraph of this
---------
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and any
----
regulation promulgated thereunder.
"Coin Orders Accounts" shall have the meaning set forth in Section 2.13(e).
--------------------
"Collateral" shall mean any and all assets, properties, and rights of the
----------
Credit Parties pledged from time to time pursuant hereto or to the Security
Documents as security for the Obligations, which shall include, without
limitation, substantially all existing and after-acquired assets, properties and
rights of the Credit Parties (other than Real Property and the Yonkers Common
Stock Collateral) and all proceeds thereof.
"Collateral Access Agreements" shall mean any landlord waivers, mortgagee
----------------------------
waivers, bailee letters or any similar acknowledgment agreements of any
warehouseman or processor in possession of Inventory of the Borrower or any
other Credit Party, in form and substance reasonably satisfactory to the
Collateral Agent.
6
<PAGE>
"Collateral Agent" shall have the meaning set forth in the first paragraph
----------------
of this Agreement.
"Commitment" shall mean, with respect to each Lender, the aggregate
----------
commitment of such Lender hereunder (for both Tranche A Loans and Tranche B
Loans) in the amount set forth opposite its name on Annex A hereto or as may
subsequently be set forth in the Register from time to time, as the same may be
reduced from time to time pursuant to Section 2.07.
"Commitment Fee" shall have the meaning set forth in Section 2.20.
--------------
"Commitment Percentage" shall mean at any time, with respect to each
---------------------
Lender, the percentage obtained by dividing the aggregate of its Tranche A
Commitment and its Tranche B Commitment at such time by the Total Commitment at
such time.
"Confirmation Date" shall have the meaning set forth in the introductory
-----------------
statement of this Agreement.
"Confirmation Order" shall mean an order of the Bankruptcy Court confirming
------------------
the Confirmed Plan (other than with respect to Yonkers) pursuant to sections
1128 and 1129 of the Bankruptcy Code.
"Confirmed Plan" shall have the meaning set forth in the introductory
--------------
statement of this Agreement.
"Consent Fee" shall have the meaning set forth in subsection 4.01(k).
-----------
"Credit Card Obligor" shall mean any of Chase Merchant Services, L.L.C.,
-------------------
Novus Services, Inc., American Express Travel Related Services Company, Inc.,
Citibank (South Dakota), N.A. and Citicorp Retail Services, Inc., and any other
Person acceptable to the Administrative Agent in its sole discretion, provided
that each of the above entities and each such other Person has executed and
delivered to the Administrative Agent a Payment Direction Agreement with respect
to the Receivables due to the Borrower from such Obligor.
"Credit Extensions" shall be equal, as of any day, to the sum of (a) the
-----------------
principal balance of all Loans then outstanding, and (b) the then amount of the
Letter of Credit Outstandings.
"Credit Parties" shall mean the Borrower, the Guarantors and any other
--------------
Subsidiary of BI or the Borrower that becomes a party to any Loan Document.
"Credit Plan Agreement" shall mean that certain Credit Plan Agreement dated
---------------------
as of July 31, 1998, among Bradlees Stores, Inc., Bradlees, Inc., and Citibank
(South Dakota), N.A.
"Cure Notes" shall mean the Borrower's notes (i) in an aggregate principal
----------
amount not to exceed $3,500,000 in favor of non-Debtor parties to executory
contracts that are to be assumed pursuant to the Confirmed Plan for the purpose
of paying "cure amounts" as required by Section
7
<PAGE>
365 of the Bankruptcy Code and (ii) with terms as set forth on Attachment II
-------------
hereto and incorporated herein and otherwise in form and substance reasonably
satisfactory to the Administrative Agent.
"Customer Credits Reserve" shall mean a reserve established by the
------------------------
Administrative Agent from time to time in an amount equal to the sum of (i)
fifty percent (50%) of the dollar value of gift certificates outstanding and
(ii) fifty percent (50%) of the dollar value of customer merchandise credits.
"Debtors" shall have the meaning set forth in the introductory statement of
-------
this Agreement.
"Default" shall mean any event which, upon the giving of any notice and/or
-------
the lapse of any period of time expressly set forth in Section 7.01, 7.02 or
7.03, would constitute an Event of Default or Event of Super-Default, as
applicable.
"Dollars" and "$" shall mean lawful money of the United States of America.
------- -
"Dostra" shall mean reorganized Dostra Realty Co., Inc., a Massachusetts
------
corporation.
"EBITDA" shall mean, for any period, all as determined in accordance with
------
GAAP, the net income (or net loss) of the Borrower for such period, plus (to the
----
extent taken into account in determining such net income or net loss) (a) the
sum of (i) depreciation expense, (ii) amortization expense, (iii) provision for
LIFO adjustment for Inventory valuation, (iv) net total Federal, state and local
income tax expense, (v) gross interest expense for such period less gross
interest income for such period, (vi) any non-recurring charge or restructuring
charge which in accordance with GAAP is excluded from operating income, (vii)
the cumulative effect of any change in accounting principles, (viii)
extraordinary losses and (ix) "Chapter 11 expenses" (or "administrative costs
reflecting Chapter 11 expenses") as shown on the Borrower's statement of income
for such period, minus (b) extraordinary gains, and plus (c) the amount of cash
----- ----
received (and minus the amount of cash expended) in such period in respect of
any amount which, under clause (vi) above, was taken into account in determining
EBITDA for such or any prior period.
"Eligible Assignee" shall mean (a) a commercial bank having total assets in
-----------------
excess of $500,000,000, (b) a finance company, insurance company or other
financial institution (in each case with total assets in excess of $200,000,000)
or fund (with total assets in excess of $50,000,000) reasonably acceptable to
the Administrative Agent which in the ordinary course of business extends credit
or purchases debt of the type evidenced by the Notes and whose becoming an
assignee would not constitute a prohibited transaction under Section 4975 of
ERISA, and (c) any other financial institution, fund or other Person reasonably
satisfactory to the Administrative Agent and approved by the Borrower, which
approval shall not be unreasonably withheld or delayed, and which approval shall
not be required upon the occurrence and during the continuance of an Event of
Default or an Event of Super-Default.
8
<PAGE>
"Eligible Inventory" shall mean, as of the date of determination thereof,
------------------
items of Inventory of the Borrower that are finished goods, merchantable and
readily saleable to the public in the ordinary course and goods ("L/C Goods") as
---------
to which a documentary Letter of Credit has been issued and which, if in the
possession of the Borrower, would be treated as the Borrower's Inventory
hereunder, but only if such goods have been consigned to the Issuing Bank or the
Borrower (along with delivery to the Issuing Bank or the Borrower, as
applicable, of the documents of title with respect thereto), in each case deemed
by the Administrative Agent in its reasonable discretion to be eligible for
inclusion in the calculation of the Borrowing Base and the Tranche B Borrowing
Base. Without limiting the foregoing, unless otherwise approved in writing by
the Administrative Agent, none of the following shall be deemed to be Eligible
Inventory, and Eligible Inventory shall be reduced by the following:
(a) Inventory (other than L/C Goods) that is not owned solely by the
Borrower or with respect to which the Borrower does not have good, valid and
marketable title, free and clear of any Lien (other than (i) Liens granted to
the Collateral Agent, for its benefit and the ratable benefit of the other
Secured Parties, pursuant to the Loan Documents, (ii) Permitted Liens and (iii)
the Trade Lien (it being understood that only the Collateral Agent, for its
benefit and the ratable benefit of the other Secured Parties, shall have a
first-priority Lien on such Inventory));
(b) Inventory that is not located on, or in transit directly to,
property leased by the Borrower or in a contract warehouse or other third party
location, in each case, located in the United States and segregated or otherwise
separately identifiable from goods of others, if any, stored on the premises;
(c) Inventory that is not reflected in the Borrower's stock ledger
report, warehouse status report or the "in-transit" account in the general
ledger;
(d) Inventory that has been returned or rejected by any of the
Borrower's customers and which is damaged or defective or to be returned to
vendor;
(e) Inventory not held for resale in the ordinary course, including
samples, publicity, display or demonstration Inventory, packaway Inventory, and
piece goods;
(f) consigned and leased Inventory;
(g) special order Inventory;
(h) supplies and packing or shipping materials;
(i) Inventory in which the Collateral Agent does not have a first-
priority perfected security interest pursuant to the Security Agreement or which
is not in transit to a location where the Collateral Agent will immediately have
such a first-priority perfected security interest therein; and
9
<PAGE>
(j) Inventory reserves that may be required by the Administrative
Agent (with the consent of the Tranche B Agent) in the exercise of its
reasonable discretion and on 7 days' notice to the Borrower based on a change in
the value of the Inventory as determined by the Administrative Agent in its
reasonable discretion (including, by way of example, a Shrink Reserve, inventory
obsolescence, seasonality, imbalance, change in Inventory character, composition
or mix, change in mark-down practices both permanent and point of sale and
change in retail mark-on or mark-up practices).
"Eligible LC Inventory" shall mean, as of the date of determination
---------------------
thereof, documentary Letters of Credit (i) that have been issued with an expiry
date within 75 days of such date of determination, (ii) that have been issued
for the acquisition by the Borrower of Inventory which would otherwise be
Eligible Inventory if owned by the Borrower, and (iii) that may include Letters
of Credit issued as described in the third paragraph of the Introductory
Statement above, so long as such Letter of Credit would otherwise satisfy the
requirements hereof.
"Eligible LC Inventory Sublimit" shall mean, for any fiscal month of the
------------------------------
Borrower, the dollar amount set forth opposite such fiscal month below:
<TABLE>
<CAPTION>
Month Eligible LC Inventory Sublimit
----- -----------------------------
<S> <C>
January $20,000,000
February $20,000,000
March $20,000,000
April $24,000,000
May $33,000,000
June $34,000,000
July $35,000,000
August $38,000,000
September $30,000,000
October $20,000,000
November $20,000,000
December $20,000,000
</TABLE>
"Eligible Receivables" shall mean, as of the date of determination thereof,
--------------------
Receivables of the Borrower payable in Dollars and deemed by the Administrative
Agent in its reasonable discretion (with the consent of the Tranche B Agent,
which consent shall not be unreasonably withheld) to be eligible for inclusion
in the calculation of the Borrowing Base. Without limiting the foregoing,
unless otherwise approved in writing by the Administrative Agent, none of the
following shall be deemed to be Eligible Receivables:
(a) Receivables that have been outstanding for more than 5 Business
Days from the due date;
10
<PAGE>
(b) Receivables not owned solely by the Borrower or with respect to
which the Borrower does not have good, valid and marketable title thereto, free
and clear of any Lien (other than (i) Liens granted to the Collateral Agent, for
its benefit and the ratable benefit of the other Secured Parties, pursuant to
the Loan Documents and (ii) Permitted Liens (it being understood that only the
Collateral Agent, for its benefit and the ratable benefit of the other Secured
Parties, shall have a first-priority Lien on such Receivables));
(c) Receivables which the Administrative Agent determines in its
reasonable discretion (with the consent of the Tranche B Agent) to be uncertain
of collection; and
(d) with respect to Receivables created under the Credit Plan
Agreement, a notice of termination has been delivered thereunder.
"Elliott" shall mean, collectively, Elliott Associates, L.P. and Westgate
-------
International, L.P.
"Environmental Lien" shall mean a Lien in favor of any Governmental
------------------
Authority for (i) any liability under federal or state environmental laws or
regulations, or (ii) damages arising from or costs incurred by such Governmental
Authority in response to a release or threatened release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment.
"Equity Interests" shall mean any and all shares, interests, participations
----------------
or other equivalents (however designated) of capital stock in a corporation and
all warrants or options to purchase any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) which is a member of a group of which the Borrower is a member and
which is under common control within the meaning of Section 414(b) or (c) of the
Code and the regulations promulgated and rulings issued thereunder.
"Escrow Proceeds" shall have the meaning set forth in Section 2.13(c).
---------------
"Eurocurrency Liabilities" shall have the meaning assigned thereto in
------------------------
Regulation D issued by the Board, as in effect from time to time.
"Eurodollar Applicable Margin" shall mean 2.25% per annum.
----------------------------
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
--------------------
Loans.
"Eurodollar Interest Rate" shall have the meaning set forth in Section
------------------------
2.05(b).
"Eurodollar Loan" shall mean any Tranche A Loan bearing interest at a rate
---------------
determined by reference to the Adjusted LIBOR Rate in accordance with the
provisions of Article II.
11
<PAGE>
"Event of Default" shall have the meaning set forth in Section 7.01.
----------------
"Event of Super-Default" shall have the meaning set forth in Section 7.02.
----------------------
"Existing Credit Facility" shall have the meaning set forth in the
------------------------
introductory statement of this Agreement.
"Existing Eurodollar Loans" shall have the meaning set forth in subsection
-------------------------
2.03(e).
"Federal Funds Effective Rate" shall mean, for any day, the rate per annum
----------------------------
equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York or,
if such rate is not published for any day that is a Business Day, the average of
the quotations for such day on such transactions received by the Administrative
Agent from three funds brokers of recognized standing selected by the
Administrative Agent.
"Fee Letters" shall mean the Tranche A Fee Letter and the Tranche B Fee
-----------
Letter.
"Fees" shall collectively mean the Commitment Fees, the Letter of Credit
----
Fees, the Consent Fee, the fees and charges described in Section 2.02(c) and the
fees referred to in Section 2.19.
"Filing Date" shall mean June 23, 1995.
-----------
"Financial Officer" shall mean the Chief Executive Officer, the Chief
-----------------
Financial Officer, the Vice President Controller or the Treasurer of the
Borrower.
"GAAP" shall mean generally accepted accounting principles applied on a
----
basis consistent with those used in preparing the financial statements referred
to in Section 3.05.
"Gabriel" shall mean Gabriel Capital L.P.
-------
"Governmental Authority" shall mean any Federal, state, municipal or other
----------------------
governmental department, commission, board, bureau, agency or instrumentality or
any court, in each case whether of the United States or any foreign
jurisdiction.
"Guarantors" shall have the meaning set forth in the first paragraph of
----------
this Agreement.
"Indebtedness" shall mean, at any time and with respect to any Person, (i)
------------
all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and expense accruals and
deferred compensation items arising, in the ordinary course of business), (iii)
all obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments (other than performance, surety and appeal bonds arising in
the ordinary course of business), (iv) all indebtedness of such Person created
or arising under
12
<PAGE>
any conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (v) all obligations of such Person under leases which
have been or should be, in accordance with GAAP, recorded as capital leases, to
the extent required to be so recorded, (vi) all reimbursement, payment or
similar obligations of such Person, contingent or otherwise, under acceptance,
letter of credit or similar facilities, (vii) all Indebtedness referred to in
clauses (i) through (vi) above guaranteed directly or indirectly by such Person,
or in effect guaranteed directly or indirectly by such Person through an
agreement (A) to pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness, (B) to purchase, sell or lease
(as lessee or lessor) property, or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such Indebtedness or to
assure the holder of such Indebtedness against loss in respect of such
Indebtedness, (C) to supply funds to or in any other manner invest in the debtor
(including any agreement to pay for property or services irrespective of whether
such property is received or such services are rendered) or (D) otherwise to
assure a creditor against loss in respect of such Indebtedness, and (viii) all
Indebtedness referred to in clauses (i) through (vii) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in any property owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness.
"Indenture Security Agreement" shall mean the "Security Agreement" as
----------------------------
defined in the New Notes Indenture.
"Insufficiency" shall mean, with respect to any Plan, the amount, if any,
-------------
of its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of
ERISA.
"Interest Coverage Ratio" shall mean, for each fiscal quarter of the
-----------------------
Borrower, the ratio of the Borrower's (a) EBITDA less Capital Expenditures to
----
(b) cash Interest Expense, for the 12-month period ending on the last day of
such fiscal quarter.
"Interest Expense" shall mean interest expense as determined in accordance
----------------
with GAAP.
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan having an
---------------------
Interest Period of 1, 2 or 3 months, the last day of such Interest Period and
(ii) as to all ABR Loans and Prime Plus Loans outstanding at any time during any
month, the first Business Day of the next succeeding month.
"Interest Period" shall mean, as to any Borrowing of Eurodollar Loans, the
---------------
period commencing on and including the date of such Borrowing (including as a
result of a refinancing of ABR Loans) or on the last day of the preceding
Interest Period applicable to such Borrowing and ending on and excluding the
numerically corresponding day (or if there is no corresponding day, the last
day) in the calendar month that is 1, 2 or 3 months thereafter, as the Borrower
may elect in the related notice delivered pursuant to Sections 2.03(b) or 2.09;
provided, however, that (i) if any Interest Period would end on a day which
- -------- -------
shall not be a Business Day, such Interest
13
<PAGE>
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day, and (ii) no
Interest Period shall end later than the Termination Date.
"Interest Rate Agreement" shall mean any interest rate protection
-----------------------
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement or other similar agreement or arrangement between BBNA or
any of its Affiliates, on the one hand, and the Borrower or any other Credit
Party, on the other hand.
"Inventory" shall mean all goods, wares and merchandise owned and held for
---------
sale by the Borrower.
"Investments" shall have the meaning set forth in Section 6.11.
-----------
"Issuing Bank" shall have the meaning set forth in the first paragraph of
------------
this Agreement.
"Lenders" shall mean the Persons identified on Annex A hereto and each
-------
assignee that becomes a party to this Agreement as set forth in Section
10.03(b).
"Letter of Credit" shall mean a letter of credit that is (i) issued for
----------------
account of the Borrower, (ii) a standby or documentary letter of credit, (iii)
issued in connection with the purchase of Inventory by the Borrower and for
other purposes for which the Borrower has historically obtained letters of
credit, or for any other purpose that is reasonably acceptable to the
Administrative Agent (including, without limitation, the Letters of Credit
issued as described in the third paragraph of the Introductory Statement above),
and (iv) in form and substance reasonably satisfactory to the Issuing Bank.
"Letter of Credit Fees" shall mean the fees payable in respect of Letters
---------------------
of Credit pursuant to Section 2.21.
"Letter of Credit Outstandings" shall mean, at any time, the sum of (a)
-----------------------------
with respect to Letters of Credit outstanding at such time, the aggregate
maximum amount that then is or at any time thereafter may become available for
drawing or payment thereunder plus (b) all amounts theretofore drawn or paid
----
under Letters of Credit for which the Issuing Bank has not then been reimbursed.
"LIBOR Rate" shall mean, for any Interest Period for any Eurodollar
----------
Borrowing, the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at
which dollar deposits approximately equal in principal amount to such Eurodollar
Borrowing and for a maturity comparable to such Interest Period are offered to
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
14
<PAGE>
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind whatsoever (including any conditional sale or other
title retention agreement or any lease in the nature thereof).
"Loan Account" shall have the meaning set forth in Section 2.12(a).
------------
"Loan Documents" shall mean this Agreement, the Notes, the Letters of
--------------
Credit, the Fee Letters, all Borrowing Base Certificates, the Blocked Account
Agreements, the Collateral Access Agreements, the Payment Direction Agreements,
the Subsidiary Guaranty, the Security Documents and any other instrument or
agreement executed and delivered in connection herewith or therewith.
"Loan to Value Ratio" shall mean (i) when used in connection with the
-------------------
definition of "Borrowing Base," the ratio expressed as a percentage of (A) the
Base Advance Rate to (B) the net appraised liquidation value at cost of the
Borrower's Inventory (expressed as a percentage of the cost value of such
Inventory), as determined from time to time by the Administrative Agent in
accordance with its standard procedures and with the assistance of an
independent appraiser (the "Appraised Value"), (ii) when used in connection with
---------------
the definition of "Overadvance Amount," the ratio expressed as a percentage of
(A) the sum of the Base Advance Rate and the Overadvance Rate to (B) the
Appraised Value and (iii) when used in connection with the definition of
"Tranche B Inventory Advance Rate," the ratio expressed as a percentage of (A)
the sum of the Base Advance Rate, the Overadvance Rate and the Tranche B
Inventory Advance Rate to (B) the Appraised Value.
"Loan Value" shall mean the amount determined by the Administrative Agent
----------
from time to time, in its reasonable discretion and consistent with the
Administrative Agent's usual business practices and policies for similar
borrowers similarly situated, as an appropriate estimate of the value of
Eligible Receivables, Eligible LC Inventory (which shall not exceed the amount
that may be drawn under such Letters of Credit), and Eligible Inventory (which
determination shall take into account the following factors, among others: (i)
the cost thereof, (a) as determined under the retail method of accounting as
reflected in the Borrower's stock ledger (the cost value of the Inventory in the
stock ledger will be adjusted based upon the lowest ticketed retail price at
which such Inventory is offered to the public, after all permanent mark-downs
(whether or not such price is then reflected on the Borrower's accounting
system)) or, (b) with respect to warehouse and in-transit inventory, determined
under the cost method of accounting, (ii) the first-in, first-out accounting
valuation method, (iii) the Borrower's accounting practices, known to the
Administrative Agent and in effect on the date hereof, and (iv) excluding any
capitalization costs or other non-purchase price charges (other than "freight-
in"), such as intracompany freight, used in the Borrower's calculation of cost
of goods sold.
"Loans" shall mean all loans (including, without limitation, Agent
-----
Advances) at any time made to the Borrower or for account of the Borrower
pursuant to this Agreement, whether constituting Tranche A Loans or Tranche B
Loans.
15
<PAGE>
"Master Lease Agreement" shall mean that certain Master Lease Agreement,
----------------------
dated as of December 8, 1998, as amended, between BankBoston Leasing, Inc., as
lessor, and Bradlees Stores, Inc., as lessee.
"Maturity Date" shall mean the earlier to occur of (a) three years from the
-------------
Closing Date or (b) December 23, 2001.
"Mortgagee" has the meaning set forth in Section 4.01(ee).
---------
"Mortgagee Waivers" has the meaning set forth in Section 4.01(ee).
-----------------
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" shall mean a Single Employer Plan, which (i) is
----------------------
maintained for employees of the Borrower or an ERISA Affiliate and at least one
Person other than the Borrower and its ERISA Affiliates or (ii) was so
maintained and in respect of which the Borrower or an ERISA Affiliate could have
liability under Section 4064 or 4069 of ERISA in the event such Plan has been or
were to be terminated.
"New Notes" shall mean the Borrower's notes (i) in an aggregate principal
---------
amount not to exceed $40,000,000 in favor of (A) the banks and other financial
institutions (the "Pre-Petition Revolver Bank Group") holding pre-petition
--------------------------------
claims under that certain Credit Agreement, dated as of March 3, 1993, as
amended, among Bradlees, Inc., the Pre-Petition Revolver Bank Group and Bankers
Trust Company, as agent, (B) the banks and other financial institutions holding
pre-petition claims under the SPE Documents (as defined in the Confirmed Plan)
and (C) the holders of YON-GEN Claims, BRU-GEN Claims and WES-GEN Claims (each
as defined in the Confirmed Plan) and (ii) with terms as set forth on Attachment
----------
III hereto and incorporated herein and otherwise in form and substance
- ---
reasonably satisfactory to the Administrative Agent.
"New Notes Indenture" shall mean that certain Indenture, dated as of
-------------------
February 2, 1999, between Bradlees Stores, Inc. as Issuer, Bradlees, Inc. as
Guarantor, New Horizons of Yonkers, Inc., as Guarantor and IBJ Whitehall Bank &
Trust Company, as Trustee.
"Noncompliance Notice" shall have the meaning set forth in Section 2.03(c).
--------------------
"Non-U.S. Lender" shall have the meaning set forth in Section 2.18(f).
---------------
"Notes" shall mean the Tranche A Notes and the Tranche B Notes.
-----
"Obligations" shall mean (a) the due and punctual payment of principal of
-----------
and interest on the Loans and the Notes and the reimbursement of all amounts
drawn under Letters of Credit, (b) the due and punctual payment of the Fees and
all other present and future, fixed or contingent,
16
<PAGE>
monetary obligations of the Borrower and the other Credit Parties to the
Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-
Agents and the Administrative Agent under the Loan Documents, (c) the due and
punctual payment of any obligations of the Borrower or the other Credit Parties
to the Other Transactions Counterparties in accordance with, and in connection
with, the Master Lease Agreement and any Interest Rate Agreements, and (d) any
other obligations of the Borrower or any other Credit Party to any Other
Transactions Counterparty.
"Other Taxes" shall have the meaning set forth in Section 2.18(b).
-----------
"Other Transactions Counterparties" shall mean BBNA and its Affiliates.
---------------------------------
"Overadvance Amount" shall mean on any day from and including March 1
------------------
through and including December 15 of any year, up to 5% (the "Overadvance Rate")
----------------
of the then Loan Value of the then Eligible Inventory plus (without duplication)
----
5% of the then Loan Value of the then Eligible LC Inventory; provided, that (i)
--------
in connection with determining the Borrowing Base, the Overadvance Rate and the
Base Advance Rate, when combined, shall not result in Tranche A Loans being made
against greater than 77% of the Loan Value of Eligible Inventory and Eligible LC
Inventory, taken as a whole (but without duplication) and (ii) in no event shall
the application of the Overadvance Amount to the Borrowing Base result in a Loan
to Value Ratio in excess of 85%.
"Overadvance Margin" shall mean (i) .50% per annum for any month in which
------------------
the Borrower has any Loans outstanding by utilizing the Overadvance Amount under
the Borrowing Base or (ii) at all other times, zero.
"Overadvance Rate" shall have the meaning set forth in the definition of
----------------
"Overadvance Amount."
"Payment Direction Agreement" shall mean an agreement among the Borrower,
---------------------------
the Administrative Agent and each Credit Card Obligor, in form and substance
satisfactory to the Administrative Agent, providing for the direct payment to
the BBNA Concentration Account of all amounts due to the Borrower from such
Credit Card Obligor
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
----
successor agency or entity performing substantially the same functions.
"Pension Plan" shall mean a defined benefit pension or retirement plan
------------
which meets and is subject to the requirements of Section 401(a) of the Code.
"Permissible Collateral" shall mean Yonkers' interests in the real property
----------------------
and improvements (but not including any Inventory or other personal property)
located at the site of the Bradlees store located in Yonkers, New York (the
"Yonkers Leased Property"), and the proceeds of any disposition of the
- ------------------------
foregoing.
17
<PAGE>
"Permitted Investments" shall mean:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case payable
in Dollars and maturing within twelve months from the date of acquisition
thereof;
(b) investments in certificates of deposit, banker's acceptances and
time deposits (including Eurodollar time deposits) payable in Dollars and
maturing within six months from the date of acquisition thereof issued or
guaranteed by or placed with (i) any domestic office of the Administrative Agent
or (ii) any domestic office of any other commercial bank of recognized standing
organized under the laws of the United States of America or any State thereof
that has a combined capital and surplus and undivided profits of not less than
$250,000,000 and is the principal banking Subsidiary of a bank holding company
having a long-term unsecured debt rating of at least "A" or the equivalent
thereof from Standard & Poor's Corporation or at least "P-2" or the equivalent
thereof from Moody's Investors Service, Inc.;
(c) investments in commercial paper payable in Dollars and maturing
within six months from the date of acquisition thereof and issued by (i) the
holding company of the Administrative Agent or (ii) the holding company of any
other commercial bank of recognized standing organized under the laws of the
United States of America or any State thereof that has (A) a combined capital
and surplus in excess of $250,000,000 and (B) commercial paper rated at least
"A" or the equivalent thereof from Standard & Poor's Corporation or of at least
"P-2" or the equivalent thereof from Moody's Investors Service, Inc.;
(d) investments in repurchase obligations payable in Dollars with a
term of not more than seven days for underlying securities of the types
described in clause (a) above entered into with any office of a bank or trust
company meeting the qualifications specified in clause (b) above;
(e) investments in money market funds substantially all the assets of
which are comprised of securities of the types described in clauses (a) through
(d) above; and
(f) to the extent owned on the Closing Date, investments in the
capital stock or partnership interests of any direct or indirect subsidiary of
the Borrower.
"Permitted Liens" shall mean (i) Liens imposed by law (other than
---------------
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than Environmental
Liens and any Lien imposed under ERISA) imposed by law created in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate
18
<PAGE>
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP; (iii) Liens (other than
any Lien imposed under ERISA) incurred or deposits made in the ordinary course
of business (including, without limitation, surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations or arising as a result of progress payments under
government contracts; (iv) easements (including, without limitation, reciprocal
easement agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and zoning and other restrictions,
charges or encumbrances (whether or not recorded) which do not interfere
materially with the ordinary conduct of the business of the Borrower or any
Guarantor, as the case may be, and which do not materially detract from the
value of the property to which they attach or materially impair the use thereof
to the Borrower or any Guarantor, as the case may be; (v) purchase money Liens
(a) existing on the Closing Date upon or in any property (other than Inventory)
acquired or held in the ordinary course of business to secure the purchase price
of such property and (b) to secure Indebtedness permitted by Section 6.03(ii)
and solely for the purpose of financing the acquisition of such property and
(vi) extensions, renewals or replacements of any Lien referred to in paragraphs
(i) through (v) above; provided that the principal amount of the obligation
--------
secured thereby is not increased and that any such extension, renewal or
replacement is limited to the property originally encumbered thereby.
"Permitted Note Debt" shall mean indebtedness outstanding under the New
-------------------
Notes, the Cure Notes and the CAP Notes.
"Person" shall mean any natural person, corporation, partnership, limited
------
liability company, trust, joint venture, association, company, estate,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" shall mean any Single Employer Plan or Multiemployer Plan.
----
"Plan Effective Date" shall have the meaning set forth in Section 4.01(e).
-------------------
"Prime Plus Loan" shall mean any Tranche B Loan bearing interest at the
---------------
rate set forth in Sections 2.05(c) or 2.06, as applicable.
"Qualified Plan" shall mean a pension plan (as defined in Section 3(2) of
--------------
ERISA) intended to be tax-qualified under Section 401(a) of the Code and which
the Borrower or any ERISA Affiliate sponsors, maintains, or to which it makes or
is obligated to make contributions, or in the case of a multiple employer plan
(as described in Section 4064(a) of ERISA) has made contributions at any time
during the immediately preceding period covering at least five (5) plan years,
but excluding any Multiemployer Plan."
"Real Property" shall mean all interests of the Borrower and the other
-------------
Credit Parties, as applicable, in their respective owned or leased real
property.
19
<PAGE>
"Receivables" shall mean, with respect to any Credit Card Obligor, the
-----------
indebtedness of such Credit Card Obligor to the Borrower under a charge account
agreement arising from a sale of merchandise or services by the Borrower.
"Register" shall have the meaning set forth in Section 10.03(d).
--------
"Required Lenders" shall mean, at any time, Lenders having Loans
----------------
outstanding representing at least 51% of the total Loans outstanding; provided,
--------
however, that if no Loans are outstanding, Required Lenders shall be those
- -------
Lenders having Commitments representing at least 51% of the Total Commitment
(without giving effect to any termination of all of the Commitments pursuant to
Article VII).
"Required Supermajority Lenders" shall mean, at any time, Lenders having
------------------------------
Loans outstanding representing at least 66/2//3% of the total Loans outstanding;
provided, however, that if no Loans are outstanding, Required Supermajority
- -------- -------
Lenders shall be those Lenders having Commitments representing at least 66/2//3%
of the Total Commitment (without giving effect to any termination of all of the
Commitments pursuant to Article VII).
"Required Tranche A Lenders" shall mean, at any time, Tranche A Lenders
--------------------------
having Tranche A Loans outstanding representing at least 51% of the total
Tranche A Loans outstanding; provided, however, that if no Tranche A Loans are
-------- -------
outstanding, Required Tranche A Lenders shall be those Tranche A Lenders having
Tranche A Commitments representing at least 51% of the aggregate Tranche A
Commitments (without giving effect to any termination of all of the Tranche A
Commitments pursuant to Article VII).
"Required Tranche B Lenders" shall mean, at any time, Tranche B Lenders
--------------------------
having Tranche B Loans outstanding representing at least 51% of the total
Tranche B Loans outstanding; provided, however, that if no Tranche B Loans are
-------- -------
outstanding, Required Tranche B Lenders shall be those Tranche B Lenders having
Tranche B Commitments representing at least 51% of the aggregate Tranche B
Commitments (without giving effect to any termination of all of the Tranche B
Commitments pursuant to Article VII).
"Secured Parties" shall mean, collectively, the Lenders, the Issuing Bank,
---------------
the Agents, the Co-Agents and the Other Transactions Counterparties and a
"Secured Party" shall mean any of the foregoing.
-------------
"Security Agreement" shall have the meaning set forth in Section 4.01(f).
------------------
"Security Documents" shall mean the Security Agreement, the Trademark
------------------
Security Agreement and each other document executed in connection with the grant
by the Borrower and each other Credit Party of a security interest in the
Collateral to the Collateral Agent, for its benefit and the ratable benefit of
the other Secured Parties.
"Settlement Date" shall have the meaning set forth in Section 2.03(d).
---------------
20
<PAGE>
"SG&A Expenses" shall mean selling, general and administrative expenses, as
-------------
determined in accordance with GAAP.
"Shrink Reserve" shall mean, as of the date of any determination thereof,
--------------
(A) the positive result, if any, of subtracting (i) the shrinkage percentage
reserve then maintained by the Borrower in its stock ledger from (ii) shrinkage
(book to physical differences), calculated as a percentage of cumulative net
sales since the last physical inventory, for the Borrower's most recent physical
inventory with respect to Inventory located at stores and distribution centers,
multiplied by (B) cumulative sales since the last physical adjustment by the
- -------------
Borrower.
"Single Employer Plan" shall mean a single employer plan, as defined in
--------------------
Section 4001(a)(15) of ERISA, (A) which the Borrower or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or,
within the five years prior to the Closing Date, maintained, administered,
contributed to or was required to contribute to, or under which the Borrower or
any ERISA Affiliate may incur any liability and (B) which covers any employee or
former employee of the Borrower or any ERISA Affiliate (with respect to their
relationship with such entities).
"Specified Location Sales" shall have the meaning set forth in Section
------------------------
2.13(c).
"Statutory Reserves" shall mean, on any date, the percentage (expressed as
------------------
a decimal) established by the Board and any other banking authority which is the
then stated maximum rate for all reserves (including but not limited to any
emergency, supplemental or other marginal reserve requirements) applicable to
any member bank of the Federal Reserve System in respect of Eurocurrency
Liabilities (or any successor category of liabilities under Regulation D issued
by the Board, as in effect from time to time). Such reserve percentages shall
include, without limitation, those imposed pursuant to said Regulation. The
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in such percentage.
"Subsidiary" shall mean, with respect to any Person (herein referred to as
----------
the "parent"), any corporation, association or other business entity (whether
now existing or hereafter organized) of which at least a majority of the
securities or other ownership interests having ordinary voting power for the
election of directors is, at the time as of which any determination is being
made, owned or controlled by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Tax Payment Plan" shall have the meaning set forth in Section 4.01(c).
----------------
"Tax Refund Account" shall have the meaning set forth in Section 2.13(c).
------------------
"Taxes" shall have the meaning set forth in Section 2.18(a).
-----
"Termination Date" shall mean the earliest to occur of (i) the Maturity
----------------
Date and (ii) the date on which the maturity of the Tranche A Loans or the
Tranche B Loans is accelerated and the
21
<PAGE>
commitments of the Tranche A Lenders or the Tranche B Lenders, as applicable,
are terminated in accordance with Section 7.01 or Section 7.02, as applicable.
"Termination Event" shall mean (i) with respect to a Single Employer Plan
-----------------
or a Multiple Employer Plan, a "reportable event", as such term is described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
"reportable event" not subject to the provision for 30-day notice to the PBGC
under Section 4043 of ERISA or such regulations) or an event described in
Section 4068 of ERISA excluding events described in Section 4043(c)(9) of ERISA
or 29 CFR 4043.29 or 4043.35, (ii) the withdrawal of the Borrower or any ERISA
Affiliate from a Multiple Employer Plan during a plan year in which it was a
"substantial employer", as such term is defined in Section 4001(c) of ERISA, or
the incurrence of liability by the Borrower or any ERISA Affiliate under Section
4064 of ERISA upon the termination of a Multiple Employer Plan, or (iii)
providing notice of intent to terminate a Plan pursuant to Section 4041(c) of
ERISA or the treatment of a Plan amendment as a termination under Section 4041
of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC
under Section 4042 of ERISA, or (v) a complete or partial withdrawal by the
Borrower or any ERISA Affiliate from a Multiemployer Plan, or (vi) a failure by
the Borrower or any ERISA Affiliate to make required contributions to a Plan, or
(vii) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower
or any ERISA Affiliate, or (viii) an application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code with
respect to any Single Employer Plan, or (ix) the Borrower or any ERISA Affiliate
engages in a nonexempt prohibited transaction or otherwise becomes liable with
respect to a nonexempt prohibited transaction, the consequences of which, in the
aggregate, could reasonably have a material adverse effect on the financial
condition, operations, business, properties or assets of the Borrower and the
Guarantors, taken as a whole, or (x) a violation of the applicable requirements
of Section 404 or 405 of ERISA or the exclusive benefit rule under Section
401(a) of the Code by the Borrower or any ERISA Affiliate with respect to any
Single Employer Plan for which the Borrower or any of its Subsidiaries may be
liable, the consequences of which, in the aggregate, could reasonably have a
material adverse effect on the financial condition, operations, business,
properties or assets of the Borrower and the Guarantors, taken as a whole, or
(xi) any other event or condition which would reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of or the
appointment of a trustee to administer, any Plan, or the imposition of any
liability under Title IV of ERISA (other than for the payment of premiums to the
PBGC).
"Total Commitment" shall mean, at any time, the sum of the Commitments at
----------------
such time.
"Trademark Security Agreement" shall have the meaning set forth in Section
----------------------------
4.01(h).
"Trade Debt" shall mean amounts owed by the Borrower to trade vendors in
----------
connection with the purchase by the Borrower of Inventory in the ordinary course
of business.
"Trade Lien" shall mean a second-priority Lien on the Borrower's Inventory
----------
to secure certain Trade Debt incurred subsequent to the Plan Effective Date,
such Lien to (i) be expressly
22
<PAGE>
subordinated to the Liens granted in favor of the Collateral Agent, for its
benefit and the ratable benefit of the other Secured Parties, pursuant to the
Loan Documents, (ii) have terms as set forth on Attachment IV hereto and
-------------
incorporated herein and (iii) otherwise be in form and substance reasonably
satisfactory to the Administrative Agent.
"Tranche A Commitment" shall mean, with respect to each Lender, the
--------------------
commitment of such Lender hereunder set forth as its Tranche A Commitment
opposite its name on Annex A hereto or as may subsequently be set forth in the
Register from time to time, as the same may be reduced from time to time
pursuant to Section 2.07.
"Tranche A Commitment Percentage" shall mean at any time, with respect to
-------------------------------
each Lender, the percentage obtained by dividing its Tranche A Commitment at
such time by all Tranche A Commitments at such time.
"Tranche A Credit Extensions" shall be equal, as of any day, to the sum of
---------------------------
(a) the principal balance of all Tranche A Loans then outstanding and (b) the
then amount of the Letter of Credit Outstandings.
"Tranche A Fee Letter" shall mean that certain agent's fee letter, dated
--------------------
December 23, 1997, between the Borrower, as debtor and debtor-in-possession, and
the Administrative Agent.
"Tranche A Lender" shall mean each Lender having a Tranche A Commitment as
----------------
set forth on Annex A hereto or in the Assignment and Acceptance by which it
becomes a Lender.
"Tranche A Loans" shall mean all loans at any time made by any Tranche A
---------------
Lenders pursuant to Section 2.01(a), Section 2.02(d) or Section 2.03(c).
"Tranche A Notes" shall mean the promissory notes of the Borrower (i)
---------------
substantially in the form of Exhibit B- 1, each payable to the order of a
Tranche A Lender, evidencing the Tranche A Loans and (ii) substantially in the
form of Exhibit B-2, payable to the Administrative Agent, evidencing the Agent
Advances.
"Tranche B Availability Amount" shall have the meaning set forth in Section
-----------------------------
2.01(b)(1).
"Tranche B Borrowing Base" shall mean, on any day, an amount equal to the
------------------------
Tranche B Inventory Advance Rate multiplied by the then Loan Value of Eligible
Inventory plus (without duplication) the Tranche B Inventory Advance Rate
----
multiplied by the lesser of (i) the then Loan Value of Eligible LC Inventory and
(ii) the then applicable Eligible LC Inventory Sublimit.
"Tranche B Cancellation Date" shall have the meaning set forth in Section
---------------------------
2.07(b).
"Tranche B Commitment" shall mean, with respect to each Lender, the
--------------------
commitment of such Lender hereunder set forth as its Tranche B Commitment
opposite its name on Annex A hereto or as may subsequently be set forth in the
Register from time to time, as the same may be reduced from time to time
pursuant to Section 2.07.
23
<PAGE>
"Tranche B Commitment Percentage" shall mean at any time, with respect to
-------------------------------
each Lender, the percentage obtained by dividing its Tranche B Commitment at
such time by all Tranche B Commitments at such time.
"Tranche B Default Notice" shall have the meaning set forth in Section
------------------------
7.02.
"Tranche B Fee Letter" shall mean that certain agent's fee letter, dated
--------------------
December 16, 1998 between the Borrower, as debtor and debtor-in-possession, and
the Tranche B Agent.
"Tranche B Inventory Advance Rate" shall mean, on any day, (a) between July
--------------------------------
1 and September 30 of each year, 7% and (b) at all other times, 8%; provided
--------
that, the Tranche B Inventory Advance Rate shall be subject to periodic
adjustment by the Administrative Agent (based on periodic appraisals or
otherwise) in order to ensure that the aggregate of all Credit Extensions
(Tranche A and Tranche B) outstanding on any date will not exceed 93% of the
Loan to Value Ratio on such date.
"Tranche B Lender" shall mean each Lender having a Tranche B Commitment as
----------------
set forth on Annex A hereto or in the Assignment and Acceptance by which it
becomes a Lender.
"Tranche B Loans" shall mean all loans at any time made by any Tranche B
---------------
Lender pursuant to Section 2.01(b).
"Tranche B Notes" shall mean the promissory notes of the Borrower,
---------------
substantially in the form of Exhibit B-3, each payable to the order of a Tranche
B Lender, evidencing the Tranche B Loans.
"Tranche B Termination Date" shall mean the earlier date to occur of (i)
--------------------------
the Termination Date, (ii) the Tranche B Cancellation Date and (iii) the date on
which the maturity of the Tranche B Loans is accelerated and the commitments of
the Tranche B Lenders are terminated in accordance with Section 7.02.
"Transferee" shall have the meaning set forth in Section 2.18(a).
----------
"Type" when used in respect of any Loan or Borrowing shall refer to the
----
rate of interest by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined.
"Unfunded Pension Liabilities" shall mean the "amount of unfunded benefit
----------------------------
liabilities" of a Single Employer Plan, as defined in Section 4001(a)(18) of
ERISA but, utilizing, for purposes of calculating the value of such liabilities,
the actuarial methods and assumptions set forth on Schedule 1.1(b) hereto used
in Table 4 to the actuarial report for The Bradlees Stores, Inc. Retirement Plan
for the Plan year ending January 31, 1998, or such other assumptions as to which
the Administrative Agent agrees in writing, such agreement not to be
unreasonably withheld.
24
<PAGE>
"Unused Tranche A Commitment" shall mean, on any day, (a) the then
---------------------------
aggregate amount of the Tranche A Commitments minus (b) the sum of (i) the
-----
principal amount of Tranche A Loans then outstanding and (ii) the then Letter of
Credit Outstandings.
"Withdrawal Liability" shall have the meaning set forth under Part I of
--------------------
Subtitle E of Title IV of ERISA.
"Yonkers" shall mean New Horizons of Yonkers, Inc., a Delaware corporation,
-------
as debtor-and debtor-in-possession.
"Yonkers Leased Property" shall have the meaning set forth in the
-----------------------
definition of Permissible Collateral.
"Yonkers Location Sale" shall have the meaning set forth in Section
---------------------
2.13(c).
"Yonkers Common Stock Collateral" shall mean the Borrower's interest in all
-------------------------------
of the issued and outstanding common stock of New Horizons of Yonkers, Inc.
"Yonkers Confirmation Order" shall mean an order of the Bankruptcy Court
--------------------------
confirming the Confirmed Plan with respect to Yonkers pursuant to Sections 1128
and 1129 of the Bankruptcy Code.
SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01 shall
---------------
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. All references herein to Articles,
Sections, Exhibits and Schedules shall be deemed references to Articles and
Sections of, and Exhibits and Schedules to, this Agreement unless the context
shall otherwise require. Except as otherwise expressly provided herein, all
terms of an accounting or financial nature shall be construed in accordance with
GAAP, as in effect from time to time; provided, however, that for purposes of
-------- -------
determining compliance with any covenant set forth in Article VI, such terms
shall be construed in accordance with GAAP as in effect on the date of this
Agreement applied on a basis consistent with the application used in the
Borrower's audited financial statements for the fiscal year ended on February 1,
1997.
II. AMOUNT AND TERMS OF CREDIT
SECTION 2.01. COMMITMENT OF THE LENDERS.
-------------------------
(a) Each Tranche A Lender severally and not jointly with any other
Lender agrees, upon the terms and subject to the conditions herein set forth, to
extend credit to the Borrower on a revolving basis, in the form of Tranche A
Credit Extensions and in an amount equal to such Tranche A Lender's Tranche A
Commitment Percentage thereof, subject to the following limitations:
25
<PAGE>
(1) The aggregate outstanding amount of the Tranche A Credit
Extensions and Agent Advances shall not at any time exceed the lower of (i)
$250,000,000 or any lesser amount to which the Tranche A Commitments have
then been reduced by the Borrower pursuant to Section 2.07, and (ii) the
then amount of the Borrowing Base, plus the aggregate amount of cash then
held in the Cash Collateral Account pursuant to Sections 2.02, 2.10(a) and
2.14(a) (item "fourth").
(2) No Tranche A Lender shall be obligated to issue any Letter of
Credit, and Letters of Credit shall be available from the Issuing Bank,
subject to the ratable participation of all Tranche A Lenders, as set forth
in Section 2.02. The Borrower will not at any time permit the aggregate
Letter of Credit Outstandings to exceed $125,000,000.
(3) Subject to all of the other provisions of this Agreement,
Tranche A Loans that are repaid may be reborrowed prior to the Termination
Date. No new Tranche A Credit Extension, however, shall be made to the
Borrower after the Termination Date.
(b) Each Tranche B Lender severally and not jointly with any other
Lender agrees, upon the terms and subject to the conditions herein set forth, to
make loans to the Borrower on a revolving basis (subject to clause (4) below),
in the form of Tranche B Loans and in an amount equal to such Tranche B Lender's
Tranche B Commitment Percentage thereof, subject to the following limitations:
(1) The aggregate outstanding amount of the Tranche B Loans shall
not at any time exceed the lower of (i) $20,000,000 or any lesser amount to
which the Tranche B Commitments have then been reduced by the Borrower
pursuant to Section 2.07 and (ii) the then amount of the Tranche B
Borrowing Base (such lower amount, the "Tranche B Availability Amount").
-----------------------------
(2) The Tranche B Lenders shall not make Tranche B Loans to the
Borrower under Section 2.01(b) if, on the date the Borrower requests such
Tranche B Loan, amounts are available to be borrowed by the Borrower under
the Borrowing Base as calculated in accordance with Section 2.01(a)(1)
unless the Borrower is not entitled to borrow such amounts because an Event
of Default which is not also an Event of Super-Default has occurred and is
continuing (subject, however, to clause (3) below).
(3) During the period beginning on the date of the occurrence of
an Event of Default and ending on the date that is ten (10) Business Days
thereafter, if during such period an Event of Super-Default has not
occurred, the aggregate amount of Tranche B Loans made during such period
shall not exceed the lower of (i) $5,000,000 and (ii) the Tranche B
Availability Amount. In the event such Event of Default is not waived
within such ten Business Day period, the Tranche B Lenders shall no longer
be obligated to make Tranche B Loans under this Agreement.
26
<PAGE>
(4) Subject to Section 2.07(b), so long as any Tranche A Loans
remain outstanding, no Tranche B Loans may be repaid and any such
repayments will be applied as provided in Section 2.11(a)(1).
(5) Subject to the other provisions of this Agreement, Tranche B
Loans that are repaid may be reborrowed prior to the Tranche B Termination
Date (subject to the other provisions of this Section 2.01(b)). No new
Tranche B Loans, however, shall be made to the Borrower after the Tranche B
Termination Date.
(c) Each Borrowing of Tranche A Loans (other than Agent Advances)
shall be made by the Tranche A Lenders pro rata in accordance with their
--- ----
respective Tranche A Commitments, and each Borrowing of Tranche B Loans shall be
made by the Tranche B Lenders pro rata in accordance with their respective
--- ----
Tranche B Commitments. The failure of any Lender to make any Loan shall neither
relieve any other Lender of its obligation to fund its Loan in accordance with
the provisions of this Agreement nor increase the obligation of any such other
Lender.
SECTION 2.02. LETTERS OF CREDIT.
-----------------
(a) Upon the terms and subject to the conditions herein set forth,
the Borrower may request the Issuing Bank, at any time and from time to time
after the date hereof and prior to the Termination Date, to issue, and subject
to the terms and conditions contained herein, the Issuing Bank shall issue, for
the account of the Borrower one or more Letters of Credit; provided that no
--------
Letter of Credit shall be issued if after giving effect to such issuance (i) the
aggregate Letter of Credit Outstandings shall exceed $125,000,000, or (ii) the
aggregate Tranche A Credit Extensions would exceed the limitation set forth in
Section 2.01(a)(1); and provided, further, that no Letter of Credit shall be
-------- -------
issued if the Issuing Bank shall have received notice from the Administrative
Agent or the Required Tranche A Lenders that the conditions to such issuance
have not been met.
(b) No Letter of Credit shall have an Expiry Date later than the 90th
day after the Maturity Date. In the case of each Letter of Credit issued with
an expiry date later than the Termination Date, the Borrower shall, on or prior
to the Termination Date, either (i) cause such Letter of Credit to be returned
to the Issuing Bank undrawn and marked "canceled" and otherwise discharged in a
manner satisfactory to the Issuing Bank or (ii) if the Borrower is unable to
return and discharge such Letter of Credit, either (x) provide a "back-to-back"
letter of credit issued by a bank and on terms in form and substance
satisfactory to the Issuing Bank and the Administrative Agent (in their sole and
absolute discretion), in an amount equal to 105% of the undrawn amount of such
Letter of Credit or (y) deposit cash in the Cash Collateral Account in an amount
equal to 105% of the undrawn amount under such Letter of Credit.
(c) The Borrower shall pay to the Administrative Agent, for the
account of the Issuing Bank and in addition to all Letter of Credit Fees
provided for in Section 2.21, a fronting fee equal to 0.125% per annum of the
average daily balance of the maximum amount that at any
27
<PAGE>
time is available for drawing or payment under each Letter of Credit, payable
quarterly in arrears, as well as such fees and charges in connection with the
issuance, negotiation, settlement, amendment and processing of each Letter of
Credit issued by the Issuing Bank as are customarily imposed by the Issuing Bank
from time to time in connection with letter of credit transactions.
(d) Drafts drawn under each Letter of Credit shall be reimbursed by
the Borrower in Dollars not later than the first Business Day following the date
of draw and shall bear interest from the date of draw until the first Business
Day following the date of draw at a rate per annum equal to the Alternate Base
Rate and thereafter until reimbursed in full at a rate per annum equal to the
Alternate Base Rate plus 2.00% per annum (computed on the basis of the actual
----
number of days elapsed over any year of 360 days). The Borrower shall effect
such reimbursement (x) if such draw occurs prior to the Termination Date (or the
earlier date of termination of the Tranche A Commitments), through a Borrowing
of Tranche A Loans without the satisfaction of the conditions precedent set
forth in Section 4.02, or (y) if such draw occurs on or after the Termination
Date (or the earlier date of termination of the Tranche A Commitments), in cash.
Each Tranche A Lender agrees to fund its Tranche A Commitment Percentage of the
Tranche A Loans described in clause (x) of the preceding sentence
notwithstanding a failure to satisfy the applicable lending conditions thereto
or the provisions of Sections 2.01 and 2.02 or the occurrence of the Termination
Date.
(e) Immediately upon the issuance of any Letter of Credit by the
Issuing Bank, the Issuing Bank shall be deemed to have sold to each Tranche A
Lender and each such Tranche A Lender shall be deemed unconditionally and
irrevocably to have purchased from the Issuing Bank, without recourse or
warranty, an undivided interest and participation, to the extent of such Tranche
A Lender's Tranche A Commitment Percentage, in such Letter of Credit, each
drawing thereunder and the obligations of the Borrower and the other Credit
Parties under this Agreement and the other Loan Documents with respect thereto.
Upon any change in the Tranche A Commitments pursuant to Section 10.03, it is
hereby agreed that with respect to all Letter of Credit Outstandings, there
shall be an automatic adjustment to the participations hereby created to reflect
the new Tranche A Commitment Percentages of the assigning and assignee Tranche A
Lenders. Any action taken or omitted by the Issuing Bank under or in connection
with a Letter of Credit, if taken or omitted in the absence of gross negligence
or willful misconduct, shall not create for the Issuing Bank any resulting
liability to any Tranche A Lender.
(f) In the event that the Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to the Issuing Bank pursuant to this Section 2.02, the Issuing Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Tranche A Lender of such failure, and each Tranche A Lender shall promptly and
unconditionally pay to the Administrative Agent for the account of the Issuing
Bank the amount of such Tranche A Lender's Tranche A Commitment Percentage of
such unreimbursed payment in Dollars and in same day funds. If the Issuing Bank
so notifies the Administrative Agent, and the Administrative Agent so notifies
the Tranche A Lenders prior to 11:00 a.m., Boston time, on any Business Day,
each such Tranche A Lender shall make available to the Issuing Bank such Tranche
A Lender's Tranche A Commitment Percentage of the amount
28
<PAGE>
of such payment on such Business Day in same day funds. If and to the extent
such Tranche A Lender shall not have so made its Tranche A Commitment Percentage
of the amount of such payment available to the Issuing Bank, such Tranche A
Lender agrees to pay to the Issuing Bank, forthwith on demand such amount,
together with interest thereon, for each day from such date until the date such
amount is paid to the Administrative Agent for the account of the Issuing Bank
at the Federal Funds Effective Rate. The failure of any Tranche A Lender to make
available to the Issuing Bank its Tranche A Commitment Percentage of any payment
under any Letter of Credit shall neither relieve any Tranche A Lender of its
obligation hereunder to make available to the Issuing Bank its Tranche A
Commitment Percentage of any payment under any Letter of Credit on the date
required, as specified above, nor increase the obligation of such other Tranche
A Lender. Whenever any Tranche A Lender has made payments to the Issuing Bank in
respect of any reimbursement obligation for any Letter of Credit, such Tranche A
Lender shall be entitled to share ratably, based on its Tranche A Commitment
Percentage, in all payments and collections thereafter received on account of
such reimbursement obligation.
(g) Whenever the Borrower desires that the Issuing Bank issue a
Letter of Credit, it shall give to the Issuing Bank at least two Business Days'
prior written (including telegraphic, telex, facsimile or cable communication)
notice (or such shorter period as may be agreed upon in writing by the Issuing
Bank and the Borrower) specifying the date on which the proposed Letter of
Credit is to be issued (which shall be a Business Day), the stated amount of the
Letter of Credit so requested, the expiration date of such Letter of Credit, the
name and address of the beneficiary thereof, and the provisions thereof.
(h) The obligations of the Borrower to reimburse the Issuing Bank for
drawings made under any Letter of Credit shall be unconditional and irrevocable
and shall be paid strictly in accordance with the terms of this Agreement under
all circumstances, including, without limitation (it being understood that any
such payment by the Borrower shall be without prejudice to, and shall not
constitute a waiver of, any rights the Borrower might have or might acquire as a
result of the payment by the Issuing Bank of any draft or the reimbursement by
the Borrower thereof): (i) any lack of validity or enforceability of any Letter
of Credit; (ii) the existence of any claim, setoff, defense or other right which
the Borrower or any Guarantor may have at any time against a beneficiary of any
Letter of Credit or against any of the Lenders, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction;
(iii) any draft, demand, certificate or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(iv) payment by the Issuing Bank of any Letter of Credit against presentation of
a demand, draft or certificate or other document which does not comply with the
terms of such Letter of Credit; (v) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing; or (vi) the fact
that any Event of Default shall have occurred and be continuing.
(i) The Borrower hereby assumes and ratifies the obligations of
Bradlees Stores, Inc., as debtor-in-possession under or in connection with all
letters of credit issued and outstanding under the Existing Credit Facility that
are not canceled in connection with the
29
<PAGE>
repayment and termination of the Existing Credit Facility (the "Existing Letters
of Credit"). Such Existing Letters of Credit shall be deemed to be Letters of
Credit issued under this Agreement and the Borrower shall be liable with respect
to such Existing Letters of Credit under this Section 2.02 as if such Existing
Letters of Credit were issued hereunder. All Existing Letters of Credit are
listed on Schedule 2.02(i) hereto.
SECTION 2.03. MAKING OF LOANS.
---------------
(a) Except as set forth in Section 2.09, Tranche A Loans by the
Tranche A Lenders shall be either ABR Loans or (so long as no Event of Default
has occurred and is continuing and the making of Eurodollar Loans by any Tranche
A Lender is not illegal or impractical) Eurodollar Loans as the Borrower may
request subject to and in accordance with this Section 2.03. All Tranche B
Loans shall be Prime Plus Loans. All Loans made pursuant to the same Borrowing
shall, unless otherwise specifically provided herein, be Loans of the same Type.
Each Lender may fulfill its Commitment with respect to any Loan by causing any
lending office of such Lender to make such Loan; but any such use of a lending
office shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of the applicable Note. Each Lender shall, subject to
its overall policy considerations, use reasonable efforts (but shall not be
obligated) to select a lending office which will not result in the payment of
increased costs by the Borrower pursuant to Section 2.15. Subject to the other
provisions of this Section 2.03 and the provisions of Section 2.16, Borrowings
of Loans of more than one Type may be incurred at the same time, but no more
than five Borrowings of Eurodollar Loans may be outstanding at any time.
(b) The Borrower shall give the Administrative Agent two business
days' prior notice of each Borrowing of Eurodollar Loans and same-day notice of
each Borrowing of ABR Loans or Prime Plus Loans, so long as notice is given
prior to 12:00 Noon, Boston time. Such notice shall be irrevocable and (i)
shall specify the amount of the proposed Borrowing (which shall not be less than
$1,000,000 in the case of Eurodollar Loans) and the date thereof (which shall be
a Business Day) and shall contain disbursement instructions and (ii) in
connection with Borrowings of Tranche B Loans, shall certify that there are no
amounts available to be borrowed by the Borrower under the Tranche A Commitment
as calculated in accordance with Section 2.01(a)(1). Any such notice, to be
effective, must be received by the Administrative Agent not later than 1:00
p.m., Boston time, on the second Business Day in the case of Eurodollar Loans
and not later than 12:00 Noon, Boston time, on the same day in the case of ABR
Loans and Prime Plus Loans, on which such Borrowing is to be made. Such notice
shall specify whether the Borrowing then being requested is to be a Borrowing of
ABR Loans, Prime Plus Loans or Eurodollar Loans and, if Eurodollar Loans, the
Interest Period with respect thereto. If no election of Interest Period is
specified in any such notice for a Borrowing of Eurodollar Loans, such notice
shall be deemed a request for an Interest Period of one month. If no election
is made as to the Type of Loan, such notice shall be deemed a request for
Borrowing of ABR Loans in the case of Tranche A Loans (subject to Section
2.03(a)) and Prime Plus Loans in the case of Tranche B Loans. The
Administrative Agent shall promptly notify each Lender of its proportionate
share of such Borrowing, the date of such Borrowing, the Type of Borrowing being
30
<PAGE>
requested and the Interest Period or Interest Periods applicable thereto, as
appropriate. On the borrowing date specified in such notice, each Lender shall
make its share of the Borrowing available at the office of the Administrative
Agent at 100 Federal Street, Boston, Massachusetts 02110, no later than 3:00
p.m., Boston time, in immediately available funds. Upon receipt of the funds
made available by the Lenders to fund any borrowing hereunder, the
Administrative Agent shall disburse such funds in the manner specified in the
notice of borrowing delivered by the Borrower and shall use reasonable efforts
to make the funds so received from the Lenders available to the Borrower no
later than 4:00 p.m., Boston time.
(c) (i) The Administrative Agent is authorized by the Lenders, but
is not obligated, to make Agent Advances up to $15,000,000 in the aggregate
outstanding at any time, consisting only of Tranche A Loans (consisting of ABR
Loans) or, if otherwise permitted under Section 2.01(b), Tranche B Loans, upon a
notice of Borrowing received by the Administrative Agent (which notice, at the
Administrative Agent's discretion, may be submitted prior to 12:00 Noon, Boston
time, on the same day for which such Agent Advance is requested). Agent
Advances of Tranche A Loans (together with all other Tranche A Credit
Extensions) may not at any time cause the Borrower to be in violation of the
provisions of Section 2.10(a) hereof. Agent Advances of Tranche B Loans
(together with all other Tranche B Loans outstanding) may not at any time cause
the Borrower to be in violation of the provisions of Section 2.10(b) hereof.
Agent Advances shall be subject to periodic settlement with the Tranche A
Lenders under the subsection (d) below.
(ii) Agent Advances may be made only in the following
circumstances: (A) for administrative convenience, the Administrative Agent may,
but is not obligated to, make Agent Advances in reliance upon the Borrower's
actual or deemed representations under Section 4.02 or 4.03, as applicable, that
the applicable conditions for borrowing are satisfied or (B) if the conditions
for borrowing under Section 4.02 or Section 4.03 (other than Section 4.03(d),
with respect to Agent Advances of Tranche B Loans), as applicable, cannot be
fulfilled, the Borrower shall give immediate notice thereof to the
Administrative Agent (a "Noncompliance Notice"), and the Administrative Agent
--------------------
may, but is not obligated to, continue to make Agent Advances for fifteen (15)
Business Days from the date the Administrative Agent first receives such notice,
or until sooner instructed by the Required Supermajority Lenders; provided that
the Administrative Agent promptly provides each Lender with a copy of the
Borrower's Noncompliance Notice. Notwithstanding the foregoing, no Agent
Advances shall be made pursuant to this subsection (ii) that would cause the
Borrower to be in violation of Section 2.10(a) or 2.10(b), as applicable.
(d) (i) The amount of each Lender's Commitment Percentage of
outstanding Loans (including Agent Advances) shall be computed weekly (or more
frequently in the Administrative Agent's discretion) and shall be adjusted
upward or downward based on all Loans (including Agent Advances) and repayments
of Loans (including Agent Advances) received by the Administrative Agent as of
3:00 p.m., Boston time, on the first Business Day following the end of the
period specified by the Administrative Agent (such date, the "Settlement Date").
---------------
31
<PAGE>
(ii) The Administrative Agent shall deliver to each of the
Lenders promptly after the Settlement Date a summary statement of the amount of
outstanding Loans (including Agent Advances) for the period and the amount of
repayments received for the period. As reflected on the summary statement: (x)
the Administrative Agent shall transfer to each Lender its applicable Commitment
Percentage of repayments (after accounting for unreimbursed Agent Advances) and
(y) each Lender shall transfer to the Administrative Agent (as provided below),
or the Agent shall transfer to each Lender, such amounts as are necessary to
insure that, after giving effect to all such transfers, the amount of Loans made
by each Lender with respect to Loans (including Agent Advances) shall be equal
to such Lender's applicable Commitment Percentage of Loans outstanding as of
such Settlement Date. If the summary statement requires transfers to be made to
the Administrative Agent by the Lenders and is received prior to 12:00 Noon,
Boston time, on a Business Day, such transfers shall be made in immediately
available funds no later than 3:00 p.m., Boston time, that day; and, if received
after 12:00 Noon, Boston time, then no later than 3:00 p.m., Boston time, on the
next Business Day. The obligation of each Lender to transfer such funds is
irrevocable, unconditional and without recourse to or warranty by the
Administrative Agent and, notwithstanding the foregoing, on the day that the
Administrative Agent makes an Agent Advance hereunder, each Tranche A Lender
shall be deemed to have made its Tranche A Commitment Percentage of such Agent
Advance on such day. If and to the extent any Lender shall not have so made its
transfer to the Administrative Agent, such Lender agrees to pay to the
Administrative Agent, forthwith on demand such amount, together with interest
thereon, for each day from such date until the date such amount is paid to the
Administrative Agent at the Federal Funds Effective Rate.
(e) As an accommodation to the Borrower, to the extent any Eurodollar
Loans (as defined in the Existing Credit Facility) are outstanding under the
Existing Credit Facility on the Closing Date (the "Existing Eurodollar Loans"),
-------------------------
such Existing Eurodollar Loans may be repaid with Eurodollar Loans under this
Agreement (subject to all of the conditions precedent thereto set forth herein),
and such Eurodollar Loans will have the identical Interest Periods (or remainder
thereof) as the Interest Periods applicable to the corresponding Existing
Eurodollar Loans and shall bear interest at per annum rates identical to the
interest rates applicable to the corresponding Existing Eurodollar Loans under
the Existing Credit Facility
SECTION 2.04. NOTES; REPAYMENT OF LOANS.
-------------------------
(a) The Tranche A Loans outstanding to each Tranche A Lender (and to
the Administrative Agent, with respect to Agent Advances) shall be evidenced by
a Tranche A Note duly executed on behalf of the Borrower, dated the Closing
Date, in substantially the form attached hereto as Exhibit B-1 or B-2, as
applicable, payable to the order of such Tranche A Lender (or the Administrative
Agent, as applicable) in an aggregate principal amount equal to such Tranche A
Lender's Tranche A Commitment (or, in the case of the Tranche A Note evidencing
the Agent Advances, $15,000,000). The Tranche B Loans outstanding to each
Tranche B Lender shall be evidenced by a Tranche B Note duly executed on behalf
of the Borrower, dated the Closing Date, in substantially the form attached
hereto as Exhibit B-3,
32
<PAGE>
payable to the order of such Tranche B Lender in an aggregate principal amount
equal to such Tranche B Lender's Tranche B Commitment.
(b) The outstanding principal balance of all Tranche A Loans, as
evidenced by such Tranche A Notes, shall be payable on the Termination Date
(subject to earlier repayment as provided below), and the outstanding principal
balance of all Tranche B Loans, as evidenced by such Tranche B Notes, shall be
payable on the Tranche B Termination Date (subject to earlier repayment as
provided below). Each Note shall bear interest from the date thereof on the
outstanding principal balance thereof as set forth in this Article II. Each
Lender is hereby authorized by the Borrower to endorse on a schedule attached to
each Note delivered to such Lender (or on a continuation of such schedule
attached to such Note and made a part thereof), or otherwise to record in such
Lender's internal records, an appropriate notation evidencing the date and
amount of each Loan from such Lender, each payment and prepayment of principal
of any such Loan, each payment of interest on any such Loan and the other
information provided for on such schedule; provided, however, that the failure
-------- -------
of any Lender to make such a notation or any error therein shall not affect the
obligation of the Borrower to repay the Loans made by such Lender in accordance
with the terms of this Agreement and the applicable Notes.
SECTION 2.05. INTEREST ON LOANS.
-----------------
(a) Subject to Section 2.06, each ABR Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum that shall be equal to the then Alternate Base Rate,
plus the Overadvance Margin.
- ----
(b) Subject to Section 2.06, each Eurodollar Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal, during each Interest Period applicable thereto,
to the Adjusted LIBOR Rate for such Interest Period, plus the Eurodollar
----
Applicable Margin, plus the Overadvance Margin (the "Eurodollar Interest Rate");
---- ------------------------
provided that, after the first anniversary of the Closing Date, if the
- --------
Borrower's Interest Coverage Ratio as measured at the end of any fiscal quarter
is greater than or equal to 2.5:1, then each Eurodollar Loan outstanding during
the following fiscal quarter shall bear interest during such fiscal quarter at a
rate per annum equal to the applicable Eurodollar Interest Rate less 0.25%.
----
(c) Subject to Section 2.06, each Prime Plus Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal to the Alternate Base Rate plus 7.00%.
----
(d) Accrued interest on all Loans shall be payable in arrears on each
Interest Payment Date applicable thereto, at maturity (whether by acceleration
or otherwise), after such maturity on demand and (with respect to Eurodollar
Loans) upon any repayment or prepayment thereof (on the amount prepaid).
(e) All outstanding Loans (other than Prime Plus Loans) that on any
day are not, in accordance with the provisions of this Agreement, Eurodollar
Loans shall, for such day,
33
<PAGE>
constitute ABR Loans and, subject to Section 2.06, shall bear interest with
reference to the Alternate Base Rate as set forth in Section 2.05(a).
SECTION 2.06. DEFAULT INTEREST. Effective upon the occurrence of any
----------------
Event of Default and at all times thereafter while such Event of Default is
continuing, interest shall accrue on all outstanding Tranche A Loans (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the Alternate
Base Rate plus 2.00% per annum, and such interest shall be payable on demand.
----
Effective upon the occurrence of any Event of Default or Event of Super-Default
and at all times thereafter while such Event of Default or Event of Super-
Default is continuing, interest shall accrue on all outstanding Tranche B Loans
(after as well as before judgment) at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days) equal to the
Alternate Base Rate plus 9.00%, and such interest shall be payable on demand.
----
SECTION 2.07. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. (a) Upon
------------------------------------------------
at least two Business Days' prior written notice to the Administrative Agent,
the Borrower may at any time in whole permanently terminate, or from time to
time in part permanently reduce, the Commitments. Each such reduction shall be
in the principal amount of $5,000,000 or any integral multiple thereof. Except
as set forth in subsection (b) hereof, each such reduction or termination shall
(i) reduce the Tranche A Commitment and the Tranche B Commitment on a pro rata
--------
basis (ii) be applied ratably to the Commitment of each Tranche A Lender and
Tranche B Lender and (iii) be irrevocable when given. At the effective time of
each such reduction or termination, the Borrower shall pay to the Administrative
Agent for application as provided herein (i) all Commitment Fees accrued on the
amount of the Commitments so terminated or reduced through the date thereof,
(ii) any amount by which the Credit Extensions outstanding on such date exceed
the amount to which the applicable Commitments, as the case may be, are to be
reduced effective on such date and (iii) all earned and unpaid Fees with respect
to such Credit Extensions, in each case pro rata based on the amount prepaid.
--- ----
(b) Notwithstanding subsection (a) above, the Borrower may permanently and
irrevocably cancel all (but not less than all) of the Tranche B Commitments at
any time if, immediately after giving effect to such cancellation and the
repayment of all outstanding Tranche B Loans and all interest and Fees relating
thereto, the Borrower establishes to the satisfaction of the Administrative
Agent (based on the results of recent field examinations or otherwise) that the
amount available to be borrowed under the Tranche A Commitments (as determined
pursuant to Section 2.01(a)(1)) is not less than the amount set forth below
opposite the Borrower's fiscal month in which such cancellation takes place:
34
<PAGE>
<TABLE>
<CAPTION>
Fiscal Month Required Excess Availability
------------ ----------------------------
<S> <C>
February $39,000,000
March $46,000,000
April $49,000,000
May $48,000,000
June $36,000,000
July $38,000,000
August $31,000,000
September $34,000,000
October $47,000,000
November $43,000,000
December $47,000,000
January $46,000,000
</TABLE>
At the effective time of such cancellation (the "Tranche B Cancellation Date"),
---------------------------
the Borrower shall pay to the Administrative Agent for the account of the
Tranche B Lenders (and notwithstanding the payment priority provisions of
Sections 2.11(a)(1) or 2.14) the full amount of all outstanding Tranche B Loans,
all accrued and unpaid interest relating thereto and all accrued and unpaid Fees
relating to the Tranche B Loans.
SECTION 2.08. ALTERNATE RATE OF INTEREST. In the event, and on each
--------------------------
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan the Administrative Agent shall have
determined (which determination shall be conclusive and binding upon the
Borrower absent manifest error) that reasonable means do not exist for
ascertaining the applicable Adjusted LIBOR Rate, the Administrative Agent shall,
as soon as practicable thereafter, give written or telegraphic notice of such
determination to the Borrower and the Lenders. After such notice shall have been
given and until the circumstances giving rise to such notice no longer exist,
any request by the Borrower for any funding as, continuation of or conversion
into a Eurodollar Borrowing shall be deemed a request for a Borrowing of ABR
Loans.
SECTION 2.09. REFINANCING OF LOANS. The Borrower shall have the right at
--------------------
any time, on two Business Days' prior irrevocable notice to the Administrative
Agent (which notice, to be effective, must be received by the Administrative
Agent not later than 1:00 p.m., Boston time, on the second Business Day
preceding the date of any refinancing), (x) to refinance any outstanding
Borrowing or Borrowings of Tranche A Loans of one Type (or a portion thereof)
with a Borrowing of Tranche A Loans of the other Type or (y) to continue an
outstanding Borrowing of Eurodollar Loans for an additional Interest Period,
subject to the following:
35
<PAGE>
(a) no Borrowing of Tranche A Loans may be refinanced into, or
continued as, Eurodollar Loans at any time when an Event of Default has
occurred and is continuing;
(b) if less than a full Borrowing of Tranche A Loans is refinanced,
such refinancing shall be made pro rata among the Tranche A Lenders, as
--- ----
applicable, in accordance with the respective principal amounts of the
Tranche A Loans comprising such Borrowing held by such Tranche A Lenders
immediately prior to such refinancing;
(c) the aggregate principal amount of Tranche A Loans being refinanced
into or continued as Eurodollar Loans shall be at least $1,000,000;
(d) each Tranche A Lender shall effect each refinancing by applying
the proceeds of its new Eurodollar Loan or ABR Loan, as the case may be, to
its Tranche A Loan being refinanced;
(e) the Interest Period with respect to a Borrowing of Eurodollar
Loans effected by a refinancing or in respect to the Borrowing of
Eurodollar Loans being continued as Eurodollar Loans shall commence on the
date of refinancing or the expiration of the current Interest Period
applicable to such continuing Borrowing, as the case may be;
(f) a Borrowing of Eurodollar Loans may be refinanced only on the last
day of an Interest Period applicable thereto;
(g) each request for a refinancing with a Borrowing of Eurodollar
Loans which fails to state an applicable Interest Period shall be deemed to
be a request for an Interest Period of one month; and
(h) no more than five Borrowings of Eurodollar Loans may be
outstanding at any time.
If the Borrower does not give notice to refinance any Borrowing of Eurodollar
Loans, or does not give notice to continue, or does not have the right to
continue, any Borrowing as Eurodollar Loans, in each case as provided above,
such Borrowing shall automatically be refinanced with a Borrowing of ABR Loans
at the expiration of the then-current Interest Period. The Administrative Agent
shall, after it receives notice from the Borrower, promptly give each Tranche A
Lender notice of any refinancing, in whole or part, of any Tranche A Loan made
by such Tranche A Lender.
SECTION 2.10. MANDATORY PREPAYMENT; COMMITMENT TERMINATION; CASH
--------------------------------------------------
COLLATERAL. The outstanding Obligations shall be subject to mandatory
- ----------
prepayment as follows:
(a) If at any time the amount of the Tranche A Credit Extensions
exceeds the lower of (i) the then amount of the Tranche A Commitments and
(ii) the then amount of
36
<PAGE>
the Borrowing Base, plus the cash held in the Cash Collateral Account
----
pursuant to Sections 2.02 and 2.14, the Borrower will within one Business
Day (A) prepay the Tranche A Loans in an amount necessary to eliminate such
excess and (B) if, after giving effect to the prepayment in full of all
outstanding Tranche A Loans such excess has not been eliminated, deposit
cash into the Cash Collateral Account in an amount equal to 105% of the
remaining amount of such excess.
(b) If at any time the amount of the Tranche B Loans outstanding
exceeds the lower of (i) the then amount of the Tranche B Commitments and
(ii) the then amount of the Tranche B Borrowing Base, the Borrower will
within one Business Day (A) prepay the Tranche A Loans in an amount
necessary to eliminate such excess, (B) if, after giving effect to the
prepayment in full of all outstanding Tranche A Loans such excess has not
been eliminated, prepay the Tranche B Loans in an amount necessary to
eliminate such excess and (C) if, after giving effect to the prepayment in
full of all outstanding Tranche A Loans and Tranche B Loans such excess has
not been eliminated, deposit cash into the Cash Collateral Account in an
amount equal to 105% of the remaining amount of such excess.
(c) Upon the Termination Date, the credit facility provided hereunder
shall be terminated in full and the Borrower shall pay, in full and in
cash, all outstanding Loans and all other outstanding Obligations, except
that if any Letter of Credit then remains outstanding, the Borrower shall
with respect to outstanding Letters of Credit comply with the provisions of
Section 2.02(b) with respect thereto.
SECTION 2.11. OPTIONAL PREPAYMENT OF LOANS; REIMBURSEMENT OF LENDERS.
------------------------------------------------------
(a) The Borrower shall have the right at any time and from time to
time to prepay outstanding Loans in whole or in part, (x) with respect to
Eurodollar Loans, upon at least two Business Days' prior written, telex or
facsimile notice to the Administrative Agent prior to 1:00 p.m., Boston time,
and (y) with respect to ABR Loans and Prime Plus Loans, on the same Business Day
if written, telex or facsimile notice is received by the Administrative Agent
prior to 3:00 p.m., Boston time, subject to the following limitations:
(1) Subject to Section 2.07(b), all prepayments shall be paid to
the Administrative Agent for application, first, to the prepayment of
-----
outstanding Agent Advances, second, to the prepayment of outstanding
------
Tranche A Loans ratably in accordance with each Tranche A Lender's Tranche
A Commitment Percentage, third, to the funding of a cash collateral deposit
-----
in the Cash Collateral Account in an amount equal to 105% of all Letter of
Credit Outstandings and fourth, to the prepayment of outstanding Tranche B
------
Loans ratably in accordance with each Tranche B Lender's Tranche B
Commitment Percentage.
(2) Subject to the foregoing, outstanding ABR Loans shall be
prepaid before outstanding Eurodollar Loans are prepaid. Each partial
prepayment of Eurodollar
37
<PAGE>
Loans shall be in an integral multiple of $1,000,000. No prepayment of
Eurodollar Loans shall be permitted pursuant to this Section 2.11(a) other
than on the last day of an Interest Period applicable thereto, unless the
Borrower simultaneously reimburses the Tranche A Lenders for all "Breakage
Costs" (as defined below) associated therewith. No partial prepayment of a
Borrowing of Eurodollar Loans shall result in the aggregate principal
amount of the Eurodollar Loans remaining outstanding pursuant to such
Borrowing being less than $1,000,000.
(3) Each notice of prepayment shall specify the prepayment date,
the principal amount and Type of the Loans to be prepaid and, in the case
of Eurodollar Loans, the Borrowing or Borrowings pursuant to which such
Loans were made. Each notice of prepayment shall be irrevocable and shall
commit the Borrower to prepay such Loan by the amount and on the date
stated therein. The Administrative Agent shall, promptly after receiving
notice from the Borrower hereunder, notify each Lender of the principal
amount and Type of the Loans held by such Lender which are to be prepaid,
the prepayment date and the manner of application of the prepayment.
(b) The Borrower shall reimburse each Tranche A Lender on demand for
any loss incurred or to be incurred by it in the reemployment of the funds
released (i) resulting from any prepayment (for any reason whatsoever,
including, without limitation, refinancing with ABR Loans) of any Eurodollar
Loan required or permitted under this Agreement, if such Tranche A Loan is
prepaid other than on the last day of the Interest Period for such Tranche A
Loan or (ii) in the event that after the Borrower delivers a notice of borrowing
under Section 2.03 in respect of Eurodollar Loans, such Tranche A Loans are not
made on the first day of the Interest Period specified in such notice of
borrowing for any reason other than a breach by such Tranche A Lender of its
obligations hereunder. Such loss shall be the amount as reasonably determined
by such Tranche A Lender as the excess, if any, of (A) the amount of interest
which would have accrued to such Tranche A Lender on the amount so paid or not
borrowed at a rate of interest equal to the Adjusted LIBOR Rate for such Tranche
A Loan, for the period from the date of such payment or failure to borrow to the
last day (x) in the case of a payment or refinancing with ABR Loans other than
on the last day of the Interest Period for such Tranche A Loan, of the then
current Interest Period for such Tranche A Loan or (y) in the case of such
failure to borrow, of the Interest Period for such Tranche A Loan which would
have commenced on the date of such failure to borrow, over (B) the amount of
interest which would have accrued to such Tranche A Lender on such amount by
placing such amount on deposit for a comparable period with leading banks in the
London interbank market (collectively, "Breakage Costs"). Any Tranche A Lender
--------------
demanding reimbursement for such loss shall deliver to the Borrower from time to
time one or more certificates setting forth the amount of such loss as
determined by such Tranche A Lender.
(c) In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.11(a), the
Borrower on demand by any Lender shall pay to the Administrative Agent for the
account of such Lender any amounts required to compensate such Lender for any
loss incurred by such Lender as a result of such failure to prepay, including,
without limitation, any loss, cost or expenses incurred by reason of
38
<PAGE>
the acquisition of deposits or other funds by such Lender to fulfill deposit
obligations incurred in anticipation of such prepayment. Any Lender demanding
such payment shall deliver to the Borrower from time to time one or more
certificates setting forth the amount of such loss as determined by such Lender.
(d) Whenever any partial prepayment of Loans are to be applied to
Eurodollar Loans, such Eurodollar Loans shall be prepaid in the chronological
order of their Interest Payment Dates.
SECTION 2.12. MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF ACCOUNT.
--------------------------------------------------
(a) The Administrative Agent shall maintain an account on its books in
the name of the Borrower (the "Loan Account") in which the Borrower will be
------------
charged with (i) all Agent Advances and all loans and advances made by the
Lenders to the Borrower or for the Borrower's account, including the Loans, (ii)
all Letter of Credit reimbursement obligations, Fees and interest that have
become payable as herein set forth, and (iii) if an Event of Default or an Event
of Super-Default has occurred and is continuing, any and all other Obligations
that have become payable. The charging of any Obligations to the Loan Account
shall not excuse the Borrower from paying such Obligations in cash when due and
shall not cure or waive any Default, Event of Default or Event of Super-Default
that may have resulted from non-payment thereof or any right or remedy
consequent thereon.
(b) The Loan Account will be credited with all amounts received by the
Administrative Agent from the Borrower or from others for the Borrower's
account, including all amounts received in the BBNA Concentration Account from
the Blocked Account Banks, and the amounts so credited shall be applied as set
forth in Sections 2.14(a) and (b). In no event shall prior recourse to any
deposit or other accounts, or any other assets, be a prerequisite to the
Administrative Agent's right to demand payment of any Obligation upon its
maturity. Further, the Administrative Agent shall have no obligation whatsoever
to perform in any respect any of the Borrower's contracts or obligations
relating to any of such accounts. After the end of each month, the
Administrative Agent shall send to the Borrower a statement accounting for the
charges, loans, advances and other transactions occurring among and between the
Administrative Agent, the Lenders and the Borrower during that month. The
monthly statements shall, absent manifest error, be an account stated, which is
final, conclusive and binding on the Borrower.
SECTION 2.13. CASH RECEIPTS.
-------------
(a) On or prior to the Closing Date, the Borrower and the
Administrative Agent shall have entered into agency agreements with the banks
maintaining the deposit accounts identified on Schedule 3.11(b) (collectively,
the "Blocked Accounts"), which agreements (the "Blocked Account Agreements")
---------------- --------------------------
shall be in form and substance satisfactory to the Administrative Agent and
shall require, with respect to the deposit accounts identified on Schedule
3.11(b) as "depository accounts", the sweep on each Business Day (in accordance
with the Borrower's customary cash deposit procedures outlined in Schedule
2.13(a) (as such
39
<PAGE>
procedures may be amended from time to time with the consent of the
Administrative Agent)) of all available cash receipts from the sale of Inventory
and other assets, all collections of Receivables and other accounts, and all
other cash payments received by the Borrower or any other Credit Party from any
Person or from any source or on account of any sale or other transaction or
event, except only the proceeds of the Loans (all such non-excluded cash
receipts and collections, "Cash Receipts"), from Blocked Accounts to a
-------------
concentration account maintained by the Collateral Agent at BBNA (the "BBNA
----
Concentration Account"). All Cash Receipts shall be deposited into a Blocked
- ---------------------
Account or the BBNA Concentration Account in accordance with the Borrower's
customary cash deposit procedures outlined in Schedule 2.13(a). The Borrower
shall accurately report to the Administrative Agent all amounts deposited in the
Blocked Accounts to ensure the proper transfer of funds as set forth above. If
at any time other than the times set forth above any cash or cash equivalents
owned by the Borrower or any other Credit Party are deposited to any account, or
held or invested in any manner, otherwise than in a Blocked Account that is
subject to a Blocked Account Agreement, the Administrative Agent may require the
Borrower to close such Blocked Account and have all funds therein transferred to
an account maintained by the Administrative Agent at BBNA and all future
deposits made to a Blocked Account which is subject to a Blocked Account
Agreement.
(b) The Borrower may request that the Administrative Agent close
Blocked Accounts and/or open new Blocked Accounts (or, in either case, permit
the Borrower to do so), subject to the execution and delivery to the
Administrative Agent of appropriate Blocked Account Agreements (unless expressly
waived by the Administrative Agent) consistent with the provisions of this
Section 2.13 and otherwise satisfactory to the Administrative Agent. Unless
consented to in writing by the Administrative Agent, the Borrower and the other
Credit Parties may not maintain any bank accounts other than the ones expressly
contemplated herein.
(c) Notwithstanding anything contained herein to the contrary, so long
as no default or event of default has occurred and is continuing under the
Existing Credit Facility on the Closing Date, and all Obligations under the
Existing Credit Facility have been paid in full, the Borrower may utilize up to
$25,000,000 in proceeds, if any, remaining in the Tax Refund Account (as defined
in the Existing Credit Facility) and from the Specified Location Sales (as
defined in the Existing Credit Facility) (collectively, the "Escrow Proceeds"),
---------------
other than the Yonkers Location Sale (as defined in the Existing Credit
Facility) to pay on or after the Closing Date any costs directly associated with
or claims payable under the Confirmed Plan; provided that such funds are held in
--------
a segregated account at BBNA and subject to the Lien of the Collateral Agent
until such application.
(d) The Borrower may also maintain with the Administrative Agent at
BBNA one or more disbursement accounts with a balance at any time not in excess
of the amounts set forth on Schedule 2.13(a) (the "BBNA Disbursement Accounts")
--------------------------
to be used by the Borrower for disbursements and payments (including payroll) in
the ordinary course of business or as otherwise permitted hereunder; provided
--------
that, upon the occurrence and during the continuance of an Event of Default or
an Event of Super-Default, all amounts in such accounts may be swept by
40
<PAGE>
the Administrative Agent into the BBNA Cash Concentration Account for
application in accordance with Sections 2.14(a) and (b).
(e) Notwithstanding the foregoing, the Borrower may maintain the bank
accounts identified on Schedule 3.11(b) as "coin orders accounts" (the "Coin
Orders Accounts") from which the Borrower shall be permitted (so long as no
Default, Event of Default or Event of Super-Default has occurred and is
continuing) to make cash withdrawals in accordance with its customary procedures
as set forth on Schedule 2.13(e) in effect on the date hereof to fund the
ordinary-course cash operating needs of its stores (such as change for registers
and funds to cash employees' paychecks (otherwise commonly referred to as "coin
orders")), provided that all such withdrawals are replaced in accordance with
the Borrower's customary practices. Each Coin Orders Account (i) shall be
subject to a blocked account agreement in form and substance satisfactory to the
Administrative Agent which shall provide that any amounts in each such account
in excess of the amounts set forth on Schedule 3.11(b) shall be transferred on
each Business Day to the BBNA Concentration Account and (ii) may be funded with
proceeds of Loans otherwise permitted to be made hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, the
Borrower's failure to comply with the cash deposit and sweep requirements set
forth in Section 2.13(a) due directly to earthquake, landslide, hurricane,
tornado, fire, flood, material disruption in armored car service, blizzard, act
of God or the public enemy, act of war, public disorder, rebellion, sabotage,
revolution, epidemic, riot or quarantine shall not be an Event of Default or an
Event of Super-Default hereunder unless such failure continues for 3 days.
SECTION 2.14. APPLICATION OF PAYMENTS.
-----------------------
(a) All amounts received in the BBNA Concentration Account from any
source, including the Blocked Account Banks shall be credited to the Loan
Account (effective as of the Business Day as of which the Administrative Agent
determines in good faith that it has received, prior to 2:00 p.m., Boston time,
immediately available funds therefor) and such credits shall be applied in the
following order: first, to pay interest due and payable on Credit Extensions and
-----
to pay Fees and expense reimbursements and indemnification then due and payable
to the Administrative Agent, BRS, the Issuing Bank, the Collateral Agent, the
Tranche B Agent, the Co-Agents and the Lenders; second to repay outstanding
-------
Agent Advances; third, to repay outstanding Tranche A Loans that are ABR Loans
-----
and all outstanding reimbursement obligations for Letters of Credit; fourth, to
------
repay outstanding Tranche A Loans that are Eurodollar Loans and all LIBOR
breakage losses due in respect of such repayment pursuant to Section 2.11(b) or,
at the Borrower's option (if no Default or Event of Default has occurred and is
then continuing), to fund a cash collateral deposit to the Cash Collateral
Account sufficient to pay, and with direction to pay, all such outstanding
Eurodollar Loans on the last day of the then-pending Interest Period therefor;
fifth if any Default or Event of Default has occurred and is continuing, to fund
- -----
a cash collateral deposit in the Cash Collateral Account in an amount equal to
105% of the aggregate maximum amount that then is or at any time may become
available for drawing or payment under all outstanding Letters of Credit;
provided, however, that if such Default or Event of
- -------- -------
41
<PAGE>
Default shall be waived pursuant to the terms hereof, such cash collateral shall
be released and applied pursuant to clauses sixth and seventh below or pursuant
----- -------
to Section 2.14(b), as the case may be; sixth, if all outstanding Tranche A
-----
Credit Extensions have been repaid or secured by cash collateral deposits as set
forth above, to repay outstanding Tranche B Loans; and seventh, to pay all other
-------
Obligations that are then outstanding and payable. Any other amounts received by
the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, the Co-Agents or any Lender as contemplated by Section 2.17 shall also be
applied in the order set forth above in this Section 2.14(a).
(b) Any amounts received in the BBNA Concentration Account at any
time when all of the applications set forth in Section 2.14(a) have been and
remain fully funded shall be remitted to the Borrower, if and as the Borrower
may request.
(c) If any item deposited to the BBNA Concentration Account and
credited to the Loan Account is dishonored or returned unpaid for any reason,
whether or not such return is rightful or timely, the Administrative Agent shall
have the right to reverse such credit and charge the amount of such item to the
Loan Account and the Borrower shall indemnify the Administrative Agent, the
Collateral Agent, the Issuing Bank, the Tranche B Agent, the Co-Agents and the
Lenders against all claims and losses resulting from such dishonor or return.
SECTION 2.15. INCREASED COSTS.
---------------
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Loan made by such Lender or any fees or
other amounts payable hereunder (other than changes in respect of Taxes, Other
Taxes and taxes imposed on, or measured by, the net income or overall gross
receipts (in lieu of net income) or franchise taxes of such Lender by the
jurisdiction in which such Lender has its principal office or by any political
subdivision or taxing authority therein), or shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by such Lender
(except any such reserve requirement which is reflected in the Adjusted LIBOR
Rate) or shall impose on such Lender or the London interbank market any other
condition affecting this Agreement or the Eurodollar Loans made by such Lender,
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or to reduce the amount of
any sum received or receivable by such Lender hereunder or under the Notes
(whether of principal, interest or otherwise) by an amount deemed by such Lender
to be material, then the Borrower will pay to such Lender in accordance with
paragraph (c) below such additional amount or amounts as will compensate such
Lender for such additional costs incurred or reduction suffered.
(b) If any Lender shall have determined that the applicability of any
law, rule, regulation or guideline adopted pursuant to or arising out of the
July 1988 report of the Basle
42
<PAGE>
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or the
adoption or effectiveness after the date hereof of any law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the interpretation or administration of any of the foregoing by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
Lending office of such Lender) or any Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such Lender's holding company, if any, as a consequence of this Agreement,
the Loans made by such Lender pursuant hereto, such Lender's Commitment
hereunder or the issuance of, or participation in, any Letter of Credit by such
Lender to a level below that which such Lender or such Lender's holding company
could have achieved but for such adoption, change or compliance (taking into
account such Lender's policies and the policies of such Lender's holding company
with respect to capital adequacy) by an amount deemed by such Lender to be
material, then from time to time the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender or such Lender's
holding company of any such reduction suffered.
(c) A certificate of each Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company as
specified in paragraph (a) or (b) above, as the case may be, shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay each Lender the amount shown as due on any such certificate delivered
to it within 10 days after its receipt of the same. Any Lender receiving any
such payment shall promptly make a refund thereof to the Borrower if the law,
regulation, guideline or change in circumstances giving rise to such payment is
subsequently deemed or held to be invalid or inapplicable.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to such period or any
other period. The protection of this Section 2.15 shall be available to each
Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition which shall have occurred or been imposed.
SECTION 2.16. CHANGE IN LEGALITY.
------------------
(a) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, if (x) any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful for a Lender to make or maintain a
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to a Eurodollar Loan or (y) at any time any Lender determines that the
making or continuance of any of its Eurodollar Loans has become impracticable as
a result of a
43
<PAGE>
contingency occurring after the date hereof which adversely affects the London
interbank market or the position of such Lender in the London interbank market,
then, by written notice to the Borrower, such Lender may (i) declare that
Eurodollar Loans will not thereafter be made by such Lender hereunder, whereupon
any request by the Borrower for a Eurodollar Borrowing shall, as to such Lender
only, be deemed a request for an ABR Loan unless such declaration shall be
subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date of such
notice as provided in paragraph (b) below. In the event any Lender shall
exercise its rights under clause (i) or (ii) of this paragraph (a), all payments
and prepayments of principal which would otherwise have been applied to repay
the Eurodollar Loans that would have been made by such Lender or the converted
Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans
made by such Lender in lieu of, or resulting from the conversion of, such
Eurodollar Loans.
(b) For purposes of this Section 2.16, a notice to the Borrower by
any Lender pursuant to paragraph (a) above shall be effective, if lawful, and if
any Eurodollar Loans shall then be outstanding, on the last day of the then-
current Interest Period; and otherwise such notice shall be effective on the
date of receipt by the Borrower.
SECTION 2.17. PAYMENTS; NO SETOFF. (a) All payments received by the
-------------------
Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, the Co-Agents or any Lender for application to or on account of any of
the Obligations, whether received as a deposit to the BBNA Concentration Account
or as a payment made by the Borrower or any other Credit Party or from the
enforcement of the Liens of the Collateral Agent on any property of the Borrower
or any other Credit Party shall be applied in the order of priority set forth in
Section 2.14(a) and shall be applied ratably to the payment of all outstanding
Obligations within each category (first through seventh) set forth therein. All
----- -------
payments by the Borrower or any other Credit Party under this Agreement and
under the Notes shall be (i) net of any tax applicable to the Borrower or
Guarantor and (ii) made in Dollars in immediately available funds at the office
of the Administrative Agent by 2:00 p.m., Boston time, on the date on which such
payment shall be due. Interest in respect of any Loan hereunder shall accrue
from and including the date of such Loan to but excluding the date on which such
Loan is paid in full or converted to a Loan of a different Type.
(b) All payments by the Borrower hereunder to or for the benefit of
any Lender, the Issuing Bank, the Collateral Agent, the Tranche B Agent or the
Administrative Agent shall be made without setoff, counterclaim or other
defense.
SECTION 2.18. TAXES.
-----
(a) Any and all payments by the Borrower or any other Credit Party
hereunder and under the Notes and the other Loan Documents shall be made free
and clear of and without deduction or withholding for any and all current or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding (i) taxes imposed on or
---------
44
<PAGE>
measured by the net income or overall gross receipts (if the overall gross
receipts are used in lieu of net income of the Administrative Agent, the
Collateral Agent, the Tranche B Agent or any Lender (or any transferee or
assignee thereof, including a participation holder (any such entity being called
a "Transferee")) and franchise taxes imposed on the Administrative Agent, the
----------
Collateral Agent, the Tranche B Agent or any Lender (or Transferee), in each
instance if and to the extent imposed by the jurisdiction under the laws of
which the Administrative Agent, the Collateral Agent, the Tranche B Agent or any
such Lender (or Transferee) is organized or any political subdivision thereof
or, in the case of each Lender (or a Transferee), by the jurisdiction in which
its leading office with respect to the Loans is located or by any political
subdivision or taxing authority therein and (ii) taxes, levies, imposts,
deductions, charges or withholdings ("Amounts") that apply to payments hereunder
or under the Notes to a Lender (or Transferee) in accordance with laws in effect
on the later of the date of this Agreement and the date such Lender (or
Transferee) becomes a Lender (or Transferee, as the case may be), but not
excluding, with respect to such Lender (or Transferee), any increase in such
Amounts solely as a result of any change in such laws occurring after such later
date or any Amounts that would not have been imposed but for actions (other than
actions contemplated by this Agreement or the Notes) taken by the Borrower after
such later date (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrower or any other Credit Party shall be required by law to deduct or
withhold any Taxes from or in respect of any sum payable hereunder to the
Lenders (or any Transferee), the Collateral Agent, the Tranche B Agent or the
Administrative Agent, (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions or withholding (including
deductions or withholding applicable to additional sums payable under this
Section 2.18) such Lender (or Transferee), the Collateral Agent, the Tranche B
Agent or the Administrative Agent (as the case may be) shall receive an amount
equal to the sum it would have received had no such deductions or withholding
been made, (ii) the Borrower shall make such deductions or withholding and (iii)
the Borrower shall pay the full amount deducted or withheld to the relevant
taxing authority or other Governmental Authority in accordance with applicable
law.
(b) In addition, the Borrower agrees to pay to the relevant
Governmental Authority in accordance with applicable laws any current or future
stamp or documentary taxes or any other excise or property taxes, charges,
assessments or similar levies that arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
-----------
(c) The Borrower will indemnify each Lender (or Transferee), the
Collateral Agent, the Tranche B Agent and the Administrative Agent for the full
amount of Taxes and Other Taxes paid by such Lender (or Transferee), the
Collateral Agent, the Tranche B Agent or the Administrative Agent, as the case
may be, and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted by the relevant taxing authority or other
Governmental Authority. A certificate as to the amount of such payment or
liability prepared by a Lender (or Transferee), the Collateral Agent, the
Tranche B Agent or the Administrative Agent, as
45
<PAGE>
applicable, absent manifest error, shall be final, conclusive and binding for
all purposes. Such indemnification shall be made within 30 days after the date
any Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the
Administrative Agent, as the case may be, makes written demand therefor. If any
Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the
Administrative Agent receives a refund in respect of any Taxes or Other Taxes as
to which it has been indemnified by the Borrower pursuant to this Section 2.18,
it shall within 30 days after receipt of such refund, repay such refund to the
Borrower to the extent such refund is, in the Borrower's sole judgment,
attributable to amounts that have been paid by the Borrower under this Section
2.18 with respect to the Taxes or Other Taxes that give rise to such refund, net
of all out-of-pocket expenses of such Lender (or Transferee). Collateral Agent,
Tranche B Agent or Administrative Agent and with any interest thereon that is
received by the Lender (or Transferee), the Collateral Agent, the Tranche B
Agent or the Administrative Agent as part of the refund; provided that the
--------
Borrower, upon the request of such Lender (or Transferee), the Collateral Agent,
the Tranche B Agent or the Administrative Agent agrees to return such refund
(plus penalties, interest or other charges) to such Lender (or Transferee), the
Collateral Agent, the Tranche B Agent or the Administrative Agent in the event
such Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the
Administrative Agent is required to repay such refund and such additions thereto
to the relevant Governmental Authority. Nothing contained in this Section 2.18
shall require any Lender (or Transferee), the Collateral Agent, the Tranche B
Agent or the Administrative Agent to make available to the Borrower any of its
tax returns (or any other information relating to its taxes that it deems to be
confidential).
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes by the Borrower to the relevant Governmental Authority, the Borrower will
furnish to the Administrative Agent, at its address referred to on the signature
pages hereof, the original or a certified copy of a receipt issued by the
Governmental Authority evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.18
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall, if legally able to do so, deliver to the
---------------
Borrower such certificates, documents or other evidence, as required by the Code
or Treasury Regulations issued pursuant thereto in order to be entitled to an
exemption from or a reduction in United States withholding taxes, including
without limitation (A) in the case of a Non-U.S. Lender claiming exemption from
United States Federal withholding tax under Code Section 871(h) or 881(c) with
respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto, together with a certificate representing
that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the
Code, is not a 10-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign
corporation related to the Borrower (within the meaning of Section 864(d)(4) of
the Code) or (B) Internal Revenue Service Form 4224 or any subsequent version
thereof or successor thereto, establishing
46
<PAGE>
that such payment is not subject to United States Federal withholding tax under
the Code because such payment is effectively connected with the conduct by such
Lender (or Transferee) of a trade or business in the United States or (C)
Internal Revenue Service Form 1001 or any subsequent version thereof or
successor thereto, establishing that such payment is totally exempt from United
States Federal withholding tax or subject to a reduced rate of such tax under a
provision of an applicable tax treaty. Unless the Borrower and the
Administrative Agent have received forms or other documents satisfactory to them
indicating that such payments hereunder or under the Notes are not subject to
United States Federal withholding tax or are subject to such tax at a rate
reduced by an applicable tax treaty, the Borrower or the Administrative Agent
shall withhold taxes from such payments at the applicable statutory rate. Such
forms and certifications shall be delivered by each Non-U.S. Lender claiming an
exemption from or reduction in applicable United States Federal withholding tax
(i) on or before the date it becomes a party to this Agreement or, in the case
of a Transferee, on or before the date it becomes a Transferee, and (ii)
promptly upon the obsolescence or invalidity of any form so delivered by such
Non-U.S. Lender.
(g) The Borrower shall not be required to pay any additional amounts
to any Lender (or Transferee) in respect of United States Federal withholding
tax pursuant to Section 2.18(a) if the obligation to pay such additional amounts
would not have arisen but for a failure by such Lender (or Transferee) to comply
with the provisions of Section 2.18(f).
(h) Any Lender (or Transferee) claiming any additional amounts
payable pursuant to this Section 2.18 shall use reasonable efforts (consistent
with legal and regulatory restrictions) to file any certificate or document
requested by the Borrower or to change the jurisdiction of its applicable
lending office if the making of such a filing or change would avoid the need for
or reduce the amount of any such additional amounts that may thereafter accrue
and would not, in the sole reasonable determination of such Lender or
Transferee, be otherwise onerous to such Lender (or Transferee).
SECTION 2.19. CERTAIN FEES. The Borrower shall pay to the Administrative
------------
Agent for the account of the Administrative Agent or BBNA, as applicable, the
fees set forth in the Tranche A Fee Letter as and when payment of such fees is
due as therein set forth. The Borrower shall pay to the Tranche B Agent, for the
account of the Tranche B Agent or BBNA, as applicable, the fees set forth in the
Tranche B Fee Letter, as and when payment of such fees is due as therein set
forth. The Borrower hereby ratifies and affirms, and agrees that it is legally
obligated to perform, all of the obligations of Bradlees Stores, Inc., as debtor
and debtor-in-possession, under the Fee Letters.
SECTION 2.20. UNUSED COMMITMENT FEE. The Borrower shall pay to the
---------------------
Administrative Agent for the account of the Tranche A Lenders, based upon their
pro rata share of the Tranche A Credit Extensions, a commitment fee (the
- --- ----
"Commitment Fee") computed by applying 0.30% per annum (on the basis of actual
--------------
days elapsed in a year of 360 days) to the average daily balance of the Unused
Tranche A Commitment for each day commencing on and including the Closing Date
and ending on but excluding the Termination Date; provided that, after the
--------
first anniversary of the Closing Date, if the Borrower's Interest Coverage Ratio
as
47
<PAGE>
measured at the end of any fiscal quarter is greater than or equal to 2.5:1,
then the Commitment Fee during the following fiscal quarter shall be computed by
applying 0.25% per annum (on the basis of actual days elapsed in a year of 360
days) to the average daily balance of the Unused Tranche A Commitment for each
day during such fiscal quarter. Except as otherwise provided herein, the
Commitment Fee so accrued in any calendar month shall be payable on the first
Business Day of the immediately succeeding calendar month, except that all
Commitment Fees so accrued as of the Termination Date shall be payable on the
Termination Date.
SECTION 2.21. LETTER OF CREDIT FEES. The Borrower shall pay to the
---------------------
Administrative Agent for the account of the Tranche A Lenders a letter of credit
fee (the "Letter of Credit Fee") computed by applying 1.50% per annum (on the
--------------------
basis of actual days elapsed in a year of 360 days) to the average daily balance
of the maximum amount that at any time is available for drawing or payment under
any and all outstanding Letters of Credit; provided that, after the first
--------
anniversary of the Closing Date, if the Borrower's Interest Coverage Ratio as
measured at the end of a fiscal quarter is greater than or equal to 2.5:1, then
the Letter of Credit Fee for each Letter of Credit outstanding during the
following fiscal quarter shall be computed by applying 1.25% per annum (on the
basis of actual days elapsed in a year of 360 days) to the average daily balance
of the maximum amount that at any time is available for drawing or payment under
any and all such Outstanding Letters of Credit. The Letter of Credit Fee so
accrued in any calendar month shall be payable on the first Business Day of the
immediately succeeding calendar month, except that all Letter of Credit Fees so
accrued as of the Termination Date shall be payable on the Termination Date.
SECTION 2.22. NATURE OF FEES. All Fees shall be paid on the dates due, in
--------------
immediately available funds, to the Administrative Agent for the respective
accounts of the Administrative Agent, the Issuing Bank, the Collateral Agent,
the Tranche B Agent and the Lenders, as provided herein and in the Fee Letters.
Once paid, all fees shall be fully-earned and shall not be refundable under any
circumstances.
SECTION 2.23. SECURITY INTEREST IN COLLATERAL. To secure their Obligations
-------------------------------
under this Agreement and the other Loan Documents, the Borrower and each
Guarantor shall grant to the Collateral Agent, for its benefit and the ratable
benefit of the other Secured Parties, a first-priority security interest in all
of the Collateral pursuant hereto and to the Security Documents.
SECTION 2.24. RIGHT OF SET-OFF.
----------------
(a) Subject to the provisions of Article VII, upon the occurrence and
during the continuance of any Event of Default, the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, each Co-Agent and each
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Administrative Agent, the Issuing Bank,
the Collateral Agent, the Tranche B Agent, the Co-Agents and each such Lender to
or for the credit or the account of the Borrower or any Guarantor against any
and all of the obligations of such
48
<PAGE>
Borrower or Guarantor now or hereafter existing under the Loan Documents,
irrespective of whether or not such Lender shall have made any demand under any
Loan Document and although such obligations may be unmatured. The rights of each
Lender, the Issuing Bank, the Collateral Agent, the Tranche B Agent, each Co-
Agent and the Administrative Agent under this Section are in addition to other
rights and remedies which such Lender, the Issuing Bank, the Collateral Agent,
the Tranche B Agent, such Co-Agent and the Administrative Agent may have upon
the occurrence and during the continuance of any Event of Default.
(b) The provisions of Section 2.24(a) shall not qualify or limit the
provisions of Sections 2.13 and 2.14.
SECTION 2.25. SECURITY INTEREST IN BANK ACCOUNTS. The Borrower and the
----------------------------------
Guarantors hereby assign and pledge to the Administrative Agent, for its benefit
and for the ratable benefit of the other Secured Parties, and hereby grant to
the Administrative Agent, for its benefit and for the ratable benefit of the
other Secured Parties, a first priority security interest, senior to all other
Liens, if any, in all of the Borrower's and the Guarantors' right, title and
interest in and to the Cash Collateral Account, the Loan Account, the BBNA
Disbursement Accounts, the BBNA Concentration Account, any and all Blocked
Accounts and all other deposit accounts, and all cash, checks, money orders,
Permitted Investments and other cash equivalents of every type and description
and all other items of value now or hereafter contained therein or in transit
thereto, and any direct investment of the funds contained therein. The
Administrative Agent shall have sole dominion and control over all such
accounts.
SECTION 2.26. PAYMENT OF OBLIGATIONS. Upon the maturity (whether by
----------------------
acceleration or otherwise) of any Loans, Letter of Credit reimbursement
obligations or any other Obligations, the Lenders shall be entitled to immediate
payment of such Loans, reimbursement obligations, liabilities and other
Obligations.
III. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to make Loans and participate in Letters of
Credit and the Issuing Bank to issue Letters of Credit, the Borrower and each of
the other Credit Parties jointly and severally represent and warrant as follows:
SECTION 3.01. ORGANIZATION AND AUTHORITY. Each of the Borrower and the
--------------------------
other Credit Parties (i) is a corporation duly organized and validly existing
under the laws of the State of its incorporation and is duly qualified as a
foreign corporation and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on the financial
condition, operations, business, properties or assets of the Borrower and the
other Credit Parties taken as a whole; (ii) has the requisite corporate power
and authority to effect the transactions contemplated hereby, and by the other
Loan Documents, and (iii) has all requisite corporate power and authority and
the legal right to own, pledge, mortgage and operate its properties, and to
conduct its business as now or currently proposed to be conducted. Schedule
49
<PAGE>
3.01 lists all jurisdictions in which the Borrower and the other Credit Parties
are qualified to do business as of the Closing Date.
SECTION 3.02. DUE EXECUTION. The execution, delivery and performance by
-------------
each of the Borrower and the other Credit Parties of each of the Loan Documents
to which it is a party (including, without limitation, the borrowing of Loans
under this Agreement and the use of the proceeds thereof) (i) are within the
respective corporate powers of each of the Borrower and the Guarantors, have
been duly authorized by all necessary corporate action, including the consent of
shareholders where required, and do not (and will not) (A) contravene the
charter or by-laws of any of the Borrower or the other Credit Parties, (B)
violate any law (including, without limitation, the Securities Exchange Act of
1934, as amended) or regulation (including, without limitation, Regulations T, U
or X of the Board), or any order or decree of any court or governmental
instrumentality, (C) conflict with or result in a breach of, or constitute a
default under, any material indenture, mortgage or deed of trust or any material
lease, agreement or other instrument binding on the Borrower or the other Credit
Parties or any of their properties, or (D) result in or require the creation or
imposition of any Lien upon any of the property of any of the Borrower or the
other Credit Parties, other than the Liens granted pursuant to this Agreement;
and do not require the consent, authorization by or approval of or notice to or
filing or registration with any Governmental Authority or any other Person. This
Agreement has been duly executed and delivered by each of the Borrower and the
Guarantors. This Agreement is, and each of the other Loan Documents to which the
Borrower and each of the other Credit Parties is or will be a party, when
delivered hereunder or thereunder, will be, a legal, valid and binding
obligation of the Borrower and each other Credit Party, as the case may be,
enforceable against the Borrower and the other Credit Parties, as the case may
be, in accordance with its terms.
SECTION 3.03. STATEMENTS MADE. The statements, written or oral, which have
---------------
been made by the Borrower or any of the other Credit Parties to the
Administrative Agent or to the Bankruptcy Court in connection with any Loan
Document, and any financial statement delivered pursuant hereto or thereto
(other than to the extent that any such statements constitute projections),
taken as a whole and in light of the circumstances in which made, contain no
untrue statement of a material fact and do not omit to state a material fact
necessary to make such statements not misleading; and, to the extent that any
such written statements constitute projections, such projections were prepared
in good faith on the basis of assumptions, methods, data, tests and information
believed by the Borrower or such other Credit Party to be valid and accurate at
the time such projections were furnished to the Lenders.
SECTION 3.04. OWNERSHIP. The Borrower is a wholly-owned Subsidiary of BI
---------
and Yonkers is a wholly-owned subsidiary of the Borrower. The Borrower has no
direct or indirect Subsidiaries other than Yonkers and BI has no direct or
indirect Subsidiaries other than the Borrower and Yonkers.
SECTION 3.05. FINANCIAL STATEMENTS AND BANKRUPTCY COURT FILINGS.
-------------------------------------------------
50
<PAGE>
(a) The Borrower has furnished the Administrative Agent, the Issuing
Bank, the Collateral Agent, the Tranche B Agent and the Lenders with copies of
(i) the audited consolidated financial statement and schedules of BI for the
most recently completed fiscal year for which such statements are available and
(ii) the unaudited consolidated financial statement and schedules of BI for the
most recently completed fiscal quarter for which such statements are available.
Such financial statements present fairly the financial condition and results of
operations of BI, the Borrower and the other Credit Parties on a consolidated
basis as of such dates and for such periods; such balance sheets and the notes
thereto disclose all liabilities, direct or contingent, of BI, the Borrower and
the other Credit Parties as of the dates thereof required to be disclosed by
GAAP and such financial statements were prepared in a manner consistent with
GAAP, subject (in the case of such fiscal quarter statement) to normal year end
adjustments. No material adverse change in the financial condition, operations,
business, properties or assets of the Borrower and the other Credit Parties,
taken as a whole, has occurred from that set forth in BI's consolidated
financial statements referenced in this Section 3.05. All other financial
information required to be delivered by the Borrower under this Agreement
(including, without limitation, all information delivered to the Administrative
Agent to determine the Borrower's compliance with Sections 4.01(t) and (u)) are
accurate in all respects.
(b) The Borrower has furnished to the Administrative Agent and its
counsel copies of all pleadings, motions, applications, judicial information,
financial information and other documents filed by or on behalf of the Borrower
or any of the other Credit Parties with the Bankruptcy Court in the Cases or
distributed by or on behalf of the Borrower or any of the Guarantors to any
official committee appointed in the Cases or served upon the Borrower or any
Guarantor in any of the Cases.
SECTION 3.06. LIENS. There are no Liens of any nature whatsoever on any
-----
property of the Borrower or any other Credit Party (including, without
limitation, the Collateral) except, (i) Permitted Liens, (ii) Liens granted in
favor of the Collateral Agent, for its benefit and the ratable benefit of the
other Secured Parties, pursuant to the Loan Documents, (iii) Liens granted in
favor of the Other Transactions Counterparties in connection with Interest Rate
Agreements, the Master Lease Agreement and any other obligations owed by the
Borrower or the other Credit Parties to the Other Transactions Counterparties,
(iv) the Trade Lien, (v) Liens securing outstanding obligations of the Borrower
under the New Notes and the CAP Notes; provided that, the Liens securing
--------
obligations under the New Notes are secured only by the Permissible Collateral,
the Additional Collateral and the Yonkers Common Stock Collateral (in each case,
to the extent permitted by the terms of Attachment III hereto) and the Liens
securing the obligations under the CAP Notes are secured only by a Lien on the
CAP Collateral (as defined in Attachment I hereto) and (vi) Liens on any
interests in Real Property securing Indebtedness permitted under Section
6.03(iii). Neither the Borrower nor any other Credit Party are parties to any
contract, agreement, lease or instrument the performance of which, either
unconditionally or upon the happening of an event, will result in or require the
creation of a Lien on any property of the Borrower or any other Credit Party
(other than as permitted by Section 6.01) or otherwise result in a violation of
this Agreement. The Liens granted by the Borrower and the other Credit Parties
in the Collateral pursuant to the Loan Documents are fully-perfected
51
<PAGE>
first-priority security interests, subject only to Permitted Liens.
Notwithstanding the foregoing, on the Closing Date, and after giving effect to
the Confirmed Plan, there are no Liens on any of the Collateral other than as
set forth in clauses (ii), (iii), (iv) and (v) above.
SECTION 3.07. COMPLIANCE WITH LAW.
-------------------
(a) The operations of the Borrower and each of the other Credit
Parties are not in violation of any applicable federal, state or local
environmental, health or safety statutes (including, without limitation, the
Occupational Health and Safety Act), regulations, directions, ordinances,
criteria or guidelines.
(b) Neither the Borrower nor any of the other Credit Parties has
received notice that any of the operations of the Borrower or any of the other
Credit Parties is the subject of any judicial or administrative proceeding
alleging the violation of any federal, state or local environmental, health or
safety statute, regulation, direction, ordinance, criteria or guideline.
(c) None of the operations of the Borrower or any of the other Credit
Parties is the subject of any federal, state or local investigation involving
allegations or potential allegations that the Borrower or any of the other
Credit Parties disposed of any hazardous or toxic waste, substance or
constituent or other pollutant, contaminant or substance (including, without
limitation, petroleum) at any site that may require remedial action, or any
federal, state or local investigation evaluating whether any remedial action is
needed to respond to a release or threatened release of any hazardous or toxic
waste, substance or constituent, or other pollutant, contaminant or substance
(including, without limitation, petroleum) into the environment.
(d) Neither the Borrower nor any of the other Credit Parties has
filed any notice under any federal, state or local law indicating past or
present treatment, storage or disposal of a hazardous waste or reporting a spill
or release or threatened release of a hazardous or toxic waste, substance or
constituent, or other pollutant, contaminant or substance (including, without
limitation, petroleum) into the environment.
(e) Neither the Borrower nor any of the other Credit Parties has any
contingent liability of which any of them has knowledge or reasonably should
have knowledge in connection with any release or threatened release of any
hazardous or toxic waste, substance or constituent, or other pollutant,
contaminant or substance (including, without limitation, petroleum) into the
environment, nor has the Borrower or any of the other Credit Parties received
any notice, letter or other indication of potential liability arising from the
disposal of any hazardous or toxic waste, substance or constituent or other
pollutant, contaminant or substance (including, without limitation, petroleum)
into the environment which, in any such case referred to in this Section or in
the aggregate, could have a material adverse effect on the financial condition,
operations, business, properties or assets of the Borrower and the other Credit
Parties taken as a whole.
SECTION 3.08. INSURANCE. All policies of insurance of any kind or nature
---------
owned by or issued to the Borrower and the other Credit Parties, including,
without limitation, policies
52
<PAGE>
of life, fire, theft, product liability, public liability, property damage,
other casualty, employee fidelity, workers' compensation, employee health and
welfare, title, property and liability insurance, are in full force and effect
and are of a nature and provide such coverage as is sufficient and as is
customarily carried by companies of the size and character of the Borrower and
the other Credit Parties. All liability policies of the Borrower name the
Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, the Co-Agents and the Lenders as additional insureds and all casualty
(property) policies name the Collateral Agent as loss payee.
SECTION 3.09. THE CONFIRMATION ORDER. On the date of the making of the
----------------------
initial Loans or the issuance of the initial Letters of Credit hereunder,
whichever first occurs, the Confirmed Plan shall be effective, all conditions to
effectiveness of the Confirmed Plan have been satisfied (other than those
conditions which have been expressly waived in accordance with Sections 10.02
and 10.03 of the Confirmed Plan by the parties named therein and which waiver or
waivers have been consented to in writing by the Administrative Agent) and the
Confirmation Order and the Yonkers Confirmation Order each will have been
entered and will not have been stayed, amended (other than amendments deemed
immaterial by the Administrative Agent), vacated, reversed or rescinded and the
Bankruptcy Court's retention of jurisdiction, if any, under the Confirmation
Order and the Yonkers Confirmation Order shall not govern the enforcement of
this Agreement and the other Loan Documents or any rights or remedies relating
thereto after the Plan Effective Date. On the date of the making of any Loan or
the issuance of any Letter of Credit, (i) the Confirmed Plan will be effective
and the Confirmation Order will have been entered and will not have been amended
(other than amendments deemed immaterial by the Administrative Agent), stayed,
vacated, reversed or rescinded and (ii) the Yonkers Confirmation Order will have
been entered and will not have been amended, stayed, vacated, reversed or
rescinded in any manner which, in the Administrative Agent's sole discretion,
could have a material adverse effect on (a) the assets, liabilities, business,
operations, condition (financial or otherwise) or prospects of the Borrower or
any other Credit Party or (b) the enforceability of the rights and remedies of
the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, the Co-Agents and the Lenders under the Loan Documents (including,
without limitation, the Liens granted to the Collateral Agent, for its benefit
and the benefit of the other Secured Parties, under the Loan Documents), or (c)
the ability of the Borrower or the other Credit Parties to pay the Obligations
when due and to perform their covenants and agreements under the Loan Documents.
Upon the maturity (whether by the acceleration or otherwise) of any of the
Obligations of the Borrower and the other Credit Parties hereunder and under the
other Loan Documents, the Lenders shall, subject to the provisions of Article
VII, be entitled to immediate payment of such obligations, and to enforce the
remedies provided for hereunder and under the other Loan Documents.
SECTION 3.10. USE OF PROCEEDS. The proceeds of the Loans will be used,
---------------
first, to repay in full all loans, letter of credit liabilities and other
obligations outstanding under or in respect of the Existing Credit Facility and,
second, to make certain payments required under the Confirmed Plan not in excess
of $8,000,000 in the aggregate as provided in the summary of sources and uses of
funds set forth on Schedule 3.10 and to prepay up to the aggregate amount of
53
<PAGE>
$6,000 to the holders of the New Notes, and thereafter will be used only to
provide (i) working capital for and to finance Inventory purchases by the
Borrower and otherwise for general corporate purposes of the Borrower and (ii)
to prepay the Permitted Note Debt in accordance with Section 6.15. The Borrower
will not use the proceeds of any Loans or any other property of the Borrower to
make any intercompany or Affiliate advances (it being understood that proceeds
of the Loans used for ordinary-course operating expenses of the Bradlees store
located in Yonkers, New York (so long as such store remains open) will be deemed
to be a permitted use of proceeds hereunder).
SECTION 3.11. STORE LOCATIONS; BANK ACCOUNTS; INVENTORY.
-----------------------------------------
(a) Set forth on Schedule 3.11(a) hereto is a complete and accurate
list of the names and addresses of all the retail stores, warehouses and
distribution centers operated by the Borrower on the Closing Date, which are all
locations where any Inventory of the Borrower is maintained.
(b) Set forth on Schedule 3.11(b) hereto is a complete and accurate
list of all bank accounts, money market accounts and other deposit or investment
accounts for cash, cash equivalents or investments maintained by the Borrower or
any other Credit Party or in which the Borrower or any Credit Party has any
interest.
(c) No Credit Party other than the Borrower owns any Inventory or
operates any retail stores, warehouses or distribution centers. No Credit Party
other than the Borrower owns any other material assets other than as set forth
on Schedule 3.11(c) (which schedule also sets forth the Borrower's good faith
estimate of the book value of such assets).
(d) The assets of the Borrower (including, without limitation, the
Inventory and the Receivables) are substantially in the amounts and of the
quality previously represented to the Administrative Agent in the most recent
Borrowing Base Certificate delivered to the Administrative Agent.
SECTION 3.12. LITIGATION AND CLAIMS.
---------------------
(a) Except as set forth on Schedule 3.12, there are no actions, suits
or proceedings pending or, to the knowledge of the Borrower or the other Credit
Parties, threatened against or affecting the Borrower or the other Credit
Parties or any of its properties, including (without limitation) the Inventory,
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, that is (i) not fully reserved for
under the Confirmed Plan and (ii) reasonably likely to be determined adversely
to the Borrower or the other Credit Parties and, if so determined adversely to
the Borrower or the other Credit Parties would have a material adverse effect on
the financial condition, business, properties, operations or assets of the
Borrower and the other Credit Parties, taken as a whole or the prospects for
repayment in full of the Obligations.
54
<PAGE>
(b) There are no pre-petition or administrative claims or Liens other
than those contemplated by the Confirmed Plan to survive the Plan Effective Date
and consented to by the Administrative Agent.
SECTION 3.13. MATERIAL ADVERSE CHANGE. No event or series of events have
-----------------------
occurred since the date of the Borrower's financial statements reflecting the
Confirmed Plan that has or have materially and adversely affected (i) the
assets, liabilities, business, operations, condition (financial or otherwise) or
prospects of the Borrower or any other Credit Party or (ii) the enforceability
of the rights and remedies of the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders under the
Loan Documents (including, without limitation, the Liens granted to the
Collateral Agent, for its benefit and the benefit of the other Secured Parties,
under the Loan Documents), or (iii) the ability of the Borrower or the
Guarantors to pay the Obligations when due and to perform their covenants and
agreements under the Loan Documents.
SECTION 3.14. PAYMENT OF OBLIGATIONS. The Borrower and each other Credit
----------------------
Party have paid when due all rents under any unexpired leases to which the
Borrower or any other Credit Party is party as lessee and all other material
liabilities incurred by the Borrower or any other Credit Party (other than any
such rents or liabilities the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the Borrower
or such other Credit Party, as the case may be).
SECTION 3.15. TAXES AND TAX RETURNS. Except for those taxes agreed to be
---------------------
paid or otherwise settled pursuant to the Tax Payment Plan, the Borrower and
each other Credit Party has filed or caused to be filed all material tax returns
which are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other material taxes, fees or other charges imposed on it or
any of its property by any Governmental Authority (other than any such taxes,
assessments, fees or other charges the amount or validity of which are currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been provided on the books of the
Borrower or the other Credit Party, as the case may be).
SECTION 3.16. FRANCHISES, LICENSES, PERMITS, LEASES, PATENTS, COPYRIGHTS,
-----------------------------------------------------------
TRADEMARKS AND TRADE NAMES. The Borrower and each of the other Credit Parties
- --------------------------
have obtained and hold in full force and effect, all franchises, licenses,
leases, permits, certificates, authorizations, qualifications, easements, rights
of way and other rights and approvals which are necessary or advisable for the
operation of its businesses as presently conducted and as proposed to be
conducted. Neither the Borrower nor any of the other Credit Parties is in
violation of the terms of any such franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval. The Borrower possesses or has the legal right to use such assets,
licenses, patents, patent applications, copyrights, service marks, trademarks
and trade names as are necessary or advisable to continue to conduct its present
and proposed
55
<PAGE>
business activities and such assets, licenses, patents, patent applications,
copyrights, service marks, trademarks and trade names are valid and in full
force and effect.
SECTION 3.17. LABOR MATTERS.
-------------
(a) There are no controversies pending or, to the best of the
Borrower's knowledge after diligent inquiry, threatened between the Borrower or
any of the other Credit Parties , on the one hand, and any of their respective
employees, on the other hand, which could have a material adverse effect on the
financial condition, operations, business, properties or assets of the Borrower
and the other Credit Parties taken as a whole.
(b) Neither the Borrower nor any of the other Credit Parties is
engaged in any unfair labor practice. There is (i) no unfair labor practice
complaint pending against the Borrower or any of the other Credit Parties or, to
the best knowledge of the Borrower, threatened against any of them, before the
National Labor Relations Board, and no grievance or significant arbitration
proceeding arising out of or under collective bargaining agreements is so
pending against the Borrower or any of the other Credit Parties or, to the best
knowledge of the Borrower, threatened against any of them, (ii) no strike, labor
dispute, slowdown or stoppage pending against either of the Borrower or any of
the other Credit Parties or, to the best knowledge of the Borrower, threatened
against any of them and (iii) no union representation question with respect to
the employees of the Borrower or any other Credit Parties and no union
organizing activities.
SECTION 3.18. ERISA. None of the Borrower, any other Credit Party or any
-----
ERISA Affiliate maintains or contributes to any Plan other than those listed on
Schedule 3.18. Each Plan has been and is being maintained and funded in
accordance with its terms and in compliance with all provisions of ERISA and the
Code applicable thereto. The Borrower, each of the other Credit Parties and each
ERISA Affiliate have fulfilled all obligations related to the minimum funding
standards of ERISA and the Code for each Plan, are in compliance with the
currently applicable provisions of ERISA and of the Code and have not incurred
any liability (other than routine liability for premiums) under Title IV of
ERISA. No Termination Event has occurred nor has any other event occurred that
may result in a Termination Event. No event or events have occurred in
connection with which the Borrower, any of its Subsidiaries, any ERISA
Affiliate, any fiduciary of a Plan or any Plan, directly or indirectly, could be
subject to any liability, individually or in the aggregate, under ERISA, the
Code or any other requirement of law or under any agreement, instrument,
statute, rule of law or regulation pursuant to or under which any such entity
has agreed to indemnify or is required to indemnify any person against liability
incurred under, or for a violation or failure to satisfy the requirements of,
any such statute, regulation or order. The Borrower has delivered or caused to
be delivered to the Administrative Agent: (i) a copy of each Plan (or, where any
such plan is not in writing, a complete description thereof) (and, if
applicable, related trust agreements or other funding instruments) and all
amendments thereto, all written interpretations thereof and written descriptions
thereof that have been distributed to employees or former employees of the
Borrower or the other Credit Parties; (ii) the most recent determination letter
issued by the Internal Revenue Service with respect to each Plan; (iii) for the
three most recent plan years,
56
<PAGE>
Annual Reports on Form 5500 Series required to be filed with any governmental
agency for each Plan; (iv) all actuarial reports prepared for the last three
plan years for each Plan; (v) a listing of all Multiemployer Plans, with the
aggregate amount of the most recent annual contributions required to be made by
the Borrower or any ERISA Affiliate to each such plan and copies of the
collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to the Borrower or any ERISA Affiliate
regarding withdrawal liability under any Multiemployer Plan; (vii) the aggregate
amount of the most recent annual payments made to former employees of the
Borrower or any ERISA Affiliate under any retiree health Plan; (viii) each
Single Employer Plan has been determined by the IRS to qualify under Section 401
of the Code, and the trusts created thereunder have been determined to be exempt
from tax under the provisions of Section 501 of the Code, and to the best
knowledge of the Borrower nothing has occurred which would cause the loss of
such qualification or tax-exempt status; (ix) except as set forth on Schedule
--------
3.18, no Single Employer Plan has any material Unfunded Pension Liability as to
- ----
which the Borrower is or may be liable; (x) the Borrower and each ERISA
Affiliate have complied in all material respects with the notice and
continuation coverage requirements of Section 4980B of the Code; and (xi) there
are no pending or, to the best knowledge of the Borrower, threatened claims,
actions or lawsuits, other than routine claims for benefits in the usual and
ordinary course, asserted or instituted against (1) any Single Employer Plan
maintained or sponsored by the Borrower, (2) the Borrower or any ERISA Affiliate
with respect to any Single Employer Plan, or (3) any other fiduciary with
respect to any Single Employer Plan for which the Borrower may be directly or
indirectly liable, through indemnification obligations or otherwise.
SECTION 3.19. ACCOUNTS RECEIVABLE FINANCING. Neither the Borrower nor any
-----------------------------
of the other Credit Parties is party to any accounts receivable financing
arrangements whereby sales of Inventory are conducted through the use of an in-
store credit card or through the use of a credit card offered by a third party
lender (it being understood that the acceptance by the Borrower of credit cards
issued by Visa, Mastercard or similar processors that does not entail an
extension of credit by the Borrower to its own customers (and is non-recourse to
the Borrower other than, with respect to accounts financed under the Credit Plan
Agreement, to the limited extent set forth therein) shall not be deemed to
constitute such an accounts receivable financing arrangement, even if the
Borrower's name or imprint appears on such Visa, Mastercard or similar credit
cards).
SECTION 3.20. INVESTMENT COMPANY: HOLDING COMPANY. Neither the Borrower
-----------------------------------
nor any of the other Credit Parties is (i) an investment company or a company
controlled by an investment company within the meaning of the Investment Company
Act of 1940, as amended, (ii) a holding company or a Subsidiary company of a
holding company, or an Affiliate of a holding company or of a Subsidiary company
of a holding company, within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or (iii) subject to any other law which purports to
regulate or restrict its ability to borrow money or to consummate the
transactions contemplated by this Agreement or the other Loan Documents or to
perform its obligations hereunder or thereunder.
57
<PAGE>
SECTION 3.21. YEAR 2000. Any reprogramming required to permit the proper
---------
functioning, in and following the year 2000, of (a) BI's and its Subsidiaries'
computer systems and (b) equipment containing embedded microchips and testing of
all such systems and equipment, as so reprogrammed, will be completed by
November 1, 1999. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems of BI and its Subsidiaries in effect as of the date hereof are, and with
ordinary course upgrading and maintenance will continue to be for the term of
this Agreement, sufficient to permit BI and its Subsidiaries to reasonably
conduct their business and to continue to render reports to the Agents and the
Lenders as required hereunder without resulting in a material adverse effect on
the financial condition, business, properties, operations or assets of BI and
its Subsidiaries, taken as a whole, or the prospects for repayment in full of
the Obligations. BI and its Subsidiaries have and will use reasonable efforts to
obtain assurances from their material vendors and entities whose systems
interface with those of BI and its Subsidiaries that such vendors and entities
are taking all necessary steps to insure that their respective systems will be
properly functioning in and following the year 2000.
IV. CONDITIONS OF LENDING
SECTION 4.01. CONDITIONS PRECEDENT TO INITIAL LOANS AND INITIAL LETTERS OF
------------------------------------------------------------
CREDIT. The obligation of the Lenders to make the initial Loans or the Issuing
- ------
Bank to issue the initial Letters of Credit, whichever may occur first, is
subject to the following conditions precedent:
(a) Supporting Documents. The Administrative Agent shall have
--------------------
received for the Borrower and each of the other Credit Parties:
(i) a copy of such entity's certificate of incorporation, as
amended, certified as of the Closing Date by the Secretary of State of
the state of its incorporation or a senior officer of such entity;
(ii) a certificate of such Secretary of State, dated as of the
Closing Date, as to the good standing of that entity and as to the
charter documents on file in the office of such Secretary of State;
(iii) a certificate of the Secretary or an Assistant Secretary
of that entity dated the date of the initial Loans or the initial
Letter of Credit hereunder, whichever first occurs, and certifying (A)
that attached thereto is a true and complete copy of the by-laws of
that entity as in effect on the date of such certification, (B) that
attached thereto is a true and complete copy of resolutions adopted by
the Board of Directors of that entity authorizing the Borrowings and
Letter of Credit extensions hereunder, the execution, delivery and
performance in accordance with their respective terms of this
Agreement, the Notes to be executed by it, the Loan Documents and any
other documents required or contemplated hereunder or thereunder and
the granting of the security interest in
58
<PAGE>
the Cash Collateral Account contemplated hereby, (C) that the
certificate of incorporation of that entity has not been amended since
the date of the last amendment thereto indicated on the certificate of
the Secretary of State furnished pursuant to clause (i) above, and (D)
as to the incumbency and specimen signature of each officer of that
entity executing this Agreement, the Notes to be executed by it and
the Loan Documents or any other document delivered by it in connection
herewith or therewith (such certificate to contain a certification by
another officer of that entity as to the incumbency and signature of
the officer signing the certificate referred to in this clause (iii));
(iv) a certificate of the Secretary of State of each state where
each such entity is qualified to do business, dated as of a recent
date as to the good standing of that entity in such state;
(v) a duly-executed compliance certificate in the form attached
as Exhibit H; and
(vi) all certificates and filings evidencing and effectuating
that portion of the Combination Transaction to occur on or about the
Plan Effective Date, including, without limitation, file-stamped
copies of certificates of merger for all Subsidiaries of BI or the
Borrower (including, without limitation, Dostra) contemplated by the
Confirmed Plan to be merged with BI or the Borrower on or about the
Plan Effective Date.
(b) Notes. On or before the date of the initial Loans or the
-----
issuance of the initial Letter of Credit hereunder, whichever first occurs, the
Administrative Agent shall have received Notes executed on behalf of the
Borrower, dated the Closing Date, payable to the order of (i) each of the
Tranche A Lenders, in the form of Exhibit B-1, in an amount equal to such
Tranche A Lender's Tranche A Commitment, and in the form of Exhibit B-2, in an
amount equal to $15,000,000 to be delivered to the Administrative Agent for the
Agent Advances, and (ii) each of the Tranche B Lenders, in the form of Exhibit
B-3, in an amount equal to such Tranche B Lender's Tranche B Commitment.
(c) The Confirmed Plan. Any immaterial amendments (in the opinion of
------------------
the Administrative Agent) to the Confirmed Plan shall be satisfactory to the
Administrative Agent and any material amendments (in the opinion of the
Administrative Agent) to the Confirmed Plan shall be satisfactory to the
Required Lenders. The Confirmed Plan shall provide, among other things, that
all claims of the creditors (including trade creditors) of the Borrower and the
other Credit Parties which arose, or are deemed to have arisen, prior to the
Filing Date shall be either (i) Indebtedness governed by the Tax Payment Plan
described below, (ii) converted into Equity Interests of BI (including without
limitation, stock options and warrants convertible into capital stock of BI),
(iii) exchanged for the CAP Notes, the Cure Notes or the New Notes or (iv)
repaid in cash as set forth in the Confirmed Plan. The terms of all Equity
Interests (including, without limitation, all preferred stock issued or to be
issued (if any) by the Borrower related to
59
<PAGE>
the Confirmed Plan) and indebtedness of the Borrower and the other Credit
Parties to be outstanding after giving effect to the Confirmed Plan shall be
reasonably satisfactory in all respects to the Administrative Agent, provided,
--------
that any pre-petition tax claims (up to $3,400,000 in the aggregate) may be paid
subsequent to the Plan Effective Date pursuant to a payment plan (the "Tax
---
Payment Plan") on the terms set forth in the Confirmed Plan (except as provided
- ------------
in Section 6.15 hereof) and as is otherwise reasonably satisfactory to the
Administrative Agent.
(d) The Confirmation Orders. At the time of the making of the
-----------------------
initial Loans or at the time of the issuance of the initial Letter of Credit,
whichever first occurs, the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Tranche B Agent and the Lenders shall have received a
certified copy of (i) the Confirmation Order in the form attached hereto as
Exhibit C-1 and (ii) the Yonkers Confirmation Order in the form attached hereto
as Exhibit C-2 and the Confirmation Order and the Yonkers Confirmation Order
shall each be reasonably satisfactory to the Required Lenders. The Confirmation
Order shall not have been reversed, modified, vacated, rescinded or amended
(other than amendments deemed immaterial by the Administrative Agent) and shall
not be stayed or subject to a motion to stay and, unless otherwise agreed by the
Administrative Agent, all appeal periods relating to the Confirmation Order
shall have expired, and no appeals from the Confirmation Order shall be
outstanding. The Yonkers Confirmation Order (i) shall not have been reversed,
modified, vacated, rescinded or amended in any manner which, in the
Administrative Agent's sole discretion, could have a material adverse effect on
(a) the assets, liabilities, business, operations, condition (financial or
otherwise) or prospects of the Borrower or any other Credit Party or (b) the
enforceability of the rights and remedies of the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the
Lenders under the Loan Documents (including, without limitation, the Liens
granted to the Collateral Agent, for its benefit and the benefit of the other
Secured Parties, under the Loan Documents), or (c) the ability of the Borrower
or the other Credit Parties to pay the Obligations when due and to perform their
covenants and agreements under the Loan Documents and (ii) shall not be stayed
or subject to a motion to stay and, unless otherwise agreed by the
Administrative Agent, all appeal periods relating to the Yonkers Confirmation
Order shall have expired, and no appeals from the Yonkers Confirmation Order
shall be outstanding. Except as consented to by the Administrative Agent, the
Bankruptcy Court's retention of jurisdiction under the Confirmation Order and
the Yonkers Confirmation Order shall not govern the enforcement of this
Agreement and the other Loan Documents or any rights or remedies relating
thereto after the Plan Effective Date. The Administrative Agent shall be
satisfied that the Bankruptcy Court has adequately addressed Yonkers' status as
a debtor-in-possession after the Closing Date and Yonkers' execution, delivery
and performance, as a debtor-in-possession, of the Loan Documents to which it is
a party.
(e) Plan Effective Date. All conditions precedent to the
-------------------
confirmation of the Confirmed Plan and to the Effective Date (as defined in the
Confirmed Plan) (the "Plan Effective Date") shall have been met (or the waiver
-------------------
thereof in accordance with Sections 10.02 and 10.03 of the Confirmed Plan by the
parties named therein shall have been consented to in writing by the
Administrative Agent) and the Plan Effective Date and substantial consummation
of the Confirmed Reorganization shall have occurred (including, without
limitation, the Combination
60
<PAGE>
Transaction (as defined in the Confirmed Plan), other than with respect to
Yonkers) or shall be scheduled to occur but for the making of the initial Loan
hereunder.
(f) Security Agreement. The Borrower and each Guarantor shall have
------------------
duly executed and delivered to the Collateral Agent a Security Agreement in
substantially the form of Exhibit E (the "Security Agreement").
------------------
(g) [Reserved].
---------
(h) Trademark Security Agreement. The Borrower and each applicable
----------------------------
Guarantor shall have duly executed and delivered to the Collateral Agent a
Trademark Security Agreement in substantially the form of Exhibit E (the
"Trademark Security Agreement").
- -----------------------------
(i) Business Plan. The Borrower shall have delivered to the
-------------
Administrative Agent at least sixty (60) days prior to the Plan Effective Date
the Business Plan in form and substance satisfactory to the Administrative
Agent.
(j) Opinions of Counsel. The Administrative Agent, the Issuing Bank,
-------------------
the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders shall
have received the favorable written opinion of (i) Dewey Ballantine LLP, counsel
to the Credit Parties, substantially in the form attached as Exhibit D-1, (ii)
counsel to the Credit Parties reasonably satisfactory to the Administrative
Agent in the states of Massachusetts, Connecticut and New Jersey, substantially
in the forms attached as Exhibits D-2, D-3 and D-4, respectively and (iii) such
other counsel as may be requested by the Administrative Agent, in each case
dated the date of the initial Loans or the issuance of the initial Letter of
Credit, whichever first occurs.
(k) Payment of Fees. Concurrent with the initial Borrowing, the
---------------
Borrower shall have paid (i) to the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Tranche B Agent and the Lenders, as applicable, the then
unpaid balance of all accrued and unpaid Fees owed under and pursuant to this
Agreement and the Fee Letters referred to in Section 2.19 and (ii) to the
Administrative Agent, for the pro rata benefit of the Tranche A Lenders, the
"Second Consent Fee" referred to and as defined in the Second Consent to
Modification of Commitment Letter between the Lenders and the Borrower dated
December 16, 1998 (the "Consent Fee").
-----------
(l) Corporate and Judicial Proceedings. All corporate and judicial
----------------------------------
proceedings and all instruments and agreements in connection with the
transactions among the Credit Parties, the Administrative Agent, the Issuing
Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to the Administrative Agent, and the Administrative Agent shall have
received all information and copies of all documents and papers, including
records of corporate and judicial proceedings, which the Administrative Agent
may have reasonably requested in connection therewith, such documents and papers
where appropriate to be certified by proper corporate, governmental or judicial
authorities.
61
<PAGE>
(m) Lien Searches. On or before the Closing Date, the Administrative
-------------
Agent shall have received the results of UCC-1 and other Lien searches conducted
in State and county levels in jurisdictions in which the Credit Parties conduct
business and in the United States Patent and Trademark Office, which searches
shall reflect the absence of Liens on the assets (including Inventory and
Receivables) of the Credit Parties, other than (i) Permitted Liens, Liens
permitted under Section 6.01 or Liens for which duly-completed and executed
termination statements and releases reasonably satisfactory to the
Administrative Agent have been tendered prior to or concurrently with the
initial Credit Extension and (ii) Liens which have been duly terminated no later
than the Closing Date by an order of the Bankruptcy Court in form and substance
reasonably satisfactory to the Administrative Agent.
(n) Filings. All filings and other actions required to create and
-------
perfect a first priority security interest in favor of the Collateral Agent, for
its benefit and the ratable benefit of the other Secured Parties, on all
Collateral owned or to be owned by the Credit Parties shall have been duly made
or taken.
(o) Environmental Compliance. The Credit Parties shall have granted
------------------------
the Administrative Agent access to and the right to inspect all reports, audits
and other internal information of the Credit Parties relating to environmental
matters, and any third party verification of certain matters relating to
compliance with environmental laws and regulations requested by the
Administrative Agent, and the Administrative Agent shall be satisfied that the
Credit Parties are in compliance in all material respects with all applicable
environmental laws and regulations and be satisfied with the costs of
maintaining such compliance.
(p) Accounts Receivable Financing. Neither the Borrower nor any of
-----------------------------
the Credit Parties shall be party to any accounts receivable financing
arrangements whereby sales of Inventory are conducted through the use of an in-
store credit card or through the use of a credit card offered by a third party
lender (it being understood that the acceptance by the Borrower of credit cards
issued by Visa, Mastercard or similar processors that does not entail an
extension of credit by the Borrower to its own customers (and is non-recourse to
the Borrower (other than, with respect to accounts financed under the Credit
Plan Agreement, to the limited extent set forth therein)) shall not be deemed to
constitute such an accounts receivable financing arrangement, even if the
Borrower's name or imprint appears on such Visa, Mastercard or similar credit
cards).
(q) Cash Management System. The cash management system required to
----------------------
be maintained as of the date hereof pursuant to Sections 2.13 and 2.14 shall be
in place in all material respects, as determined by the Administrative Agent in
its sole and absolute discretion.
(r) Existing Credit Facility. There shall exist no defaults, events
------------------------
of defaults or prospective defaults (based on projections provided by the
Borrower) under the Existing Credit Facility and all principal, interest, fees,
and any other obligations under the Existing Facility shall have been, or on the
Closing Date will be, paid in full.
62
<PAGE>
(s) Accounts Payable. All undisputed Accounts Payable outstanding at
----------------
the time of the Closing Date shall be reasonably paid to date within the terms
of the applicable Accounts Payable, as agreed to by the Borrower.
(t) EBITDA. The Borrower's EBITDA (after cash restructuring costs
------
(but excluding up to $3,500,000 of cash restructuring costs incurred in the
twelve month period ending on the Closing Date and excluding that portion of
EBITDA attributable to the Bradlees stores located in Yonkers, New York and at
Union Square in New York, New York) for the 12-month period ending on the last
day of the month immediately preceding the month in which the Closing Date
occurs shall not be less than $30,000,000 (after adding back to EBITDA (to the
extent not already done so) up to $4,400,000 of SG&A Expenses relating to
emergence and other bonuses actually incurred by the Borrower in connection with
the Confirmed Plan).
(u) Excess Availability. As measured on the Closing Date, the
-------------------
aggregate amount of Tranche A Loans available to be borrowed by the Borrower
under Section 2.01(a)(1) plus the amount of Tranche B Loans available to be
borrowed by the Borrower under Section 2.01(b)(1) (after giving effect to the
repayment of all amounts outstanding under the Existing Credit Facility and all
cash payments required under the Confirmed Plan, whether made (or required to be
made) prior to, on or after the Closing Date (other than payments to be made
pursuant to the Tax Payment Plan)) shall not be less than the amount specified
opposite the Borrower's fiscal month in which the Closing Date is to take place.
Fiscal Month Required Excess Availability
------------ ----------------------------
February $35,000,000
March $40,000,000
April $39,000,000
May $40,000,000
June $25,000,000
July $25,000,000
August $36,000,000
September $37,000,000
October $35,000,000
November $35,000,000
December $38,000,000
January $37,000,000
(v) Consents and Approvals. The Administrative Agent shall be
----------------------
satisfied in its sole discretion that all insurance, Blocked Account Agreements,
Payment Direction Agreements and other consents and approvals required or
necessary hereunder have been received and are in full force and effect.
63
<PAGE>
(w) Other Information. On or before the Closing Date, the
-----------------
Administrative Agent shall have received an inventory analysis conducted by an
inventory liquidation analysis firm retained by the Collateral Agent and a
follow up review of the Borrower's books and records conducted by a commercial
financial audit firm retained by the Collateral Agent and such other information
(financial or otherwise) as it may have reasonably requested.
(x) No Material Adverse Change. No event or series of events shall
--------------------------
have occurred at any time after November 2, 1997, which the Required Lenders in
good faith determine to constitute a material adverse change in (i) the assets,
liabilities, business, operations, condition (financial or otherwise) or
prospects of the Borrower or any other Credit Party, or (ii) the enforceability
of the Liens, rights and remedies of the Administrative Agent, the Issuing Bank,
the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders under
the Loan Documents, (iii) the ability of the Borrower or the other Credit
Parties to pay the Obligations when due and to perform their covenants and
agreements under the Loan Documents, or (iv) the value of the assets of the
Borrower and the other Credit Parties.
(y) Insurance. The Collateral Agent shall be reasonably satisfied
---------
with the public liability insurance, third party property damage insurance and
casualty insurance required to be maintained by the Borrower pursuant to Section
5.03 of this Agreement and the Borrower shall have delivered to the Collateral
Agent all documentation required in connection with such insurance.
(z) Collateral Access Agreements. (i) The Borrower shall have
----------------------------
delivered to the Collateral Agent Collateral Access Agreements duly-executed by
the Borrower and/or the applicable Credit Party or Credit Parties and each of
the landlords and mortgagees of the Borrower's warehouses located in Braintree,
Massachusetts and Edison, New Jersey; (ii) the Administrative Agent shall be
satisfied in its sole discretion that the Borrower shall have used its best
efforts to obtain and deliver to the Collateral Agent Collateral Access
Agreements duly-executed by the Borrower and/or the applicable Credit Party or
Credit Parties and each of the landlords and mortgagees of the Borrower's retail
locations in the Commonwealth of Pennsylvania; and (iii) the Administrative
Agent shall be satisfied in its sole discretion that the Borrower shall have
used all reasonable efforts to obtain and deliver to the Collateral Agent
Collateral Access Agreements duly-executed by the Borrower and/or the applicable
Credit Party or Credit Parties and each of the landlords and mortgagees of each
of its retail locations in the State of New Jersey.
(aa) Litigation. As of the Plan Effective Date, the Administrative
----------
Agent shall be reasonably satisfied that no litigation commenced or threatened
against the Borrower and its Affiliates could have a material adverse effect on
the Borrower's or any other Credit Party's financial condition, operations,
assets or ability to repay the Loans and other Obligations under this Agreement
and the other Loan Documents.
(bb) Other Closing Documents. The Administrative Agent shall have
-----------------------
received all other documents, certificates and instruments required to be
delivered to it pursuant to this
64
<PAGE>
Agreement and on the Closing Documents List (including, without limitation,
executed copies of this Agreement, all other Loan Documents, a Borrowing Base
Certificate and certified copies of all documents evidencing or relating to the
New Notes, the CAP Notes, the Cure Notes, the Tax Payment Plan, the New Warrants
(as defined in the Confirmed Plan) and the Combination Transaction (as defined
in the Confirmed Plan)) and all such documents shall be satisfactory in form and
substance to the Administrative Agent.
(cc) Other Financial Requirements. The financial condition, capital
----------------------------
structure, liabilities and financial projections, including, without limitation,
cash flow, of the Borrower shall be reasonably satisfactory to the
Administrative Agent in all respects.
(dd) Closing Date. The initial Credit Extension hereunder shall occur
------------
no later than one (1) Business Day after the Plan Effective Date.
(ee) Additional Collateral and Permissible Collateral. The
------------------------------------------------
Administrative Agent shall be satisfied in its sole discretion with the identity
of each lease included in the Additional Collateral on the Effective Date. The
Administrative Agent shall have received and approved an appraisal of the
Additional Collateral conducted by Cushman & Wakefield, Inc., which appraisal
shall determine the aggregate value of the Additional Collateral to be not in
excess of $10,500,000, subject to adjustments deemed appropriate by the
Administrative Agent. The Administrative Agent shall have received, with
respect to each lease included in the Additional Collateral and the Permissible
Collateral, a mortgagee's waiver and consent in form and substance satisfactory
to the Collateral Agent, duly-executed by the Borrower, the Collateral Agent and
the entity acting as mortgagee (the "Mortgagee") on behalf of the holders of the
---------
New Notes (collectively, the "Mortgagee Waivers").
-----------------
SECTION 4.02. CONDITIONS PRECEDENT TO EACH TRANCHE A LOAN AND EACH LETTER
-----------------------------------------------------------
OF CREDIT. The obligation of the Tranche A Lenders to make each Tranche A Loan
- ---------
and of the Issuing Bank to issue each Letter of Credit, including the initial
Loan and the initial Letter of Credit, is subject to the following conditions
precedent:
(a) Notice. The Administrative Agent shall have received a notice
------
with respect to such borrowing or issuance, as the case may be, as required by
Article II.
(b) Representations and Warranties. All representations and
------------------------------
warranties contained in this Agreement and the other Loan Documents or otherwise
made in writing in connection herewith or therewith shall be true and correct in
all material respects on and as of the date of each Borrowing or the issuance of
each Letter of Credit hereunder with the same effect as if made on and as of
such date, other than representations and warranties that relate solely to an
earlier date.
(c) No Default. On the date of each Borrowing hereunder and the
----------
issuance of each Letter of Credit, the Borrower and the other Credit Parties
shall be in compliance with all of the terms and provisions set forth herein and
in the other Loan Documents to be observed or performed and no Default or Event
of Default shall have occurred and be continuing.
65
<PAGE>
(d) Borrowing Base Certificate. The Administrative Agent shall have
--------------------------
received the timely delivery of the most recently required Borrowing Base
Certificate within three (3) Business Days following the end of each business
week (ending on the Saturday of such week), with each such Borrowing Base
Certificate including schedules as required by the Collateral Agent.
(e) Payment of Fees. The Borrower shall have paid to the
---------------
Administrative Agent the then unpaid balance of all accrued and unpaid Fees then
payable under and pursuant to this Agreement and the Fee Letters.
The request by the Borrower for, and the acceptance by the Borrower of, each
extension of credit hereunder shall be deemed to be a representation and
warranty by the Borrower that the conditions specified in this Section 4.02 have
been satisfied at that time and that after giving effect to such extension of
credit the Borrower shall continue to be in compliance with the Borrowing Base
and the Tranche B Borrowing Base.
SECTION 4.03. CONDITIONS PRECEDENT TO EACH TRANCHE B LOAN. The obligation
-------------------------------------------
of the Tranche B Lenders to make each Tranche B Loan is subject to the following
conditions precedent:
(a) Notice. The Administrative Agent shall have received a notice
------
with respect to such borrowing or issuance, as the case may be, as required by
Article II.
(b) No Super-Default. On the date of each Borrowing hereunder, no
----------------
Event of Super-Default shall have occurred and be continuing.
(c) Borrowing Base Certificate. The Administrative Agent shall have
--------------------------
received the timely delivery of the most recently required Borrowing Base
Certificate within three (3) Business Days following the end of each business
week (ending on the Saturday of such week), with each such Borrowing Base
Certificate including schedules as required by the Collateral Agent.
(d) Tranche A Availability. At the time of the requested Borrowing,
----------------------
no amounts shall be available for borrowing under the Tranche A Commitments as
calculated in accordance with Section 2.01(a)(1).
(e) Payment of Fees. The Borrower shall have paid to the
---------------
Administrative Agent the then unpaid balance of all accrued and unpaid Fees then
payable under and pursuant to this Agreement and the Fee Letters.
The request by the Borrower for, and the acceptance by the Borrower of, each
extension of credit hereunder shall be deemed to be a representation and
warranty by the Borrower that (a) at the time of the requested Borrowing, no
amounts are available for borrowing under the Tranche A Commitments as
calculated in accordance with Section 2.01(a)(1) and (b) after giving effect to
66
<PAGE>
such extension of credit the Borrower shall continue to be in compliance with
the Borrowing Base and the Tranche B Borrowing Base.
V. AFFIRMATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in effect
or any Loan, Letter of Credit or other Obligation shall remain outstanding
(unless such Letter of Credit is fully collateralized to the satisfaction of the
Administrative Agent), the Borrower and each of the other Credit Parties agree
that the Borrower and each other Credit Party will:
SECTION 5.01. FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the
----------------------------------
Borrower and the other Credit Parties, (i) deliver to the Administrative Agent,
the Issuing Bank, the Collateral Agent, the Tranche B Agent and each of the
Lenders:
(a) Within 90 days after the end of each fiscal year of BI, BI's
consolidated and the Borrower's consolidated balance sheet and related statement
of income and cash flows, showing the financial condition of BI, the Borrower
and the other Credit Parties on a consolidated basis and the Borrower on a
consolidated basis as of the close of such fiscal year and the results of their
respective operations during such year, to be audited by Arthur Andersen or
other independent public accountants of recognized national standing acceptable
to the Required Lenders and accompanied by an opinion of such accountants (which
shall not be qualified in any material respect) and to be certified by a
Financial Officer of the Borrower to the effect that such consolidated financial
statements fairly present the financial condition and results of operations of
BI, the Borrower and the other Credit Parties on a consolidated basis and the
Borrower on a consolidated in accordance with GAAP consistently applied;
(b) Within 45 days after the end of the first three fiscal quarters of
BI (commencing with the fiscal quarter ending on or about January 30, 1999) and
within 60 days after the end of the fourth fiscal quarter of each fiscal year of
BI, BI's consolidated and the Borrower's consolidated balance sheets and related
statements of income and cash flows, showing the financial condition of BI, the
Borrower, and the other Credit Parties on a consolidated basis and the Borrower
on a consolidated basis as of the close of such fiscal quarter and the results
of their respective operations during such fiscal quarter and the then elapsed
portion of the fiscal year, each certified by a Financial Officer as fairly
presenting the financial condition and results of operations of BI, the Borrower
and the other Credit Parties on a consolidated basis and the Borrower on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
(c) Concurrently with any delivery of financial statements under (a)
or (b) above, a certificate of the accounting firm or a Financial Officer, as
the case may be, opining on or certifying such statements (i) certifying that no
Default or Event of Default has occurred, or, if such a Default or Event of
Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto and (ii)
setting forth
67
<PAGE>
computations in reasonable detail satisfactory to the Administrative Agent
demonstrating compliance with the provisions of Sections 6.04, 6.05, 6.06 and
6.07 hereof;
(d) Within 30 days of the end of each fiscal month of BI (commencing
with the fiscal month ending on or about January 30, 1999) (or 45 days with
respect to the fiscal month ending at the end of each fiscal quarter of BI), the
unaudited monthly income statement, balance sheet and cash flow report of BI,
the Borrower and the other Credit Parties on a consolidated basis and the
Borrower on a consolidated basis as of the close of such fiscal month and the
results of their respective operations during such fiscal period and the then
elapsed portion of the fiscal year (and such other cash flow reports and
operating statements as the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Tranche B Agent or any Lender may reasonably request), all
certified by a Financial Officer as fairly presenting the results of operations
of BI, the Borrower and the other Credit Parties on a consolidated basis and the
Borrower on a consolidated basis, subject to normal year-end audit adjustments;
(e) To the extent not otherwise required under this Section 5.01,
those additional reports listed on Schedule 5.01(e) hereto;
(f) Promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by it
with the Securities and Exchange Commission, or any governmental authority
succeeding to any of or all the functions of said commission, or with any
national securities exchange, as the case may be;
(g) As soon as available and in any event (A) within 30 days after the
Borrower or any of its ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (i) of the definition of Termination Event
with respect to any Single Employer Plan of the Borrower or such ERISA Affiliate
has occurred and (B) within 10 days after the Borrower or any of its ERISA
Affiliates knows or has reason to know that any other Termination Event with
respect to any such Plan has occurred, a statement of a Financial Officer
describing such Termination Event and the action, if any, which the Borrower or
such ERISA Affiliate proposes to take with respect thereto;
(h) Promptly and in any event within 10 days after receipt thereof by
the Borrower or any of its ERISA Affiliates from the PBGC copies of each notice
received by the Borrower or any such ERISA Affiliate of the PBGC's intention to
terminate any Single Employer Plan of the Borrower or such ERISA Affiliate or to
have a trustee appointed to administer any such Plan;
(i) Promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each Single
Employer Plan of the Borrower or any of its ERISA Affiliates;
(j) Within 10 days after notice is given or required to be given to
the PBGC under Section 302(f)(4)(A) of ERISA of the failure of the Borrower or
any of its ERISA
68
<PAGE>
Affiliates to make timely payments to a Plan, a copy of any such notice filed
and a statement of a Financial Officer of the Borrower setting forth (A)
sufficient information necessary to determine the amount of the lien under
Section 302(f)(3), (B) the reason for the failure to make the required payments
and (C) the action, if any, which the Borrower or any of its ERISA Affiliates
proposed to take with respect thereto;
(k) Promptly and in any event within 10 days after receipt thereof by
the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor, a copy of
each notice received by the Borrower or any ERISA Affiliate concerning (A) the
imposition of Withdrawal Liability by a Multiemployer Plan, (B) the
determination that a Multiemployer Plan is, or is expected to be, in
reorganization within the meaning of Title IV of ERISA, (C) the termination of a
Multiemployer Plan within the meaning of Title IV of ERISA, or (D) the amount of
liability incurred, or which may be incurred, by the Borrower or any ERISA
Affiliate in connection with any event described in clause (A), (B) or (C)
above; and
(l) Promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
other Credit Party, or compliance with the terms of any material loan or
financing agreements as the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Tranche B Agent or any Lender may reasonably request.
(m) Furnish to the Administrative Agent and its counsel promptly after
the same is available, copies of all pleadings, motions, applications, judicial
information, financial information and other documents filed by or on behalf of
the Borrower or any of the other Credit Parties with the Bankruptcy Court or any
other court of competent jurisdiction.
(n) At least 15 days prior thereto, provide the Administrative Agent
with written notice of the closing of any store (it being understood that the
Borrower may only close stores as permitted by Section 6.13(c)).
(o) At least 5 days prior thereto, provide the Administrative Agent
with the identity of any lease to be included in the Additional Collateral after
the Closing Date, as well as a certification of the appraised value thereof.
SECTION 5.02. CORPORATE EXISTENCE. Do or cause to be done and cause each
-------------------
of the other Credit Parties to do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its corporate existence,
material rights, licenses, permits and franchises and comply in all material
respects with all laws and regulations applicable to it; provided that nothing
--------
in this Section 5.02 shall prohibit any Credit Party from being merged into the
Borrower in accordance with Section 6.02 of this Agreement.
SECTION 5.03. INSURANCE.
---------
(a) Keep its insurable properties (including, without limitation, the
Collateral) insured at all times, against such casualty risks, including fire
and other risks insured against by
69
<PAGE>
extended coverage, as is customary with companies of the same or similar size in
the same or similar businesses in amounts and coverages reasonably satisfactory
to the Collateral Agent in its sole discretion. Such casualty insurance policies
shall name the Collateral Agent as loss payee and shall contain such other
provisions as the Collateral Agent may reasonably require to fully protect the
Collateral Agent's interest in the Collateral and to any payments to be made
under such policies in excess of $25,000 per occurrence. The Borrower shall
diligently file and prosecute its claim or claims for any award or payment in
connection with any casualty loss and the Borrower shall deposit in the BBNA
Concentration Account, promptly upon receipt thereof, any and all insurance
proceeds and payments by the Borrower on account of any such casualty loss.
After the occurrence and during the continuance of an Event of Default, (i) no
settlement on account of any such casualty loss shall be made without the
consent of the Lenders and (ii) the Collateral Agent may participate in any such
proceedings and the Borrower shall deliver to the Collateral Agent such
documents as may be requested by the Collateral Agent to permit such
participation and shall consult with the Collateral Agent, its attorneys and
agents in the making and prosecution of such claim or claims. The Borrower
hereby irrevocably authorizes and appoints the Collateral Agent its attorney-in-
fact, after the occurrence and during the continuance of an Event of Default, to
collect and receive any such award or payment and to file and prosecute such
claim or claims, which power of attorney shall be irrevocable and shall be
deemed to be coupled with an interest, and the Borrower shall, upon demand of
the Collateral Agent, make, execute and deliver any and all assignments and
other instruments sufficient for the purpose of assigning any such award or
payment to the Collateral Agent for the benefit of the Lenders, free and clear
of any encumbrances of any kind or nature whatsoever.
(b) Maintain in full force and effect public liability insurance
against claims for personal injury or death or property damage occurring upon,
in, about or in connection with the use of any properties owned, occupied or
controlled by the Borrower or any Subsidiary, as the case may be, in such
amounts and with such deductibles as are customary with companies of the same or
similar size in the same or similar businesses and in the same geographic area
in amounts and coverages reasonably satisfactory to the Collateral Agent in its
sole discretion.
(c) Maintain such other insurance as may be required by law.
(d) Maintain the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Co-Agents, the Tranche B Agent, BRS and the Lenders as
additional insureds on all liability policies of the Borrower and the other
Credit Parties.
SECTION 5.04. OBLIGATIONS AND TAXES. With respect to the Borrower and each
---------------------
other Credit Party, pay all its material obligations in accordance with their
terms and pay and discharge promptly all material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
in respect of its property before the same shall become in default, as well as
all material lawful claims for labor, materials and supplies or otherwise which,
if unpaid, might become a Lien or charge upon such properties or any part
thereof; provided, however, that the Borrower and each other Credit Party shall
-------- -------
not be required to pay and discharge or to cause to be paid and discharged any
such tax, assessment, charge, levy or claim
70
<PAGE>
so long as the validity or amount thereof shall be contested in good faith by
appropriate proceedings (if the Borrower and the other Credit Parties shall have
set aside on their books adequate reserves therefor).
SECTION 5.05. NOTICE OF EVENT OF DEFAULT, ETC. Promptly give to the
-------------------------------
Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent and each Lender notice in writing of (i) any Default, Event of Default,
Event of Super-Default, (ii) any threatened or pending litigation that could
reasonably be expected to have a material adverse effect on the Borrower if
adversely determined or (iii) any termination or likely termination (in the
Borrower's reasonable judgment) of any lease with respect to any location listed
on Schedule 3.11(a).
SECTION 5.06. BORROWING BASE CERTIFICATE. Furnish to the Administrative
--------------------------
Agent as soon as available and in any event on or before Thursday of each week a
Borrowing Base Certificate for the week ending on the immediately preceding
Saturday, substantially in the form of Exhibit A-1 or A-2, as the case may be.
SECTION 5.07. ACCESS TO BOOKS AND RECORDS; INSPECTIONS.
----------------------------------------
(a) Maintain or cause to be maintained at all times true and complete
books and records of the financial operations of the Borrower and the other
Credit Parties.
(b) Provide the Administrative Agent, the Issuing Bank, the Collateral
Agent, the Tranche B Agent, the Lenders and their representatives access to all
such books and records (to the extent not covered by a legal privilege and if
any such materials are so privileged, subject to the Administrative Agent's
ability to discuss with the Borrower, the other Credit Parties and their
professional advisors the matters contained in such privileged materials and
otherwise be satisfied with respect thereto, as determined by the Administrative
Agent) during regular business hours, in order that they may examine and make
abstracts or copies from such books, accounts, records and other papers
(including, but not limited to, pertaining to Inventory included in the
Borrowing Base and the Tranche B Borrowing Base and Receivables included in the
Borrowing Base) for the purpose of verifying the accuracy of any information
delivered by the Borrower or any other Credit Party to the Administrative Agent,
the Issuing Bank, the Collateral Agent, the Tranche B Agent or the Lenders
pursuant to this Agreement or for any other purpose reasonably related to this
Agreement.
(c) At any reasonable time and from time to time during regular
business hours, permit the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Tranche B Agent, either Co-Agent, any Lender or any
representatives of the Administrative Agent, the Issuing Bank, the Collateral
Agent, the Tranche B Agent, either Co-Agent or any such Lender (including,
without limitation, examiners, appraisers and consultants) thereof to visit
and/or inspect the properties and assets (whether owned, leased or rented),
systems and procedures (including those relating to cash management) of the
Borrower and the other Credit Parties, to conduct Collateral examinations and
verify the components of the Borrowing Base and the
71
<PAGE>
Tranche B Borrowing Base and to discuss the assets, liabilities, business,
operations, systems, procedures, conditions or prospects of the Borrower or any
other Credit Party with its directors, officers, employees, advisors and
consultants.
(d) Permit the Administrative Agent, the Issuing Bank, the Collateral
Agent, the Tranche B Agent, any Lender or any representatives thereof to discuss
directly with the Borrower's independent certified public accountants the
business, financial condition and other affairs of the Borrower.
SECTION 5.08. FEES. In addition to the other Fees and expenses due
----
hereunder, pay on demand all reasonable fees and expenses of any consultants,
appraisers and advisors retained by any of the Agents in connection herewith or
any other Loan Document.
SECTION 5.09. PROJECTIONS; BUSINESS PLAN. As soon as practicable, but in
--------------------------
no event later than 60 days prior to each fiscal year end, furnish to the
Administrative Agent the Borrower's preliminary business plan and financial
projections for the 12-month fiscal period ending on or about January 31 in the
next succeeding year (with the corresponding final business plan to follow
within 30 days after the end of such fiscal year), in each case in form and
substance satisfactory to the Administrative Agent, and make a Financial Officer
available to meet and discuss the same with the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the
Lenders. At any time that the Borrower believes the assumptions, assertions or
other information set forth in the Business Plan are no longer accurate or are
outdated, as soon as practicable thereafter, the Borrower shall deliver a
revised business plan for the remainder of such 12-month fiscal period.
SECTION 5.10. ERISA. The Borrower shall establish, maintain and operate
-----
all Plans to comply in all material respects with the provisions of ERISA, the
Code, and all other requirements of Law, other than to the extent that the
Borrower is in good faith contesting by appropriate proceedings and with
adequate reserves the validity or application of any such provision, law, rule,
regulation or interpretation.
SECTION 5.11. ENVIRONMENTAL AND OTHER MATTERS. The Borrower and the other
-------------------------------
Credit Parties will conduct their businesses so as to comply in all material
respects with all applicable federal, state and local laws, regulations,
directions, ordinances, criteria and guidelines, including, without limitation,
environmental, land use, occupational safety and health laws, regulations,
directions, ordinances, criteria, guidelines, requirements and permits in all
jurisdictions in which any of them is or may at any time be doing business,
except to the extent that the Borrower or any of the other Credit Parties are
contesting, in good faith by appropriate legal proceedings, any such law,
regulation, direction, ordinance, criteria, guideline or interpretation thereof
or application thereof; provided, further, that the Borrower and each of the
-------- -------
other Credit Parties shall comply with the order of any court or other
Governmental Authority relating to such laws unless the Borrower or such other
Credit Party shall currently be prosecuting an appeal or proceedings for review
and shall have secured a stay of enforcement or execution postponing enforcement
or execution pending such appeal or proceedings for review.
72
<PAGE>
The Borrower shall promptly take all actions necessary to prevent the imposition
of any Liens on any of its properties arising out of or related to any
environmental matters or otherwise. At the request of the Administrative Agent,
and at the sole cost and expense of the Borrower, the Borrower shall provide the
Administrative Agent with any additional information or reports relating to
environmental matters and any potential related liability resulting therefrom as
the Administrative Agent may reasonably request. In addition, the Borrower shall
provide the Administrative Agent, at the Borrower's sole cost and expense, with
copies of any environmental audits, surveys or reports conducted in connection
with the purchase or sale by the Borrower of any real property.
SECTION 5.12. MAINTAIN CASH CONCENTRATION SYSTEM. Maintain the BBNA
----------------------------------
Concentration Account and otherwise comply with the provisions of Section 2.13
of this Agreement.
SECTION 5.13. MAINTAIN SECURITY INTEREST. Execute, acknowledge and
--------------------------
deliver, or cause the execution, acknowledgment and delivery of, and thereafter
register, file or record, or cause to be registered, filed or recorded, in an
appropriate governmental office, any document or instrument supplemental to or
confirmatory of the Security Documents or otherwise reasonably deemed by the
Collateral Agent necessary or desirable for the continued validity, perfection
and first-priority status of the Liens on the Collateral covered thereby. If at
any time following the Closing Date the Borrower or any other Credit Party shall
acquire property of any nature whatsoever (other than Real Property) which is
intended to be by the terms of the applicable Security Documents and is not
otherwise subject to the Lien created by such Security Documents, as soon as
possible and in no event later than ten (10) days after the relevant acquisition
date, the Borrower or such other Credit Party shall grant to the Collateral
Agent, for its benefit and the ratable benefit of the other Secured Parties, a
first priority Lien on such property as collateral security for the Obligations
pursuant to documentation reasonably satisfactory in form and substance to the
Collateral Agent.
SECTION 5.14. COLLATERAL ACCESS AGREEMENTS. Until such time as the
----------------------------
Administrative Agent otherwise notifies the Borrower in writing, obtain and
deliver as soon as practicable to the Collateral Agent Collateral Access
Agreements duly-executed by the Borrower and/or the applicable Credit Party or
Credit Parties and each of the landlords and mortgagees of each location where
the Borrower maintains any Inventory. In furtherance of the foregoing, the
Borrower and/or the applicable Credit Party or Credit Parties shall, to the
satisfaction of the Administrative Agent in its sole discretion, (a) continue to
use (i) their best efforts to obtain Collateral Access Agreements with respect
to the Borrower's retail locations in the Commonwealth of Pennsylvania, and (ii)
their reasonable efforts to obtain Collateral Access Agreements with respect to
the Borrower's retail locations in the State of New Jersey and (b) use their
best efforts to obtain Collateral Access Agreements from the landlords of each
leased property included in the Additional Collateral and the Permissible
Collateral.
73
<PAGE>
SECTION 5.15. INVENTORY. Cause all Inventory to be (i) located at such
---------
places, (ii) in such amounts and (iii) of the quality and value represented to
the Collateral Agent by the Borrower on or about the Closing Date.
SECTION 5.16. FURTHER ASSURANCES. Take all such further actions and
------------------
execute all such further documents and instruments as the Administrative Agent,
the Collateral Agent or Tranche B Agent may at any time reasonably determine in
its sole discretion to be necessary or desirable to further carry out and
consummate the transactions contemplated by this Agreement and the other Loan
Documents, to cause the execution, delivery and performance of this Agreement
and the other Loan Documents to be duly authorized and to perfect or protect the
Liens (and the priority status thereof) of the Collateral Agent in the
Collateral.
SECTION 5.17. USE OF PROCEEDS. Use the proceeds of the Loans only to,
---------------
first, repay in full all loans, letter of credit liabilities and other
obligations outstanding under or in respect of the Existing Credit Facility and,
second, make certain payments required under the Confirmed Plan not in excess of
$8,000,000 in the aggregate as provided in the summary of sources and uses of
funds set forth on Schedule 3.10 and to prepay up to the aggregate amount of
$6,000 to the holders of the New Notes, and, thereafter, (i) provide working
capital for and finance Inventory purchases by the Borrower and otherwise for
general corporate purposes of the Borrower and (ii) prepay the Permitted Note
Debt in accordance with Section 6.15. The Borrower will not use the proceeds of
any Loans or any other property of the Borrower to make any intercompany or
Affiliate advances (it being understood that proceeds of the Loans used for
ordinary-course operating expenses of the Bradlees store located in Yonkers, New
York (so long as such store remains open) will be deemed to be a permitted use
of proceeds hereunder).
SECTION 5.18. PERMITTED NOTE DEBT AND TRADE LIEN DEBT. (a) Ensure that at
---------------------------------------
all times the terms of the Permitted Note Debt and the Trade Lien Debt comply
with the respective provisions of this Agreement (including any Attachments
hereto) and (b) upon receipt of notice of a default or event of default, or an
event which is reasonably likely to result in a default or an event of default,
under the documents governing any Permitted Note Debt or the Trade Lien,
immediately deliver to the Administrative Agent notice thereof.
SECTION 5.19. YONKERS. On the Yonkers Effective Date (as defined in the
-------
Confirmed Plan), cause Yonkers to consummate a Combination Transaction (as
defined in the Confirmed Plan) in a manner acceptable to the Administrative
Agent. If at any time the provisions of the Yonkers Confirmation Order
authorizing Yonkers to enter into the Loan Documents to which it is a party is
reversed or vacated, or modified or amended in a manner deemed unacceptable by
the Administrative Agent, use its best efforts to obtain promptly from the
Bankruptcy Court an order authorizing Yonkers to enter into the Loan Documents
to which it is a party nunc pro tunc to the Closing Date.
SECTION 5.20. MORTGAGEE WAIVERS. (a) Within 10 Business Days of such
-----------------
delivery (unless extended by the Collateral Agent) cause each Mortgagee Waiver
delivered to the
74
<PAGE>
Collateral Agent hereunder to be properly recorded in the real estate records of
the appropriate jurisdiction.
(b) If so instructed by the Collateral Agent following a default by
the Borrower under the New Notes Indenture, within 90 days of such instruction,
either (at the option of the Collateral Agent) (i) transfer all Inventory,
equipment and other Collateral from one or more of the Bradlees store locations
included in the Permissible Collateral or the Additional Collateral to another
existing warehouse or store location at which the Collateral Agent has a first-
priority perfected security interest with respect to Collateral located at such
warehouse or store or (ii) conduct a going-out-of-business or other sale or
disposition of such Collateral at any or all such Permissible Collateral or
Additional Collateral locations (with respect to any transferred Collateral, to
the extent local law permits such sale), all in compliance with the relevant
lease and Mortgagee Waiver and as instructed by the Collateral Agent.
VI. NEGATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in effect
or any Loan, Letter of Credit, or other Obligation shall remain outstanding
(unless such Letter of Credit is fully collateralized to the satisfaction of the
Administrative Agent) the Borrower and each of the other Credit Parties agree
that the Borrower and each of the other Credit Parties will not:
SECTION 6.01. LIENS. Incur, create, assume or suffer to exist any Lien on
-----
any property of the Borrower or the other Credit Parties whether now owned or
hereafter acquired by the Borrower, other than (i) Permitted Liens; (ii) Liens
in favor of the Collateral Agent, for its benefit and the ratable benefit of the
other Secured Parties pursuant to the Loan Documents; (iii) Liens granted in
favor of the Other Transactions Counterparties in connection with Interest Rate
Agreements, the Master Lease Agreement and any other obligations owed by the
Borrower or the other Credit Parties to the Other Transactions Counterparties;
(iv) Liens on any interests in Real Property securing Indebtedness permitted
under Section 6.03(iii); (v) the Trade Lien; or (vi) Liens securing outstanding
obligations of the Borrower under the New Notes and the CAP Notes; provided,
--------
that the Liens securing obligations under the New Notes shall be secured only by
the Permissible Collateral, the Additional Collateral and the Yonkers Common
Stock Collateral (in each case, to the extent permitted by the terms of
Attachment III hereto) and the Liens securing the obligations under the CAP
Notes shall be secured only by a Lien on the CAP Collateral (as defined in
Attachment I hereto).
SECTION 6.02. MERGER, ETC. Consolidate or merge with or into another
-----------
Person (other than with Subsidiaries or BI so long as the Borrower is the
surviving entity) or enter into any stock or asset acquisitions.
SECTION 6.03. INDEBTEDNESS. Contract, create, incur, assume or suffer to
------------
exist any Indebtedness, except for (i) Indebtedness arising under this Agreement
or any other Loan Document; (ii) Indebtedness secured by purchase money Liens
and Capitalized Leases in an aggregate amount not to exceed $10,000,000 incurred
after the Closing Date; (iii) Indebtedness
75
<PAGE>
secured by any interests in Real Property owned or leased by the Borrower or any
other Credit Party that is non-recourse to the Borrower and the other Credit
Parties and is otherwise on terms and conditions reasonably satisfactory to the
Administrative Agent and the proceeds of which are deposited in the BBNA
Concentration Account for application to the Obligations in accordance with
Section 2.14; (iv) Permitted Note Debt; (vi) Indebtedness arising under Interest
Rate Agreements; and (v) any pre-petition tax claims (up to $3,400,000 in the
aggregate) to be paid subsequent to the Plan Effective Date pursuant to the Tax
Payment Plan.
SECTION 6.04. CAPITAL EXPENDITURES. Make Capital Expenditures in any
--------------------
fiscal year in excess of $20,000,000; provided, that, (i) up to $5,000,000 of
such $20,000,000 amount not expended in any fiscal year may be carried over for
expenditure in the immediately following fiscal year and (ii) so long as no
Default or Event of Default is then continuing, if, as of the end of the
Borrower's fiscal year, the Borrower's EBITDA for the previous 12-month period
exceeds $40,000,000, the Borrower may increase its Capital Expenditures above
$20,000,000 for the next fiscal year by the lesser of (x) 50% of the EBITDA in
excess of $40,000,000, and (y) $10,000,000.
SECTION 6.05. EBITDA. Permit EBITDA (after cash restructuring costs and
------
after adding back to EBITDA (to the extent not already done so) up to $4,400,000
of SG&A Expenses relating to emergence and other bonuses actually incurred by
the Borrower in connection with the Confirmed Plan) for the 12-month period
ending on or about the date set forth below to be less than the amount specified
opposite such date:
Fiscal Quarter of the Borrower Ending Rolling EBITDA
------------------------------------- --------------
on or about January 31, 1999 $17,500,000
on or about April 30, 1999 $20,000,000
on or about July 31, 1999 $22,500,000
on or about October 31, 1999 $27,500,000
on or about January 31, 2000 $30,000,000
and each fiscal quarter thereafter
SECTION 6.06. ACCOUNTS PAYABLE TO INVENTORY RATIO. Permit the ratio of the
-----------------------------------
amount of Accounts Payable to the value of Inventory of the Borrower (valued on
a first in - first out basis at the lower of cost or market calculated on the
retail method in accordance with GAAP and shown on the Borrower's financial
statements), expressed as a percentage, at the end of each month in any year set
forth below to be less than the percentage specified opposite such month:
Month Minimum Percentage
----- ------------------
January 37.0%
February 40.0%
March 40.0%
April 40.0%
76
<PAGE>
May 40.0%
June 40.0%
July 40.0%
August 42.5%
September 42.5%
October 42.5%
November 42.5%
December 40.0%
SECTION 6.07. DEBT COVERAGE RATIO. For the fiscal quarter of the Borrower
-------------------
ending on or about January 31, 2001 and each fiscal quarter thereafter, permit
the Borrower's ratio of (a) EBITDA less Capital Expenditures and cash payments
----
for taxes to (b) cash Interest Expense plus principal payments on any
----
Indebtedness, for the 12-month period ending on the last day of such fiscal
quarter to be less than 1.00:1.
SECTION 6.08. GUARANTEES AND OTHER LIABILITIES. Purchase or repurchase
--------------------------------
(or agree, contingently or otherwise, so to do) the Indebtedness of, or assume,
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance of any obligation or capability of so
doing, or otherwise), endorse or otherwise become liable, directly or
indirectly, in connection with the obligations, stock or dividends of any
Person, or permit any Subsidiary or Guarantor to do so, except for (i) the
Guaranty of the Guarantors hereunder, (ii) the unsecured subordinated guaranty
by BI of the Borrower's obligations under the New Notes, as set forth on
Attachment III hereto and (iii) the subordinated guaranty by Yonkers of the
Borrower's obligations under the New Notes, as set forth on Attachment III
hereto.
SECTION 6.09. DIVIDENDS; CAPITAL STOCK. Declare or pay, directly or
------------------------
indirectly, any dividends or make any other distribution or payment (by way of
repurchase or otherwise), whether in cash, property, securities or a combination
thereof, with respect to (whether by reduction of capital or otherwise) any
shares of capital stock (or any options, warrants, rights or other equity
securities or agreements relating to any capital stock), or set apart any sum
for the aforesaid purposes; provided that any Subsidiary of the Borrower may pay
--------
dividends to the Borrower.
SECTION 6.10. TRANSACTIONS WITH AFFILIATES. Sell or transfer any property
----------------------------
or assets to, or otherwise engage in any other transactions with, any of its
shareholders or Affiliates, except that the Borrower or any other Credit Party
may engage in any of the foregoing transactions in the ordinary course of
business at prices and on terms and conditions not less favorable to the
Borrower or such other Credit Party than could be obtained on an arm's-length
basis from unrelated third parties and which are consistent with past practices.
Notwithstanding the foregoing, the Borrower may not transfer any assets to any
other Credit Party except for proceeds of the loans to the extent provided in
Section 3.10.
77
<PAGE>
SECTION 6.11. INVESTMENTS, LOANS AND ADVANCES. Purchase, hold or acquire
-------------------------------
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other Person (all of the foregoing,
"Investments"), except for (i) ownership of the capital stock of the Borrower by
-----------
BI and each of the Guarantors listed on Schedule 3.04 (other than BI) and
Yonkers by the Borrower, (ii) relocation or similar type loans or advances to
new employees not in excess of $750,000 in the aggregate during the term of this
Agreement and (iii) Permitted Investments (provided the Collateral Agent has a
perfected first-priority security interest therein for its benefit and the
ratable benefit of the other Secured Parties).
SECTION 6.12. DISPOSITION OF ASSETS. Sell or otherwise dispose of any
---------------------
assets (including, without limitation, the capital stock of any Subsidiary),
except for (a) sales of Inventory in arm's-length transactions in the ordinary
course of business and (b) so long as no Default or Event of Default has
occurred or is continuing or would occur after giving effect to such sale or
disposition, (i) sales of Inventory, furniture, fixtures and equipment located
in the retail stores permitted to be closed under Section 6.13(c) that are
closed or otherwise disposed of, (ii) the sale of obsolete or worn out equipment
disposed of in the ordinary course of business, and (iii) the sale or other
transfer of Real Property, the proceeds of which are deposited in the BBNA
Concentration Account for application to the Obligations in accordance with
Section 2.14; provided that the following shall not be deemed prohibited by this
Agreement: (i) the return to vendors of out-of-season, defective, damaged or
nonconforming Inventory or negotiated returns for credit and (ii) the sale of
Permissible Collateral, provided that the proceeds from such sale are promptly
either (A) used to repay the amounts outstanding under the New Notes or (B)
deposited in a Blocked Account or the BBNA Concentration Account for application
to the Obligations in accordance with Section 2.14.
SECTION 6.13. NATURE OF BUSINESS.
------------------
(a) Modify or alter in any material manner the nature and type of its
business as conducted at the Closing Date or the manner in which such business
is conducted.
(b) Change, in any material respect, any of its inventory or sales
accounting, invoicing or billing practices or management information or
reporting systems except for the change of the Borrower's Inventory tracking and
accounting system reasonably satisfactory to the Administrative Agent (provided
--------
that, after such change, the Borrower continues to use accounting and tracking
methodologies consistent with those currently used by the Borrower).
(c) Close more than 5 retail stores, except as projected in the
Confirmed Plan and/or the Business Plan and except as set forth in subsection
7.01(k).
(d) Move Inventory from other than the locations listed on Schedule
3.11(a).
SECTION 6.14. CONFLICTING AGREEMENTS OR ACTIONS. Enter into any
---------------------------------
stipulation or agreement, take any action, or request or permit any other Person
to take any action which does or could conflict or materially interfere with any
of the rights, privileges, benefits or remedies of
78
<PAGE>
the Administrative Agent, the Co-Agents, the Tranche B Agent, the Issuing Bank,
the Collateral Agent, or any of the Lenders under any of the Loan Documents, or
materially diminish or impair the practical realization of any such right,
privilege, benefit or remedy.
SECTION 6.15. PREPAYMENTS AND AMENDMENT OF DEBT DOCUMENTS. (a) Make any
-------------------------------------------
optional payment or prepayment on or redemption or purchase of, or deliver any
funds to any trustee for the prepayment, redemption or defeasance of, any
Permitted Note Debt or any Indebtedness governed by the Tax Payment Plan (other
than as expressly permitted under Sections 3.10 and 5.17 hereof) or (b) amend,
modify or change, or consent or agree to any amendment, modification or change
to any of the material terms of any documents governing the Permitted Note Debt,
the Trade Lien or the Tax Payment Plan (other than any such amendment,
modification or change which would extend the maturity or reduce the amount of
any payment of principal thereof or which would reduce the rate or extend the
date for payment of interest thereon). Notwithstanding anything to the contrary
in clause (a) of this Section 6.15 and provided that no Default or Event of
Default has then occurred and is continuing, the Borrower may prepay any amounts
outstanding (i) under the CAP Notes and Cure Notes with the prior written
consent of the Administrative Agent, such consent not to be unreasonably
withheld and (ii) under the New Notes in accordance with the terms of such New
Notes and the documents governing such New Notes, each as in effect on the
Closing Date, (1) with the proceeds from the sale of the Permissible Collateral
or the sale of the Additional Collateral (if such sale is consented to in
writing by the Administrative Agent), (2) with the proceeds of any equity
offering by BI consummated after the Plan Effective Date, or (3) with other
funds if, with respect to this clause (3), immediately after giving effect to
such prepayment, the amount available to be borrowed by the Borrower under
Section 2.0l(a)(1) (after accounting for the payment by the Borrower of all of
its other due and payable payment obligations whether or not actually paid) is
not less than the amount set forth below opposite the Borrower's fiscal month in
which such prepayment takes place:
79
<PAGE>
<TABLE>
<CAPTION>
Fiscal Month Required Excess Availability
------------ ----------------------------
<S> <C>
February $39,000,000
March $46,000,000
April $49,000,000
May $48,000,000
June $36,000,000
July $38,000,000
August $31,000,000
September $34,000,000
October $47,000,000
November $43,000,000
December $47,000,000
January $46,000,000
</TABLE>
The Borrower shall provide the Administrative Agent with written notice at least
twenty and not more than forty-five days in advance of its intention to prepay
any of the CAP Notes, the Cure Notes and the New Notes and, with respect to any
prepayment of the New Notes pursuant to clause (ii)(3) above, written
calculations demonstrating the Borrower's compliance with the provisions
thereof.
(b) Notwithstanding the foregoing, indebtedness of the Borrower under
the New Notes may be converted into common stock of BI as provided in the
Indenture.
SECTION 6.16. AMENDMENTS TO CREDIT PLAN AGREEMENT. Enter into or agree to
-----------------------------------
any amendment to or other modification of the Credit Plan Agreement or any other
documents or instruments (including, without limitation, UCC-1 financing
statements) executed in connection therewith without the prior written consent
of the Administrative Agent, such consent not to be unreasonably withheld.
VII. EVENTS OF DEFAULT
SECTION 7.01. EVENTS OF DEFAULT. If any of the following events (each, an
-----------------
"Event of Default") occurs:
----------------
(a) any material representation or warranty made by the Borrower or
any other Credit Party in this Agreement or in any other Loan Document or in
connection with this Agreement or with the execution and delivery of the Notes
or the credit extensions hereunder or any material statement or representation
made in any report, financial statement, certificate or other document furnished
by the Borrower or any other Credit Party to the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Tranche B Agent or any of the Lenders
under or in connection with this Agreement or any other Loan Document, shall
prove to have been false or misleading in any material respect when made or
delivered; or
80
<PAGE>
(b) default shall be made in the payment of any (i) Fees or interest
on the Loans when due, and such default shall continue unremedied for more than
three (3) Business Days or (ii) principal of the Loans or other amounts payable
by the Borrower hereunder (including, without limitation, reimbursement
obligations or cash collateralization in respect of Letters of Credit), when and
as the same shall become due and payable, whether at the due date thereof or at
a date fixed for prepayment thereof or by acceleration thereof or otherwise; or
(c) default shall be made by the Borrower or any other Credit Party in
the due observance or performance of any covenant, condition or agreement
contained in Article VI hereof; or
(d) default shall be made by the Borrower or any other Credit Party in
the due observance or performance of any other covenant, condition or agreement
to be observed or performed pursuant to the terms of this Agreement or any of
the other Loan Documents and, with respect to Sections 5.01, 5.02 or 5.10, such
default shall continue unremedied for more than five (5) Business Days; or
(e) dissolution, liquidation, winding up or cessation of the
Borrower's or any other Credit Party's businesses, or the failure of the
Borrower or any other Credit Party to meet its debts as they mature, or the
calling of one or more meetings of the Borrower's or any other Credit Party's
major creditors for purposes of obtaining a moratorium on payment or a
compromise of the Borrower's or any other Credit Party's debts; or
(f) the insolvency of the Borrower or any other Credit Party or the
commencement on or after the Closing Date by or against the Borrower or any
other Credit Party of any bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceedings under any federal or state law and, in the
event any such proceeding is commenced against the Borrower or any other Credit
Party, such proceeding is not dismissed within thirty (30) days; or
(g) the loss by the Borrower or any other Credit Party of any lease,
permit, franchise or agreement, the loss of which could reasonably be expected
to have a material adverse effect on the financial condition, operations or
assets of the Borrower or the other Credit Parties, or their ability to repay
the Obligations or of the Collateral Agent to realize on the Collateral; or
(h) failure of Peter Thorner or some other person reasonably
acceptable to the Administrative Agent, to participate in the affairs of the
Borrower and the other Credit Parties as Chairman of the Board of Directors and
Chief Executive Officer with no diminution in the present responsibilities and
authority related to this executive management position; or
(i) (A) the occurrence of a default or event of default (in each case
without regard to any applicable grace periods) which permits, or could permit,
the acceleration of the maturity of, or the exercise of any other remedies under
(a) the Master Lease Agreement or any Interest Rate Agreement or (b) any note,
agreement or instrument evidencing (1) the New Notes or the Tax Payment Plan or
(2) any other Indebtedness of the Borrower or any of the other Credit
81
<PAGE>
Parties, and the aggregate principal amount of all such Indebtedness included in
this clause (3) with respect to which such a default or an event of default has
occurred, or the maturity of which is permitted to be accelerated, exceeds
$10,000,000 or (B) at any time more than 20 leases of the Borrower's retail
locations or warehouses have been declared to be terminated by the landlords
thereunder and such terminations have not been withdrawn, settled or otherwise
adjudicated in favor of the Borrower; or
(j) (A) any material provision of any Loan Document shall, for any
reason, cease to be valid and binding on the Borrower or any of the other Credit
Parties; provided, that, with respect to Yonkers only, such occurrence that is
caused by any of the circumstances set forth in the second sentence of Section
5.19 shall not be an Event of Default hereunder so long as the Credit Parties
comply with the provisions of such sentence or (B) any Lien granted to the
Collateral Agent under any Loan Document shall cease to be a first-priority
perfected Lien (subject only to Permitted Liens), or, in the case of (A) or (B)
the Borrower or any of the other Credit Parties shall so assert in any pleading
filed in any court; or
(k) greater than fifty percent (50%) of the Borrower's stores close
(temporarily or otherwise) for more than seven (7) consecutive days, unless such
closures are covered by business interruption insurance; or
(l) any one or more judgments or orders as to a liability or debt for
the payment of money (not covered by insurance and workers' compensation
payments) in excess of $5,000,000 in the aggregate shall be rendered against the
Borrower or any of the other Credit Parties and either (i) enforcement
proceedings shall have been commenced and shall be continuing by any creditor
upon such judgment or order or (ii) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal, payment or otherwise, shall not be in effect; or
(m) any non-monetary judgment or order shall be rendered against the
Borrower or any of the other Credit Parties which does or would reasonably be
expected to (i) cause a material adverse change in the financial condition,
business, operations or assets of the Borrower and the other Credit Parties
taken as a whole on a consolidated basis, (ii) have a material adverse effect on
the ability of the Borrower or any of the other Credit Parties to perform their
respective obligations under any Loan Document, or (iii) have a material adverse
effect on the Collateral or on the rights and remedies of the Administrative
Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-
Agents or any Lender under any Loan Document, and there shall be any period of
10 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(n) (i) The Borrower or any ERISA Affiliate shall fail to pay when
due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under a Multiemployer Plan;
(ii) the Borrower or any ERISA Affiliate shall fail to satisfy, after
application of any applicable grace periods, its contribution requirements
82
<PAGE>
under Section 412(c)(11) of the Code, whether or not it has sought a waiver
under Section 412(d) of the Code; (iii) in the case of a Termination Event
involving the withdrawal from a Single Employer Plan of a "substantial employer"
(as defined in Section 4001(a)(2) or Section 4062(e) of ERISA), the withdrawing
employer's proportionate share of that Plan's Unfunded Pension Liabilities is
more than $5,000,000; (iv) in the case of a Termination Event involving the
complete or partial withdrawal from a Multiemployer Plan, the withdrawing
employer has incurred a withdrawal liability in an aggregate amount exceeding
$5,000,000; (v) there occurs a Termination Event described in clauses (ix) or
(x) of the definition of Termination Event; (vi) in the case of a Termination
Event not described in clause (iii), (iv) or (v), the Unfunded Pension
Liabilities of the relevant Plan or Plans exceed $5,000,000; or (vii) a
Qualified Plan shall lose its qualification, and with respect to such loss of
qualification, the Borrower or any ERISA Affiliate can reasonably be expected to
be required to pay (for additional taxes, payments to or on behalf of Plan
participants, or otherwise) an aggregate amount exceeding $5,000,000; or
(o) it shall be determined (whether by the Bankruptcy Court or by any
other judicial or administrative forum) that the Borrower is liable for the
payment of claims arising out of any failure to comply (or to have complied)
with applicable environmental laws or regulations the payment of which will have
a material adverse effect on the financial condition, business, properties,
operations or assets of the Borrower or the Borrower and/or the Guarantors,
taken as a whole; or
(p) the occurrence of a Change of Control; or
(q) the Confirmation Order or the Yonkers Confirmation Order is
reversed, vacated, rescinded, modified or amended (except as expressly provided
in Section 3.09 and subsection 4.01(d) or, with respect to the Yonkers
Confirmation Order, if the Borrower complies with the provisions of the second
sentence of Section 5.19),
then, and in every such event and at any time thereafter during the continuance
of such event, the Administrative Agent may, and at the request of the Required
Tranche A Lenders shall, by notice (a "Default Notice") to the Borrower take one
--------------
or more of the following actions, at the same or different times: (i) terminate
forthwith all obligations of the Tranche A Lenders and the Issuing Bank to
extend credit under this Agreement, including any and all obligations to make
Tranche A Loans or to issue Letters of Credit; (ii) declare the Loans then
outstanding to be forthwith due and payable (such declaration to be consented to
in advance by the Required Supermajority Lenders if at such time any Tranche B
Loans are outstanding and the Tranche B Lenders have not at such time exercised
their remedies under clauses (ii) or (iv) of the last paragraph of Section 7.02
hereof), whereupon the principal of all outstanding Loans together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrower accrued hereunder and under any other Loan Document shall become
forthwith due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Borrower and
the other Credit Parties, anything contained herein or in any other Loan
Document to the contrary notwithstanding; (iii) require the Borrower and the
other Credit Parties to deposit in the Cash Collateral Account, no later than
the first Business Day after such
83
<PAGE>
Default Notice is given, cash in an amount equal to the sum of 105% of the
aggregate amounts that then are or thereafter may become available for drawing
or payment under all outstanding Letters of Credit and (without limiting or
restricting any application permitted under Sections 2.13 and 2.14) to the
extent the Borrower and the other Credit Parties shall fail to furnish such
funds as demanded by the Administrative Agent, the Administrative Agent shall be
authorized to debit the accounts of the Borrower and the other Credit Parties
maintained with the Administrative Agent in such amount; (iv) set-off amounts in
the Cash Collateral Account or any other accounts maintained by the
Administrative Agent and apply such amounts to the obligations of the Borrower
and the other Credit Parties hereunder and in the other Loan Documents in
connection with the Loans as provided in Section 2.17(a) (but this clause (iv)
shall not limit or restrict any application permitted under Sections 2.13 and
2.14); (v) instruct the Collateral Agent to exercise its remedies under the
Security Documents (including, without limitation, foreclosure upon and taking
possession of the Collateral), such instruction to be consented to in advance by
the Required Supermajority Lenders if at such time any Tranche B Loans are
outstanding and the Tranche B Lenders have not at such time exercised their
remedies under clauses (ii) or (iv) of the last paragraph of Section 7.02
hereof, and (vi) exercise any and all other remedies under the Loan Documents
and applicable law available to the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Co-Agents and the Lenders.
SECTION 7.02. EVENTS OF SUPER-DEFAULT. If any of the following events
-----------------------
(each, an "Event of Super-Default") occurs:
----------------------
(a) any of the representations and warranties set forth in Sections
3.01, 3.03, 3.04, 3.09, 3.11(d) or 3.13 prove to have been false or misleading
in any material respect when made or delivered; or
(b) default shall be made by the Borrower or any other Credit Party in
the due observance or performance of any covenant, condition or agreement set
forth in Sections 5.02, 5.06, 5.07, 5.12, 5.13, 5.15, 6.02, 6.09, 6.10, 6.12 or
6.13(c) or (d) hereof and, with respect to Section 5.02, such default shall
continue unremedied for more than five (5) Business Days and, with respect to
Section 5.06, such default shall continue unremedied for more than two (2)
Business Days; or
(c) any Event of Default set forth in Sections 7.01 (b), (e), (f),
(j), (p) or (q); or
(d) failure of the Borrower or the other Credit Parties to comply with
Sections 6 or 11 of the Security Agreement; or
(d) acceleration of the Tranche A Loans pursuant to clause (ii) in the
last paragraph of Section 7.01; or
(e) any other Event of Default that continues unwaived for ten (10)
Business Days;
84
<PAGE>
then, and in every such event and at any time thereafter during the continuance
of any such event, the Administrative Agent may, and at the request of the
Required Tranche B Lenders shall, by notice (a "Tranche B Default Notice") to
------------------------
the Borrower take one or more of the following actions, at the same or different
times: (i) terminate forthwith all obligations of the Tranche B Lenders to
extend credit under this Agreement, including any and all obligations to make
Tranche B Loans; (ii) provided that either (A) the Tranche A Loans have been
declared due and payable pursuant to Section 7.01 or (B) 30 days have elapsed
since the occurrence of the Event of Super-Default, declare the Tranche B Loans
then outstanding to be forthwith due and payable, whereupon the principal of all
outstanding Tranche B Loans together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower and the other Credit Parties,
anything contained herein or in any other Loan Document to the contrary
notwithstanding; (iii) set-off amounts in the Cash Collateral Account or any
other accounts maintained by the Administrative Agent and apply such amounts to
the obligations of the Borrower and the other Credit Parties hereunder and in
the other Loan Documents in connection with the Tranche B Loans as provided in
Section 2.17(a) (but this clause (iii) shall not limit or restrict any
application permitted under Sections 2.13 and 2.14); (iv) provided that either
(A) the Tranche A Loans have been declared due and payable pursuant to Section
7.01 or (B) 30 days have elapsed since the occurrence of the Event of Super-
Default, instruct the Collateral Agent to exercise its remedies under the
Security Documents (including, without limitation, foreclosure upon and taking
possession of the Collateral) and (v) exercise any and all other remedies under
the Loan Documents and applicable law available to the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the
Lenders.
SECTION 7.03. WHEN CONTINUING. For all purposes under this Agreement,
---------------
each Default and Event of Default that has occurred shall be deemed to
be continuing at all times thereafter unless it either (a) is cured or corrected
to the reasonable written satisfaction of the Required Tranche A Lenders or (b)
is waived in writing by the Required Tranche A Lenders. For all purposes under
this Agreement, each Event of Super-Default that has occurred shall be deemed to
be continuing at all times thereafter unless it either (a) is cured or corrected
to the reasonable written satisfaction of the Required Tranche B Lenders or (b)
is waived in writing by the Required Tranche B Lenders.
VIII. THE AGENTS
SECTION 8.01. ADMINISTRATION BY ADMINISTRATIVE AGENT. The general
--------------------------------------
administration of the Loan Documents shall be by the Administrative Agent. The
Lenders, the Collateral Agent, the Tranche B Agent and the Issuing Bank each
hereby irrevocably authorizes the Administrative Agent (i) to enter into the
Loan Documents to which it is a party and (ii) at its discretion, to take or
refrain from taking such actions as agent on its behalf and to exercise or
refrain from exercising such powers under the Loan Documents and the Notes as
are delegated by the terms hereof or thereof, as appropriate, together with all
powers reasonably incidental
85
<PAGE>
thereto. The Administrative Agent shall have no duties or responsibilities
except as set forth in this Agreement and the remaining Loan Documents.
SECTION 8.02. THE COLLATERAL AGENT. Each Lender, the Administrative
--------------------
Agent, the Tranche B Agent, the Co-Agents and the Issuing Bank hereby
irrevocably (i) designate BBRF as Collateral Agent under this Agreement and the
other Loan Documents, (ii) authorize the Collateral Agent to enter into the
Collateral Documents and the other Loan Documents to which it is a party and to
perform its duties and obligations thereunder and (iii) agree and consent to all
of the provisions of the Security Agreement. All Collateral shall be held or
administered by the Collateral Agent (or its duly-appointed agent) for its
benefit and for the ratable benefit of the other Secured Parties. Any proceeds
received by the Collateral Agent from the foreclosure, sale, lease or other
disposition of any of the Collateral and any other proceeds received pursuant to
the terms of the Security Documents or the other Loan Documents shall be paid
over to the Administrative Agent for application as provided in Sections 2.14(a)
and (b).
SECTION 8.03. ADVANCES AND PAYMENTS.
---------------------
(a) On the date of each Loan, the Administrative Agent shall be
authorized (but not obligated) to advance, for the account of each of the
Lenders, the amount of the Loan to be made by it in accordance with its
Commitment hereunder. Should the Administrative Agent do so, each of the
Lenders agrees forthwith to reimburse the Administrative Agent in immediately
available funds for the amount so advanced on its behalf by the Administrative
Agent, together with interest at the Federal Funds Effective Rate if not so
reimbursed on the date due from and including such date but not including the
date of reimbursement.
(b) Any amounts received by the Administrative Agent in connection
with this Agreement or the other Loan Documents (other than amounts to which the
Administrative Agent is entitled pursuant to Sections 2.19, 5.08, 8.07, 10.05
and 10.06), the application of which is not otherwise provided for in this
Agreement shall be applied in the order of priority set forth in Sections
2.14(a) and (b). All amounts to be paid to a Lender, the Collateral Agent, the
Tranche B Agent, either Co-Agent or the Issuing Bank by the Administrative Agent
shall be credited to that Lender, the Collateral Agent, the Tranche B Agent,
such Co-Agent or the Issuing Bank, as applicable, after collection by the
Administrative Agent, in immediately available funds either by wire transfer or
deposit in the correspondent account of that Lender, the Collateral Agent, the
Tranche B Agent, such Co-Agent or the Issuing Bank with the Administrative
Agent, as such Lender, the Collateral Agent, the Tranche B Agent, such Co-Agent
or the Issuing Bank and the Administrative Agent shall from time to time agree.
SECTION 8.04. SHARING OF EXCESS PAYMENTS. Each of the Lenders, the
--------------------------
Collateral Agent, the Tranche B Agent, each Co-Agent and the Issuing Bank agrees
that if it shall, through the exercise of a right of banker's lien, setoff or
counterclaim against the Borrower or any other Credit Party, including, but not
limited to, a secured claim under Section 506 of the Bankruptcy Code or other
security or interest arising from, or in lieu of, such secured claim and
received by such Lender, the Collateral Agent, the Tranche B Agent, such Co-
Agent or the Issuing Bank
86
<PAGE>
under any applicable bankruptcy, insolvency or other similar law, or otherwise,
obtain payment in respect of its Obligations owed it (an "excess payment") as a
--------------
result of which Lender, the Collateral Agent, the Tranche B Agent, such Co-Agent
or the Issuing Bank has received payment of any Loans or other Obligations
outstanding to it in excess of the amount that it would have received if all
payments at any time applied to the Loans and other Obligations had been applied
in the order of priority set forth in Section 2.14, then such Lender, the
Collateral Agent, the Tranche B Agent, such Co-Agent or the Issuing Bank shall
promptly purchase at par (and shall be deemed to have thereupon purchased) from
the other Lenders, the Collateral Agent, the Tranche B Agent, each Co-Agent and
the Issuing Bank, as applicable, a participation in the Loans and Obligations
outstanding to such other Persons, in an amount determined by the Administrative
Agent in good faith as the amount necessary to ensure that the economic benefit
of such excess payment is reallocated in such manner as to cause such excess
payment and all other payments at any time applied to the Loans and other
Obligations to be effectively applied in the order of priority set forth in
Section 2.14 and, within Tranche A and Tranche B, to each lender pro rata in
--- ----
proportion to its Tranche A Commitment and Tranche B Commitment, respectively;
provided, that if any such excess payment is thereafter recovered or otherwise
- --------
set aside such purchase of participations shall be correspondingly rescinded
(without interest). The Borrower and each other Credit Party expressly consents
to the foregoing arrangements and agrees that any Lender, the Collateral Agent,
the Tranche B Agent, any Co-Agent or the Issuing Bank holding (or deemed to be
holding) a participation in any Loan or other Obligation may exercise any and
all rights of banker's lien, setoff or counterclaim with respect to any and all
moneys owing by the Borrower or such other Credit Party to such Lender, the
Collateral Agent, the Tranche B Agent, such Co-Agent or the Issuing Bank as
fully as if such Lender, the Collateral Agent, the Tranche B Agent, such Co-
Agent or the Issuing Bank held a Note and was the original obligee thereon, in
the amount of such participation.
SECTION 8.05. AGREEMENT OF REQUIRED LENDERS. (i) Upon any occasion
-----------------------------
requiring or permitting an approval, consent, waiver, election or other action
on the part of only the Required Tranche A Lenders, action shall be taken by the
Agents for and on behalf or for the benefit of all Lenders upon the direction of
the Required Tranche A Lenders, and any such action shall be binding on all
Lenders, (ii) upon any occasion requiring or permitting an approval, consent,
waiver, election or other action on the part of only the Required Tranche B
Lenders, action shall be taken by the Agents for and on behalf or for the
benefit of all Lenders upon the direction of the Required Tranche B Lenders, and
any such action shall be binding on all Lenders, (iii) upon any occasion
requiring or permitting an approval, consent, waiver, election or other action
on the part of only the Required Lenders, action shall be taken by the Agents
for and on behalf or for the benefit of all Lenders upon the direction of the
Required Lenders, and any such action shall be binding on all Lenders, and (iv)
upon any occasion requiring or permitting an approval, consent, waiver, election
or other action on the part of the Required Supermajority Lenders, action shall
be taken by the Agents for and on behalf or for the benefit of all Lenders upon
the direction of the Required Supermajority Lenders, and any such action shall
be binding on all Lenders. No amendment, modification, consent, or waiver shall
be effective except in accordance with the provisions of Section 10.10.
87
<PAGE>
SECTION 8.06. LIABILITY OF AGENTS.
-------------------
(a) Each of the Agents, when acting on behalf of the Lenders and the
Issuing Bank, may execute any of its respective duties under this Agreement by
or through any of its respective officers, agents and employees, and none of the
Agents nor their respective directors, officers, agents or employees shall be
liable to the Lenders, the Co-Agents or the Issuing Bank or any of them for any
action taken or omitted to be taken in good faith, or be responsible to the
Lenders, the Co-Agents or the Issuing Bank or to any of them for the
consequences of any oversight or error of judgment, or for any loss, except to
the extent of any liability imposed by law by reason of such Agent's own gross
negligence or willful misconduct. The Agents and their respective directors,
officers, agents and employees shall in no event be liable to the Lenders, the
Co-Agents or the Issuing Bank or to any of them for any action taken or omitted
to be taken by them pursuant to instructions received by them from the Required
Lenders, Required Tranche A Lenders, Required Tranche B Lenders or Required
Supermajority Lenders, as applicable, or in reliance upon the advice of counsel
selected by it. Without limiting the foregoing, none of the Agents, nor any of
their respective directors, officers, employees, or agents shall be responsible
to any Lender, the Co-Agents or the Issuing Bank for the due execution,
validity, genuineness, effectiveness, sufficiency, or enforceability of, or for
any statement, warranty or representation in, this Agreement, any Loan Document
or any related agreement, document or order, or shall be required to ascertain
or to make any inquiry concerning the performance or observance by the Borrower
or any other Credit Party of any of the terms, conditions, covenants, or
agreements of this Agreement or any of the Loan Documents.
(b) None of the Agents nor any of their respective directors,
officers, employees, or agents shall have any responsibility to the Borrower or
the other Credit Parties on account of the failure or delay in performance or
breach by any Lender, either Co-Agent or the Issuing Bank or by the Borrower or
the other Credit Parties of any of their respective obligations under this
Agreement or the Notes or any of the Loan Documents or in connection herewith or
therewith.
(c) The Administrative Agent, the Tranche B Agent and the Collateral
Agent, in such capacities hereunder, shall be entitled to rely on any
communication, instrument, or document reasonably believed by such person to be
genuine or correct and to have been signed or sent by a person or persons
believed by such person to be the proper person or persons, and, such person
shall be entitled to rely on advice of legal counsel, independent public
accountants, and other professional advisers and experts selected by such
person.
SECTION 8.07. REIMBURSEMENT AND INDEMNIFICATION. Each Lender agrees (i) to
---------------------------------
reimburse (x) each Agent for such Lender's
Commitment Percentage of any expenses and fees incurred by such Agent for the
benefit of the Lenders, the Co-Agents or the Issuing Bank under this Agreement,
the Notes and any of the Loan Documents, including, without limitation, counsel
fees and compensation of agents and employees paid for services rendered on
behalf of the Lenders, the Co-Agents or the Issuing Bank, and any other expense
incurred in connection with
88
<PAGE>
the operations or enforcement thereof not reimbursed by the Borrower or the
other Credit Parties and (y) each Agent for such Lender's Commitment Percentage
of any expenses of such Agent incurred for the benefit of the Lenders, the Co-
Agents or the Issuing Bank that the Borrower has agreed to reimburse pursuant to
Section 10.05 and has failed to so reimburse and (ii) to indemnify and hold
harmless the Agents and any of their directors, officers, employees, or agents,
on demand, in the amount of such Lender's Commitment Percentage, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against it
or any of them in any way relating to or arising out of this Agreement, the
Notes or any of the Loan Documents or any action taken or omitted by it or any
of them under this Agreement, the Notes or any of the Loan Documents to the
extent not reimbursed by the Borrower or the other Credit Parties (except such
as shall result from their respective gross negligence or willful misconduct).
SECTION 8.08. RIGHTS OF AGENTS. It is understood and agreed that each of
----------------
BBNA and BBRF shall have the same rights and powers hereunder (including the
right to give such instructions) as the other Lenders and may exercise such
rights and powers, as well as its rights and powers under other agreements and
instruments to which it is or may be party, and engage in other transactions
with the Borrower or any other Credit Party, as though it were not the
Administrative Agent, the Tranche B Agent or the Collateral Agent, respectively,
of the Lenders under this Agreement.
SECTION 8.09. INDEPENDENT LENDERS AND ISSUING BANK. The Lenders and the
------------------------------------
Issuing Bank each acknowledges that it has decided to enter into this Agreement
and to make the Loans or issue the Letters of Credit hereunder based on its own
analysis of the transactions contemplated hereby and of the creditworthiness of
the Borrower and the other Credit Parties and agrees that the Agents shall bear
no responsibility therefor.
SECTION 8.10. NOTICE OF TRANSFER. The Agents may deem and treat a Lender
------------------
party to this Agreement as the owner of such Lender's portion of the Loans for
all purposes, unless and until, and except to the extent, an Assignment and
Acceptance shall have become effective as set forth in Section 10.03(b).
SECTION 8.11. SUCCESSOR ADMINISTRATIVE AGENT AND TRANCHE B AGENT. The
--------------------------------------------------
Administrative Agent and the Tranche B Agent may resign at any time by giving
five (5) Business Days' written notice thereof to the Lenders, the Issuing Bank,
the other Agents and the Borrower. Upon any such resignation of the
Administrative Agent, the Required Lenders shall have the right to appoint a
successor Administrative Agent, which shall be reasonably satisfactory to the
Borrower, and, upon any such resignation of the Tranche B Agent, the Required
Tranche B Lenders shall have the right to appoint a successor Tranche B Agent,
which shall be reasonably satisfactory to the Borrower. If no successor
Administrative Agent or Tranche B Agent, as the case may be, shall have been so
appointed by the Required Lenders or the Required Tranche B Lenders, as
applicable, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation, the retiring Agent may,
89
<PAGE>
on behalf of the Lenders, the other Agents and the Issuing Bank, appoint a
successor Administrative Agent or Tranche B Agent, as the case may be, which
shall be (i) a commercial bank (or affiliate thereof) organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of a least $100,000,000, (ii) or a Lender capable of
complying with all of the duties of the Administrative Agent (and the Issuing
Bank) or the Tranche B Agent, as the case may be, hereunder (in the opinion of
the retiring Agent and as certified to the Lenders in writing by such successor
Agent) which, in the case of (i) and (ii) above, so long as there is no Default,
Event of Default or Event of Super-Default, shall be reasonably satisfactory to
the Borrower. Upon the acceptance of any appointment as Administrative Agent or
Tranche B Agent hereunder by a successor Administrative Agent or Tranche B
Agent, as the case may be, such successor Administrative Agent or Tranche B
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent's resignation hereunder as such Agent, the provisions of this
Article VIII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was such Agent under this Agreement. Upon the effectiveness
of the Administrative Agent's resignation hereunder, it shall be deemed to have
resigned as Issuing Bank as well, with the Required Tranche A Lenders to appoint
a successor Issuing Bank from among the successor Administrative Agent and the
Lenders; provided that arrangements satisfactory to the replaced Issuing Bank
--------
are made with respect to Letters of Credit issued by
the Issuing Bank and outstanding as of the date of its resignation hereunder.
SECTION 8.12. REPORTS AND FINANCIAL STATEMENTS. Promptly after receipt
--------------------------------
thereof from the Borrower, the Administrative Agent shall remit to each Lender,
the Collateral Agent, the Tranche B Agent and the Issuing Bank copies of all
financial statements and reports required to be delivered by the Borrower
hereunder.
IX. GUARANTY
SECTION 9.01. GUARANTY.
--------
(a) Each of the Guarantors unconditionally and irrevocably guarantees
the due and punctual payment and performance by the Borrower of the Obligations.
Each of the Guarantors further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice to or further assent from it, and
it will remain bound upon this guaranty notwithstanding any extension or renewal
of any of the Obligations. The Obligations of the Guarantors shall be joint and
several.
(b) Each of the Guarantors waives presentation to, demand for payment
from and protest to the Borrower or any other Guarantor, and also waives notice
of protest for nonpayment. The obligations of the Guarantors hereunder shall
not be affected by (i) the failure of the Administrative Agent, the Collateral
Agent, the Issuing Bank, the Tranche B Agent, either Co-Agent or a Lender to
assert any claim or demand or to enforce any right or remedy against
90
<PAGE>
the Borrower or any other Guarantor under the provisions of this Agreement or
any other Loan Document or otherwise; (ii) any extension or renewal of any
provision hereof or thereof; (iii) any rescission, waiver, compromise,
acceleration, amendment or modification of any of the terms or provisions of any
of the Loan Documents; (iv) the release, exchange, waiver or foreclosure of any
security held by the Administrative Agent or the Collateral Agent for the
Obligations or any of them; (v) the failure of the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or a
Lender to exercise any right or remedy against any other Guarantor; (vi) the
release or substitution of any Guarantor or any other guarantor or (vii) any
bankruptcy, insolvency, reorganization, arrangement, adjustment, composition,
liquidation or the like of the Borrower or any Guarantor including, but not
limited to, (x) any Guaranteed Party's election, in any proceeding instituted
under the Bankruptcy Code, of the application of Section 1111(b)(2) of the
Bankruptcy Code, (y) any borrowing or grant of a Lien by the Borrower or any
Guarantor as debtor-in-possession, under Section 364 of the Bankruptcy Code, or
(z) the disallowance of all or any portion of any Guaranteed Party's claim(s)
for repayment of the Obligations under Section 502 of the Bankruptcy Code.
(c) Each of the Guarantors further agrees that this guaranty
constitutes a guaranty of performance and of payment when due and not just of
collection, and waives any right to require that any resort be had by the
Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, either Co-Agent or a Lender to any security held for payment of the
Obligations or to any balance of any deposit, account or credit on the books of
the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, either Co-Agent or a Lender in favor of the Borrower or any other
Guarantor, or to any other Person.
(d) Each of the Guarantors hereby waives any defense that it might
have based on a failure to remain informed of the financial condition of the
Borrower and of any other Guarantor and any circumstances affecting the ability
of the Borrower to perform under this Agreement.
(e) Each Guarantor's guaranty shall not be affected by the
genuineness, validity, regularity or enforceability of the obligations, the
Notes or any other instrument evidencing any Obligations, or by the existence,
validity, enforceability, perfection, or extent of any collateral therefor or by
any other circumstance relating to the obligations which might otherwise
constitute a defense to this Guaranty. None of the Administrative Agent, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or any
of the Lenders makes any representation or warranty in respect to any such
circumstances or shall have any duty or responsibility whatsoever to any
Guarantor in respect of the management and maintenance of the obligations.
(f) Subject to the provisions of Article VII, upon the Obligations
becoming due and payable (by acceleration or otherwise), the Lenders, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the
Administrative Agent shall be entitled to immediate payment of such obligations
by the Guarantors upon written demand by the Administrative Agent.
91
<PAGE>
SECTION 9.02. NO IMPAIRMENT OF GUARANTY. The obligations of the
-------------------------
Guarantors hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including, without limitation, any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense or set-off, counterclaim, recoupment, or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
obligations. Without limiting the generality of the foregoing, the obligations
of the Guarantors hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Tranche B Agent, either Co-Agent or a Lender to assert any
claim or demand or to enforce any remedy under this Agreement or any other
agreement, by any waiver or modification of any provision thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
Obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
the Guarantors or would otherwise operate as a discharge of the Guarantors as a
matter of law, unless and until the obligations are paid in full.
SECTION 9.03. SUBROGATION. Upon payment by any Guarantor of any sums to
-----------
the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, either Co-Agent or a Lender hereunder, all rights of such Guarantor
against the Borrower arising as a result thereof by way of right of subrogation
or otherwise, shall in all respects be subordinate and junior in right of
payment to the prior final and indefeasible payment in full of all the
Obligations. If any amount shall be paid to such Guarantor for the account of
the Borrower, such amount shall be held in trust for the benefit of the
Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, the Co-Agents and the Lenders and shall forthwith be paid to the
Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, the Co-Agents and the Lenders to be credited and applied to the
Obligations, whether matured or unmatured.
SECTION 9.04. CREDIT AGREEMENT. Each of the Guarantors acknowledges that
----------------
it has read the Loan Documents and agrees to perform and observe all of the
terms and provisions herein and therein applicable thereto.
SECTION 9.05. MAXIMUM GUARANTEED AMOUNT. Notwithstanding any other
-------------------------
of this Guaranty to the contrary, if the obligations of any Guarantor hereunder
would otherwise be held or determined by a court of competent jurisdiction in
any action or proceeding involving any state corporate law or any state or
Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other law affecting the rights of creditors generally, to be void,
invalid or unenforceable to any extent on account of the amount of such
Guarantor's liability under this Guaranty, then notwithstanding any other
provision of this Guaranty to the contrary, the amount of such liability shall,
without any further action by such Guarantor or any other Person, be
automatically limited and reduced to the highest amount which is valid and
enforceable as determined in such action or proceeding.
SECTION 9.06. RELEASE OF YONKERS GUARANTEE AND LIENS.
--------------------------------------
Upon the transfer of ownership of the Yonkers Common Stock Collateral from
the Borrower to any other Person
92
<PAGE>
(other than another Credit Party) pursuant to, and in compliance with, the
Indenture or the Indenture Security Agreement, the guaranty of Yonkers hereunder
and the Liens granted by Yonkers under the Security Agreement each shall be
released and Yonkers shall have no further obligations hereunder or under the
other Loan Documents (other than indemnity and expense claims arising prior to
the date of such release).
X. MISCELLANEOUS
SECTION 10.01. NOTICES. Notices and other communications provided for
-------
herein shall be in writing (including telegraphic, telex, facsimile or cable
communication) and shall be mailed, telegraphed, telexed, telecopied,
transmitted, cabled or delivered to the Borrower or any other Credit Party at
One Bradlees Circle, P.O. Box 9051, Braintree, MA 02185-9051, Attention: Chief
Financial Officer (telecopy number: (781) 380-8096), and to a Lender, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or the
Administrative Agent to it at its address set forth on the signature pages of
this Agreement, or such other address as such party may from time to time
designate by giving written notice to the other parties hereunder. All notices
and other communications given to any party hereto in accordance with the
provisions of this Agreement shall be deemed to have been given on the fifth
Business Day after the date when sent by registered or certified mail, postage
prepaid, return receipt requested, if by mail; or when delivered to the
telegraph company, charges prepaid, if by telegram; or when receipt is
acknowledged, if by any telegraphic communications or facsimile equipment of the
sender; in each case addressed to such party as provided in this Section 10.01
or in accordance with the latest unrevoked written direction from such party;
provided, however, that in the case of notices to the Administrative Agent
- -------- -------
notices pursuant to the preceding sentence and pursuant to Article II shall be
effective only when received by the Administrative Agent. Copies of all notices
and other communications given to the Borrower shall go to Dewey Ballantine,
1301 Avenue of the Americas, New York, New York 10019, Attn: Stuart Hirshfield,
Esq.
SECTION 10.02. SURVIVAL OF AGREEMENT, REPRESENTATIONS AND WARRANTIES, ETC.
-----------------------------------------------------------
All warranties, representations and covenants made by the Borrower or any
other Credit Party herein or in any certificate or other instrument delivered by
it or on its behalf in connection with this Agreement shall be considered to
have been relied upon by the Lenders, the Issuing Bank, the Collateral Agent,
the Tranche B Agent, the Co-Agents and the Administrative Agent and shall
survive the making of the Loans and the issuance of Letters of Credit herein
contemplated and the issuance and delivery of the Notes and the Letters of
Credit, regardless of any investigation made by any Lender, the Issuing Bank,
the Collateral Agent, the Tranche B Agent, either Co-Agent and the
Administrative Agent or on its behalf and shall continue in full force and
effect so long as any amount due or to become due hereunder is outstanding and
unpaid and so long as the Commitments have not been terminated. All statements
in any such certificate or other instrument shall constitute representations and
warranties by the Borrower and the other Credit Parties hereunder with respect
to the Borrower and the other Credit Parties.
SECTION 10.03. SUCCESSORS AND ASSIGNS.
----------------------
93
<PAGE>
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Guarantors, the Administrative Agent, the Issuing Bank, the
Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders and their
respective successors and assigns. Neither the Borrower nor any of the other
Credit Parties may assign or transfer any of their rights or obligations
hereunder without the prior written consent of all of the Lenders, the Issuing
Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the
Administrative Agent. Each Lender may sell participations to any Person in all
or part of any Loan, or all or part of its Note or Commitment, in which event,
without limiting the foregoing, the provisions of Section 2.15 and 2.18 shall
inure to the benefit of each purchaser of a participation (provided that such
--------
participant shall look solely to the seller of such participation for such
benefits and the Borrower's and the Guarantors' liability, if any, under
Sections 2.15 and 2.18 shall not be increased as a result of the sale of any
such participation) and the treatment of payments pursuant to Section 2.17,
shall be determined as if such Lender had not sold such participation. In the
event any Lender shall sell any participation, such Lender shall retain the sole
right and responsibility to enforce the obligations of the Borrower and each of
the other Credit Parties relating to the Loans, including, without limitation,
the right to approve any amendment, modification or waiver of any provision of
this Agreement other than amendments, modifications or waivers which (i) reduce
any Fees payable hereunder to the Lenders, (ii) reduce the amount of any
scheduled principal payment on any Loan or reduce the principal amount of any
Loan or the rate of interest payable hereunder, (iii) extend the maturity of the
Borrower's obligations hereunder or (iv) release a material portion of the
Collateral in a manner not expressly permitted under the Loan Documents without
the benefit of such amendment, modification or waiver. The sale of any such
participation, shall not alter the rights and obligations of the Lender selling
such participation hereunder with respect to the Borrower.
(b) Each Lender may assign to one or more Lenders or Eligible
Assignees all or a portion of its interests, rights and obligations under this
Agreement (including, without limitation, all or a portion of its Tranche A
Commitment or all or a portion of its Tranche B Commitment, or both of them,
together with the same portion of the related Loans at the time owing to it and
the related Notes held be it); provided, however, that (i) other than in the
-------- -------
case of an assignment to an Affiliate of the assignor Lender, or to another
Lender, the Administrative Agent and the Issuing Bank must give their prior
written consent, which consent will not be unreasonably withheld, (ii) the
aggregate amount of the Commitment and/or Loans held by each of the assigning
and assignee Lenders subject to each such assignment (determined as of the date
the Assignment and Acceptance with respect to such assignment is delivered to
the Administrative Agent and after giving effect to such assignment) shall,
unless otherwise agreed to in writing by the Borrower (so long as there is no
Event of Default) and the Administrative Agent, in no event be less than
$7,500,000, in the case of Tranche A Loans, or $5,000,000, in the case of
Tranche B Loans (unless the assigning Lender assigns its entire remaining
Commitment, in which case such assigning Lender's Commitment shall be $0), and
(iii) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register (as
defined below), an Assignment and Acceptance with blanks appropriately
completed, together with any Note subject to such assignment and a processing
and recordation fee of $3,000. Upon such execution, delivery, acceptance and
recording, from and
94
<PAGE>
after the effective date specified in each Assignment and Acceptance, which
effective date shall be within ten Business Days after the execution thereof
(unless otherwise agreed to in writing by the Administrative Agent), (A) the
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
and (B) the Lender thereunder shall, to the extent provided in such Assignment
and Acceptance, be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto). The Borrower shall have no liability
for the $3,000 processing and recordation fee, but shall be responsible for its
own expenses and the expenses of the Administrative Agent. Notwithstanding the
foregoing, unless and until an Event of Default has occurred, BBNA and BBRF
agree to hold, between them, Commitments totaling at least $25,000,000 in the
aggregate; provided that, if BBNA and BBRF's combined Commitment or, if greater,
--------
the aggregate amount of their Loans outstanding, is reduced below the lesser of
(x) 2.5% of the then Total Commitments or total Loans outstanding, as applicable
or (y) $5,000,000 after the occurrence of an Event of Default, BBNA will, upon
the request of the Required Lenders, resign as Administrative Agent hereunder
pursuant to Section 8.10.
(c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements warranties or representations made in or in connection
with this Agreement or any of the other Loan Documents or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any of the other Loan Documents; (ii) such Lender assignor makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any other Credit Party or the performance
or observance by the Borrower or any other Credit Party of any of its
obligations under this Agreement or any of the other Loan Documents or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement and the other Loan Documents,
together with copies of the financial statements referred to in Section 3.04 and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon the
Administrative Agent, such Lender assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Administrative Agent by the terms thereto,
together with such powers as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all
obligations that by the terms of this Agreement are required to be performed by
it as a Lender.
95
<PAGE>
(d) The Administrative Agent shall maintain at its office a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Loans owing to, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the other Credit Parties, the Administrative
Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-
Agents and the Lenders shall treat each Person the name of which is recorded in
the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and the assignee thereunder together with any Note subject to
such assignment and the fee payable in respect thereto, the Administrative Agent
shall, if such Assignment and Acceptance has been completed with blanks
appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt written
notice thereof to the Borrower (together with a copy thereof). Within five
Business Days after receipt of notice, the Borrower, at its own expense, shall
execute and deliver to the Administrative Agent in exchange for the surrendered
Note a new Note to the order of such assignee in an amount equal to the
Commitment and/or Loans assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Lender has retained Commitments and/or Loans hereunder, a
new Note to the order of the assigning Lender in an amount equal to the
Commitment and/or Loans retained by it hereunder. Such new Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of the surrendered
Note. Thereafter, such surrendered Note shall be marked canceled and returned
to the Borrower.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10.03, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower or any of the other Credit Parties
furnished to such Lender by or on behalf of the Borrower or any of the other
Credit Parties; provided that prior to any such disclosure, each such assignee
--------
or participant or proposed assignee or participant shall agree in writing to be
bound by the provisions of Section 10.04.
(g) The Borrower hereby agrees to actively assist and cooperate with
the Administrative Agent in the Administrative Agent's efforts to sell
participations herein (as set forth in Section 10.03(a)) and assign to one or
more Lenders or Eligible Assignees a portion of its interests, rights and
obligations as a Lender under this Agreement (as set forth in Section 10.03(b)).
96
<PAGE>
(h) Notwithstanding the provisions of this Section 10.03, each Lender
may at any time pledge or assign its interest in any Loans or other Obligations
to any Reserve Bank in the Federal Reserve System.
SECTION 10.04. CONFIDENTIALITY. Each Lender agrees to keep, and to cause
---------------
its agents, attorneys and financial advisors to keep, any information delivered
or made available by the Borrower or any of the other Credit Parties to it
confidential from anyone other than persons employed or retained by such Lender
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any
--------
Lender from disclosing such information (i) to any other Lender, (ii) to any
other person if reasonably incidental to the administration of the Loans, (iii)
upon the order of any court or administrative agency, (iv) upon the request or
demand of any regulatory agency or authority, (v) which has been publicly
disclosed other than as a result of a disclosure by the Administrative Agent or
any Lender which is not permitted by this Agreement, (vi) in connection with any
litigation to which the Administrative Agent, the Collateral Agent, the Tranche
B Agent, any Lender, the Issuing Bank, either Co-Agent or their respective
Affiliates may be a party, (vii) to the extent reasonably required in connection
with the exercise of any remedy hereunder, (viii) to such Lender's legal counsel
and independent auditors, (ix) to any actual or proposed participant or assignee
of all or part of its rights hereunder subject to the proviso in Section
10.03(f) and (x) to the extent required by law.
SECTION 10.05. EXPENSES; DOCUMENTARY TAXES. Whether or not the
---------------------------
transactions hereby contemplated shall be consummated, the Borrower and the
other Credit Parties jointly and severally agree to pay (A) all reasonable out-
of-pocket expenses incurred by the Administrative Agent, the Collateral Agent
and the Tranche B Agent (including but not limited to the reasonable fees and
disbursements of Latham & Watkins, special counsel for the Administrative Agent,
the Collateral Agent and the Tranche B Agent, and any other replacement counsel
that the Administrative Agent, the Collateral Agent and the Tranche B Agent
shall retain) in connection with the preparation, execution, delivery and
administration of this Agreement, the Notes and the other Loan Documents, the
making of the Loans and the issuance of the Letters of Credit, and the
syndication of the transactions contemplated hereby, (B) the reasonable costs,
fees and expenses of the Administrative Agent, the Collateral Agent and the
Tranche B Agent (including but not limited to the reasonable fees and
disbursements of internal and third-party consultants and auditors) in
connection with their periodic field audits and appraisals, and monitoring and
valuation of Collateral (including, without limitation, Inventory and
Receivables), (C) reasonable syndication expenses of the Administrative Agent,
and (D) all reasonable out-of-pocket expenses incurred by the Lenders, the
Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the
Administrative Agent in the enforcement or protection of the rights of any one
or more of the Lenders, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, the Co-Agents or the Administrative Agent in connection with this
Agreement, the Notes or the other Loan Documents, including but not limited to
the reasonable fees and disbursements of any one or more counsel for the
Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-
Agents or the Administrative Agent incurred in the protection, enforcement and
foreclosure of their Liens on the Collateral and of the Collateral Agent in the
creation and
97
<PAGE>
maintenance of the perfection of such Liens. Such payments shall be made on the
Closing Date and thereafter on demand. Whether or not the transactions hereby
contemplated shall be consummated, the Borrower and the other Credit Parties
agree to reimburse the Administrative Agent, the Issuing Bank, the Collateral
Agent, the Tranche B Agent, the Co-Agents and the Lenders for the Fees and
expenses required by the Fee Letters and the reimbursement provisions thereof
are hereby incorporated herein by reference. The obligations of the Borrower and
the other Credit Parties under this Section 10.05 shall survive the termination
of this Agreement and/or the payment of the Loans and/or the reimbursement of
the Letters of Credit. The fees and expenses payable hereunder are in addition
to those payable by the Borrower or the other Credit Parties under any other
Loan Document.
SECTION 10.06. INDEMNITY. The Borrower and each of the other Credit Parties
---------
jointly and severally agree to defend, indemnify and hold harmless the
Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B
Agent, BRS, BBNA, BBRF, the Co-Agents and each Lender and their respective
Affiliates and each of their respective directors, officers, employees,
attorneys, partners, beneficiaries, trustees and agents (each an "Indemnified
-----------
Party") from and against any and all losses, claims, damages, liabilities, costs
- -----
and expenses (whether or not suit is brought) incurred by such Indemnified Party
arising out of claims made by any Person in any way relating to the transactions
contemplated hereby or by the other Loan Documents or any litigation,
investigation or proceeding related hereto or thereto but excluding therefrom,
in the case of an Indemnified Party, all losses, claims, damages, liabilities,
costs and expenses arising out of or resulting from conduct to the extent
determined by final order of a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of such Indemnified Party.
SECTION 10.07. CHOICE OF LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
-------------
DOCUMENTS SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 10.08. NO WAIVER. No failure on the part of the Administrative
---------
Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-
Agent or any of the Lenders to exercise, and no delay in exercising, any right,
power or remedy hereunder or under the Notes or any of the other Loan Documents
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.
SECTION 10.09. EXTENSION OF MATURITY. Except as otherwise set forth in the
---------------------
definition of "Interest Period," if any payment of principal of or interest on
the Notes or any other amount due hereunder becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, in the case of principal, interest shall be payable
thereon at the rate herein specified during such extension.
98
<PAGE>
SECTION 10.10. AMENDMENTS, ETC.
----------------
(a) No modification, amendment or waiver of any provision of this
Agreement, the Notes or any Security Document, and no consent to any departure
by the Borrower or any other Credit Party therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Required Lenders
(or with respect to the Security Documents, by the Collateral Agent with the
consent of the Required Lenders), and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given;
provided, however, that:
- -------- -------
(1) No such modification, amendment or waiver shall without the
written consent of all of the Lenders (i) amend or modify any provision of
this Agreement which provides for the unanimous consent or approval of the
Lenders, (ii) amend this Section 10.10, the definition of Required Lenders,
Required Tranche A Lenders, Required Tranche B Lenders or Required
Supermajority Lenders, (iii) release any material portion of the Collateral
from the Lien of the Loan Documents (except in connection with permitted
asset dispositions under Section 6.12), (iv) amend Section 6.01 so as to
permit any Lien on any assets of the Borrower or the other Credit Parties
not otherwise permitted on the Closing Date, (v) increase the Commitment of
a Lender (it being understood that a waiver of an Event of Default shall
not constitute an increase in the Commitment of a Lender), (vi) reduce the
principal amount of any Loan or the rate of interest payable thereon, (vii)
extend any date for the payment of interest hereunder, (viii) reduce any
Fees payable hereunder, (ix) extend the Maturity Date, (x) increase advance
rates above the level in effect on the Closing Date, (xi) increase the
Overadvance Amount, (xii) permit the sale of a material portion of the
assets of the Borrower and the other Credit Parties (except as expressly
permitted under Section 6.12) or (xiii) subordinate the Indebtedness
hereunder, or the Liens granted hereunder or under the other Loan
Documents, to any other Indebtedness or Lien, as the case may be.
(2) No such amendment, modification or waiver may adversely
affect the rights and obligations of the Administrative Agent, the
Collateral Agent, the Tranche B Agent, either Co-Agent or the Issuing Bank
hereunder without its prior written consent.
(3) No such modification, amendment or waiver shall without the
written consent of the Required Tranche B Lenders (i) increase the interest
rate on the Tranche A Loans by more than one percentage point above the
rate of interest applicable on the Closing Date (provided, however, that if
the interest rate on Tranche A Loans is increased by one percentage point
or less the interest rate on Tranche B Loans shall be increased by the same
amount), (ii) accelerate the principal or interest payment or maturity
dates of the Tranche A Loans (other than in connection with an acceleration
of the Loans in connection with an Event of Default), (iii) reduce the
Tranche A Commitment, reduce the advance rates applicable to the Tranche A
Loans or otherwise adjust the Borrowing Base in any manner that has the
effect of reducing the amount available to be borrowed under the Tranche A
Commitment so long as any amounts are
99
<PAGE>
available to be borrowed under the Tranche B Commitment, (iv) waive or
amend any of the conditions precedent set forth in Sections 4.01 or 4.03,
(v) waive any Event of Super-Default or amend any provision of Article VII
or (vi) create any additional Event of Default which is not also an Event
of Super-Default.
(4) No notice to or demand on the Borrower or any Credit Party
shall entitle the Borrower or any other Credit Party to any other or
further notice or demand in the same, similar or other circumstances. Each
holder of a Note shall be bound by any amendment, modification, waiver or
consent authorized as provided herein, whether or not a Note shall have
been marked to indicate such amendment, modification, waiver or consent and
any consent by a Lender, or any holder of a Note, shall bind any Person
subsequently acquiring a Note, whether or not a Note is so marked. No
amendment to this Agreement shall be effective against the Borrower or any
other Credit Party unless signed by the Borrower or such other Credit
Party, as the case may be.
(b) Notwithstanding anything to the contrary contained in Section
10.10(a), in the event that the Borrower requests that this Agreement be
modified, amended or waived in a manner which would require the unanimous
consent of all of the Lenders and such amendment is approved by the Required
Tranche A Lenders and the Required Tranche B Lenders, but not unanimously by the
Lenders, the Borrower, the Required Tranche A Lenders and the Required Tranche B
Lenders shall be permitted to amend this Agreement without the consent of the
Lender or Lenders which did not agree to the modification or amendment requested
by the Borrower (such Lender or Lenders, collectively the "Minority Lenders") to
----------------
provide for (w) the termination of the Commitment of each of the Minority
Lenders, (x) the addition to this Agreement of one or more other financial
institutions (each of which shall be an Eligible Assignee), or an increase in
the Commitment of one or more of the Required Tranche A Lenders or Required
Tranche B Lenders, so that the aggregate Tranche A Commitments and the aggregate
Tranche B Commitments after giving effect to such amendment shall be in the same
amount as the aggregate Tranche A Commitments and the aggregate Tranche B
Commitments, respectively, immediately before giving effect to such amendment,
(y) if any Loans are outstanding at the time of such amendment, the making of
such additional Loans by such new or increasing Lender or Lenders, as the case
may be, as may be necessary to repay in full the outstanding Loans of the
Minority Lenders immediately before giving effect to such amendment and (z) such
other modifications to this Agreement as may be appropriate.
SECTION 10.11. SUBMISSION TO JURISDICTION; WAIVER. THE BORROWER AND EACH
----------------------------------
OF THE OTHER CREDIT PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT
IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
NEW
100
<PAGE>
YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
NEW YORK AND APPELLATE COURTS FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME;
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR
ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE BORROWER OR
SUCH OTHER CREDIT PARTY AT ITS ADDRESS SET FORTH IN SECTION 10.1 OR AT SUCH
OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT THERETO; AND
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
TO SUE IN ANY OTHER JURISDICTION.
SECTION 10.12. SEVERABILITY. Any provision of this Agreement which is
------------
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. If this Agreement or any
other Loan Document is deemed invalid or unenforceable with respect to any
Credit Party which is a party hereto or thereto, such Loan Document and all
other Loan Documents shall remain valid and enforceable with respect to all
other Credit Parties hereto or thereto, as the case may be.
SECTION 10.13. HEADINGS. Section headings used herein are for convenience
--------
only and are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
SECTION 10.14. EXECUTION IN COUNTERPARTS. This Agreement may be executed
-------------------------
in any number of counterparts, each of which shall constitute an original, but
all of which taken together shall constitute one and the same instrument.
SECTION 10.15. PRIOR AGREEMENTS. This Agreement and the other Loan
----------------
Documents represent the entire agreement of the parties with regard to the
subject matter hereof and thereof and the terms of any letters and other
documentation entered into between the Borrower or any other Credit Party and
any Lender, the Issuing Bank, the Collateral Agent, the Co-Agents or the
Administrative Agent prior to the execution of this Agreement which relate to
Loans or Letters of Credit to be made or issued hereunder shall be replaced by
the terms of this Agreement.
101
<PAGE>
SECTION 10.16. FURTHER ASSURANCES. Whenever and so often as reasonably
------------------
requested by the Administrative Agent, the Collateral Agent or the Tranche B
Agent, the Borrower and the other Credit Parties will promptly execute and
deliver or cause to be executed and delivered all such other and further
instruments, documents or assurances, and promptly do or cause to be done all
such other and further things as may be necessary and reasonably required in
order to further and more fully vest in the Administrative Agent, the Issuing
Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders,
as applicable, all rights, Liens, interests, powers, benefits, privileges and
advantages conferred or intended to be conferred by this Agreement and the other
Loan Documents.
SECTION 10.17. MASTER LEASE AGREEMENT. The Borrower hereby ratifies and
----------------------
affirms, and agrees that it is legally obligated to perform, all of the
obligations of Bradlees Stores, Inc., as debtor and debtor-in-possession, under
the Master Lease Agreement.
SECTION 10.18. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE OTHER
--------------------
CREDIT PARTIES, THE ADMINISTRATIVE AGENT, THE ISSUING BANK, THE COLLATERAL
AGENT, THE TRANCHE B AGENT, THE CO-AGENTS AND EACH LENDER HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED THEREBY.
[SIGNATURE PAGES FOLLOW]
102
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
and Guaranty Agreement to be duly executed as of the day and the year first,
written.
BRADLEES STORES, INC.,
as Borrower
By:_______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
103
<PAGE>
GUARANTORS:
BRADLEES, INC.,
as a Guarantor
By:_______________________________
Name:
Title:
NEW HORIZONS OF YONKERS, INC.,
as a debtor and debtor-in-possession, as a
Guarantor
By:_______________________________
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
104
<PAGE>
BANKBOSTON, N.A.,
as Administrative Agent, as Tranche B
Agent, as Issuing Bank and as a Lender
By:_______________________________
Name:
Title:
Address: 100 Federal Street, 9th Floor
Boston, MA 02110
Telephone: (617) 434-4113
Telecopy: (617) 434-4339
[SIGNATURES CONTINUED ON NEXT PAGE]
105
<PAGE>
BANKBOSTON RETAIL FINANCE, INC.,
as Collateral Agent
By:_______________________________
Name:
Title:
Address: 40 Broad Street, 10th Floor
Boston, MA 02109
Telephone: (617) 434-4113
Telecopy: (617) 434-4339
[SIGNATURES CONTINUED ON NEXT PAGE]
106
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Co-Agent and as a Lender
By:_______________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
107
<PAGE>
CONGRESS FINANCIAL CORPORATION (NEW
ENGLAND),
as Co-Agent and as a Lender
By:_______________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
108
<PAGE>
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as a Lender
By:_______________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
109
<PAGE>
GREEN TREE FINANCIAL SERVICING
CORPORATION,
as a Lender
By:_______________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
110
<PAGE>
FOOTHILL CAPITAL CORPORATION,
as a Lender
By:_______________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
111
<PAGE>
HELLER FINANCIAL, INC.
as a Lender
By:_______________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
112
<PAGE>
FIRSTRUST BANK,
as a Lender
By:_______________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
113
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY,
as a Lender
By:_______________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
114
<PAGE>
FREMONT FINANCIAL CORPORATION,
as a Lender
By:_____________________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
115
<PAGE>
LASALLE BUSINESS CREDIT, INC.,
as a Lender
By:_____________________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
116
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION,
as a Lender
By:_____________________________________
Name:
Title:
Address:
[SIGNATURES CONTINUED ON NEXT PAGE]
117
<PAGE>
FINOVA CAPITAL CORPORATION,
as a Lender
By:_____________________________________
Name:
Title:
Address:
118
<PAGE>
ANNEX A TO
REVOLVING CREDIT AND
GUARANTY AGREEMENT
------------------
ANNEX A
to
REVOLVING CREDIT AND GUARANTY AGREEMENT
DATED AS OF ________, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TRANCHE A Tranche A TRANCHE B TRANCHE B AGGREGATE
NAME OF COMMITMENT COMMITMENT COMMITMENT COMMITMENT AGGREGATE COMMITMENT
LENDER AMOUNT PERCENTAGE AMOUNT PERCENTAGE COMMITMENT PERCENTAGE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BankBoston, N.A. $ 28,000,000 11% $6,666,666.67 33.3334% $34,666,666.67 12.84%
The CIT Group/Business Credit, Inc. $ 25,000,000 10% __ __ $ 25,000,000 9.26%
Congress Financial Corporation (New England) $ 40,000,000 16% __ __ $ 40,000,000 14.81%
FirstTrust Bank $ 10,000,000 4% __ __ $ 10,000,000 3.70%
Jackson National Life Insurance Company $ 15,000,000 6% $6,666,666.66 33.3333% $21,666,666.66 8.02%
Green Tree Financial $ 20,000,000 8% __ __ $ 20,000,000 7.41%
Heller Financial, Inc. $ 20,000,000 8% __ __ $ 20,000,000 7.41%
Fremont Financial Corporation $ 10,000,000 4% __ __ $ 10,000,000 3.70%
Foothill Capital Corporation $ 15,000,000 6% __ __ $ 15,000,000 5.56%
National City Commercial Finance, Inc. $ 15,000,000 6% __ __ $ 15,000,000 5.56%
Finova Capital Corporation $ 12,000,000 5% $6,666,666.67 33.3334 $18,666,666.67 6.91%
LaSalle National Bank $ 20,000,000 8% __ __ $ 20,000,000 7.41%
General Electric Capital Corporation $ 20,000,000 8% __ __ $ 20,000,000 7.41%
------------ --- -------------- -----
Total $250,000,000 100% $ 20,000,000 100% $ 270,000,000 100%
</TABLE>
119
<PAGE>
Attachment I to
Credit Agreement
----------------
TERMS OF CAP NOTES
------------------
Capitalized terms used herein without definition shall have the meanings given
to such terms in the Credit Agreement to which this Attachment I is attached
(the "Agreement").
---------
Issuer: The Borrower.
Holder: The Holder of the Class BSI-CAP Claim.
Maximum Aggregate
Principal Amount: $628,000.00.
Maximum Interest Rate: 9% per annum.
Minimum Term: Three years.
Principal Repayment: Principal to be repaid in 12 equal quarterly
installments commencing 3 months after the Plan
Effective Date.
Interest Payments: Accrued interest to be paid on each principal
payment date.
Collateral: The Borrower's obligations under the CAP Notes may
be secured by a first lien on the property (the "CAP
---
Collateral") on which BTM Capital Corporation held a
----------
valid first priority security interest as of the
Confirmation Date pursuant to the BTM Stipulation
(as defined in the Confirmed Plan and attached to
the Agreement as Exhibit G).
Default and
Acceleration: No cross-default or cross-acceleration rights to the
Agreement.
120
<PAGE>
Attachment II to
Credit Agreement
----------------
TERMS OF CURE NOTES
-------------------
Capitalized terms used herein without definition shall have the meanings given
to such terms in the Credit Agreement to which this Attachment II is attached
(the "Agreement").
---------
Issuer: The Borrower.
Holders: Non-Debtor parties to executory contracts that are
to be, or have been, assumed pursuant to the
Confirmed Plan for the purpose of paying "cure
amounts" as required by Section 365 of the
Bankruptcy Code.
Maximum Aggregate
Principal Amount: $3,500,000.00.
Maximum Interest Rate: 9% per annum.
Minimum Term: Three years.
Principal Repayment: Principal to be repaid in 12 equal quarterly
installments commencing 3 months after the Plan
Effective Date.
Interest Payments: Accrued interest to be paid on each principal
payment date.
Collateral: None.
Default and
Acceleration: No cross-default or cross-acceleration rights to the
Agreement.
121
<PAGE>
Attachment III to
Credit Agreement
----------------
TERMS OF NEW NOTES
------------------
Capitalized terms used herein without definition shall have the meanings given
to such terms in the Credit Agreement to which this Attachment III is attached
(the "Agreement").
---------
Issuer: The Borrower.
Holders: (i) The Banks and other financial institutions (the
"Pre-Petition Revolver Bank Group") holding pre-
--------------------------------
petition claims against the Debtors under that
certain Credit Agreement among BI, the Pre-Petition
Revolver Bank Group and Bankers Trust Company, as
agent, dated as of March 3, 1993, as amended, (ii)
the banks and other financial institutions holding
pre-petition claims under the SPE Documents (as
defined in the Confirmed Plan) and (iii) the holders
of YON-GEN Claims, BRU-GEN Claims and WES-GEN Claims
(each as defined in the Confirmed Plan).
Guarantors: (i) BI, on an unsecured basis and expressly
subordinate to the guaranty by BI of the Obligations
of the Borrower under the Agreement and otherwise
reasonably satisfactory in form and substance to the
Administrative Agent and (ii) Yonkers, secured only
by the Yonkers Leased Property and expressly
subordinate to the guaranty by Yonkers of the
Obligations of the Borrower under the Agreement and
otherwise reasonably satisfactory in form and
substance to the Administrative Agent.
Maximum Aggregate
Principal Amount: $40,000,000.00.
Maximum Interest Rate: 9% per annum.
Minimum Term: Five years.
Principal Repayment: None prior to maturity, except as permitted under
Section 6.15 of the Agreement.
Interest Payments: Accrued interest to be paid semi-annually on January
1 and July 1 of each year, and upon final payment in
full of principal.
122
<PAGE>
Collateral: The Borrower's obligations under the New Notes may
be secured by a first lien on the Permissible
Collateral, the Additional Collateral and the
Yonkers Common Stock Collateral; provided, however,
that the Trustee for the Holders has executed and
delivered to the Collateral Agent Mortgagee Waivers
with respect to each location included in the
Permissible Collateral and the Additional Collateral
in form and substance satisfactory to the Collateral
Agent. In the event the Net Proceeds (as defined in
the Confirmed Plan) from the sale or assignment of
the Union Square Lease (as defined in the Confirmed
Plan) do not exceed $15,000,000, the Additional
Collateral shall secure Indebtedness under the New
Notes in an amount not to exceed the sum of (A) the
lesser of (i) the difference between $17,500,000 and
the amount of such Net Proceeds or (ii) $10,500,000
(such lesser amount, the "Differential Amount") plus
(B) an amount of interest that would accrue on a
principal amount of the New Notes then outstanding
equal to the Differential Amount from the date of
such disposition to the date of calculation of such
payment pursuant to the terms of the New Notes
Indenture (but excluding any period for which
interest has in fact been paid under the New Notes).
In addition, the lien on the Additional Collateral
shall not be permitted unless the holder thereof has
entered into with the Borrower and the Collateral
Agent a mortgagee's waiver and consent with respect
to each location comprising the Additional
Collateral in form and substance satisfactory to the
Collateral Agent.
Release of Collateral: In the event the Net Proceeds from the sale or
assignment of the Union Square Lease exceed
$15,000,000, the Additional Collateral shall no
longer secure the Borrower's obligations under the
New Notes and the lien thereon shall be promptly
released by the holder thereof.
Conversion: New Notes convertible into common stock of BI on
terms reasonably acceptable to the Administrative
Agent.
Registration Rights: As described in the Confirmed Plan.
Default and
Acceleration: No cross-default or cross-acceleration rights to the
Agreement.
123
<PAGE>
Attachment IV to
Credit Agreement
----------------
Terms of Trade Lien
-------------------
Capitalized terms used herein without definition shall have the meanings given
to such terms in the Credit Agreement to which this Attachment IV is attached
(the "Agreement").
---------
Debtor: The Borrower.
Secured Party: A collateral agent for the benefit of trade vendors
who provide retail merchandise to the Borrower after
the Plan Effective Date or trade vendors who have
provided retail merchandise to the Borrower before
the Plan Effective Date who were not paid therefor
as of the Plan Effective Date.
Collateral: Inventory of the Borrower (and no other assets).
Priority: The Trade Lien shall be expressly subordinate to the
Lien granted to the Collateral Agent under the
Security Agreement, for its benefit and the ratable
benefit of the other Secured Parties, securing the
Obligations and shall provide that the holders of
the Trade Lien shall have no right to exercise or
enforce any rights with respect to the Trade Lien or
the Inventory (or to consent to or approve any such
exercise or enforcement by the Collateral Agent), or
to receive any payment from the proceeds of the
Inventory, unless and until the Obligations are
finally and indefeasibly paid in full. The other
terms of such subordination shall be satisfactory to
the Collateral Agent in all respects.
Term: The Trade Lien shall be automatically released upon
the earliest to occur of (i) two years after the
Plan Effective Date, (ii) the date on which the
ratio of the amount of Accounts Payable of the
Borrower to the amount of Inventory of the Borrower,
computed on a cost basis, for any rolling three-
month period is more than five percentage points
less than such ratio on a comparable store basis for
the same period in the prior year, (iii) the
consummation of a transaction pursuant to which the
Borrower or BI merges or otherwise combines with
another company or companies, (iv) as to any
individual trade vendor that has provided retail
merchandise during the pendency of the Case, at such
time as such vendor fails to provide retail
merchandise to the Borrower on terms which are at
124
<PAGE>
least as favorable to the Borrower as the credit
terms under which such vendor provided retail
merchandise to the Borrower in the year prior to the
Plan Effective Date and (v) as to any individual
trade vendor that initially provides retail
merchandise to the Borrower after the Plan Effective
Date, at such time as such vendor fails to provide
retail merchandise to the Borrower on terms which
are as least as favorable to the Borrower as the
initial credit terms under which such vendor first
provided retail merchandise to the Borrower. The
Administrative Agent shall have access to all
information necessary to determine if the trade
vendors are providing sufficient credit support, as
determined by the formulas set forth in clauses (ii)
and (iv) above, and shall have the authority to
execute and file all documents necessary to
effectuate any such release.
Default and Acceleration: No cross-default or cross-acceleration rights to the
Agreement.
Other Intercreditor
Provisions: The holders of the Trade Lien shall have no right to
consent to or approve any amendments, modifications,
refinancings or other changes to this Agreement or
any other Loan Document, including, without
limitation, increases in advance rates, interest
rates and principal amount and the creation or
elimination of any reserves or categories of
ineligible Inventory.
125
<PAGE>
Exhibit 10.44
================================================================================
COLLATERAL TRUST AGREEMENT
dated as of ________, 1999
between
BRADLEES STORES, INC.,
and
M.J. SHERMAN & ASSOCIATES, INC.,
as Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1. DEFINITIONS................................................... 3
SECTION 1.01 Certain Defined Terms.................................. 3
SECTION 1.02 Certain References..................................... 6
ARTICLE 2. ACCEPTANCE OF TRUST; EXECUTION AND DELIVERY
OF COLLATERAL DOCUMENTS AND
SUBORDINATION AGREEMENT.................................... 6
SECTION 2.01 Acceptance of Trust.................................... 6
SECTION 2.02 Execution and Delivery of Collateral Documents......... 6
SECTION 2.03 Execution and Delivery of Intercreditor Agreement...... 7
ARTICLE 3. DEFAULT NOTICE; RIGHTS AND REMEDIES........................... 7
SECTION 3.01 Events of Default...................................... 7
SECTION 3.02 Action Upon Receipt of Default Notice.................. 8
SECTION 3.03 Remedies Generally..................................... 8
SECTION 3.04 Appointment of a Receiver.............................. 9
SECTION 3.05 Exercise of Powers..................................... 9
SECTION 3.06 Remedies Not Exclusive................................. 9
SECTION 3.07 Limitation on Rights and Remedies in Respect of
Collateral............................................. 10
SECTION 3.08 Right to Initiate Judicial Proceedings, Etc. .......... 10
SECTION 3.09 Limitation on Trustee's Duties in Respect of
Collateral............................................. 10
SECTION 3.10 Limitation by Law...................................... 10
ARTICLE 4. DIRECTION BY TRADE COMMITTEE.................................. 11
SECTION 4.01 Direction by Trade Committee........................... 11
ARTICLE 5. NOTICE TO TRADE VENDORS....................................... 11
SECTION 5.01 Notice to Trade Vendors................................ 11
ARTICLE 6. PROCEEDS ACCOUNT.............................................. 12
SECTION 6.01 The Proceeds Account................................... 12
SECTION 6.02 Control of Proceeds Account............................ 13
SECTION 6.03 Investment of Funds Deposited in Proceeds Account...... 13
ARTICLE 7. APPLICATION OF PROCEEDS....................................... 13
SECTION 7.01 Application of Proceeds................................ 13
SECTION 7.02 Distribution of Proceeds............................... 14
i
<PAGE>
ARTICLE 8. ABSOLUTE RIGHTS OF TRADE VENDORS.............................. 14
SECTION 8.01 Absolute Rights of Trade Vendors....................... 14
ARTICLE 9. AGREEMENTS WITH THE TRUSTEE................................... 15
SECTION 9.01 (a) Information as to Trade Vendors................... 15
(b) Confidentiality................................... 15
SECTION 9.02 Compensation and Expenses.............................. 16
SECTION 9.03 Stamp and Other Similar Taxes.......................... 16
SECTION 9.04 Filing Fees, Excise Taxes, Etc. ....................... 16
SECTION 9.05 Indemnification........................................ 16
SECTION 9.06 Further Assurances..................................... 17
SECTION 9.07 Notification of Event of Default Under Credit
Agreement.............................................. 18
ARTICLE 10. THE TRUSTEE................................................... 18
SECTION 10.01 Exculpatory Provisions................................. 18
SECTION 10.02 Delegation of Duties................................... 19
SECTION 10.03 Reliance by Trustee.................................... 19
SECTION 10.04 Limitations on Duties of Trustee....................... 19
SECTION 10.05 Moneys to be Held in Trust............................. 20
SECTION 10.06 Resignation & Removal of Trustee....................... 20
SECTION 10.07 Trustee Appointed Attorney-In-Fact..................... 21
SECTION 10.08 Reasonable Care........................................ 21
ARTICLE 11. MISCELLANEOUS................................................. 22
SECTION 11.01 Amendment or Waiver.................................... 22
SECTION 11.02 Subordination Agreement................................ 22
SECTION 11.03 Notices................................................ 23
SECTION 11.04 Headings............................................... 23
SECTION 11.05 Severability........................................... 23
SECTION 11.06 Claims Against Trustee................................. 24
SECTION 11.07 Binding Effect......................................... 24
SECTION 11.08 Governing Law.......................................... 24
SECTION 11.09 Counterparts........................................... 24
SECTION 11.10 Termination............................................ 24
SECTION 11.11 Termination Notice; Effect of Termination.............. 25
SECTION 11.12 Conflicts.............................................. 26
ii
<PAGE>
EXHIBITS
--------
EXHIBIT A Default Notice
EXHIBIT B Individual Trade Vendor Notice
EXHIBIT C Public Trade Vendor Notice
iii
<PAGE>
COLLATERAL TRUST AGREEMENT
This COLLATERAL TRUST AGREEMENT ("Agreement") is dated as of ________,
---------
1999 and is entered into between BRADLEES STORES, INC., a Massachusetts
corporation, with an office at One Bradlees Circle, Braintree, Massachusetts
02184 (the "Company") and M.J. SHERMAN & ASSOCIATES, INC., a New York
-------
corporation, with an office at 333 East 68th Street, New York, New York 10021 as
trustee (the "Trustee"). Initially capitalized terms used and not otherwise
-------
defined herein shall have the meanings set forth in Article 1 hereof.
RECITALS
A. On June 23, 1995 the Company, its direct and indirect parent
companies and each of its five subsidiaries (collectively, the "Debtors") filed
-------
a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"), which were jointly administered by the Bankruptcy Court as
- -----------------
Case Nos. 95B 42777 through 95B 42784 (BRL) (collectively, the "Chapter 11
----------
Cases").
B. On January __, 1999 the Bankruptcy Court entered an order
confirming the Debtors' Second Amended Joint Plan of Reorganization dated
January __, 1999 (as so confirmed, the "Plan").
----
C. The Company has entered into, or is about to enter into, a
Revolving Credit and Guaranty Agreement with, among others, the banks and other
financial institutions from time to time party thereto (collectively, the
"Lenders"), BankBoston, N.A., as Issuing Bank (the "Issuing Bank") and as
- -------- ------------
Administrative Agent (the "Administrative Agent") and as Tranche B Agent (the
--------------------
"Tranche B Agent"), BankBoston Retail Finance, Inc. ("BBRF"), as Collateral
- ---------------- ----
Agent (the "Collateral Agent"), and The CIT Group/Business Credit, Inc. and
----------------
Congress Financial Corporation (New England), each as Co-Agents (together with
the Administrative Agent, the Tranche B Agent and the Collateral Agent, the
"Agents") (as the same may from time to time hereafter be amended, modified,
- -------
supplemented, amended and restated, refinanced or replaced, the "BankBoston
----------
Credit Agreement"), pursuant to which the Lenders have made and shall hereafter
- ----------------
make loans and other financial accommodations to the Company to facilitate
consummation of the Plan and provide working capital to the Company.
D. It is important to the success of the Company's business that,
from and after consummation of the Plan on or about the date hereof, the
Company's Trade Vendors (as defined below) sell and deliver goods needed by the
Company, and on credit terms, that will contribute to the Company's ability to
successfully operate its business.
E. In order to induce the Trade Vendors to continue to extend terms
to the Company and to continue to deliver to the Company the goods it needs to
operate its business, and in accordance with the provisions of the Plan, the
Company, as security for prompt payment and performance of the Trade Obligations
(as defined below) and the other Obligations (as
-----
<PAGE>
defined below), has executed and delivered to the Trustee the Inventory Security
Agreement (as defined below), pursuant to which the Company has granted to the
Trustee, for the benefit of the Trade Vendors, liens upon and security interests
in all of the Company's now existing and hereafter acquired inventory as more
fully described in the Inventory Security Agreement (the "Collateral"), subject
----------
and subordinate to the senior liens therein of the Agent and the Lenders.
F. The Trustee's and the Trade Vendors' rights and remedies with
respect to the Collateral, and the Trustee's exercise of rights and remedies in
respect of the Inventory Security Agreement are subject in all respects and at
all times to the terms of the Subordination Agreement, dated as of the date
hereof (as the same may hereafter from time to time be amended, modified,
supplemented, amended and restated or replaced, the "Subordination Agreement")
-----------------------
between BBRF, as Collateral Agent for itself and the other Secured Parties (as
defined in the BankBoston Credit Agreement), and the Trustee.
G. This Agreement is intended to establish a trust under which (i)
the Inventory Security Agreement, (ii) all cash and non-cash proceeds
(including, without limitation, insurance proceeds) arising from the liquidation
of the Collateral from and after the date on which all "Obligations" under, and
as defined in, the BankBoston Credit Agreement (the "Senior Obligations") have
------------------
been accelerated and the Senior Obligations have been paid in full as a result
of the occurrence of an event of default thereunder (the "Proceeds") and (iii)
--------
the Proceeds Account (as defined below; and the right, title and interest of the
Trustee in and to the Collateral Documents, the Collateral, the Proceeds and the
Proceeds Account being herein collectively referred to as the "Trust Estate")
------------
will be held by the Trustee in trust for, and for the benefit of, the Trade
Vendors who have not been paid in full for goods delivered to the Company at any
time during the pendency of the Chapter 11 Cases and/or at any time from and
after the Effective Date of, and as defined in, the Plan and prior to the
termination of this Agreement (the "Effective Trade Lien Period").
---------------------------
H. This Agreement is further intended to set forth the terms and
conditions upon which the Trust Estate will be administered by the Trustee, the
rights and remedies of the Trade Vendors with respect to the Trust Estate and
certain other related matters.
DECLARATION OF TRUST
NOW, THEREFORE, in order to induce the Trade Vendors to provide retail
merchandise to the Company on credit terms which are at least as favorable to
the Company as the credit terms provided to the Company prior to the Effective
Date (as defined below) or, in the case of Trade Vendors that initially provide
retail merchandise after the Effective Date, on credit terms which are at least
as favorable to the Company as the credit terms initially provided by such Trade
Vendors to the Company, and to secure payment to such Trade Vendors of amounts
owed by the Company to the Trade Vendors in the amount of the unpaid invoiced
cost of goods sold and delivered to the Company by the Trade Vendors at any time
during the Effective Trade Lien Period (subject at all times to the terms and
conditions of the Subordination
2
<PAGE>
Agreement), as shown from time to time on the books and records of the Company
or as otherwise determined in accordance with the procedures set forth herein
(the "Trade Obligations"), and in consideration of the premises and the mutual
-----------------
agreements set forth herein, the Company hereby confirms that it has caused the
Collateral Documents (as defined below) to be executed and delivered to the
Trustee, and the Trustee does hereby declare that it holds and will hold the
Collateral Documents as trustee in trust under this Agreement, and the Company
does hereby consent thereto.
TO HAVE AND TO HOLD, the Trust Estate unto the Trustee and its
successors in trust under this Agreement and unto its assigns and the assigns of
its successors in trust forever or until terminated in accordance with the terms
hereof;
IN TRUST NEVERTHELESS, under and subject to the terms and conditions
set forth herein for the benefit of the Trade Vendors and for the enforcement of
the payment of the Trade Obligations and the other Obligations (as defined
below), and for the performance of and compliance with the covenants and
conditions of this Agreement and the Collateral Documents (subject in each case
to the terms and conditions of the Subordination Agreement).
ARTICLE 1.
DEFINITIONS
SECTION 1.01 Certain Defined Terms. The following terms shall have
---------------------
the following meanings as used herein (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Agreement" has the meaning set forth in the preamble to this
---------
Agreement.
"Authorized Officer" means the Chairman, the President, any Vice
------------------
President, the Secretary or the Treasurer of a Person or any other officer
designated as an "Authorized Officer" by the Board of Directors (or equivalent
governing body) of such Person and shall include, with respect to the Trade
Committee, the counsel to the Trade Committee.
"BankBoston" has the meaning set forth in Paragraph C of the Recitals
----------
to this Agreement.
"BankBoston Credit Agreement" has the meaning set forth in Paragraph
---------------------------
C of the Recitals to this Agreement.
"Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C.
---------------
(S)(S) 101 et seq., as amended.
-- ---
3
<PAGE>
"Bankruptcy Court" has the meaning set forth in Paragraph A of the
----------------
Recitals to this Agreement.
"Business Day" means a day other than a Saturday, Sunday or other day
------------
on which national banks are required or authorized by law to close.
"Chapter 11 Cases" has the meaning set forth in Paragraph A of the
----------------
Recitals to this Agreement.
"Collateral" has the meaning set forth in Paragraph E of the Recitals
----------
to this Agreement.
"Collateral Agent" has the meaning set forth in the BankBoston Credit
----------------
Agreement.
"Collateral Documents" means, collectively, the Inventory Security
--------------------
Agreement, all UCC-1 financing statements now or hereafter executed by the
Company, as debtor, in favor of the Trustee, as secured party, and all other
documents and agreements at any time executed with or in favor of the Trustee as
security for the Obligations, in each case in form and substance satisfactory to
the Collateral Agent and the Company, as the same may now exist or may from time
to time hereafter be (to the extent not prohibited by or inconsistent with the
terms and conditions of the Subordination Agreement) amended, modified,
supplemented, amended and restated, or replaced.
"Company" has the meaning set forth in the preamble to this Agreement.
-------
"Default Notice" has the meaning set forth in Section 3.01.
--------------
"Effective Date" has the meaning set forth in the Plan.
--------------
"Effective Trade Lien Period" has the meaning set forth in Paragraph G
---------------------------
of the Recitals to this Agreement.
"Event of Default" has the meaning set forth in Section 3.01(a).
----------------
"Individual Trade Vendor Notice" has the meaning set forth in
------------------------------
Section 5.01.
"Inventory Security Agreement" means the Inventory Security Agreement,
----------------------------
dated as of the date hereof, executed by the Company, as debtor, in favor of
Trustee, as secured party, as the same may from time to time hereafter be (to
the extent not prohibited by or inconsistent with the terms and conditions of
the Subordination Agreement) amended, supplemented, modified, amended and
restated or replaced.
"Lenders" has the meanings set forth in the BankBoston Credit
-------
Agreement.
4
<PAGE>
"Obligations" means, at any time, the Trade Obligations, costs of
-----------
collection with respect thereto, the reasonable fees and expenses of the Trustee
hereunder and under the Collateral Documents, including the reasonable fees and
disbursements of counsel to the Trustee, and any indemnity obligations of the
Company to the Trustee.
"Permitted Investments" means (a) marketable securities issued or
---------------------
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof having maturities of not more than three
months from the date of acquisition, (b) time deposits and certificates of
deposit of, or money market or similar accounts with, any domestic commercial
bank of recognized standing having capital and surplus in excess of U.S.
$100,000,000 and a Keefe Bank Watch Rating of C or better, with maturities of
not more than three months from the date of acquisition, (c) commercial paper
rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or
at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in
each case maturing within three months after the date of acquisition, (d)
repurchase obligations with a term of not more than thirty days for underlying
securities of the types described in clauses (a), (b) and (c) entered into with
any bank meeting the qualifications specified in clause (b) above or with a
securities dealer acceptable to the Trustee.
"Person" means an individual, a partnership, a corporation, a business
------
trust, a joint stock company, a limited liability company, a trust, an
unincorporated association, a joint venture, a governmental entity or another
entity of whatever nature.
"Plan" has the meaning set forth in Paragraph A of the Recitals to
----
this Agreement.
"Proceeds" has the meaning set forth in Paragraph G of the Recitals to
--------
this Agreement.
"Proceeds Account" has the meaning set forth in Section 6.01.
----------------
"Public Trade Vendor Notice" has the meaning set forth in
--------------------------
Section 5.01.
"Senior Obligations" has the meaning set forth in Paragraph G of the
------------------
Recitals to this Agreement.
"Subordination Agreement" has the meaning set forth in Paragraph F of
-----------------------
the Recitals to this Agreement.
"Trade Committee" means the Committee of one or more financial
---------------
representatives appointed by the Creditors' Committee pursuant to Section 12.15
of the Plan, effective as of the Effective Date, to provide directions to the
Trustee pursuant to this Agreement on behalf of the Trade Vendors.
5
<PAGE>
"Trade Obligations" has the meaning set forth in the Declaration of
-----------------
Trust made in the Recitals to this Agreement.
"Trade Vendors" means trade vendors of the Company who have extended
-------------
or who hereafter extend terms to the Company for or related to goods delivered
to the Company for resale, other than on consignment.
"Trade Vendor Information" has the meaning set forth in Section 9.01.
------------------------
"Trade Vendor Payable Amount" has the meaning set forth in
---------------------------
Section 5.01.
"Trust Estate" has the meaning set forth in Paragraph G of the
------------
Recitals to this Agreement.
"Trustee" has the meaning set forth in the preamble to this Agreement.
-------
SECTION 1.02 Certain References. The words "hereof", "herein" and
------------------
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Section, schedule and exhibit references are to this Agreement
unless otherwise specified. References to Persons include their respective
permitted successors and assigns or, in the case of governmental Persons,
Persons succeeding to the relevant functions of such Persons.
ARTICLE 2.
ACCEPTANCE OF TRUST; EXECUTION AND DELIVERY
OF COLLATERAL DOCUMENTS AND SUBORDINATION AGREEMENT
SECTION 2.01 Acceptance of Trust. The Trustee, for itself and its
-------------------
successors, hereby accepts the trust created by this Agreement upon the terms
and conditions hereof. Further, the Trustee, for itself and its successors,
does hereby declare that it will hold the Trust Estate for the benefit of the
Trade Vendors upon the trusts herein set forth.
SECTION 2.02 Execution and Delivery of Collateral Documents. On or
----------------------------------------------
about the date hereof the Company has executed in favor of and delivered to the
Trustee, for the benefit of the Trade Vendors, the Inventory Security Agreement
and UCC-1 financing statements executed by the Company, as debtor, in favor of
the Trustee, as secured party, for filing in such jurisdictions as the Trustee
deems necessary to perfect the security interests granted by the Company to the
Trustee in the Collateral. The Trustee hereby acknowledges receipt of the
Inventory Security Agreement and such UCC-1 financing statements and agrees to
hold the same in trust and for the benefit of the Trade Vendors upon the terms
and conditions set forth in this Agreement and in the Inventory Security
Agreement and subject to the terms and conditions of the Subordination
Agreement.
6
<PAGE>
SECTION 2.03 Execution and Delivery of Subordination Agreement. On
-------------------------------------------------
or about the date hereof, the Trustee has executed and delivered to the
Collateral Agent the Subordination Agreement in the form approved, and as
directed, by the Trade Committee.
ARTICLE 3.
DEFAULT NOTICE; TRUSTEE'S RIGHTS AND REMEDIES
SECTION 3.01 Events of Default.
-----------------
(a) Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an event of default (each, an "Event of
Default") under this Agreement:
(i) The occurrence of the termination in writing of the
Company's right to receive loans, advances and other
financial accommodations under the BankBoston Credit
Agreement accompanied by the acceleration and written
demand for payment in full of all Senior Obligations under
the BankBoston Credit Agreement and provided that,
subsequent to the occurrence of the foregoing, all Senior
Obligations shall have been paid in full in cash;
(ii) A case or proceeding under the Bankruptcy Code or under
any insolvency, reorganization, receivership, readjustment
of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against the Company or all or any part
of its properties and such petition or application is not
dismissed within thirty (30) days after the date of its
filing or the Company shall file any answer admitting or
not contesting such petition or application or indicates
its consent to, acquiescence in or approval of, any such
action or proceeding or the relief requested is granted
sooner; or
(iii) A case or proceeding under the Bankruptcy Code or under
any insolvency, reorganization, receivership, readjustment
of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by the Company or for all or any part
of its property.
7
<PAGE>
(b) Default Notice. If an Event of Default shall have occurred, the
--------------
Trade Committee shall have the right to deliver to the Trustee at any time, at
its option, a written notice ("Default Notice"), substantially in the form
--------------
attached hereto as Exhibit A, stating that an Event of Default has occurred and
---------
directing the Trustee to take such action as therein requested by the Trade
Committee with respect to the Collateral Documents (subject to the terms and
conditions of the Subordination Agreement) and the Collateral (which action may
include, without limitation, subject to the terms and conditions of the
Subordination Agreement, the institution of any remedies provided by any of the
Collateral Documents, by law or by this Agreement).
SECTION 3.02 Action Upon Receipt of Default Notice. Upon receipt
-------------------------------------
of a Default Notice (or at such later time as shall be the first time when such
action is not prohibited to be taken by the Subordination Agreement), the
Trustee shall promptly take such action as is requested by the Trade Committee
in such Default Notice or any notice supplemental thereto authorized, or as the
Trustee shall deem necessary or appropriate in its sole discretion, to collect
the then unpaid Obligations.
SECTION 3.03 Remedies Generally. (a) Upon the occurrence of an
------------------
Event of Default, the Company shall be deemed to have, automatically, without
any further act by the Company, irrevocably constituted and appointed the
Trustee and any officer or agent of the Trustee with full power of substitution,
as its true and lawful attorney-in-fact (subject, however, to the terms and
conditions of the Subordination Agreement) with full power and authority in the
name of the Company or its own name, from time to time in the Trustee's
discretion for the purpose of carrying out the terms of the Collateral
Documents, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes hereof and thereof and, without limiting the generality of the
foregoing, hereby gives the Trustee the power and right on behalf of the
Company, without notice to or assent by the Company, to do (to the extent
permitted under the Collateral Documents and subject to the terms and conditions
of the Subordination Agreement) the following:
(i) to ask for, demand, sue for, collect, receive and give
acquittance for any and all moneys due or to become due upon or by virtue
hereof and thereof;
(ii) to receive, take, endorse, assign and deliver any and all
checks, notes, drafts, acceptances, documents and other negotiable and non-
negotiable instruments and chattel paper taken or received by the Trustee
in connection herewith and therewith;
(iii) to commence, file, prosecute, defend, settle, compromise
or adjust any claim, suit, action or proceeding with respect hereto and
thereto or in connection herewith and therewith;
8
<PAGE>
(iv) to sell, transfer, assign, lease or rent all or any portion
of or otherwise deal in or with the Collateral or any part thereof as fully
and effectually as if the Trustee were the absolute owner thereof;
(v) to make demands, give consents and releases or partial
releases, and to exercise any other rights contemplated or permitted by the
Collateral Documents; and
(vi) to do, at its option and at the expense and for the account
of the Company, at any time and from time to time, all acts and things
which it deems necessary to protect or preserve and to realize upon the
Collateral.
SECTION 3.04 Appointment of a Receiver. If a receiver of the
-------------------------
Collateral shall be appointed in judicial proceedings, the Trustee may be
appointed as such receiver. Notwithstanding the appointment of a receiver, the
Trustee shall be entitled, subject to the terms of the Subordination Agreement,
to retain possession and control of all cash held by or deposited with it or its
agents in accordance with the terms of the Collateral Documents.
SECTION 3.05 Exercise of Powers. Subject to the provisions of
------------------
Section 3.10, all of the powers, remedies and rights of the Trustee as set forth
in this Agreement may be exercised by the Trustee in respect of the Collateral
Documents and the Collateral as though set forth at length therein and all the
rights, remedies and powers of the Trustee as set forth in the Collateral
Documents may be exercised from time to time as herein and therein specified;
provided, that, except as expressly set forth in the Subordination Agreement,
- -------- ----
nothing in this Agreement shall be construed to impose a duty on the Trustee to
take any action without first receiving direction from the Trade Committee to do
the same.
SECTION 3.06 Remedies Not Exclusive. (a) No remedy conferred upon
----------------------
or reserved to the Trustee herein or in the Collateral Documents is intended to
be a limitation exclusive of any other remedy or remedies, but every such remedy
shall be cumulative and shall be in addition to every other remedy conferred
herein or in the Collateral Documents or now or hereafter existing at law or in
equity or by statute. All rights and remedies of the Trustee shall be subject,
however, to the terms and conditions of the Subordination Agreement.
(b) No delay or omission of the Trustee to exercise any right, remedy
or power accruing upon an Event of Default shall impair any such right, remedy
or power or shall be construed to be a waiver of such Event of Default or any
acquiescence therein; and every right, power and remedy given by this Agreement
or the Collateral Documents to the Trustee may be exercised from time to time
and as often as may be deemed expedient by the Trustee, subject to the terms and
conditions of the Subordination Agreement.
(c) The Company expressly agrees that all rights of action and rights
to assert claims upon or under any Collateral Document may be enforced by the
Trustee without the possession of any debt instrument or the production thereof
in any trial or other proceeding relative thereto, and any such suit or
proceeding instituted by the Trustee shall be brought in its name as Trustee and
any recovery or judgment shall be held as part of the Trust Estate.
9
<PAGE>
SECTION 3.07 Limitation on Rights and Remedies in Respect of
-----------------------------------------------
Collateral. This Agreement does not enlarge or otherwise modify the rights that
- ----------
the Trustee holds for the benefit of the Trade Vendors with respect to the
Collateral under the Collateral Documents or under applicable law, and does not
confer any additional such rights, but rather is intended to provide a mechanism
for the Trustee, on behalf of the Trade Vendors, to enforce such rights. Without
limiting the generality of the foregoing, nothing in this Agreement shall permit
the Trustee to exercise any right or remedy with respect to the Collateral,
except to the extent specifically provided under the Collateral Documents, but
subject to the terms and conditions of the Subordination Agreement.
SECTION 3.08 Right to Initiate Judicial Proceedings, Etc. Upon the
--------------------------------------------
occurrence of an Event of Default, and subject in all events to the terms and
conditions of the Subordination Agreement, (a) the Trustee shall have the right
and power to institute and maintain such suits and proceedings as the Trustee
may deem appropriate to protect and enforce the rights vested in the Trustee by
this Agreement and the Collateral Documents, and (b) the Trustee may either
proceed by suit or suits at law or in equity to enforce such rights and to
foreclose upon the Collateral and to sell all or, from time to time, any of the
Collateral under the judgment or decree of a court of competent jurisdiction;
provided, that, nothing in this Agreement shall be construed to impose a duty on
- -------- ----
the Trustee to take any discretionary action without first receiving direction
from the Trade Committee to do the same.
SECTION 3.09 Limitation on Trustee's Duties in Respect of
--------------------------------------------
Collateral. Beyond the duties set forth in this Agreement, the Trustee shall not
- ----------
have any duty to the Company or the Trade Committee as to any Collateral in the
Trustee's possession or control or in the possession or control of any agent or
nominee of it or as to any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto, except that the
Trustee shall be liable for its failure to exercise reasonable care in the
handling of moneys and securities actually received by it.
SECTION 3.10 Limitation by Law. All rights, remedies and powers
-----------------
provided to the Trustee by this Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Agreement are intended to be subject to all
applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render this Agreement
invalid, unenforceable in whole or in part or not entitled to be recorded,
registered, or filed under the provisions of any applicable law.
10
<PAGE>
ARTICLE 4.
DIRECTION BY TRADE COMMITTEE
SECTION 4.01 Direction by Trade Committee. (a) Subject to Section
----------------------------
3.10 and the terms and conditions of the Subordination Agreement, if an Event of
Default shall have occurred and the Trustee shall have received a Default Notice
with respect thereto:
(i) in addition to taking such action as is required by Section
4.02, the Trustee shall take such other action as is necessary and
appropriate for the performance of and compliance with the covenants and
conditions of this Agreement as the Trade Committee shall request in
writing; and
(ii) the Trustee shall follow the written directions of the
Trade Committee with respect to the time, method and place of taking any
action required by the preceding paragraph (i), or, if no such direction is
provided, then the Trustee may take such action in the manner it deems
necessary and appropriate for the performance of and compliance with the
covenants and conditions of this Agreement, provided that nothing in this
--------
Agreement shall be construed to impose a duty on the Trustee to take any
discretionary action without first receiving a direction from the Trade
Committee to do the same.
(b) Nothing in this Section 4.01 shall impair the right of the
Trustee in its discretion to take or omit to take any action deemed proper by
the Trustee and which action or omission is not inconsistent with the direction
of the Trade Committee or the terms and conditions of the Subordination
Agreement; provided, however, the Trustee shall not be under any obligation to
-------- -------
take any action pursuant to any Collateral Documents without first being
provided adequate security and indemnity by the Company against the costs,
expenses and liabilities which may be incurred by it in complying with such
direction (except any cost, expense or liability caused by its own gross
negligence or willful misconduct or its failure to exercise reasonable care in
the handling of moneys and securities actually received by it), including such
reasonable advances for such cost and expenses as may be requested by the
Trustee.
ARTICLE 5.
NOTICE TO TRADE VENDORS
SECTION 5.01 Notice to Trade Vendors.
-----------------------
(a) Promptly after receipt of a Default Notice from the Trade
Committee pursuant to Section 3.01 and after receipt of Trade Vendor Information
from the Company pursuant to Section 9.01, the Trustee shall mail a notice (the
"Individual Trade Vendor Notice") in substantially the form attached hereto as
------------------------------
Exhibit B, to each of the Trade Vendors (i) notifying
- ---------
11
<PAGE>
each of them (x) that an Event of Default has occurred (y) that the Trustee's
and the Trade Vendors' rights and remedies with respect to such Event of Default
are limited by and subject to the terms and conditions of the Subordination
Agreement, and as to any action taken by the Trustee with respect to the
Security, and (ii) based upon the Trade Vendor Information most recently
delivered by the Company to the Trustee pursuant to Section 9.01 hereof,
advising each of them of the amount of the Trade Obligations owing to each of
them, respectively, as of the date of such Individual Trade Vendor Notice (the
"Trade Vendor Payable Amount"). The Individual Trade Vendor Notice shall further
---------------------------
state that the Trade Vendor Payable Amount set forth therein shall be deemed
correct and shall be the amount used by the Trustee in calculating the
distributions to be made to the Trade Vendors pursuant to this Agreement, unless
within twenty (20) days of the mailing of the Individual Trade Vendor Notice, a
Trade Vendor shall provide to the Trustee and the Company contrary information
as to the Trade Vendor Payable Amount owed to it, in which case, the Trustee
shall reserve funds (to the extent available) in the Proceeds Account to provide
for any disputed amount until such dispute is resolved by the parties thereto.
(b) Substantially contemporaneously with the mailing of the Individual
Trade Vendor Notices to the Trade Vendors in accordance with subsection 5.01 (a)
above, the Trustee shall publish a notice (the "Public Trade Vendor Notice") in
--------------------------
substantially the form attached hereto as Exhibit C, which (i) shall be
---------
published once in The New York Times (National Edition), (ii) contains the same
------------------
information as is required to be contained in the Individual Trade Vendor
Notice, (iii) states that if any Trade Vendor has not received an Individual
Trade Vendor Notice, such Trade Vendor may notify the Trustee and the Company in
writing of the amount of the Trade Obligations then due and owing to it and (iv)
specifies a date, which shall be twenty (20) days after the date of first
publication of the Public Trade Vendor Notice, on or before which any Trade
Creditor who has not received an Individual Trade Vendor Notice shall, if it
wishes to receive a distribution under this Agreement, notify the Trustee and
the Company in writing of the amount of the Trade Obligations due and owing to
such Trade Vendor. In the event the Company shall have provided to the Trustee
contrary information with respect to any such Trade Vendor who delivers such
notice in compliance with the Public Trade Vendor Notice, the Trustee shall
reserve funds (to the extent available) in the Proceeds Account to provide for
any disputed amount until such dispute is resolved by the parties thereto.
ARTICLE 6.
PROCEEDS ACCOUNT
SECTION 6.01 The Proceeds Account. After receipt of a Default
--------------------
Notice and until the Proceeds (if and when received) have been fully distributed
in accordance with the terms of this Agreement and subject to the terms and
conditions of the Subordination Agreement, the Trustee shall establish and
maintain a bank account at a bank meeting the qualifications of a bank in which
Permitted Investments may be made as provided for herein, which bank account
shall be entitled the "Bradlees' Trade Vendor Account" (the "Proceeds Account").
----------------
All Proceeds (if
12
<PAGE>
and when received and subject to the terms and conditions of the Subordination
Agreement) shall be promptly deposited in the Proceeds Account, held by the
Trustee as part of the Trust Estate and distributed by the Trustee as soon as
practicable thereafter in accordance with Section 7.01 and the other provisions
of this Agreement.
SECTION 6.02 Control of Proceeds Account. All right, title and
---------------------------
interest in and to the Proceeds shall vest in the Trustee and funds on deposit
in the Proceeds Account shall constitute part of the Trust Estate. The Proceeds
Account shall be subject to the exclusive dominion and control of the Trustee.
SECTION 6.03 Investment of Funds Deposited in Proceeds Account. To
-------------------------------------------------
the extent the Proceeds are on deposit in the Proceeds Account in accordance
with the terms of this Agreement, the Trustee shall invest and reinvest such
funds solely in Permitted Investments. All such investments and the interest
and income received thereon shall be held in the Proceeds Account as part of the
Trust Estate. The Trustee shall have no responsibility for any loss resulting
from a fluctuation in interest rates or the sale or other disposition of any
Permitted Investment prior to its maturity date or otherwise. The Trustee shall
have a reasonable period of time in which to reinvest the moneys on deposit in
the Proceeds Account. In addition to the payment of expenses incurred by the
Trustee pursuant to any other Section of this Agreement, the Trustee may deduct
from the funds on deposit in the Proceeds Account all of the actual and
reasonable costs and expenses that the Trustee may incur in connection with (a)
the exercise or enforcement of any of the rights and remedies of the Trustee
hereunder or under the Collateral Documents and (b) the custody or preservation
of Trust Estate.
ARTICLE 7.
APPLICATION OF PROCEEDS
SECTION 7.01 Application of Proceeds. Subject to the terms and
-----------------------
conditions of the Subordination Agreement, all Proceeds and all other moneys in
the Proceeds Account shall promptly be applied as follows:
FIRST: To the payment of (i) compensation due and payable to the
-----
Trustee for services hereunder pursuant to Section 9.02 hereof, and (ii)
all costs, expenses and liabilities incurred by the Trustee in connection
with the exercise or enforcement of the rights, duties and remedies of the
Trustee under this Agreement and the Collateral Documents, including,
without limitation, the reasonable fees and disbursements of counsel for
the Trustee;
SECOND: After payment in full of the outstanding obligations
------
described in subsection 7.01 FIRST, to the payment of all costs, expenses
and liabilities incurred by the Trade Committee in connection with the
exercise of its rights, duties or remedies under this Agreement, including,
without limitation, the reasonable fees and disbursements of counsel for
the Trade Committee;
13
<PAGE>
THIRD: After payment in full of the outstanding obligations
-----
described in subsection 7.01 SECOND, to the ratable payment of the Trade
Obligations then due and owing to the Trade Vendors, as determined by the
Trustee in accordance with Section 5 above; and
FOURTH: After payment in full of all of the Trade Obligations
------
described in subsection 7.01 THIRD, to the Company or to its order, or as a
court of competent jurisdiction may otherwise direct.
SECTION 7.02 Distribution of Proceeds. All distributions required
------------------------
to be made hereunder to each of the Trade Vendors in respect of the Trade
Obligations shall be made directly to each of the Trade Vendors, at the
respective addresses for each of the Trade Vendors provided to the Trustee by
the Company pursuant to Section 9.01 of this Agreement or at such other more
current address of which the Trustee shall become aware. All such distributions
shall be (subject to any decree of any court of competent jurisdiction) final.
ARTICLE 8.
ABSOLUTE RIGHTS OF TRADE VENDORS
SECTION 8.01 Absolute Rights of Trade Vendors. Notwithstanding any
--------------------------------
other provision of this Agreement or any provision of any of the Collateral
Documents to the contrary, but subject in all events to the terms and conditions
of the Subordination Agreement, the right of each Trade Vendor, which is
absolute and unconditional, to receive payment of the Trade Obligations owed to
such Trade Vendor on or after the due date thereof as set forth on the books and
records of the Company, to institute suit for the enforcement of such payment on
or after such due date, and to assert its position as a creditor in a case under
the Bankruptcy Code in which the Company is a debtor, and the obligation of the
Company, which is also absolute and unconditional, to pay the Trade Obligations
owed to such Trade Vendor in accordance with the terms and conditions of the
invoice(s) evidencing same, shall not be impaired or affected without the
written consent of such Trade Vendor. In addition, every right of each Trade
Vendor to receive payment or collateral security from sources other than the
Trust Estate shall not be, and is not hereby, impaired or affected. Without
limiting the generality of the foregoing, no Trade Vendor shall be hereby
obligated to share with any other Trade Vendor any proceeds of such collateral
security, any guaranty or right of setoff; nor shall any Trade Vendor's right to
receive its ratable share of proceeds of the Trust Estate or any part thereof
hereunder be diminished by or affected in any way by its right to receive
proceeds of any such other collateral, set-off, payment upon a guaranty or
payment from any other source. In no event shall any Trade Vendor have the
right to receive more than the amount of Trade Obligations owed to such Trade
Vendor.
14
<PAGE>
ARTICLE 9.
AGREEMENTS WITH THE TRUSTEE
SECTION 9.0 (a) Information as to Trade Vendors. In connection with
-------------------------------
the distributions to be made by the Trustee after the occurrence of an Event of
Default pursuant to Section 7.01, the Company agrees that it shall promptly
deliver, or cause to be delivered, to the Trustee, from time to time, upon the
request of the Trustee or the Trade Committee, but not more than once each
month, a list setting forth the following (the "Trade Vendor Information"): (i)
------------------------
the aggregate outstanding amount of the Trade Obligations, (ii) the names and
addresses of all Trade Vendors, including the contact Person at each Trade
Vendor, and the unpaid principal amount and all other unpaid amounts in respect
of Trade Obligations known to the Company to be owing to each such Trade Vendor
and (iii) such other information regarding the Trade Vendors and the Trade
Obligations necessary to effectuate such distributions as the Trustee or the
Trade Committee may reasonably request. Unless otherwise specified herein, the
Trustee may for all purposes hereunder rely on such information provided by the
Company unless (x) the Trustee shall have actual knowledge of any inaccuracy or
(y) any Trade Vendor shall provide contrary information with respect to such
Trade Vendor, in which case the Trustee shall proceed as set forth in Section
5.01.
(b) Confidentiality. Except for (i) Trade Vendor Information
---------------
furnished by the Company to the Trustee pursuant to Section 9.01 which is
disclosed by the Trustee to the Trade Vendors in accordance with the terms of
this Agreement, and (ii) Trade Vendor Information which is or hereafter becomes
available to the public, the Trustee shall maintain the confidentiality of any
Trade Vendor Information designated by the Company as confidential (the
"Confidential Information") and the content of all such Confidential
- -------------------------
Information, and shall not provide or reveal the Confidential Information or its
content to any Trade Vendor or other Person without the express written consent
of the Company. The Trustee shall not be permitted to use, and hereby agrees
not to use, any such Confidential Information for any purpose other than to
effectuate distributions of Proceeds of the Trust Estate to Trade Vendors
pursuant to this Agreement. In the event that the Trustee is requested or
required, by law or legal process, to disclose any of the Confidential
Information, the Trustee shall immediately notify the Company of any such
request, and, in any such event, the Company may seek and pursue any such
action, including, without limitation, the commencement of judicial or
administrative proceedings at law or in equity. In the event that, in the
absence of a protective order or the receipt of a written waiver from the
Company, the Trustee nonetheless, in the opinion of the Trustee's counsel, is
compelled by law to disclose Confidential Information concerning the Company or
else be liable for contempt or subject to other censure or penalty, the Trustee
shall be permitted to disclose such information without liability under this
Agreement only to the extent necessary to avoid such liability, censure or
penalty. The Trustee acknowledges and agrees that the Company shall be entitled
to enforce the provisions of this Section 9.01(b) by specific performance and
injunctive relief in the event of any breach thereof by the Trustee, any Trade
Vendor or any other Person. The Trustee's obligations under this Section
9.01(b) shall survive the termination of the other provisions of this Agreement.
15
<PAGE>
SECTION 9.02 Compensation and Expenses. The Company agrees to pay
-------------------------
to the Trustee and any successor trustee appointed hereunder, as applicable,
from time to time upon demand, (i) reasonable compensation for the services of
the Trustee hereunder and for administering the Trust Estate pursuant to a
letter agreement, dated on or about the date hereof, between the Company and the
Trustee, as amended, supplemented or otherwise modified from time to time and
(ii) all the reasonable costs and expenses of the Trustee (including, without
limitation, the reasonable fees and disbursements of counsel to the Trustee and
such special counsel as the Trustee may from time to time elect to retain) (A)
arising in connection with the preparation, execution, delivery, modification
(as agreed to by the Company) and termination of this Agreement or the
enforcement of any of the provisions hereof or any Collateral Document.
including, without limitation, the maintenance and protection and continuation
of the perfection of the Trustee's security interest in all of the Collateral in
accordance with the Collateral Documents, or (B) from and after and during the
continuance of an Event of Default, incurred or required to be advanced in
connection with the administration of the Trust Estate, the sale or other
disposition of the Collateral or any part thereof and the exercise,
preservation, protection or defense of the Trustee's rights under this Agreement
and under the Collateral Documents and in and to the Trust Estate. The
Company's obligations incurred prior to termination of this Agreement under this
Section 9.02 shall survive the termination of the other provisions of this
Agreement.
SECTION 9.03 Stamp and Other Similar Taxes. The Company agrees to
-----------------------------
indemnify and hold harmless the Trustee from any present or future claim for
liability for any stamp or other similar tax and any penalties or interest with
respect thereto, which may be assessed, levied or collected by any jurisdiction
in connection with this Agreement, the Collateral Documents or the Collateral.
The obligations of the Company under this Section 9.03 shall survive the
termination of the other provisions of this Agreement.
SECTION 9.04 Filing Fees, Excise Taxes, Etc. The Company agrees to
-------------------------------
pay or reimburse the Trustee for any and all amounts in respect of all search,
filing, recording and registration fees, taxes, excise taxes and other similar
imposts which may be payable or determined to be payable in respect of the
execution, delivery, performance, enforcement and administration of this
Agreement and the Collateral Documents. The obligations of the Company under
this Section 9.04 shall survive the termination of the other provisions of this
Agreement.
SECTION 9.05 Indemnification. (a) In addition to, and not in
---------------
limitation of the provisions of Section 9.02 hereof, from and after the
occurrence and during the continuance of an Event of Default, the Company agrees
to pay, indemnify, and hold harmless the Trustee and each of its agents from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgements, suits, costs, expenses and disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and
16
<PAGE>
administration of this Agreement, the Collateral Documents and the Trust Estate,
unless arising from the gross negligence or willful misconduct of the Trustee or
such agents thereof as are seeking indemnification or the failure of the Trustee
or any such agents to exercise reasonable care in the handling of moneys or
securities actually received by the Trustee or any such agents.
(b) From and after and during the continuance of an Event of Default,
in any suit, proceeding or action brought by the Trustee under or with respect
to any Collateral Document or any Collateral for any Obligations owing
thereunder or secured thereby, or to enforce any provision thereof, the Company
will save, indemnify and hold harmless the Trustee from and against all expense,
loss or damage suffered by reason of any defense, set-off, counterclaim,
recoupment or reduction of liability whatsoever of the obligee thereunder
arising out of a breach by the Company of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing by the
Company to or in favor of such obligee or its successors and all such
obligations shall be and remain enforceable against and only against the Company
and shall not be enforceable against the Trustee, except, that, the Company
------ ----
shall not have such indemnification obligation with respect to any such expense,
loss or damage that is caused by the gross negligence or willful misconduct of
the Trustee, or the failure of the Trustee to (i) exercise reasonable care in
the handling of moneys and securities actually received by the Trustee or (ii)
comply with the provisions of Section 9.01(b) of this Agreement. The agreements
in this Section 9.05 shall survive the termination of the other provisions of
this Agreement.
SECTION 9.06 Further Assurances. (a) Each of the Company and the
------------------
Trustee agrees that it will promptly correct any defect or error that may be
discovered in this Agreement or any Collateral Document or in the execution,
acknowledgment or recordation thereof, as applicable.
(b) The Company agrees that from time to time it will, promptly, upon
reasonable request by the Trustee, and at its own expense, execute, acknowledge,
deliver, record, re-record, file, re-file, register and re-register any and all
further financing statements and continuations thereof, notices of assignment,
transfers, certificates, assurances, and other instruments as the Trustee may
reasonably request from time to time in order (i) to carry out more effectively
the purposes of this Agreement and the Collateral Documents and (ii) to enable
the Trustee to exercise and enforce is rights and remedies hereunder and under
the Collateral Documents, (iii) to subject to the liens created by the
Collateral Documents any of the properties, rights or interests of the Company
covered or now or hereafter intended to be covered by the Collateral Documents,
(iv) to perfect and maintain the validity, effectiveness and priority of the
Collateral Documents and the liens intended to be created thereby, (v) to better
assure, convey, grant, assign, transfer, preserve, protect and confirm unto the
Trustee the rights granted or now or hereafter intended to be granted under the
Collateral Documents or under any other instrument executed in connection
therewith to which the Trustee is or may become a party, and (vi) to enable the
Trustee to exercise and enforce its respective rights and remedies hereunder
and under the Collateral Documents, provided, however, that this Section 9.06(b)
-------- -------
shall not be construed to require the Company to grant any lien other than
expressly provided for in the Plan and in this Agreement or affect the
limitations or the rights of the Trustee under the Subordination Agreement.
17
<PAGE>
(c) The Company hereby authorizes the Trustee to file one or more
financing or continuation statements, and amendments thereto, relative to the
Collateral without the signature of the Company where permitted by law. A
carbon, photographic or other reproduction of the Inventory Security Agreement
or any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
SECTION 9.07 Notification of Event of Default Under Credit
---------------------------------------------
Agreement. The Company shall promptly notify the Trustee of the Company's
- ---------
receipt of (a) notice of the occurrence of an "Event of Default" under and as
defined in the BankBoston Credit Agreement and/or (b) notice advising the
Company of the Collateral Agent's and/or any Lender's intention to commence
realization upon the "Collateral" (as defined in the BankBoston Credit
Agreement), or any portion thereof, as a result of the occurrence of any such
"Event of Default" under the BankBoston Credit Agreement.
ARTICLE 10.
THE TRUSTEE
SECTION 10.01 Exculpatory Provisions. (a) The Trustee shall not be
----------------------
responsible in any manner whatsoever for the correctness of any recitals,
statements, representations or warranties contained herein, all of which are
made solely by the Company. The Trustee makes no representation as to the value
or condition of the Trust Estate or any part thereof, or as to the title of the
Company to the Collateral or as to the validity, execution (except the Trustee's
own execution), enforceability, legality or sufficiency of this Agreement, any
of the Collateral Documents or any of the Trade Obligations and, except as
otherwise expressly provided for herein, the Trustee shall incur no liability or
responsibility in respect of any such matters. The Trustee shall not be
responsible for insuring the Trust Estate or the payment of any taxes, charges,
assessments or liens upon the Trust Estate or otherwise as to the maintenance of
the Trust Estate, except that in the event that the Trustee enters into
possession of a part or all of the Trust Estate, the Trustee shall preserve the
part in its possession.
(b) The Trustee shall not be required to ascertain or inquire as to
the performance by the Company of any of the covenants or agreements contained
herein, any Collateral Document or with respect to any of the Trade Obligations.
(c) The Trustee shall not be personally liable for any action taken
or omitted to be taken by the Trustee in accordance with this Agreement or any
Collateral Document, except for its own gross negligence or willful misconduct
and its failure to exercise reasonable care in the handling of moneys or
securities actually received by it.
18
<PAGE>
SECTION 10.02 Delegation of Duties. The Trustee may execute any of
--------------------
the trusts hereof and perform any duty hereunder either directly or by or
through agents or attorneys-in-fact (which shall not include officers and
employees of the Company or any affiliate of the Company). The Trustee shall
not be responsible for the negligence or misconduct of any agents or attorneys-
in-fact reasonably selected by it in good faith.
SECTION 10.03 Reliance by Trustee. (a) Whenever in the
-------------------
administration of the trusts of this Agreement the Trustee shall deem it
necessary or desirable that a matter be proved or established in connection with
the taking, suffering or omitting any action hereunder or under any Collateral
Document unless otherwise provided herein or therein, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved or established by a certificate of an Authorized Officer
of the Company or the Trade Committee delivered to the Trustee, and such
certificate shall constitute a full warranty to the Trustee for any action
taken, suffered or omitted in reliance thereon unless the Trustee shall have
actual knowledge of an inaccuracy therein.
(b) The Trustee may consult with independent counsel (subject to the
provisions of Section 9.02 in respect of the Company's liability for the fees
and expenses of such counsel) and any opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or suffered
by it hereunder in accordance therewith unless the Trustee has actual knowledge
of any invalidity or inaccuracy, or a reason to question the validity or
accuracy, of such opinion or of any assumption expressed therein as the basis
for such opinion. The Trustee shall have the right at any time to seek
instructions concerning the administration of the Trust Estate from any court of
competent jurisdiction.
(c) The Trustee may rely, and shall be fully protected in acting,
upon any resolution, statement, certificate, instrument, opinion, report,
notice, request, consent, order, bond, or other paper or document which it
reasonably believes to be genuine and to have been signed or presented by the
proper party or parties or, in the case of cables, telecopies and telexes, to
have been sent by the proper party or parties. In the absence of gross
negligence or willful misconduct, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee that conform to the
requirements of this Agreement.
SECTION 10.04 Limitations on Duties of the Trustee.
------------------------------------
(a) The Trustee undertakes to perform only the duties expressly set
forth herein.
(b) The Trustee may exercise the rights and remedies granted to it by
this Agreement and the Collateral Documents, but only pursuant to the terms
hereof and thereof and subject to the terms of the Subordination Agreement, and
the Trustee shall not be liable with respect to any action taken or omitted by
it in accordance with the direction of the Trade Committee subject to the terms
hereof, the Collateral Documents and the Subordination Agreement.
19
<PAGE>
(c) Except as herein otherwise expressly provided, the Trustee shall
not be under any obligation to take any action which is discretionary with the
Trustee under the provisions hereof or any Collateral Documents, except upon the
written request of the Trade Committee. Subject to the provisions of Section
9.01(b) of this Agreement, the Trustee shall make available for inspection and
copying by the Trade Committee and each Trade Vendor, each certificate or other
paper furnished to the Trustee by the Company, by the Trade Committee, by any
Trade Vendor, or by any other Person, under or in respect of this Agreement, any
Collateral Document, or any of the Trust Estate.
SECTION 10.05 Moneys to Be Held in Trust. Subject to the terms and
--------------------------
conditions of the Subordination Agreement, all Proceeds and other moneys and
securities received by the Trustee under or pursuant to any provision of this
Agreement or any Collateral Document shall be held in trust in accordance with
the provisions of this Agreement and the Trustee shall exercise reasonable care
in the handling of any such Proceeds, other moneys and securities actually
received by it.
SECTION 10.06 Resignation and Removal of Trustee.
----------------------------------
(a) The Trustee may at any time, by giving thirty (30) days prior
written notice to the Company and the Trade Committee, resign and be discharged
of the responsibilities hereby created, such resignation to become effective
upon the appointment of a successor trustee by the Trade Committee and the
acceptance of such appointment by such successor trustee. The Trustee may be
removed at any time (with or without cause) and a successor trustee appointed by
the Trade Committee, provided that the Trustee shall be entitled to its fees and
--------
expenses to the date of removal. If no successor trustee shall be appointed and
approved within thirty (30) days from the date of the giving of the aforesaid
notice of resignation or within thirty (30) days from the date of such removal,
the Trustee shall, or the Trade Committee may, apply to any court of competent
jurisdiction to appoint a successor trustee to act until such time, if any, as a
successor trustee shall have been appointed as above provided. Any successor
trustee so appointed by such court shall immediately and without further act be
superseded by any successor trustee appointed by the Trade Committee as above
provided.
(b) If at any time the Trustee shall become incapable of acting, or
if at any time a vacancy shall occur in the office of the Trustee for any other
cause, a successor trustee shall be appointed by the Trade Committee and the
powers, duties, authority and title of the predecessor trustee terminated and
cancelled without procuring the resignation of such predecessor trustee, and
without any formality (except as may be required by applicable law) other than
the appointment and designation of a successor trustee in writing, duly
acknowledged, delivered to the predecessor trustee and the Company and filed for
record in each public office, if any, in which this Agreement is required to be
filed.
(c) The appointment and designation referred to in Section 10.06(b)
shall, after any required filing, be full evidence of the right and authority to
make the same and this Agreement shall vest in such successor trustee, without
any further act, deed or conveyance, all
20
<PAGE>
of the estate and title of its predecessor, and upon such filing for record, if
any, the successor trustee shall become fully vested with all the estates,
properties, rights, remedies, trusts, duties, authority and title of its
predecessor; but such predecessor shall, nevertheless, on the written request of
the Trade Committee, the Company or its or their successor trustee, execute and
deliver an instrument transferring to such successor all the estates,
properties, rights, remedies, trusts, duties, authority and title of such
predecessor hereunder and shall deliver all moneys and securities held by it to
such successor trustee. If any deed, conveyance or other instrument in writing
from the Company is required by any successor trustee for more fully and
certainly vesting in such successor trustee or trustees the estate, properties,
rights, powers, trusts, duties, authority and title vested or intended to be
vested in the predecessor trustee, any and all such deeds, conveyances and other
instruments in writing shall, on request of such successor trustee, be granted,
acknowledged and delivered by the Company.
(d) Any required filing for record of the instrument appointing a
successor trustee as hereinabove provided shall be at the expense of the
Company. The resignation of any trustee and the instrument or instruments
removing any trustee, together with all other instruments, deeds and conveyances
provided for in this Article 10 shall, if permitted by law, be forthwith
recorded, registered and filed by and at the expense of the Company, wherever
this Agreement is recorded, registered and filed.
SECTION 10.07 Trustee Appointed Attorney-in-Fact. Upon the
----------------------------------
occurrence of an Event of Default, the Company shall thereupon be deemed to have
automatically, without any further act by the Company, irrevocably constituted
and appointed the Trustee and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full power and
authority in the name of the Company or its own name and in the place and stead
of the Company, from time to time at the direction of the Trade Committee, to
take, subject to Section 4.01(b) and to the terms and conditions of the
Subordination Agreement, any action and to execute any instrument which the
Trade Committee may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation, to receive, endorse and collect
all instruments made payable to the Company representing payment, rents, issues
or profits or other distribution in respect of the Collateral, or any part
thereof and to give full discharge for the same.
SECTION 10.08 Reasonable Care. The Trustee shall be deemed to have
---------------
exercised reasonable care in the custody and preservation of the Trust Estate if
the Trust Estate is accorded treatment substantially equal to that which the
Trustee accords its own property and reasonable care is exercised by the Trustee
in handling any moneys or securities in its possession, it being understood that
the Trustee shall not have any responsibility for taking any steps to preserve
rights against any parties with respect to the Collateral, except as expressly
provided for by or in accordance with this Agreement.
21
<PAGE>
ARTICLE 11.
MISCELLANEOUS
SECTION 11.01 Amendment or Waiver. (a) None of the terms and
-------------------
conditions of this Agreement or any Collateral Document may be changed, waived,
modified or varied in any manner whatsoever unless in writing duly signed by the
Company and the Trustee with the consent of the Trade Committee and provided
that the terms and conditions of such writing are not prohibited or inconsistent
with the terms and conditions of the Subordination Agreement. Any such
amendment, waiver or modification shall be binding upon the Company, the Trade
Committee, the Trade Vendors, and the Trustee and their respective successors
and assigns.
(b) Notwithstanding the provisions of subsection 11.01(a), the
Trustee and the Company may, at any time and from time to time, without the
consent of the Trade Committee, but subject to the prior written consent of the
Collateral Agent, enter into one or more agreements supplemental hereto or to
any Collateral Document, in form and substance satisfactory to the Trustee and
the Collateral Agent (and which written consent thereto by the Collateral Agent
shall not be unreasonably withheld or delayed, provided such agreements are not
prohibited by or inconsistent with the terms and conditions of the Subordination
Agreement or the BankBoston Credit Agreement), (i) to add to the covenants of
the Company, for the benefit of the Trade Vendors, or to surrender any right or
power herein conferred upon the Company, or (ii) to mortgage, pledge or grant a
security interest in favor of the Trustee, as additional security for the Trade
Obligations, any property or assets which are required to be mortgaged or
pledged, or in which a security interest is required to be granted, to the
Trustee pursuant to the Plan or the Collateral Documents.
SECTION 11.02 Subordination Agreement. Notwithstanding any
-----------------------
provision of this Agreement to the contrary:
(a) the Trustee shall comply with the terms and conditions of the
Subordination Agreement and any direction of the Collateral Agent given to the
Trustee thereunder in accordance with the terms thereof and shall not require
the consent of the Trade Committee or any Trade Vendor to comply with any
provision of the Subordination Agreement; and
(b) by their acceptance of the benefits hereof and of the Collateral
Documents, the Trade Committee and the Trade Vendors agree, for the benefit of
the Trustee and the Collateral Agent, (i) to the provisions of Section 11.02(a)
above, (ii) to be bound by those provisions of the Subordination Agreement that
are applicable to the security interest granted to the Trustee, for the benefit
of the Trade Vendors, or are otherwise applicable to the Trade Vendors, and to
take no action to cause the Trustee to breach any provisions of the
Subordination Agreement, (iii) that they, individually or as a group, may not
take any action with respect to the Collateral, any such action or assertion to
be taken solely by the Trustee, subject at all times to the terms and conditions
of the Subordination Agreement, (iv) to take such further action, at the
22
<PAGE>
expense of the Company, as is reasonably required by the Collateral Agent and
the Trustee to effectuate the provisions and intent of the Subordination
Agreement, and (v) that in the event of any conflict between the provisions of
this Agreement or any Collateral Document, on the one hand, and the
Subordination Agreement, on the other hand, the provisions of the Subordination
Agreement shall govern.
SECTION 11.03 Notices. All notices, requests, demands and other
-------
communications provided for or permitted hereunder shall, unless otherwise
stated herein, be in writing (including telex and telecopy communications) and
shall be sent by registered or certified mail, return receipt requested, telex,
telecopier or hand delivery;
(a) If to the Company, to One Bradlees Circle, Braintree,
Massachusetts 02184, Attention: Chief Financial Officer and General Counsel, or
at such other address as shall be designated by it in a written notice to the
Trustee and the Trade Committee;
(b) If to the Trustee, to its address at 333 East 68th Street, New
York, New York 10021, Attention: Michael J. Sherman, or at such other address as
shall designated by it in a written notice to the Company and the Trade
Committee;
(c) If to any Trade Vendor, to it at the address specified from time
to time in the list provided by the Company to the Trustee pursuant to Section
9.01.
(d) If to the Trade Committee, c/o Mattel Toys, 333 Continental
Boulevard, El Segundo, California 90245-50212 Attention: Ms. Dorthy Fee,
Assistant Controller, or at such other address as shall be designated by it in a
written notice to the Company and the Trustee, with a copy delivered
-----------
simultaneously therewith to: Otterbourg, Steindler, Houston & Rosen, P.C., 230
Park Avenue, New York, New York 10169 Attention: Glenn B. Rice, Esq., counsel to
the Trade Committee, or at such other address as shall be designated by such
firm to the Company and the Trustee.
All such notices, requests, demands and communications shall be deemed to have
been duly given or made, (i) when delivered by hand, immediately upon delivery
(ii) five (5) Business Days after being deposited in the United States mail,
postage prepared, (iii) when telexed, immediately upon sending, with answer back
received, (iv) when telecopied, immediately upon sending, with receipt
acknowledged or (v) one (1) Business Day after sending when deposited with a
nationally recognized overnight courier service with instructions to deliver the
next Business Day.
SECTION 11.04 Headings. Section, subsection and other headings
--------
used in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
SECTION 11.05 Severability. Any provision of this Agreement which
------------
is prohibited or unenforceable in any jurisdiction shall not invalidate 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.
23
<PAGE>
SECTION 11.06 Claims Against Trustee. This Agreement is made for
----------------------
the benefit of the Trade Vendors, and the Trade Committee may from time to time
enforce the rights of the Trade Vendors as explicit beneficiaries hereunder.
Any claims or causes of action which the Trade Vendors or the Company shall have
against the Trustee shall survive the termination of this Agreement and the
termination of the Trust Estate hereunder.
SECTION 11.07 Binding Effect. This Agreement shall be binding upon
--------------
and inure to the benefit of each of the parties hereto and, additionally, shall
inure to the benefit of the Trade Committee and its successors and assigns and
the Trade Vendors and their respective successors and assigns and, subject to
the rights of the Collateral Agent hereunder (if any) and under the
Subordination Agreement, nothing herein is intended or shall be construed to
give any other Person any right, remedy or claim under, to or in respect of this
Agreement or the Trust Estate or any part thereof. In addition to and not in
limitation of the foregoing, and notwithstanding anything to the contrary
contained in this Agreement or in any Collateral Document, in the event any
Trade Vendor at any time sells, assigns, pledges, disposes of or otherwise
tranfers to any Person (a "Transferee") all or any portion of the Trade
Obligations at any time owing to such Trade Vendor, the Transferee shall in no
event be entitled to any of the rights and benefits of such Trade Vendor under
this Agreement or under any Collateral Document, including, without limitation,
with respect to the security interests granted by the Company to the Trustee in
the Collateral, unless the Transferee shall have executed and delivered to the
Collateral Agent, in form and substance satisfactory to the Collateral Agent, an
assumption and ratification agreement, pursuant to which, among other things,
the Transferee agrees that the rights and benefits it has acquired hereunder and
under the Collateral Documents are subject to all of the terms and conditions of
the Subordination Agreement and that the Transferee agrees to be bound by all of
the terms and provisions of the Subordination Agreement to the extent applicable
to Trade Vendors.
SECTION 11.08 Governing Law. This Agreement and the rights and
-------------
obligations hereunder of the Trade Committee and the Trade Vendors shall be
governed by, and construed in accordance with, the laws of the State of New
York, without regard to the conflicts of laws principles of such State.
SECTION 11.09 Counterparts. This Agreement may be executed in
------------
several counterparts, each of which when executed shall be an original and all
of which taken together shall constitute one and the same instrument.
SECTION 11.10 Termination. This Agreement and the Collateral
-----------
Documents shall terminate upon the earliest to occur of:
(a) midnight on that date that is two (2) years from the date hereof;
24
<PAGE>
(b) at the sole option of the Company or the Collateral Agent on
behalf of the Company, on such date on which the Company has delivered notice to
the Trustee, the Trade Committee and all of the Trade Vendors that, with respect
to the three (3)-fiscal month period most recently ended, the average of the
Accounts Payable/Inventory Ratio (as hereinafter defined) measured on each of
the three Measurement Dates (as hereinafter defined) in such three (3)-fiscal
month period is more than five (5) percentage points less than such average
ratio calculated in the same manner on a comparable store basis for the same
three (3)-fiscal month period in the immediately preceding calendar year, all as
determined in accordance with generally accepted accounting principles,
consistently applied, and which notice to the Trustee and the Trade Committee
shall be accompanied by such information as the Trustee and/or the Trade
Committee shall reasonably request with respect to the Company's calculation of
such ratios. For the purposes of this Section 11.10(b) (i), the "Accounts
Payable/Inventory Ratio" is the ratio as of any Measurement Date of (x) the
aggregate amount of all accounts payable of the Company as of such Measurement
Date to (y) the value (computed on a cost basis) of all inventory owned by the
Company as of such Measurement Date; and (ii) "Measurement Date" means and
refers to the last day of each of the three (3)-fiscal months in any relevant
three (3)-fiscal month period.
(c) immediately upon the Company's consummation of a transaction
pursuant to which Reorganized BI (as defined in the Plan) or the Company merges
or consolidates with any other Person(s);
(d) at the sole option of the Company, or the Collateral Agent on
behalf of the Company, solely as to a Trade Vendor specifically identified in a
notice delivered by the Company to the Trustee, the Trade Committee and such
Trade Vendor as to whom the Company intends to terminate this Agreement pursuant
to this subsection 11.10(d) (the "Terminated Trade Vendor"), (i) if such
-----------------------
Terminated Trade Vendor commences selling its goods to the Company after the
Effective Date (as defined in the Plan) on credit terms which are more
restrictive than the most restrictive credit terms under which such Terminated
Trade Vendor sold goods to the Company at any time during the twelve (12)-month
period immediately preceding the Effective Date, or (ii) in the event such
Terminated Trade Vendor did not sell any of its goods to the Company in the
twelve (12)-month period immediately preceding the Effective Date, then if such
Terminated Trade Vendor commences selling its goods to the Company on credit
terms which are not as favorable as the credit terms made available by such
Terminated Trade Vendor to the Company in connection with the goods first sold
by such Terminated Trade Vendor to the Company after the Effective Date; and
(e) after the occurrence of an Event of Default and the Trustee's
exercise of its rights and remedies hereunder and under the Collateral
Documents, (i) the sale or other disposition of all of the Collateral and the
final disposition of all Proceeds or (ii) the indefeasible payment in full of
the Obligations.
SECTION 11.11 Termination Notice; Effect of Termination.
-----------------------------------------
Notwithstanding anything to the contrary contained in Section 11.10, (a) if this
Agreement is terminated pursuant to subsection 11.10(b) or (c), such termination
shall not be effective until thirty (30) days after
25
<PAGE>
the Company has given notice of such termination to the Trustee and has
published notice of such termination, for the benefit of Trade Vendors
generally, in the New York Times (National Edition), advising the Trade Vendors
--------------
of its intent to terminate this Agreement as a result of its satisfaction of the
conditions precedent to such termination set forth in such subsection 11.10(b)
or (c) (as applicable) and (b) if the Agreement is terminated as to a Terminated
Trade Vendor pursuant to subsection 11.10(d), such termination shall not be
effective until the Company shall have delivered notice to the Trustee and the
Terminated Trade Vendor(s) of the Company's exercise of its option pursuant to
such subsection to terminate this Agreement as to such Terminated Trade
Vendor(s), provided, however, that (i) in the case of termination of this
-------- -------
Agreement pursuant to subsection 11.10 (a)(b), (c) or (e), no such termination
shall relieve or discharge the Company of its duties, obligations or covenants
under this Agreement or the other Collateral Documents until all Trade
Obligations incurred prior to such termination and all other Obligations at any
time incurred in connection with the collection of such Trade Obligations have
been fully and finally discharged and paid, and the Trustee's liens upon and
security interests in the Collateral and the rights and remedies of the Trustee
under the Agreement, the other Collateral Documents and applicable law shall
remain in full force and effect until all such Trade Obligations and other
Obligations have been fully and finally paid, and (ii) in the case of
termination of this Agreement as to a Terminated Trade Vendor pursuant to
subsection 11.10(d), such termination shall be effective solely as to such
Terminated Trade Vendor (and no other Trade Vendor) and solely with respect to
any goods sold and delivered by such Terminated Trade Vendor subsequent to the
date on which this Agreement has been terminated as to such Terminated Trade
Vendor and such termination shall not otherwise limit, impair or affect in any
manner whatsoever either (A) this Agreement and the Collateral Documents as to
the Trustee and all other Trade Vendors (exclusive of such Terminated Trade
Vendor) or (B) the rights of the Terminated Trade Vendor arising under this
Agreement and the Collateral Documents prior to the effective date of the
termination hereof as to such Terminated Trade Vendor.
SECTION 11.12 Conflicts. In the event of any conflict between any
---------
term or provision of this Agreement and any term or provision of any Collateral
Document, the term or provision of this Agreement shall govern and control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be duly executed by their respective officers thereunto
duly authorized as of the day and year first above written.
M.J. SHERMAN & ASSOCIATES, INC.
as Trustee
By: /s/ Oleg Ostrovsky
-------------------------------
Name: Oleg Ostrovsky
-----------------------------
Title: Vice President
-----------------------------
26
<PAGE>
BRADLEES STORES, INC.
By: /s/ Paul R. McKelvey
-------------------------------
Name: Paul R. McKelvey
-----------------------------
Title: Vice President-Treasurer
-----------------------------
27
<PAGE>
EXHIBIT A
---------
TRADE COMMITTEE OF BRADLEES STORES, INC.
_________________________
____________________________
___________________________
DEFAULT NOTICE
______________, 1999 [200_]
M.J. Sherman & Associates, Inc.,
Trustee
333 East 68th Street
New York, New York 10021
Attn: Michael J. Sherman, President
Gentlemen:
Reference is made to the Collateral Trust Agreement, dated as of
________, 1999 between Bradlees Stores, Inc. and M.J. Sherman & Associates, as
Trustee (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Trust Agreement"). Initially capitalized terms used and
----- ---------
not otherwise defined herein shall have their respective meanings as set forth
in the Trust Agreement.
Pursuant to the terms of the Trust Agreement, the Trade Committee hereby
notifies the Trustee that an Event of Default has occurred under the Trust
Agreement and hereby irrevocably directs the Trustee, subject to the terms and
conditions of the Subordination Agreement, to take such action as requested by
the Trade Committee with respect to the Collateral Documents and the Collateral.
Very truly yours,
TRADE COMMITTEE OF
BRADLEES STORES, INC.
By: [____________________]
By:
---------------------------
Name:
-------------------------
Title:
------------------------
cc: Bradlees Stores, Inc.
Att: Chief Financial Officer
28
<PAGE>
EXHIBIT B
---------
TRADE COMMITTEE OF BRADLEES STORES, INC.
_________________________
_____________________________
Attention: ______________
INDIVIDUAL TRADE VENDOR NOTICE
______________, 199_ [200_]
[Name and Address
of Individual Trade Vendor]
Attn: [Contact Person]
Gentlemen:
Reference is made to the Collateral Trust Agreement, dated as of ________,
1999 between Bradlees Stores, Inc. and M.J. Sherman & Associates, as Trustee (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Trust Agreement"). Initially capitalized terms used and not
---------------
otherwise defined herein shall have their respective meanings as set forth in
the Trust Agreement.
Pursuant to the terms of the Trust Agreement, the Trustee hereby (i)
notifies you that (x) an Event of Default has occurred under the Trust
Agreement, (y) the Trustee's and the Trade Vendors' rights and remedies with
respect to such Event of Default are limited by and subject to the terms and
conditions of the Subordination Agreement, and (z) the Trustee has taken the
following action with respect to the Collateral and (ii) advises you that the
books and records of the Company show that as of ___________, 19__ [200_] the
unpaid amount of Trade Obligations due and payable to you is $_________ (the
"Trade Vendor Payable Amount").
- ----------------------------
The Trade Vendor Payable Amount shall be deemed correct and shall be the
amount used by the Trustee in calculating the distribution to be made to you
pursuant to the Trust Agreement unless, within twenty (20) days of the mailing
of this Individual Trade Vendor Notice, you shall provide to the Trustee and the
Company contrary information as to the Trade Payable Amount owed to you, in
which case, the Trustee shall reserve, to the extent available, funds in the
Proceeds Account to provide for any disputed amount until such dispute is
resolved.
Very truly yours,
M.J. SHERMAN & ASSOCIATES, INC.,
Trustee
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
29
<PAGE>
EXHIBIT C
---------
[M.J. SHERMAN & ASSOCIATES, INC.]
Trustee
333 East 68th Street
New York, New York 10021
PUBLIC TRADE VENDOR NOTICE
______________, 199_ [200_]
TO: THE TRADE VENDORS
OF BRADLEES STORES, INC.
Reference is made to the Collateral Trust Agreement, dated as of ________
__, 1999, between Bradlees Stores, Inc. and M.J. Sherman & Associates, as
Trustee (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Trust Agreement"). Initially capitalized terms used and
---------------
not otherwise defined herein shall have their respective meanings as set forth
in the Trust Agreement.
Pursuant to the terms of the Trust Agreement, the Trustee hereby (i)
notifies you that (x) an Event of Default has occurred under the Trust
Agreement, (y) the Trustee's and the Trade Vendors' rights and remedies with
respect to such Event of Default are limited by and subject to the terms and
conditions of the Subordination Agreement, and (z) the Trustee has [taken the
following action with respect to the Collateral and (ii) advises you that if you
have not received an Individual Trade Vendor Notice, then, if you wish to
receive any distribution made under the Trust Agreement, you must, on or before
______________, 20 days after the date of the first publication of the Public
Payment Notice, notify the Trustee and the Company in writing of the amount of
Trade Obligations owed to you.
In the event the Trustee and the Company shall have received contrary
information from the Company as to the amount of Trade Obligations owed to you,
the Trustee shall reserve, to the extent available, funds in the Proceeds
Account to provide for any disputed amount until such dispute is resolved.
Very truly yours,
M.J. SHERMAN & ASSOCIATES, INC.,
Trustee
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
30
<PAGE>
Exhibit 21
List of Subsidiaries
of Bradlees, Inc.
Jurisdiction
------------
Name Of Incorporation
- ---- ----------------
Bradlees Stores, Inc. Massachusetts
New Horizons of Yonkers, Inc. Delaware
<PAGE>
Exhibit 23.2
[AA Letterhead]
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made part of this
Registration Statement No. 333-66953.
/s/ Arthur Andersen LLP
New York, New York
February 16, 1999
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-66953 of Bradlees, Inc., Bradlees Stores, Inc. and New
Horizons of Yonkers, Inc. of our report dated March 20, 1997 (February 16, 1999
with respect to Note 16) on Bradlees, Inc. consolidated financial statements
(which expresses an unqualified opinion and includes explanatory paragraphs
relating to (a) the Company's filing for reorganization under Chapter 11 of the
Federal Bankruptcy Code, and (b) the Company's 1996 and 1995 losses from
operations and stockholders' deficiency, which raise substantial doubt about
the Company's ability to continue as a going concern) appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 16, 1999
