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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-12302
Barnes & Noble, Inc.
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(Exact name of registrant as specified in its Charter)
Delaware 06-1196501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 633-3300
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share New York Stock Exchange
(Title of Class) (Name of Exchange on
which registered)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $2,046,874,964 based upon the closing market
price of $38.88 per share of Common Stock on the New York Stock Exchange as of
March 30, 1998.
Number of shares of $.001 par value Common Stock outstanding as of March 30,
1998: 68,185,433
(Cover page 1 of 2)
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended January 31, 1998 are incorporated by reference into Parts II and IV.
(Cover page 2 of 2)
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TABLE OF CONTENTS
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Page
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PART I
Item 1. Business............................................................. 4
Item 2. Properties........................................................... 16
Item 3. Legal Proceedings.................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................. 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
17
Item 6. Selected Financial Data.............................................. 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 18
Item 8. Financial Statements and Supplementary Data.......................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 18
PART III
Item 10. Directors and Executive Officers of the Registrant................... 18
Item 11. Executive Compensation............................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and Management.......
19
Item 13. Certain Relationships and Related Transactions....................... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...... 19
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PART I
ITEM 1. BUSINESS
General
Barnes & Noble, Inc. ("Barnes & Noble" or the "Company"), the world's
largest bookseller*, operated 483 "super" stores in 48 states and the District
of Columbia and 528 mall-based bookstores in 45 states and the District of
Columbia as of January 31, 1998. The Company's rapidly expanding "super" store
business operates under the Barnes & Noble Booksellers, Bookstop and Bookstar
trade names (collectively "Barnes & Noble stores") and its mall-based business
operates under the B. Dalton Bookseller, Doubleday Book Shops and Scribner's
Bookstore trade names (collectively "B. Dalton stores"). The Company is the
world's largest supplier of books through direct-mail catalogs* and publishes
books under its own Barnes & Noble Books imprint for exclusive sale through its
retail bookstores and mail-order catalogs. The Company is also the exclusive
bookseller in America Online's Marketplace (AOL keyword: BarnesandNoble) and
maintains its own Web site (BarnesandNoble.com), operating the "world's largest
bookseller online." Barnes & Noble is the only book retailer operating through
all four channels of distribution: retail stores, the Internet, 1-800-THE-BOOK
and mail order. During fiscal 1997, the Company's share of the consumer book
market increased to approximately 14%.
The Company's principal business is the retail sale of trade books
(generally hardcover and paperback consumer titles, excluding educational
textbooks and specialized religious titles), mass market paperbacks (such as
mystery, romance, science fiction and other popular fiction), children's
books, off-price bargain books and magazines. These collectively account for
substantially all of the Company's sales. Bestsellers represent only 3% of the
Barnes & Noble store sales.
The Company's fiscal year is comprised of 52 or 53 weeks, ending on
the Saturday closest to the last day of January. The fiscal year ended January
31, 1998 ("fiscal 1997") was comprised of 52 weeks and the fiscal year ended
February 1, 1997 ("fiscal 1996") was comprised of 53 weeks.
The Company generated revenues of $2.797 billion during fiscal 1997,
an increase of 14.2%, compared with revenues of $2.448 billion during fiscal
1996. Fiscal 1996 includes 53 weeks; excluding the impact of the 53rd week,
revenues increased 16%. During fiscal 1997, revenues from Barnes & Noble stores
rose 20.7% to $2.246 billion from $1.861 billion during fiscal 1996. The
Company's net earnings before an extraordinary charge due to early
extinguishment of debt, increased $13.4 million, or 26.2%, to $64.7 million
during fiscal 1997 from $51.2 million during fiscal 1996. The extraordinary
charge of $11.5 million recorded in fiscal 1997 equated to $0.17 per common
dilutive share resulting in net earnings of $53.2 million or $0.76 per common
dilutive share compared with $0.75 per common dilutive share for the prior year.
Barnes & Noble Stores
General
The Company is the largest operator of book "super" stores in the
United States* with 483 stores, of which 65 were opened in fiscal 1997. During
fiscal 1997, Barnes & Noble stores generated 80.3% of
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* Based upon sales reported in trade publications and public filings.
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total Company revenues, up from 76.0% during the prior year. The Barnes &
Noble stores realized a comparable store sales increase of 9.4% during fiscal
1997.
Barnes & Noble stores range in size from 10,000 to 60,000 square feet
depending upon market size. The 65 Barnes & Noble stores opened during fiscal
1997 added 1.6 million square feet to the Barnes & Noble store base, bringing
the total square footage to 10.8 million square feet, a 16% increase over the
prior year. The Company intends to open approximately 60 Barnes & Noble stores
during the 52 weeks ending January 30, 1999 which are expected to average
26,000 square feet in size. With its market leadership position and its high
standards for site selection, store design, merchandising and customer service,
the Company believes that its Barnes & Noble store business continues to have
significant growth opportunities and intends to expand its operations in new and
existing markets. The Company plans to continue opening as many new stores in
the future that meet its strict standard for return on investment. The Company
believes that the key elements contributing to the success of the Barnes & Noble
stores are:
Proximity to Customers. The Company's strategy is to increase its
share of the consumer book market, as well as to increase the size of the
market. Since it began its "super" store roll-out, the Company has employed a
market clustering strategy. As of January 31, 1998, Barnes & Noble had stores
in 140 of the total 208 DMA markets (Designated Market Area). In 71 of the 140
markets the Company has only one Barnes & Noble store. The Company believes its
early market penetration and the stores' proximity to their customers strengthen
its market position and increase its franchise value. Most Barnes & Noble stores
are located in high-traffic areas with convenient access to major commercial
thoroughfares and ample parking. Most stores offer extended shopping hours,
generally 9:00 a.m. to 11:00 p.m., seven days a week.
Dominant Title Selection. Each Barnes & Noble store features an
authoritative selection of books, ranging between 60,000 and 175,000 titles.
Each store's comprehensive title selection is customized to the local
community's interests and demands. To further the breadth of title selection,
Barnes & Noble funds the Discover Great New Writers program supporting the
work of newly published authors, and emphasizes books published by small and
independent publishers and university presses. In addition to this extensive
on-site selection, each store will special order any book from the more than
one million books in print. The Company believes that its tremendous selection,
including many otherwise hard-to-find titles, builds customer loyalty.
Experienced Booksellers. Seven years into its "super" store roll-out,
the Company has a large and experienced base of booksellers from which it can
select managers and booksellers to fill positions in the Company's expanding
business. The Company's culture of outgoing, helpful and knowledgeable
booksellers consists of 27,200 full- and part-time employees operating over
1,000 stores as of January 31, 1998. During fiscal 1997, 75% of the new Barnes
& Noble store managers were promoted from within this group, from which the
Company realizes the benefits of better store-level execution, staffing and
customer service.
Store Design and Ambiance. Barnes & Noble stores are designed to be
reminiscent of an old world library, with wood fixtures, antique style chairs
and tables, ample public space, a cafe and public restrooms. Barnes & Noble's
literary cafes, for which the Starbucks Coffee Company is the sole provider of
coffee products, further the image of its "super" stores as a community
meeting place.
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Music Departments. As of January 31, 1998, the Company had 155 Barnes
& Noble stores with music departments which range in size from 2,000 to 4,000
square feet. The music departments generally stock over 50,000 titles in
classical music, opera, jazz, blues and pop rock, tailored to the tastes of
the Company's core customers - the 35- to 45-year age group. Listening
stations are available for customers to preview selected compact disks.
Discount Pricing. Barnes & Noble stores employ a nationwide discount
pricing strategy. The New York Times hardcover bestsellers are discounted 30%
off the publishers' suggested retail price, with a 10% discount on most other
hardcover books. The Company believes that its pricing strategies enable the
Company to be highly competitive.
Marketing and Community Relations. Barnes & Noble stores are launched
with a major grand opening campaign involving extensive print and radio
advertising, direct-mail marketing and community events. Each store plans its
own community-based calendar of events, including author appearances,
children's storytelling hours, poetry readings and discussion groups. The
Company believes its community focus encourages customer loyalty, significant
word-of-mouth publicity and free media coverage. The Company also supports
communities through efforts on behalf of First Book, a national organization
dedicated to providing books to children with little or no access to them
outside of school. The Company is one of the leading sponsors of Writer's
Harvest, an annual series of readings held across the country sponsored by
Share our Strength, one of the nation's foremost anti-poverty organization.
Proprietary Product. The Company features titles published under the
Barnes & Noble Books imprint in its retail stores and mail-order catalogs.
During fiscal 1997, sales of Barnes & Noble's self-published titles grew over
30% in terms of retail dollars over fiscal 1996. During 1997 the Company
introduced more titles under its own imprint, bringing its total catalog of
self-published books to over 1,500 titles. Sales of these books enable the
Company to distinguish its product offerings from those of its competitors and
offer customers high quality books at excellent values while generating
attractive gross margins.
Merchandising and Marketing
The Company's merchandising strategy for its Barnes & Noble stores is
to be the authoritative community bookstore which carries a dominant selection
of titles in all subjects, including an extensive selection of titles from
small independent publishers and university presses. Each Barnes & Noble store
stocks from 60,000 to 175,000 titles, of which approximately 50,000 titles are
common to all stores; the balance is crafted to reflect the lifestyles and
interests of each store's customers. Before a store opens, the Company's
buyers study the community and customize the title selection with offerings
from the store's local publishers and authors. After the store opens, each
Barnes & Noble store manager is responsible for adjusting the buyers'
selection to the interests, lifestyles and demands of the store's local
customers. The Company's proprietary database, which includes catalogued sales
rankings of over 650,000 titles in over 110 subjects, provides each store with
comprehensive title selections in those subjects in which it seeks to expand.
During 1997, the Company began rolling out the next generation of its
state-of-the-art store system. The new store system greatly enhances
store-level customer service and productivity with its extremely fast register
transactions and its title database with more than one million titles designed
specifically for book browsing. The roll-out will be substantially completed
in 1998.
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Store Locations and Properties
The Company's experienced real estate personnel select sites for new
Barnes & Noble stores after an extensive review of demographic data and other
information relating to market potential, bookstore visibility and access,
available parking, surrounding businesses, compatible nearby tenants,
competition and the location of other Barnes & Noble stores. Most stores are
located in high-visibility areas adjacent to main traffic corridors in strip
shopping centers or freestanding buildings. The Company has been successful in
converting existing structures into dynamic bookstores in the Barnes & Noble
store format such as conversions of old movie theaters, bowling alleys and
landmark buildings.
The number of Barnes & Noble stores located in each state and the
District of Columbia as of January 31, 1998 are listed below:
NUMBER NUMBER
STATE OF STORES STATE OF STORES
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Alaska 1 Montana 3
Alabama 5 Nebraska 3
Arizona 11 Nevada 5
Arkansas 2 New Hampshire 3
California 70 New Jersey 15
Colorado 13 New Mexico 2
Connecticut 10 New York 31
Dist. Of Columbia 1 North Carolina 13
Florida 35 North Dakota 2
Georgia 10 Ohio 14
Hawaii 1 Oklahoma 5
Idaho 3 Oregon 8
Illinois 20 Pennsylvania 14
Indiana 6 Rhode Island 1
Iowa 2 South Carolina 5
Kansas 4 South Dakota 1
Kentucky 3 Tennessee 8
Louisiana 5 Texas 52
Maine 1 Utah 7
Maryland 6 Vermont 1
Massachusetts 14 Virginia 11
Michigan 13 Washington 13
Minnesota 14 Wisconsin 6
Mississippi 1 Wyoming 1
Missouri 8
Expansion
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The Company believes its Barnes & Noble store format offers the
greatest opportunity to increase its share of the expanding consumer book
market and intends to strengthen its position as the world's leading operator
of book superstores by opening approximately 60 new stores during fiscal 1998.
All stores will be opened under the Barnes & Noble Booksellers trade
name, and positions in those stores will be filled from within the Company
wherever possible.
The Company anticipates that its expansion plans will be supported by
a combination of continuing strong demand for consumer books, which has grown
over the past five years at a rate of 5.0% compounded annually according to
Veronis, Suhler & Associates Communications Industry Forecast ("Veronis
Suhler") and incremental sales generated by new stores.
Demographic trends in the United States support the prospect of
continued growth in the retail book industry. The principal book buying
population is between 45 and 64 years of age. According to the U.S. Bureau of
the Census, over the next five years this age group is expected to increase
17%.
B. Dalton Stores
General
The Company is the second largest operator of mall bookstores in the
United States*. During fiscal 1997, B. Dalton generated revenues of
approximately $509.4 million, or 18.2% of the Company's total revenues,
compared with 23.1% of total Company revenues during fiscal 1996.
Most B. Dalton stores range in size from 2,800 to 6,000 square feet.
These stores stock between 15,000 and 25,000 titles, feature new releases,
bestsellers and children's books, and carry a solid selection of titles in
categories such as business, computers, cooking and reference. B. Dalton
employs a market-by-market discount pricing strategy which generally discounts
hardcover bestsellers from 15% to 25% off the publishers' suggested retail
prices. B. Dalton also offers a Book$avers discount card for an annual fee
which allows customers an additional 10% discount on substantially all
purchases. The Company's 18 Doubleday and nine Scribner's bookstores utilize a
more upscale format in select shopping malls and place a greater emphasis on
hardcover and gift books.
The Company is continuing to execute a strategy to maximize returns
from its B. Dalton stores in response to declining sales attributable
primarily to superstore competition and, to a lesser extent, weaker overall
consumer traffic in shopping malls. Part of the Company's strategy has been to
close underperforming stores, which has resulted in the closing of more than
50 B. Dalton stores per year since 1989 as leases come up for renewal.
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* Based upon sales reported in trade publications and public filings.
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The Company has also been expanding the size of some of its new B.
Dalton stores and is seeking better locations within malls. A new B. Dalton
prototype was developed for this purpose; more than 100 new or converted stores
have been opened in the new format and are performing, on average, better than
the remaining store base.
Merchandising and Marketing
Each B. Dalton store carries a solid selection of core titles
within a variety of subject categories which are supplemented by new releases,
bestsellers and other titles specially selected to meet local demand. B.
Dalton's merchandise strategy is to expand title assortments within categories
it believes have significant growth potential, such as children's books, mass
market paperbacks (such as mystery, romance, science fiction and other popular
fiction), publishers' remainders and other bargain books including the
Company's self-published books. B. Dalton's product offerings are merchandised
to attract shoppers responding to movies, television talk show topics and
current events. Each store has the ability to customize its selection to its
local customers based upon their interests and demands.
B. Dalton's advertising and promotional programs focus on
point-of-sale and storefront signage and other in-store promotions designed to
attract walk-by mall traffic. B. Dalton takes full advantage of cooperative
advertising funds made available by publishers and generally limits its
expenditures and promotional programs to the amount of such funds. In
addition, stores customarily incur advertising costs, often in amounts equal
to a percentage of their annual sales, for lease required advertising of
mall-related promotional events.
Store Locations and Properties
Approximately 90% of B. Dalton stores are located in enclosed
regional shopping malls. The remaining stores are located in strip shopping
centers and central business districts. Site selections and lease renewals for
all B. Dalton stores are made after an extensive review of demographic data,
mall tenants, location within the mall and competitive factors.
The number of B. Dalton stores located in each state and the District
of Columbia as of January 31, 1998 are listed below:
NUMBER NUMBER
STATE OF STORES STATE OF STORES
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Alabama 1 Montana 4
Arizona 12 Nebraska 3
Arkansas 1 Nevada 3
California 78 New Hampshire 2
Colorado 11 New Jersey 13
Connecticut 6 New Mexico 2
Dist. Of Columbia 4 New York 22
Florida 27 North Carolina 12
Georgia 13 North Dakota 4
Idaho 3 Ohio 24
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Illinois 21 Oklahoma 4
Indiana 8 Oregon 6
Iowa 11 Pennsylvania 24
Kansas 7 South Carolina 7
Kentucky 3 South Dakota 2
Louisiana 12 Tennessee 5
Maine 2 Texas 36
Maryland 12 Utah 6
Massachusetts 8 Virginia 15
Michigan 25 Washington 16
Minnesota 23 West Virginia 1
Mississippi 1 Wisconsin 10
Missouri 16 Wyoming 2
The Company remains committed to opening stores in new shopping mall
projects which meet the Company's return on investment criteria and
anticipates opening four new B. Dalton stores during the 52 weeks ending
January 30, 1999. Given the declining rate of new mall development and the
Company's continuing plans to close B. Dalton stores, the Company anticipates
it will continue to realize a decline in the number of B. Dalton stores during
1998 primarily due to lease expirations. During fiscal 1997, the Company opened
4 B. Dalton stores and closed 53 stores, primarily as a result of electing not
to renew expiring leases.
BarnesandNoble.com
General
During March of 1997, the Company, through its wholly owned
subsidiary BarnesandNoble.com Inc., became the exclusive bookseller in America
Online's marketplace (keyword: BarnesandNoble), linking the world's largest
bookseller with the world's most popular Internet online service. America
Online provides its over 12 million members with access to the proprietary
database of BarnesandNoble.com, and enables the Company to directly reach a
well-established online community. The exclusive four-year agreement gives
BarnesandNoble.com an extensive presence throughout America Online. In May of
1997, BarnesandNoble.com launched its own Web site. The Company believes that
it brings significant competitive advantages to the online bookselling market,
including its distribution expertise, proprietary title database, large
customer base and established brand recognition. BarnesandNoble.com employs a
discount pricing strategy of 30% to 40% off publishers' suggested retail prices
for hardcover and 20% off publishers' suggested retail prices for paperback.
The Company's database of every book in print is powered by a
proprietary search engine that allows users to locate books by author, title or
subject. To further tailor customers' searches, BarnesandNoble.com includes book
descriptions, reviews and author interviews on hundreds of thousands of titles,
along with recommendations by the Company's editors and the Company's online
community of readers. From the latest bestsellers and new releases to diverse
titles from small presses and university publishers, the Company has more books
available for same-day shipping from the Company's distribution center than any
online bookseller. Currently, the Company offers almost 600,000 titles for
same-day shipping covering almost 90% of orders placed through
BarnesandNoble.com. In 1997, over 250,000 customers in 149 countries purchased
their books from BarnesandNoble.com.
Merchandising and Marketing
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Since the launch of BarnesandNoble.com, the Company has aggressively
pursued and won marketing and distribution deals with the Web's leading
content, search and commerce sites. These deals serve to extend the reach of
BarnesandNoble.com by creating links to high traffic sites, such as Lycos, CNN
Interactive, Discovery Channel Online, ZD Net, The New York Times, Time Inc.,
New Media and USA Today. The reach was further extended by the thousands of
additional Web sites that have joined the Company's innovative affiliate
network. All of the affiliates earn commissions based upon sales generated
from the traffic they direct to BarnesandNoble.com. The Company also entered
into a partnership with Disney Online, in which BarnesandNoble.com is the
exclusive bookseller for their site and operates a Disney bookstore on the
BarnesandNoble.com site. BarnesandNoble.com has a dedicated management team of
e-commerce marketing and technology professionals. As a leader in the
fast-growing world of e-commerce, the Company intends to actively advertise
and further develop affiliate relationships.
Other Strategies
Proprietary Publishing. With publishing and distribution rights to
over 1,500 titles covering a wide range of subject categories, the Company
further differentiates its product offerings from those of its competitors by
publishing books under its own Barnes & Noble Books imprint for exclusive sale
in its retail stores, direct mail catalogs and BarnesandNoble.com. As part of
this activity, the Company licenses titles directly from domestic and
international publishers as well as from literary agents, commissions books
directly from authors, reprints classic titles in the public domain and
creates collections of fiction and non-fiction using in-house editors. These
books are published under the Barnes & Noble Books imprint. By self-publishing
books, the Company is able to significantly lower its merchandise costs and
pass on a portion of the savings to its customers. While the prices of these
books represent significant value to customers, they also generate
substantially higher gross profit margins than those realized on sales of
non-proprietary books.
Books published by the Company are featured prominently in the
Company's direct-mail catalogs, in the front of the Company's stores, and on
the BarnesandNoble.com Web site. The Company is continuing to expand the scope
of its publishing program by increasing the number of titles it publishes,
particularly dictionaries, reference books, children's books and classics.
During the 52 weeks ended January 31, 1998, sales of the Company's proprietary
books increased 30% over proprietary book sales during the 53 weeks ended
February 1, 1997.
Mail-Order. Complementing its leadership position as the world's
largest bookseller, Barnes & Noble is the world's largest supplier of books
through direct-mail catalogs*. The Company mails over 15 million catalogs each
year to its in-house mailing list of over one million customers. The Company
acquires new customers by mailing additional catalogs to potential customers
on targeted mailing lists, as well as by placing catalog-request ads in
national and local newspapers and upscale magazines. Through the direct-mail
catalogs, the Company sells publishers' remainders and imported books at up to
80% off publishers' suggested retail prices, as well as the Company's
self-published books under its Barnes & Noble Books imprint. The Company
believes that its extensive catalog mailings over the past eleven years have
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* Based upon sales reported in trade publications and public filings.
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created substantial name recognition in the United States and internationally,
which has benefited both the retail stores and the online business.
Strategic Investments. The Company maintains an equity investment in
Chapters, Inc., an Ontario corporation which is publicly traded on the Toronto
Stock Exchange. Chapters is the largest book retailer in Canada and the third
largest in North America*, operating 347 bookstores, including 29 superstores.
The Company also maintains an equity investment in Calendar Club L.L.C., an
operator of seasonal calendar kiosks in the United States and internationally.
Store Operations
The Company has seasoned management teams for its Barnes & Noble and
B. Dalton stores, including those for real estate, merchandising and store
operations. Field management includes regional store directors and district
managers supervising multiple store locations. Each B. Dalton store generally
employs a manager, an assistant manager and approximately seven full- and
part-time booksellers. By comparison, each Barnes & Noble store generally
employs a manager, two assistant managers and approximately 40 full- and
part-time booksellers. Most Barnes & Noble stores also employ a full-time
community relations manager. The Company's large employee base provides the
Company with experienced booksellers to fill positions in the Company's new
Barnes & Noble stores. The Company anticipates that a significant percentage
of the personnel required to manage its expanding business will continue to
come from within its existing operations.
Field management for all of the Company's bookstores, including
regional store directors, district managers and store managers, participate in
a bonus program tied to sales. The Company believes that the compensation of
its field management is competitive with that offered by other specialty
retailers of comparable size.
The Company has a twelve-week manager training program in which
existing store managers train new store managers in all areas of store
operations. Store managers are generally responsible for training other
booksellers in accordance with detailed procedures and guidelines prescribed
by the Company, utilizing training aids available at each bookstore. In
addition, district managers participate in semi-annual training and
merchandising conferences.
Purchasing
Barnes & Noble's buyers negotiate terms, discounts and cooperative
advertising allowances with publishers for all of the Company's bookstores.
The Company's increased use of its distribution center enables it to maximize
available discounts and the Company's multiple strategies greatly enhance its
ability to create customized marketing programs with many of its vendors. The
Company has teams of buyers who specialize in customizing inventory for each
of the Company's bookselling strategies. Store inventories are further
customized by the store managers, who may respond to local demand by
purchasing a limited amount of fast-selling titles through a nationwide
wholesaling network.
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The Company purchases books on a regular basis from over 1,600
publishers and approximately 50 wholesale distributors. Purchases from the top
five suppliers (including publishers and wholesale distributors) accounted for
approximately 47% of the Company's book purchases during the 52 weeks ended
January 31, 1998, and no single supplier accounted for more than 16% of the
Company's purchases during this period. Consistent with retail book industry
practice, substantially all of the Company's book purchases are returnable for
full credit, a practice which substantially reduces the Company's risk of
inventory obsolescence.
Publishers control the distribution of titles by virtue of copyright
protection, which limits availability on most titles to a single publisher.
Since the retail, or list, prices of titles, as well as the retailers' cost
price, are also generally determined by publishers, the Company has limited
options concerning availability, cost and profitability of its book inventory.
However, these limitations are mitigated by (i) the substantial number of
titles available (over one million), (ii) the Company's ability to maximize
available discounts and (iii) its positive relationships with publishers, which
are enhanced by the Company's significant purchasing volume.
Publishers periodically offer their excess inventory in the form of
remainder books to book retailers and wholesalers through an auction process
which generally favors booksellers such as the Company who are able to buy
substantial quantities. These books are generally purchased in large
quantities at favorable prices and are then sold to consumers at significant
discounts off publishers' list prices.
Distribution
Over the past three years, the Company has invested significant
capital in its systems and technology, by building new platforms, implementing
new software applications and opening a new distribution center. During
September 1996 the Company opened a new state-of-the-art 344,000 square foot
distribution facility in South Brunswick, New Jersey. Historically, the
Company replenished through its distribution network some of its fast-moving
frontlist titles and bargain and self-published books and had the remaining
inventory drop-shipped directly to the stores from wholesalers and publishers.
Significantly more inventory is sourced through the Company's new distribution
center which provides increased gross margins through more direct buying from
publishers rather than wholesalers, improved store-level just-in-time
deliveries to yield higher sales volumes, and increased inventory turnover.
In addition, the Company's distribution network provides a
significant competitive advantage for BarnesandNoble.com. By stocking nearly
600,000 titles, the Company is currently in a position to provide overnight
delivery service to its online customers at gross margins which can allow the
Company to offer very deep discounts. The Company plans to significantly
increase the number of titles in the distribution center in the next year.
Management Information and Control Systems
The Company has focused a majority of its information resources on
strategically positioning and implementing systems to support store
operations, merchandising and finance. The Company
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determined that an open-architecture distributed computing environment would
provide the flexibility needed in the future and as a result a migration to a
client server platform was initiated.
Building on the Company's previous proprietary inventory management
system, during 1996 the Company introduced a new client server store system
("BookMaster"). BookMaster is an inventory management system with integrated
point of sale features that utilizes a proprietary data-warehouse-based
replenishment system. It enhances communications and real-time access to our
network of stores, distribution center and wholesalers. In addition,
implementation of just-in-time replenishment has provided for more rapid
replenishment of books to all stores. The BookMaster system roll-out will be
substantially completed in 1998.
The Company continues to implement systems to improve efficiencies in
back office processing in the human resources, finance and merchandising
areas. An offsite business recovery capability has been developed and
implemented to assure uninterrupted systems support.
Year 2000. The Company is continuing its comprehensive evaluation of
all computer systems and microprocessors and is in the process of replacing,
modifying and/or converting those systems which are not yet year 2000
compliant. The incremental cost over the next two years is being determined as
part of the continuing evaluation. Management does not expect such costs to
have a material adverse effect on the financial position or results of
operations of the Company.
Competition
The retail bookselling business is highly competitive. The Company
competes in the superstore business with Borders Group, Inc. and other
national chains which have substantially fewer superstores than the Company,
and in the mall bookstore business with Walden Book Company, Inc., a
subsidiary of Borders Group, Inc. and the largest operator of mall bookstores
in the country*. The Company also competes with regional chains, as well as
independent single store operators, local multi-store operators, department
stores, variety discounters, drug stores and warehouse clubs. Many of the
Company's competitors have been expanding in both store size and number of
outlets. The Company competes with Internet-based competition from numerous
booksellers including online companies, such as Amazon.com, traditional book
retailers and publishers. The Company expects future online competition
to intensify.
Trademarks and Servicemarks
B. Dalton Bookseller, Bookstar and Book$avers are Company-owned
service marks registered with the United States Patent and Trademark Office.
Barnes & Noble, Doubleday Book Shops and Scribner's Bookstores are federally
registered service marks which have been licensed to the Company under
long-term license agreements which are royalty-free. These license agreements
provide the Company with the exclusive right to use the Doubleday and
Scribner's service marks only in connection with the retail sale of books.
- --------
* Based upon sales reported in trade publications and public filings.
14
<PAGE>
Employees
The Company currently employs approximately 3,500 full-time salaried,
11,000 full-time hourly and between 15,000 and 17,000 part-time hourly
employees. The fluctuation in the number of part-time hourly employees is due
to the seasonality of the business. The Company's employees are not
represented by unions and the Company believes that its relationship with its
employees is excellent.
15
<PAGE>
ITEM 2. PROPERTIES
All but one of the Barnes & Noble stores are leased. The leases
typically provide for an initial term of ten or fifteen years with one or more
renewal options. The terms of the Barnes & Noble store leases for its 482
leased stores open as of January 31, 1998 expire as follows:
Lease Terms to Expire During Number of
(twelve months ending on or about January 31) Stores
-------------
1999.................................................. 3
2000.................................................. 8
2001.................................................. 5
2002.................................................. 9
2003.................................................. 39
2004 and later........................................ 418
All B. Dalton stores are leased. The leases generally provide for an
initial ten-year term with no renewal option. The terms of the 528 B. Dalton
leases as of January 31, 1998 expire as follows:
Lease Terms to Expire During Number of
(twelve months ending on or about January 31) Stores
1999................................................... 150
2000................................................... 58
2001................................................... 78
2002................................................... 46
2003................................................... 32
2004 and later......................................... 164
The Company generally has been able to renew expiring leases on
favorable terms, and believes that renewals of leases expiring in the future
will not have a material adverse effect on the Company's financial condition
or results of operations.
ITEM 3. LEGAL PROCEEDINGS
Various claims and lawsuits arising in the normal course of business
are pending against the Company. The subject matter of these proceedings
primarily includes commercial disputes and employment issues. The results of
these proceedings are not expected to have a material adverse effect on the
Company's consolidated financial position or results of operations.
In March 1998, the American Booksellers Association ("ABA") and
twenty-six independent bookstores filed a lawsuit in the United States
District Court for the Northern District of California against the Company and
Borders Group, Inc. alleging violations of the Robinson-Patman Act, the
California Unfair Trade Practice Act and the California Unfair Competition
Law. The Complaint seeks injunctive and declaratory relief; treble damages on
behalf of each of the bookstore plaintiffs, and, with
16
<PAGE>
respect to the California bookstore plaintiffs, any other damages permitted by
California law; disgorgement of money, property and gains wrongfully obtained
in connection with the purchase of books for resale, or offered for resale, in
California from March 18, 1994 until the action is completed and pre-judgment
interest on any amounts awarded in the action, as well as attorney fees and
costs. The Company intends to vigorously defend the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the 13 weeks ended January 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock is traded on the New York Stock Exchange
("NYSE") under the symbol "BKS". The following table sets forth, for the
periods indicated, the high and low sales prices of the common stock on the
NYSE Composite Tape (restated to adjust for the two-for-one stock-split effected
September 22, 1997).
Fiscal 1997 Fiscal 1996
--------------------------- -----------------------
High Low High Low
------------- ---------- ---------- ---------
First Quarter $19 15/16 15 3/16 $18 1/8 11 7/8
Second Quarter 25 1/2 18 1/2 18 7/8 14 3/8
Third Quarter 32 1/4 22 3/8 17 7/8 14 13/16
Fourth Quarter 34 1/4 25 13/16 17 3/16 12 7/8
Approximate Number of Holders of Common Equity
Approximate
Number of
Record Holders
as of
Title of Class March 30, 1998
----------------------
Common stock, $0.001 par value 1,296
Dividends
17
<PAGE>
The terms of the Company's debt agreements restrict payment of cash
dividends. During the 52 weeks ended January 31, 1998, the Company did not
declare or pay any cash dividends or make distributions or payments on its
common stock.
ITEM 6. SELECTED FINANCIAL DATA
The information included in the Company's Annual Report to
Shareholders for the fiscal year ended January 31, 1998 (the "Annual Report")
under the section entitled "Selected Financial Data" is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information included in the Annual Report under the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information included in the Annual Report under the sections
entitled: "Consolidated Statements of Operations," "Consolidated Balance
Sheets," "Consolidated Statements of Changes in Shareholders' Equity,"
"Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial
Statements" are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers of
the Company is incorporated herein by reference to the Company's definitive
Proxy Statement relating to the Company's 1998 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission within 120 days of the
Company's fiscal year ended January 31, 1998 (the "Proxy Statement").
The information with respect to compliance with Section 16(a) of the
Securities Exchange Act is incorporated herein by reference to the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
18
<PAGE>
The information with respect to executive compensation is
incorporated herein by reference to the Proxy Statement.
The information with respect to compensation of directors is
incorporated herein by reference to the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information with respect to security ownership of certain
beneficial owners and management is incorporated herein by reference to the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to certain relationships and related
transactions is incorporated herein by reference to the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Consolidated Financial Statements:
(i) "The Report of Independent Certified Public Accountants"
included in the Annual Report is incorporated herein by
reference.
(ii) The information included in the Annual Report under the
sections entitled: "Consolidated Statements of Operations,"
"Consolidated Balance Sheets," "Consolidated Statements of
Changes in Shareholders Equity," "Consolidated Statements of
Cash Flows" and "Notes to Consolidated Financial Statements"
are incorporated herein by reference.
2. Schedules:
All schedules are omitted because the information is either not
applicable or is contained in the consolidated financial statements
incorporated herein by reference.
3. Exhibits:
The following are filed as Exhibits to this form:
19
<PAGE>
Exhibit
No. Description
- ------------ -----------
3.1 Amended and Restated Certificate of Incorporation of the Company, as
amended.(1)
3.2 Amendment to the Amended and Restated Certificate of Incorporation of
the Company filed May 30, 1996.(2)
3.3 Amended and Restated By-laws of the Company.(1)
3.4 Amendment to the Company's By-laws adopted May 31, 1995.(3)
4.1 Specimen Common Stock certificate. (1)
10.1 Amended and Restated Credit Agreement, dated as of November 18, 1997,
among the Company, its subsidiaries, The Chase Manhattan Bank
(National Association), as Administrative Agent (the "Agent") and the
Banks party thereto. (5)
10.2 Pledge and Security Agreement dated as of March 15, 1996, among the
Company, its subsidiaries and the Agent. (4)
10.3 Amendment to the Pledge and Security Agreement dated as of November
18, 1997. (5)
10.4 1996 Incentive Plan. (2)
10.5 1991 Employee Incentive Plan. (1)
10.6 Extended Savings Plan. (1)
10.7 Amendment to the Extended Savings Plan dated as of December 22, 1995.
(4)
10.8 Amended and Restated Employees' Retirement Plan dated as of January
1, 1998. (5)
10.9 Supplemental Compensation Plan. (7)
10.10 License Agreement for "Barnes & Noble" service mark, dated as of
February 11, 1987. (1)
10.11 Consents to "Barnes & Noble" License Agreement Assignments, dated as
of November 18, 1988 and November 16, 1992, respectively. (4)
10.12 License Agreement for "Doubleday Book Shops" service mark, dated as
of May 31, 1990. (1)
10.13 License Agreement for "Scribner's Bookstores" mark, dated as of
February 21, 1989. (1)
10.14 Lease dated June 3, 1987 between B. Dalton, as tenant, and Bromley
Rockleigh Associates, L.P., as landlord.(1)
10.15 Services Agreement, dated as of November 16, 1992, between Barnes &
Noble Bookstores, Inc. and the Company.(1)
10.16 Aircraft Use Agreement, dated as of June 30, 1993, between the
Company and B&N Aircraft Company, Inc. (6)
10.17 Asset Purchase Agreement dated as of July 29, 1996 among NeoStar
Retail Group, Inc. (and its wholly owned subsidiary, Software Etc.
Stores, Inc.) and Barnes & Noble, Inc. (8)
10.18 Stock Option and Repurchase Agreements, dated as of August 1, 1988,
between the Company and each of Mitchell S. Klipper and Stephen
Riggio, as
20
<PAGE>
Exhibit
No. Description
- ------------ -----------
amended November 16, 1992. (6)
10.19 Stock Option Certificates, dated March 15, 1993, granting options to
purchase Common Stock to each of Mitchell S. Klipper, Stephen Riggio
and Irene R. Miller pursuant to the Company's 1991 Employee Incentive
Plan. (6)
10.20 Employment Agreements between the Company and each of Mitchell S.
Klipper and Stephen Riggio, dated as of April 1, 1993 and July 15,
1993, respectively (collectively the "Employment Agreements"). (6)
10.21 Amendment to each of the Employment Agreements dated as of April 1,
1998. (5)
10.22 Stock Option Certificates, dated September 28, 1993, granting options
to purchase Common Stock to Leonard Riggio, Mitchell S. Klipper and
Stephen Riggio. (9)
13.1 The sections of the Company's Annual Report entitled: "Selected
Financial Data", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Consolidated Statements of
Operations", "Consolidated Balance Sheets", "Consolidated Statements
of Changes in Shareholders' Equity", "Consolidated Statements of Cash
Flows", "Notes to Consolidated Financial Statements" and "The Report
of Independent Certified Public Accountants".(5)
21.1 List of subsidiaries. (5)
23.1 Consent of BDO Seidman, LLP. (5)
- ---------------------------
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form S-4 (Commission File No. 33-59778) and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended April 27, 1996.
(3) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended April 29, 1995.
(4) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended January 27, 1996.
(5) Filed herewith.
(6) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Commission File No. 33-50548) and incorporated
herein by reference.
(7) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended July 29, 1995.
(8) Previously filed as an exhibit to the Company's Form 10-Q for the
fiscal quarter ended July 27, 1996.
(9) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Commission File No. 33-77484) and incorporated
herein by reference.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BARNES & NOBLE, INC.
(Registrant)
By: /s/ Leonard Riggio
--------------------------
Leonard Riggio, Chairman
of the Board and Chief
Executive Officer
May 1, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Leonard Riggio Chairman of the Board and Chief May 1, 1998
- ------------------------------------ Executive Officer
Leonard Riggio
/s/ Stephen Riggio Vice Chairman May 1, 1998
- ------------------------------------
Stephen Riggio
/s/ Michael N. Rosen Secretary and Director May 1, 1998
- ------------------------------------
Michael N. Rosen
/s/ Matthew A. Berdon Director May 1, 1998
- ------------------------------------
Matthew A. Berdon
/s/ William Dillard, II Director May 1, 1998
- ------------------------------------
William Dillard, II
/s/ Jan Michiel Hessels Director May 1, 1998
- ------------------------------------
Jan Michiel Hessels
/s/ Irene R. Miller Director May 1, 1998
- ------------------------------------
Irene R. Miller
/s/ Margaret T. Monaco Director May 1, 1998
- ------------------------------------
Margaret T. Monaco
/s/ William Sheluck, Jr. Director May 1, 1998
- ------------------------------------
William Sheluck, Jr.
</TABLE>
22
<PAGE>
Exhibit 10.1
---------------------------------------------------------------
BARNES & NOBLE, INC.
and
SUBSIDIARY GUARANTORS
-----------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 18, 1997
------------------------------
$850,000,000
------------------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
CHASE SECURITIES INC.,
As Arranger
CIBC INC.,
as Syndication Agent and Co-Arranger
and
ING (U.S.) CAPITAL CORPORATION,
as Documentation Agent and Co-Arranger
---------------------------------------------------------------
<PAGE>
Exhibit 10.1
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it
is attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Definitions and Accounting Matters..................................................................-1-
1.01 Certain Defined Terms............................................................................-1-
1.02 Accounting Terms and Determinations.............................................................-17-
1.03 Types...........................................................................................-18-
Section 2. Commitments, Loans, Notes and Prepayments..........................................................-18-
2.01 Loans...........................................................................................-18-
2.02 Borrowings of Loans.............................................................................-18-
2.03 Letters of Credit...............................................................................-19-
2.04 Changes of Commitments..........................................................................-23-
2.05 Commitment Fees; Excess Usage Fee...............................................................-23-
2.06 Lending Offices.................................................................................-23-
2.07 Several Obligations; Remedies Independent.......................................................-24-
2.08 Notes...........................................................................................-24-
2.09 Optional Prepayments and Conversions or Continuations of Loans..................................-24-
2.10 Mandatory Prepayments...........................................................................-25-
Section 3. Payments of Principal and Interest.................................................................-25-
3.01 Repayment of Loans..............................................................................-25-
3.02 Interest........................................................................................-25-
Section 4. Payments; Pro Rata Treatment; Computations; Etc....................................................-26-
4.01 Payments........................................................................................-26-
4.02 Pro Rata Treatment..............................................................................-27-
4.03 Computations....................................................................................-27-
4.04 Minimum Amounts.................................................................................-27-
4.05 Certain Notices.................................................................................-28-
4.06 Non-Receipt of Funds by the Administrative Agent................................................-28-
4.07 Sharing of Payments, Etc........................................................................-29-
Section 5. Yield Protection, Etc..............................................................................-30-
5.01 Additional Costs................................................................................-30-
5.02 Limitation on Types of Loans....................................................................-32-
5.03 Illegality......................................................................................-32-
5.04 Treatment of Affected Loans.....................................................................-32-
5.05 Compensation....................................................................................-33-
5.06 Additional Costs in Respect of Letters of Credit................................................-34-
5.07 U.S. Taxes......................................................................................-34-
5.08 Replacement of Certain Lenders..................................................................-35-
5.09 Consistent Treatment............................................................................-35-
Section 6. Guarantee..........................................................................................-35-
6.01 Guarantee.......................................................................................-35-
6.02 Obligations Unconditional.......................................................................-36-
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Exhibit 10.1
<S> <C>
6.03 Reinstatement...................................................................................-36-
6.04 Subrogation.....................................................................................-37-
6.05 Remedies........................................................................................-37-
6.06 Continuing Guarantee............................................................................-37-
6.07 Rights of Contribution..........................................................................-37-
6.08 Limitation on Guarantee Obligations.............................................................-37-
6.09 Release of Guarantors...........................................................................-37-
Section 7. Conditions Precedent...............................................................................-38-
7.01 Initial Extension of Credit.....................................................................-38-
7.02 Initial and Subsequent Extensions of Credit.....................................................-39-
Section 8. Representations and Warranties.....................................................................-40-
8.01 Corporate Existence.............................................................................-40-
8.02 Financial Condition.............................................................................-40-
8.03 Litigation......................................................................................-40-
8.04 No Breach.......................................................................................-40-
8.05 Action..........................................................................................-41-
8.06 Approvals.......................................................................................-41-
8.07 Use of Credit...................................................................................-41-
8.08 ERISA...........................................................................................-41-
8.09 Taxes...........................................................................................-41-
8.10 Investment Company Act..........................................................................-41-
8.11 Public Utility Holding Company Act..............................................................-41-
8.12 Material Agreements and Liens...................................................................-41-
8.13 Environmental Matters...........................................................................-42-
8.14 Capitalization..................................................................................-42-
8.15 Subsidiaries, Etc...............................................................................-42-
8.16 True and Complete Disclosure....................................................................-43-
Section 9. Covenants of the Company...........................................................................-43-
9.01 Financial Statements; Information; Etc..........................................................-43-
9.02 Litigation......................................................................................-45-
9.03 Existence, Etc..................................................................................-45-
9.04 Insurance.......................................................................................-46-
9.05 Prohibition of Fundamental Changes..............................................................-46-
9.06 Limitation on Liens.............................................................................-47-
9.07 Indebtedness....................................................................................-48-
9.08 Investments.....................................................................................-48-
9.09 Dividend Payments...............................................................................-49-
9.10 Financial Covenants.............................................................................-50-
9.11 Capital Expenditures; Sale Lease-backs; Etc.....................................................-52-
9.12 Subordinated Indebtedness.......................................................................-53-
9.13 Lines of Business...............................................................................-53-
9.14 Transactions with Affiliates....................................................................-53-
9.15 Use of Proceeds.................................................................................-53-
9.16 Certain Obligations Respecting Subsidiaries.....................................................-54-
9.17 Additional Subsidiary Guarantors................................................................-54-
9.18 Modifications of Certain Documents..............................................................-54-
9.19 Sales of Accounts...............................................................................-54-
9.20 Release of Collateral...........................................................................-55-
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Exhibit 10.1
<S> <C>
Section 10. Events of Default.................................................................................-55-
Section 11. The Administrative Agent..........................................................................-57-
11.01 Appointment, Powers and Immunities.............................................................-57-
11.02 Reliance by Administrative Agent...............................................................-57-
11.03 Defaults.......................................................................................-58-
11.04 Rights as a Lender.............................................................................-58-
11.05 Indemnification................................................................................-58-
11.06 Non-Reliance on Administrative Agent and Other Lenders.........................................-58-
11.07 Failure to Act.................................................................................-59-
11.08 Resignation or Removal of Administrative Agent.................................................-59-
11.09 Agency Fee.....................................................................................-59-
11.10 Consents under Basic Documents.................................................................-59-
Section 12. Miscellaneous.....................................................................................-59-
12.01 Waiver.........................................................................................-59-
12.02 Notices........................................................................................-60-
12.03 Expenses, Etc..................................................................................-60-
12.04 Amendments, Etc................................................................................-61-
12.05 Successors and Assigns.........................................................................-61-
12.06 Assignments and Participations.................................................................-61-
12.07 Survival.......................................................................................-63-
12.08 Captions.......................................................................................-63-
12.09 Counterparts...................................................................................-63-
12.10 Governing Law; Submission to Jurisdiction......................................................-63-
12.11 Waiver of Jury Trial...........................................................................-63-
12.12 Complete Agreement.............................................................................-63-
12.13 Confidentiality................................................................................-64-
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Subsidiaries and Investments
EXHIBIT A-1 - Form of Revolving Credit Note
EXHIBIT A-2 - Form of Swingline Note
EXHIBIT B-1 - Form of Existing Security Agreement
EXHIBIT B-2 - Form of Amendment to Security Agreement
EXHIBIT C - Form of Opinion of Counsel to the Obligors
EXHIBIT D - Form of Opinion of Special New York Counsel to Chase, CIBC and ING
EXHIBIT E - Form of Compliance Certificate
</TABLE>
-iii-
<PAGE>
Exhibit 10.1
AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 18,
1997, among: BARNES & NOBLE, INC., a corporation duly organized and
validly existing under the laws of the State of Delaware (together with
its successors and assigns, the "Company"); each of the Subsidiaries of
the Company identified under the caption "SUBSIDIARY GUARANTORS" on the
signature pages hereto (each such Subsidiary and each other Subsidiary of
the Company that becomes a "Subsidiary Guarantor" pursuant to Section
9.17 hereof, together with its successors and assigns, but excluding any
Released Guarantors, individually, a "Subsidiary Guarantor" and,
collectively, the "Subsidiary Guarantors" and, together with the Company,
the "Obligors"); each of the lenders named under the caption "Lenders" on
the signature pages hereof (together with its successors and assigns,
individually, a "Lender" and, collectively, the "Lenders"); THE CHASE
MANHATTAN BANK, in its capacity as Swingline Bank under Section 2.01(b)
hereof (in such capacity, together with its successors in such capacity,
the "Swingline Bank"); and THE CHASE MANHATTAN BANK, as agent for the
Lenders (in such capacity, together with its successors in such capacity,
the "Administrative Agent").
The Company and the Subsidiary Guarantors are engaged as an
integrated group in the business of distributing and selling books and
related products, and in related or complementary businesses, and in
furnishing the required supplies, services, equipment, credit and other
facilities for such integrated operation. This integrated operation
requires financing on such a basis that credit supplied to the Company be
made available from time to time to the Subsidiary Guarantors, as
required for the continued successful operation of the Obligors,
separately, and the integrated operation of the Obligors as a whole. In
that connection, the Obligors, certain of the Lenders and the
Administrative Agent entered into a Credit Agreement dated as of March
28, 1996 (the "Existing Credit Agreement") pursuant to which said Lenders
agreed to extend credit to the Company in an aggregate amount not
exceeding $550,000,000. The Obligors have requested that the Lenders
increase the aggregate Commitments to extend credit to the Company (all
or a substantial portion of which will be made available by the Company
to the Subsidiary Guarantors) to an aggregate principal amount not
exceeding $850,000,000 to refinance certain existing indebtedness of the
Obligors, including all of the obligations under the existing Credit
Agreement, to enable certain acquisitions and capital expenditures by the
Obligors, for working capital and for other corporate purposes.
To induce the Lenders to extend such credit, the Obligors desire
to enter into this Agreement, which will amend and restate the Existing
Credit Agreement in all respects, and pursuant to which the Lenders will
make loans to and issue or participate in letters of credit for account
of the Company, the Swingline Bank will make loans to the Company, each
Subsidiary Guarantor will guarantee the credit so extended to the Company
and each of the Obligors will agree to execute and deliver security
agreements providing for security interests and liens to be granted by
the Obligors on certain of their respective Properties as collateral
security for the obligations of the Obligors to the Lenders, the
Swingline Bank and the Administrative Agent hereunder. Each Obligor
expects to derive benefit, directly or indirectly, from the credit so
extended to the Company, both in its separate capacity and as a member of
the integrated group, because the successful operation of each Obligor is
dependent on the continued successful performance of the functions of the
integrated group as a whole.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters
1.01 Certain Defined Terms. As used herein, the following terms shall
have the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Affiliate" shall mean, as to any specified Person, any other Person
that directly or indirectly controls, or is under common control with, or is
controlled by, such specified Person and, if such other Person is an individual,
any member of the immediate family (including parents, spouse, children and
siblings) of such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any Person
<PAGE>
Exhibit 10.1
who is controlled by any such member or trust. As used in this definition,
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by contract
or otherwise), provided that, in any event, any Person that owns directly or
indirectly securities having 10% or more of the voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person will be deemed to
control such corporation or other Person. Notwithstanding the foregoing, (a) no
individual shall be an Affiliate of the Company or any of its Subsidiaries
solely by reason of such individual being a director, officer or employee of the
Company or any of its Subsidiaries, (b) the Company and its Wholly Owned
Subsidiaries (other than Unrestricted Subsidiaries) shall not be Affiliates of
each other and (c) neither the Administrative Agent, the Swingline Bank nor any
Lender shall be an Affiliate of the Company or any of its Subsidiaries.
"Applicable Commitment Fee Percentage" shall mean a percentage
per annum calculated by reference to the Fixed Charge Ratio as at the
last day of the most recently ended four consecutive fiscal quarters of
the Company (a "Testing Date"), which if such Fixed Charge Ratio shall
fall within any of the ranges set forth in the Schedule A below, then the
"Applicable Commitment Fee Percentage" shall be the respective percentage
per annum set forth opposite such range in Schedule A below, during the
period commencing on the Fee Change Date for such Testing Date to but not
including the Fee Change Date for the next succeeding Testing Date
(except that notwithstanding the foregoing, (i) during any period prior
to the first Fee Change Date after the date hereof, the Applicable
Commitment Fee Percentage shall be 0.175% per annum and (ii) the
Applicable Commitment Fee Percentage shall not, as a consequence of the
rate changes herein provided, be so changed to less than 0.175% per annum
for any period during which any Event of Default shall have occurred and
be continuing):
SCHEDULE A
<TABLE>
<CAPTION>
Fixed Charge Applicable Commitment Fee Percentage (% p.a.)
Ratio Range
<S> <C>
greater than or equal to 1.75 to 1 .125% per annum
less than 1.75 to 1, but greater than or equal to 1.55 .150% per annum
to 1
less than 1.55 to 1, but greater than or equal to 1.35 .175% per annum
to 1
less than 1.35 to 1, but greater than or equal to 1.30 .200% per annum
to 1
less than 1.30 to 1 .250% per annum
</TABLE>
For purposes of this definition, "Fee Change Date" shall mean, for any
Testing Date, the earlier of (i) five Business Days after the
Administrative Agent receives the Company's financial statements pursuant
to Section 9.01(a) or 9.01(b) hereof for such Testing Date (except that
for any Testing Date that is a fiscal year end, for purposes of
determining the Applicable Commitment Fee Percentage, the Company may
deliver a statement setting forth a calculation of the Fixed Charge Ratio
for such fiscal year, certified by the treasurer or a senior financial
officer of the Company (and the Applicable Commitment Fee Percentage
shall be adjusted accordingly in the event that the Fixed Charge Ratio as
set forth in any such statement differs from the Fixed Charge Ratio
calculated based on the applicable audited financial statements for such
fiscal year)) and (ii) five Business Days after the date on which such
financial statements are required to be delivered pursuant to such
Section.
-2-
<PAGE>
Exhibit 10.1
"Applicable Lending Office" shall mean (a) for each Lender and
for each Revolving Credit Loan, the "Lending Office" of such Lender (or
of an affiliate of such Lender) designated for such Revolving Credit
Loan, on the signature pages hereof or such other office of such Lender
(or of an affiliate of such Lender) as such Lender may from time to time
specify to the Administrative Agent and the Company as the office by
which its Revolving Credit Loans are to be made and maintained and (b)
for the Swingline Bank, the "Lending Office" of such Lender (or of an
affiliate of such Lender) designated for Swingline Loans on the signature
pages hereof or such other office located in the City of New York of such
Lender (or of an affiliate of such Lender) as such Lender may from time
to time specify to the Administrative Agent and the Company as the office
by which Swingline Loans are to be made and maintained.
"Applicable Margin" shall mean, for each Type of Loan, a
percentage per annum calculated by reference to the Fixed Charge Ratio as
at the last day of the most recently ended four consecutive fiscal
quarters of the Company (a "Testing Date"), which if such Fixed Charge
Ratio shall fall within any of the ranges set forth in the Schedule A
below, then the "Applicable Margin" for each Type of Loan shall be the
respective percentage per annum set forth opposite such range in Schedule
A below, during the period commencing on the Margin Change Date for such
Testing Date to but not including the Margin Change Date for the next
succeeding Testing Date (except that notwithstanding the foregoing, (i)
during any period prior to the first Margin Change Date occurring after
the date hereof, the Applicable Margin in the case of Base Rate Loans
shall be zero and the Applicable Margin in the case of Eurodollar Loans
shall be 0.625% per annum and (ii) the Applicable Margin for any Loan
shall not, as a consequence of the rate changes herein provided, be so
changed to less than, in the case of Base Rate Loans, zero and, in the
case of Eurodollar Loans, 0.625% per annum for any period during which
any Event of Default shall have occurred and be continuing:
SCHEDULE A
<TABLE>
<CAPTION>
Fixed Charge Applicable Margin (% p.a.)
Ratio Range
<S> <C> <C>
Base Rate Loans Eurodollar Loans
greater than or equal to 1.75 to 1 0% per annum .375% per annum
less than 1.75 to 1, but greater than or equal to 0% per annum .500% per annum
1.55 to 1
less than 1.55 to 1, but greater than or equal to
1.35 to 1 0% per annum .625% per annum
less than 1.35 to 1, but greater than or equal to 0% per annum .750% per annum
1.30 to 1
less than 1.30 to 1 0% per annum .875% per annum
</TABLE>
For purposes of this definition, "Margin Change Date" shall mean, for any
Testing Date, the earlier of (i) five Business Days after the
Administrative Agent receives the Company's financial statements pursuant
to Section 9.01(a) or 9.01(b) hereof for such Testing Date (except that
for any Testing Date that is a fiscal year end, for purposes of
determining the Applicable Margin, the Company may deliver a statement
setting forth a calculation of the Fixed Charge Ratio for such fiscal
year, certified by the treasurer or a senior financial officer of the
Company (and the Applicable Margin shall be adjusted accordingly in the
event that the Fixed Charge Ratio as set forth in any such statement
differs from the Fixed Charge Ratio calculated based on the applicable
audited financial statements for such fiscal year)) and (ii) five
Business Days after the date on which such financial statements are
required to be delivered pursuant to such Section.
-3-
<PAGE>
Exhibit 10.1
"Applicable Percentage" shall mean, at any time that the Company
is Investment Grade, 50%, and, at any other time, 75%.
"B. Dalton" shall mean B. Dalton Bookseller, Inc., a Minnesota
corporation.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of
1978, as amended from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and
(b) the Prime Rate for such day. Each change in any interest rate
provided for herein based upon the Base Rate resulting from a change in
the Base Rate shall take effect at the time of such change in the Base
Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.
"Basic Documents" shall mean, collectively, this Agreement, the
Notes, the Letter of Credit Documents and the Security Documents.
"Business Day" shall mean (a) any day on which commercial banks
are not authorized or required to close in New York City and (b) if such
day relates to a borrowing of, a payment or prepayment of principal of or
interest on, a Conversion of or into, or an Interest Period for, a
Eurodollar Loan or a notice by the Company with respect to any such
borrowing, payment, prepayment, Conversion or Interest Period, any day on
which dealings in Dollar deposits are carried out in the London interbank
market.
"Capital Expenditures" shall mean, for any period, expenditures
made by the Company or any of its Consolidated Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals,
improvements and replacements, but excluding repairs) during such period
computed in accordance with GAAP, other than Specified Capital
Expenditures.
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of
(or other agreement conveying the right to use) Property to the extent
such obligations are required to be classified and accounted for as a
capital lease on a balance sheet of such Person under GAAP, and, for
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Change of Control" shall mean the occurrence of any of the following:
(a) a majority of the members of the Board of Directors
of the Company no longer being composed of: (i) individuals who
are members of said Board on the date hereof, (ii) individuals
whose election or nomination to said Board was approved by
individuals referred to in clause (i) above constituting at the
time of such election or nomination at least a majority of said
Board or (iii) individuals whose election or nomination to said
Board was approved by individuals referred to in clauses (i) and
(ii) above constituting at the time of such election or
nomination at least a majority of said Board; or
(b) any Unrelated Person or any two or more Unrelated
Persons that are deemed to be a "person" under Sections 13(d)(3)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended,
acquiring, directly or indirectly, effective control (whether
through legal or beneficial ownership of capital stock of the
Company, by contract or otherwise) of more than 25% of the
outstanding Voting Shares.
"Chase" shall mean The Chase Manhattan Bank, or any successor thereto.
"CIBC" shall mean CIBC Inc. and its affiliates.
-4-
<PAGE>
Exhibit 10.1
"Closing Date" shall mean the date, no later than November 28,
1997, on which the conditions precedent specified in Section 7 hereof
have been satisfied and on which the initial extensions of credit
hereunder are made.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" shall have the meaning assigned to such term in
Section 3 of the Security Agreement.
"Collateral Account" shall have the meaning assigned to such
term in Section 4.01 of the Security Agreement.
"College" shall mean Barnes & Noble College Bookstores, Inc., a New
York corporation.
"Commitments" shall mean the Revolving Credit Commitments and the
Swingline Commitment.
"Consolidated Subsidiary" shall mean, for any Person, each
Subsidiary (other than an Unrestricted Subsidiary or a Released
Guarantor) of such Person (whether now existing or hereafter created or
acquired) the financial statements of which shall be (or should have
been) consolidated with the financial statements of such Person in
accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.09 hereof of a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 2.09 hereof of one Type of Revolving
Credit Loans into another Type of Revolving Credit Loans, which may be
accompanied by the transfer by a Lender (at its sole discretion) of a
Revolving Credit Loan from one Applicable Lending Office to another.
"Debt Service" shall mean, for any period, the sum for the
Company and its Consolidated Subsidiaries (determined on a consolidated
basis without duplication in accordance with GAAP) of the following: (a)
all Interest Expense for such period plus (b) all payments of principal
of Indebtedness (including, without limitation, the principal component
of any payments in respect of Capital Lease Obligations, but excluding
payments in respect of (i) the Revolving Credit Loans and Swingline
Loans, (ii) Reimbursement Obligations, (iii) Indebtedness incurred
pursuant to Section 9.07(i) hereof, (iv) loans outstanding under the
Existing Credit Agreement and (v) any redemption of the Outstanding
Subordinated Notes) scheduled to be made during such period plus (c) all
Capital Expenditures during such period.
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Disposition" shall mean any sale, assignment, transfer or other
disposition of any Property other than cash (whether now owned or
hereafter acquired) by the Company or any of its Subsidiaries (other than
an Unrestricted Subsidiary or a Released Guarantor) to any Person
excluding (a) any sale, assignment, transfer or other disposition of any
Property sold or disposed of in the ordinary course of business and on
ordinary business terms, (b) any sale, assignment or transfer from one
Wholly Owned Subsidiary of the Company to another Wholly Owned Subsidiary
(other than an Unrestricted Subsidiary or a Released Guarantor) of the
Company, (c) any Dividend Payment or Investment permitted under this
Agreement, (d) any sale, assignment, transfer or other disposition of any
Project and (e) any Disposition made pursuant to Section 9.05(d)(v)
hereof.
"Dividend Payment" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of
any class of stock of the Company or of any warrants,
-5-
<PAGE>
Exhibit 10.1
options or other rights to acquire the same, but excluding dividends payable
solely in shares of common stock of the Company.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, for any period, the sum, for the Company
and its Consolidated Subsidiaries (determined on a consolidated basis,
without duplication, in accordance with GAAP), of the following: (a) net
income (calculated before income taxes, the LIFO Charge, any fees or
premiums paid and attributable to the redemption of the Outstanding
Subordinated Notes and any write-off of deferred financing fees) for such
period, plus (b) the aggregate amount of depreciation, amortization and
taxes for such period, plus (c) Interest Expense for such period, plus
(d) any accretion expense with respect to any Equity Rights of the
Company and its Consolidated Subsidiaries for such period, plus (e) all
non-cash charges taken during such period (including, without limitation,
pursuant to Statements No. 13 and 121 of the Financial Standards
Accounting Board), plus (f) net proceeds to the Company and its
Consolidated Subsidiaries during such period upon exercise of any Equity
Rights issued to directors, officers or employees of the Company or any
of its Subsidiaries, plus (g) any loss (or minus any income) attributable
to equity in Affiliates (other than Unrestricted Subsidiaries) of the
Company or any of its Consolidated Subsidiaries for such period, minus
(h) all extraordinary non-cash gains for such period.
"EBITDAR" shall mean, for any period, the sum, for the Company
and its Consolidated Subsidiaries (determined on a consolidated basis,
without duplication, in accordance with GAAP), of the following: (a)
EBITDA for such period plus (b) Rental Payments for such period.
"Eligible Assignee" shall mean (i) any commercial bank or other
financial institution organized under the laws of the United States of
America or any state thereof with assets of at least $5,000,000,000 and
(ii) any commercial bank or other financial institution organized under
the laws of any other country that is a member of the Organization for
Economic Cooperation and Development, or any political subdivision
thereof, with assets of at least $5,000,000,000 (or the equivalent in
other currencies), combined capital and surplus of at least
$1,000,000,000 (or the equivalent in other currencies) and a branch,
office or agency located in the United States of America.
"Environmental Claim" shall mean, with respect to any Person,
any written or oral notice, claim, demand or other communication
(collectively, a "claim") by any other Person alleging or asserting such
Person's liability for investigatory costs, cleanup costs, governmental
response costs, damages to natural resources or other Property, personal
injuries, fines or penalties arising out of, based on or resulting from
(a) the presence, or Release into the environment, of any Hazardous
Material at any location, whether or not owned by such Person, or (b)
circumstances forming the basis of any violation, or alleged violation,
by such Person of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental
authority for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any Environmental Law, and any claim by
any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence
of Hazardous Materials or arising from alleged injury or threat of injury
to the environment.
"Environmental Laws" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any
orders or decrees, in each case as now or hereafter in effect, relating
to the regulation or protection of the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or
outdoor environment, including, without limitation, ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants or toxic or hazardous substances or wastes.
"Equity Financed" shall mean, in respect of Capital Expenditures
or Investments, any Capital Expenditures or Investments to the extent
that:
-6-
<PAGE>
Exhibit 10.1
(a) they are financed with the proceeds of an Equity
Issuance that occurred not more than 12 months prior to the date
on which such Capital Expenditures or Investments (as the case
may be) were made, and
(b) the aggregate amount of all such Capital
Expenditures and Investments financed with the proceeds of any
single Equity Issuance does not exceed $35,000,000.
"Equity Issuance" shall mean (a) any issuance or sale by the
Company after the date of this Agreement of (i) any capital stock of the
Company (including Preferred Stock but excluding any capital stock of the
Company issued upon the exercise of the warrants or the options referred
to in the parenthetical in clause (ii) below or upon the conversion of
any Preferred Stock), (ii) any warrants or options exercisable in respect
of capital stock of the Company (other than warrants or options issued to
directors, officers or employees of the Company or any of its
Subsidiaries) or (iii) any other security or instrument representing an
equity interest (or the right to obtain any equity interest) in the
Company or (b) the receipt by the Company or any of its Subsidiaries
(other than Unrestricted Subsidiaries or Released Guarantors) after the
date of this Agreement of any capital contribution (whether or not
evidenced by any equity security issued by the recipient of such
contribution); provided that Equity Issuance shall not include (x) any
such issuance or sale by any Subsidiary of the Company to the Company or
any Wholly Owned Subsidiary (other than an Unrestricted Subsidiary) of
the Company or (y) any capital contribution by the Company or any Wholly
Owned Subsidiary (other than an Unrestricted Subsidiary) of the Company
to any Subsidiary (other than an Unrestricted Subsidiary) of the Company.
"Equity Rights" shall mean, with respect to any Person, any
outstanding subscriptions, options, warrants, commitments, preemptive
rights or agreements of any kind (including, without limitation, any
stockholders' or voting trust agreements) for the issuance, sale,
registration or voting of, or outstanding securities convertible into,
any additional shares of capital stock of any class, or partnership or
other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or
business that is a member of any group of organizations (a) described in
Section 414(b) or (c) of the Code of which the Company is a member and
(b) solely for purposes of potential liability under Section 302(c)(11)
of ERISA and Section 412(c)(11) of the Code and the lien created under
Section 302(f) of ERISA and Section 412(n) of the Code, described in
Section 414(m) or (o) of the Code of which the Company is a member.
"Eurodollar Loans" shall mean Revolving Credit Loans the
interest rates on which are determined on the basis of rates referred to
in the definition of "Eurodollar Rate" in this Section 1.01.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for
any Interest Period therefor, the arithmetic mean (rounded upwards, if
necessary, to the nearest 1/100 of 1%), as determined by the Administrative
Agent, of the rates per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) quoted by the respective Reference Banks at approximately 11:00 a.m.
London time (or as soon thereafter as practicable) on the date two Business Days
prior to the first day of such Interest Period for the offering by the
respective Reference Banks to leading banks in the London interbank market of
Dollar deposits having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the Eurodollar Loan to be made by
such Reference Bank for such Interest Period. If any Reference Bank (or a Wholly
Owned Subsidiary thereof) is not participating in any Eurodollar Loan during any
Interest Period therefor, the Eurodollar Rate for such Revolving Credit Loan for
such Interest Period shall be determined by reference to the amount of the
Revolving Credit Loan that such Reference Bank would have made or had
outstanding had it been participating in such Revolving Credit Loan during such
Interest Period. If any Reference Bank does not furnish the Administrative Agent
with a quote for purposes of determining the Eurodollar Rate for any Revolving
Credit Loan for any Interest Period therefor, the Eurodollar Rate
-7-
<PAGE>
Exhibit 10.1
for such Interest Period shall be determined by reference to the quote(s) of the
other Reference Bank(s).
"Event of Default" shall have the meaning assigned to such term
in Section 10 hereof.
"Excess Cash Flow" shall mean, for any period, the excess of (i)
the sum of (x) EBITDA for such period , plus (y) non-cash deferred tax
charges incurred for such period, over (ii) the sum of the following
(without duplication):
(a) Capital Expenditures (other than Equity Financed
Capital Expenditures) made during such period to the extent
permitted by Section 9.11 hereof, plus
(b) the aggregate amount (without duplication) of
Investments made by the Company and its Subsidiaries in cash
during such period (other than Equity Financed Investments) that
either (x) consist of equity interests or (y) constitute
acquisitions of the capital stock or assets of other companies
(for which purpose the amount of the Investment shall include
the amount of the consideration therefor together with the
amount of any liabilities assumed), plus
(c) increases (or minus decreases) in working capital
(determined in accordance with GAAP) of the Company and its
Subsidiaries (other than Unrestricted Subsidiaries and Released
Guarantors) for such fiscal year (excluding, for this purpose,
(x) the current portion of any long-term Indebtedness, (y) any
short-term Indebtedness and (z) all cash and cash equivalents),
plus
(d) increases in long-term assets (or minus increases
in long-term liabilities) of the Company and its Subsidiaries
(other than Unrestricted Subsidiaries and Released Guarantors)
for such period, excluding (i) losses or income attributable to
equity interests in Affiliates, (ii) deferred financing fees
capitalized as long-term assets (determined in accordance with
GAAP), and (iii) the aggregate principal amount of any
outstanding Loans, plus
(e) all cash principal of and interest on Indebtedness
of the Company or any of its Subsidiaries (other than
Unrestricted Subsidiaries and Released Guarantors) paid during
such period (other than (i) Indebtedness hereunder, (ii)
Indebtedness incurred pursuant to Section 9.07(i) hereof, (iii)
Indebtedness outstanding under the Existing Credit Agreement and
(iv) the Outstanding Subordinated Notes), plus
(f) all cash income taxes paid by the Company and its
Subsidiaries (other than Unrestricted Subsidiaries and Released
Guarantors) during such period, plus
(g) the aggregate amount of all payments made by the
Company and its Subsidiaries (other than Unrestricted
Subsidiaries and Released Guarantors) during such period in
respect of Capital Lease Obligations.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the
day for which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day as so published on the next succeeding
Business Day and (b) if such rate is not so published for any Business
Day, the Federal Funds Rate for such Business Day shall be the average
rate quoted to Chase on such Business Day on such transactions as
determined by the Administrative Agent.
"Fee Letter" shall mean the letter dated October 2, 1997 from
Chase to the Company providing for certain fees relating to this
Agreement and the transactions contemplated hereby.
-8-
<PAGE>
Exhibit 10.1
"Fixed Charge Ratio" shall mean, as at any date, the ratio of the
following:
(a) EBITDA for the period of four consecutive fiscal
quarters ending on or most recently ended prior to such date, to
(b) the sum of the following:
(i) Debt Service for such period, plus
(ii) the aggregate amount (without
duplication) of Investments in Affiliates for such
period that either (x) consist of equity interests or
(y) constitute acquisitions of the capital stock or
assets of other companies (for which purpose the amount
of the Investment shall include the amount of the
consideration therefor together with the amount of any
liabilities assumed), minus
(iii) the following:
(x) for purposes of Section 9.10(a)
hereof, (A) Equity Financed Investments made
in such period and (B) Equity Financed Capital
Expenditures made in such period, and
(y) for purposes of the definition of
"Applicable Margin" in this Section 1.01,
(A) Equity Financed
Investments made in such period, but
only to the extent:
(1) of the excess of
(x) the aggregate amount of
all Equity Financed
Investments made in such
period, together with the
aggregate amount of all
Investments made in such
period in compliance with
Sections 9.08(g) and 9.08(j)
hereof over (y) the maximum
amount of Investments
permitted to be made in such
period pursuant to Sections
9.08(g) and 9.08(j) hereof,
and
(2) such Equity
Financed Investments are
included in the foregoing
clause (b)(ii), and
(B) Equity Financed Capital
Expenditures made in such period, but
only to the extent of the excess of
(x) the aggregate amount of all
Equity Financed Capital Expenditures
made in such period, together with
the aggregate amount of Capital
Expenditures made in such period in
compliance with Section 9.11(a)
hereof over (y) the maximum amount of
Capital Expenditures permitted to be
made in such period pursuant to
Section 9.11(a) hereof.
"Funded Debt" shall mean, as at any date, without duplication,
the aggregate principal amount of the Loans outstanding on such date plus
the outstanding principal amount of the Senior Subordinated Debt on such
date plus the aggregate amount of Capital Lease Obligations on such date
plus the aggregate amount of any Indebtedness of the Company or any of
its Subsidiaries (other than Unrestricted Subsidiaries and Released
Guarantors) of the type described in clause (a), (b), (d) or (f) (but
only insofar as Indebtedness of the type described in clause (f)
constitutes a Guarantee of Indebtedness of the type described in clause
(a), (b) or (d)) of the definition of "Indebtedness" in this Section 1.01
permitted to be outstanding pursuant to Section 9.07 hereof.
-9-
<PAGE>
Exhibit 10.1
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those which, in accordance with
Section 1.02(a) hereof, are to be used in making the calculations for
purposes of determining compliance with this Agreement.
"Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance
of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working
capital or earnings of any Person, or a guarantee of the payment of
dividends or other distributions upon the stock or equity interests of
any Person, or an agreement to purchase, sell or lease (as lessee or
lessor) Property, products, materials, supplies or services primarily for
the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial
institution to issue a letter of credit or other similar instrument for
the benefit of another Person, but excluding (i) endorsements for
collection or deposit in the ordinary course of business and (ii) Rental
Payments made to a lessor in the ordinary course of business so long as
there is no obligation to any Person (other than such lessor) that may
benefit from, or rely on, such Rental Payments. The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.
"Hazardous Material" shall mean, collectively, (a) any petroleum
or petroleum products, flammable explosives, radioactive materials,
asbestos in any form that is or could become friable, urea formaldehyde
foam insulation and transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls, (b) any chemicals
or other materials or substances which are now or hereafter become
defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants", "pollutants" or words of similar import under any
Environmental Law and (c) any other chemical or other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated under any Environmental Law.
"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by
loan, the issuance and sale of debt securities or the sale of Property to
another Person subject to an understanding or agreement to repurchase
such Property from such Person); (b) obligations of such Person to pay
the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business (i) so long
as such trade accounts payable are payable within 270 days of the date
the respective goods are delivered or the respective services are
rendered or (ii) with respect to trade accounts payable which are payable
beyond 270 days of the date the respective goods are delivered or the
respective services are rendered, to the extent that the aggregate amount
outstanding of such trade accounts payable at any one time does not
exceed $50,000,000; (c) Indebtedness of others secured by a Lien on the
Property of such Person, whether or not the respective Indebtedness so
secured has been assumed by such Person; (d) obligations (contingent or
otherwise) of such Person in respect of letters of credit, bankers'
acceptances or similar instruments issued or accepted by banks and other
financial institutions for account of such Person; (e) Capital Lease
Obligations of such Person; and (f) Indebtedness of others Guaranteed by
such Person.
"ING" shall mean ING (U.S.) Capital Corporation and any successor
thereto.
"Interest Coverage Ratio" shall mean, as at any date, the ratio
of (a) EBITDAR for the period of four consecutive fiscal quarters ending
on or most recently ended prior to such date to (b) the sum of Interest
Expense for such period plus Rental Payments for such period (to the
extent not included in Interest Expense) for such period.
"Interest Expense" shall mean, for any period, interest expense
of the Company and its Consolidated Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP),
excluding any interest income, any write-off or amortization of deferred
financing fees and any fees or premiums paid and attributable to the
redemption of the Outstanding Subordinated Notes, but including in any
event the following: (a) all interest in respect of Indebtedness and all
cash dividends in respect of Preferred Stock accrued or capitalized
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<PAGE>
Exhibit 10.1
during such period (whether or not actually paid during such period) plus
(b) the net amounts payable (or minus the net amounts receivable) under
Interest Rate Protection Agreements accrued during such period (whether
or not actually paid or received during such period).
"Interest Period" shall mean, with respect to any Eurodollar
Loan, each period commencing on the date such Eurodollar Loan is made or
Converted from a Base Rate Loan or the last day of the next preceding
Interest Period in the case of a Continued Loan and ending on the
numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Company may select as provided in
Section 4.05 hereof, except that each Interest Period that commences on
the last Business Day of a calendar month (or on any day for which there
is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (i) if any
Interest Period for any Revolving Credit Loan would otherwise end after
the Revolving Credit Commitment Termination Date, such Interest Period
shall end on the Revolving Credit Commitment Termination Date; (ii) each
Interest Period that would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on
the next preceding Business Day); and (iii) notwithstanding clause (i)
above, no Interest Period shall have a duration of less than one month
and, if the Interest Period for any Eurodollar Loan would otherwise be a
shorter period, such Loan shall not be available hereunder for such
period.
"Interest Rate Protection Agreement" shall mean, for any Person,
an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for
the transfer or mitigation of interest risks either generally or under
specific contingencies.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities issued by any other Person or any agreement
to make any such acquisition (including, without limitation, any "short
sale" or any sale of any securities at a time when such securities are
not owned by the Person entering into such short sale); (b) the making of
any deposit with, or advance, loan or other extension of credit to, any
other Person (including the purchase of Property from another Person
subject to an understanding or agreement, contingent or otherwise, to
resell such Property to such other Person, but excluding any such
advance, loan or extension of credit having a term not exceeding 270 days
representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business) and (without duplication) the
entering into of any commitment to deposit funds with, advance or lend
funds to or otherwise extend credit to such other Person (other than, in
the case of the Company or any Subsidiary of the Company, a Guarantee of
Indebtedness or other liabilities of any Subsidiary (other than an
Unrestricted Subsidiary or a Released Guarantor) of the Company); (c) the
entering into of any Guarantee of, or other contingent obligation with
respect to, Indebtedness or other liability of any other Person (other
than, in the case of the Company or any Subsidiary of the Company, a
Guarantee of Indebtedness or other liabilities of any Subsidiary (other
than an Unrestricted Subsidiary or a Released Guarantor) of the Company);
or (d) the entering into of any Interest Rate Protection Agreement.
"Investment Grade" shall mean that the Company's senior
unsecured debt obligations are rated Baa3 or higher by Moody's Investors
Service, Inc. and BBB- or higher by Standard & Poor's Corporation.
"Issuing Bank" shall mean Chase, as the Lender that is the
issuer of Letters of Credit under Section 2.03 hereof, or any affiliate
of Chase designated by Chase to be the "Issuing Bank", together with its
successors and assigns in such capacity (provided that the Issuing Bank
shall at all times be a Lender or an affiliate of a Lender).
"Letter of Credit" shall have the meaning assigned to such term
in Section 2.03 hereof.
"Letter of Credit Documents" shall mean, with respect to any
Letter of Credit, collectively, any application therefor and any other
agreements, instruments, guarantees or other documents (whether general
in application or applicable only to such Letter of Credit) governing or
providing for (a) the rights and obligations of the parties
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<PAGE>
Exhibit 10.1
concerned or at risk with respect to such Letter of Credit or (b) any collateral
security for any of such obligations, each as the same may be modified and
supplemented and in effect from time to time.
"Letter of Credit Interest" shall mean, for each Lender, such
Lender's participation interest (or, in the case of the Issuing Bank, the
Issuing Bank's retained interest) in the Issuing Bank's liability under
Letters of Credit and such Lender's rights and interests in Reimbursement
Obligations and fees, interest and other amounts payable in connection
with Letters of Credit and Reimbursement Obligations.
"Letter of Credit Liability" shall mean, without duplication, at
any time and in respect of any Letter of Credit, the sum of (a) the
undrawn face amount of such Letter of Credit plus (b) the aggregate
unpaid principal amount of all Reimbursement Obligations of the Company
at such time due and payable in respect of all drawings made under such
Letter of Credit. For purposes of this Agreement, a Lender (other than
the Issuing Bank) shall be deemed to hold a Letter of Credit Liability in
an amount equal to its participation interest in the related Letter of
Credit under Section 2.03 hereof, and the Issuing Bank shall be deemed to
hold a Letter of Credit Liability in an amount equal to its retained
interest in the related Letter of Credit Liability after giving effect to
the acquisition by the Lenders other than the Issuing Bank of their
participation interests under said Section 2.03.
"Leverage Ratio" shall mean, at any time, the ratio of (a)
Funded Debt at such time to (b) EBITDA for the period of four consecutive
fiscal quarters ending on or most recently ended prior to such time.
"License Agreement" shall mean the License Agreement dated as of
February 11, 1987 between College and Barnes & Noble Discount Bookstores,
Inc. (a predecessor of B. Dalton), as the same shall be modified and
supplemented and in effect from time to time.
"Lien" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in
respect of such Property. For purposes of this Agreement and the other
Basic Documents, a Person shall be deemed to own subject to a Lien any
Property that it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or
other title retention agreement (other than an operating lease) relating
to such Property.
"LIFO Charge" shall mean a charge by the Company to its
consolidated earnings, before taxes, equal to the before-tax effect on
the Company's consolidated earnings as a result of using the last-in
first-out accounting method, instead of the first-in first-out accounting
method, to calculate its consolidated cost of goods sold, such charge to
be determined in accordance with GAAP.
"Loans" shall mean the Revolving Credit Loans and the Swingline Loans.
"Majority Lenders" shall mean, at all times, Lenders having at
least 51% of the aggregate unpaid principal amount of the Revolving Cedit
Loans plus the aggregate amount of all Letter of Credit Liabilities (or,
if no Revolving Credit Loans or Letter of Credit Liabilities shall be
outstanding, at least 51% of the aggregate amount of the Commitments).
"Margin Stock" shall mean "margin stock" within the meaning of
Regulations G, U and X.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the Property, operations or financial condition of the Company and
its Subsidiaries taken as a whole, (b) the ability of any Obligor to
perform its obligations under any material provision of the Basic
Documents to which it is a party, (c) the validity or enforceability of
any of the Basic Documents taken as a whole, (d) the material rights and
remedies of the Lenders and the Administrative Agent under any of the
Basic Documents or (e) the timely payment of the principal of or interest
on the Loans or the Reimbursement Obligations or other amounts payable in
connection therewith.
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<PAGE>
Exhibit 10.1
"Multiemployer Plan" shall mean a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been made by
the Company or any ERISA Affiliate and which is covered by Title IV of
ERISA.
"Net Available Proceeds" shall mean:
(i) in the case of any Disposition made in any fiscal
year of the Company, the amount of the Net Cash Payments
received in connection with such Disposition to the extent that
they, together with the amount of Net Cash Payments received in
connection with all other Dispositions made in such fiscal year,
exceed $30,000,000; and
(ii) in the case of any Equity Issuance, the aggregate
amount of all cash received by the Obligors in respect of such
Equity Issuance net of reasonable expenses incurred by the
Company and its Subsidiaries (other than Unrestricted
Subsidiaries) in connection therewith.
"Net Cash Payments" shall mean, with respect to any Disposition,
the aggregate amount of all cash payments received by the Company and its
Subsidiaries (other than Unrestricted Subsidiaries and Released
Guarantors) directly or indirectly in connection with such Disposition;
provided that (a) Net Cash Payments shall be net of (i) the amount of any
legal, title and recording tax expenses, commissions and other fees and
expenses paid by the Company and its Subsidiaries (other than
Unrestricted Subsidiaries and Released Guarantors) in connection with
such Disposition and (ii) any Federal, state and local income or other
taxes estimated to be payable by the Company and its Subsidiaries (other
than Unrestricted Subsidiaries and Released Guarantors) as a result of
such Disposition (but only to the extent that such estimated taxes are in
fact paid to the relevant Federal, state or local governmental authority
within 20 months of the date of such Disposition), (b) Net Cash Payments
shall be net of any repayments by the Company or any of its Subsidiaries
(other than Unrestricted Subsidiaries and Released Guarantors) of
Indebtedness (other than Indebtedness created in anticipation of such
Disposition) to the extent that (i) such Indebtedness is secured by a
Lien on the Property that is the subject of such Disposition and (ii) the
transferee of (or holder of a Lien on) such Property requires that such
Indebtedness be repaid as a condition to the purchase of such Property
and (c) Net Cash Payments shall not include any Sale Lease-back Proceeds.
"Notes" shall mean the Revolving Credit Notes and the Swingline Note.
"Outstanding Subordinated Notes" shall mean the Indebtedness of
the Company in respect of the 11-7/8% Senior Subordinated Notes of the
Company due January 15, 2003, issued under an Amended and Restated
Indenture dated as of July 23, 1993 between the Company and United States
Trust Company of New York, as Trustee.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall mean: (a) direct obligations of
the United States of America or any agency thereof or obligations
guaranteed by the United States of America or any agency thereof, in each
case, maturing within 360 days of the date of acquisition thereof, (b)
investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital,
surplus and undivided profits aggregating in excess of $300,000,000 and
whose debt is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act of 1933, as amended) or any
money-market fund sponsored by any registered broker dealer or mutual
fund distributor, (c) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in clause (a)
above entered into with a bank meeting the qualifications described in
clause (b) above, (d) investments in commercial paper, maturing not more
than 270 days after the date of acquisition, issued by a corporation
(other than an Affiliate
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<PAGE>
Exhibit 10.1
or Subsidiary of the Company) organized under the laws of the United States of
America or any state thereof or any foreign country recognized by the United
States of America with a rating of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Corporation, (e) investments in municipal securities with a rating of "A" (or
such similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities Act
of 1933, as amended), and (f) Dutch auction-rate securities rated "AAA" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities Act
of 1933, as amended).
"Permitted Management Ownership" shall mean no more than 30% of
the common stock of any Subsidiary of the Company created after the date
hereof that is owned by members of the management of such Subsidiary.
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or government (or any agency, instrumentality or political
subdivision thereof).
"Plan" shall mean an employee benefit or other plan established
or maintained by the Company or any ERISA Affiliate and that is covered
by Title IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any principal of
any Loan, any Reimbursement Obligation or any other amount under this
Agreement, any Note or any other Basic Document that is not paid when due
(whether at stated maturity, by acceleration, by optional or mandatory
prepayment or otherwise), a rate per annum during the period from and
including the due date to but excluding the date on which such amount is
paid in full equal to 2% plus the Base Rate as in effect from time to
time plus the Applicable Margin for Base Rate Loans (provided that, if
the amount so in default is principal of a Eurodollar Loan and the due
date thereof is a day other than the last day of the Interest Period
therefor, the "Post-Default Rate" for such principal shall be, for the
period from and including such due date to but excluding the last day of
the Interest Period, 2% plus the interest rate for such Loan as provided
in Section 3.02(a)(ii) hereof and, thereafter, the rate provided for
above in this definition).
"Preferred Stock" shall mean preferred shares (including
preferred shares that are convertible into common shares of the Company)
issued by the Company from time to time that satisfies each of the
following requirements: (i) the aggregate net proceeds to the Company
from the issuance of such preferred shares shall not exceed $150,000,000;
(ii) the preferred shares shall not (without the consent of the Majority
Lenders) in any event be redeemable (or callable by the holder) prior to
March 31, 2001; (iii) the preferred shares shall constitute stockholders'
equity within the meaning of GAAP; and (iv) dividends shall not be
payable in cash in respect of such shares at a rate per annum in excess
of the applicable interest rate on Base Rate Loans at the time of the
issuance of such shares.
"Prime Rate" shall mean the rate of interest from time to time
announced by Chase at its principal office in New York City as its prime
commercial lending rate.
"Principal Office" shall mean the principal office of Chase in
New York City.
"Prior Year Excess Cash Flow" shall mean, at any time, Excess
Cash Flow for the period of four consecutive fiscal quarters ending with
the most recently ended fiscal quarter.
"Project" shall have the meaning specified in the definition of
"Specified Capital Expenditures" in this Section 1.01.
"Property" shall mean any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible
or intangible.
"Quarterly Dates" shall mean the last Business Day of each March,
June, September and December in each
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<PAGE>
Exhibit 10.1
year, the first of which shall be the first such day after the date of this
Agreement.
"Reference Banks" shall mean Chase, Canadian Imperial Bank of Commerce
and The Bank of New York.
"Regulation A", "Regulation D", Regulation G", "Regulation U"
and "Regulation X" shall mean, respectively, Regulation A, Regulation D,
Regulation G, Regulation U and Regulation X of the Board of Governors of
the Federal Reserve System (or any successor), as the same may be
modified and supplemented and in effect from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any
change after the date of this Agreement in Federal, state or foreign law
or regulations (including, without limitation, Regulation D) or the
adoption or making after such date of any interpretation, directive or
request applying to a class of banks including such Lender of or under
any Federal, state or foreign law or regulations (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) by any court or governmental or monetary authority charged with
the interpretation or administration thereof.
"Reimbursement Obligations" shall mean, at any time, the
obligations of the Company then outstanding, or which may thereafter
arise in respect of all Letters of Credit then outstanding, to reimburse
amounts paid by the Issuing Bank in respect of any drawings under a
Letter of Credit.
"Related Businesses" shall have the meaning specified in Section
9.05(d)(iv) of this Agreement.
"Release" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration of Hazardous Materials into the indoor or outdoor environment,
including, without limitation, the movement of Hazardous Materials
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata.
"Released Guarantors" shall mean Subsidiary Guarantors that have
been released, pursuant to Section 6.09 hereof, from their guarantee
obligations under Section 6 hereof.
"Rental Payments" shall mean, for any period, for the Company
and its Consolidated Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), all rental payments
(including minimum and percentage rent payments) made or accrued during
such period in respect of any operating lease or similar arrangement for
the use of Property by the Company or any Consolidated Subsidiary (net of
any sublease rental income), but excluding payments in respect of common
area maintenance, merchants' association dues, advertisements required
pursuant to such lease or similar arrangement and allocations for real
estate tax assessments.
"Revolving Credit Commitment" shall mean, for each Lender, the
obligation of such Lender to make Revolving Credit Loans in an aggregate
principal amount at any one time outstanding up to but not exceeding (a)
in the case of a Lender that is a party to this Agreement on the date
hereof, the amount set forth opposite the name of such Lender on the
signature pages hereof under the caption "Revolving Credit Commitment"
and (b) in the case of any other Lender, the aggregate amount of
Revolving Credit Commitments of other Lenders acquired by it pursuant to
Section 12.06 hereof. The original aggregate principal amount of the
Revolving Credit Commitments is $850,000,000.
"Revolving Credit Commitment Percentage" shall mean, with
respect to any Lender, the ratio of (a) the amount of the Revolving
Credit Commitment of such Lender to (b) the aggregate amount of the
Revolving Credit Commitments of all of the Lenders.
"Revolving Credit Commitment Termination Date" shall mean
November 18, 2002.
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<PAGE>
Exhibit 10.1
"Revolving Credit Loans" shall mean the loans provided for by
Section 2.01(a) hereof, which may be Base Rate Loans and/or Eurodollar
Loans.
"Revolving Credit Notes" shall mean the promissory notes
provided for by Section 2.08(a) hereof and all promissory notes delivered
in substitution or exchange therefor, in each case as the same shall be
modified and supplemented and in effect from time to time.
"Riggio" shall mean Mr. Leonard Riggio.
"Sale Lease-back" shall have the meaning specified in the
definition of "Specified Capital Expenditures" in this Section 1.01.
"Sale Lease-back Proceeds" shall mean the proceeds from the sale
by the Company or one of its Subsidiaries (other than an Unrestricted
Subsidiary or a Released Guarantor) of a Project to a lessor in a Sale
Lease-back.
"Security Agreement" shall mean a Pledge and Security Agreement,
delivered in connection with the Existing Credit Agreement, in the form
of Exhibit B-1 hereto between the Company and the Subsidiary Guarantors
and the Administrative Agent, as the same shall be modified and
supplemented and in effect from time to time.
"Security Agreement Amendment" shall mean an amendment to the
Security Agreement substantially in the form of Exhibit B-2 hereto.
"Security Documents" shall mean, collectively, the Security
Agreement and all Uniform Commercial Code financing statements required
by this Agreement or the Security Agreement to be filed with respect to
the security interests created pursuant to the Security Agreement.
"Senior Subordinated Debt" shall mean:
(a) the Outstanding Subordinated Notes, and
(b) Indebtedness of, or any Equity Issuance by, the
Company in an aggregate principal amount not to exceed
$210,000,000 incurred or issued in exchange for the Outstanding
Subordinated Notes (including fees and premiums payable in
connection with such exchange), so long as each of the terms of
such Indebtedness or Equity Issuance and each provision of the
agreements or instruments evidencing or governing such
Indebtedness or Equity Issuance (including, without limitation,
as to principal amount, interest or dividend rate, redemption,
representations, covenants, events of default and subordination)
are (x) substantially identical to those of the Outstanding
Subordinated Notes or (y) are more favorable to the Company than
those of the Outstanding Subordinated Notes and are not in any
material way adverse to the interests of the Administrative
Agent and the Lenders hereunder.
"Senior Subordinated Debt Documents" shall mean all documents
and agreements executed and delivered in connection with the issuance of
any Senior Subordinated Debt, including (without limitation) the
Indenture referred to in the definition of "Outstanding Subordinated
Notes" in this Section 1.01 and the promissory notes issued thereunder,
in each case, as the same shall, subject to Section 9.18 hereof, be
modified and supplemented and in effect from time to time.
"Significant Subsidiary" shall mean, with respect to the
Company, (a) each Subsidiary that is a "Significant Subsidiary" of the
Company within the meaning of Rule 1-02 of Regulation S-X of the
Securities and Exchange Commission, and (b) each Subsidiary (other than
any Unrestricted Subsidiary or Released Guarantor) the principal business
of which is a retail bookstore business.
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<PAGE>
Exhibit 10.1
"Specified Capital Expenditures" shall mean expenditures made by
the Company or its Subsidiaries to acquire and develop real property by
building retail bookstores thereon (each such development, a "Project")
with a view to transferring title to such developed real property to
another Person (other than an Affiliate or Subsidiary of the Company)
within 24 months after the acquisition of such real property and
concurrently leasing it back from such Person (a "Sale Lease-back"),
provided that if any Project has not been made the subject of a Sale
Lease-back within 24 months after the first such expenditures are made
with respect to such Project, all of such expenditures made with respect
to such Project shall constitute Capital Expenditures (and be deemed to
have been made at the later of the end of such 24-month period and the
time actually made) for all purposes of this Agreement (and shall not
constitute Specified Capital Expenditures) and shall be:
(a) subject to the limitations in Section 9.11(a) hereof, and
(b) included in Capital Expenditures for purposes of
clause (a) of the definition of "Excess Cash Flow" in Section
1.01 hereof,
in all cases until such time (if any) as such Project is made the subject
of a Sale Lease-back (at which time such expenditures shall again
constitute Specified Capital Expenditures).
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of
the securities or other ownership interests having by the terms thereof
ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions of such corporation,
partnership or other entity (irrespective of whether or not at the time
securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have
voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or
more Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person.
"Swingline Commitment" shall mean the obligation of the
Swingline Bank to make Swingline Loans in an aggregate amount at any one
time outstanding up to the lesser of $50,000,000 and the then aggregate
principal amount of the Revolving Credit Commitments as then in effect.
"Swingline Loans" shall mean the loans provided for by Section 2.01(b)
hereof, which shall be Base Rate Loans.
"Swingline Note" shall mean the promissory note provided for by
Section 2.08(b) hereof and all promissory notes delivered in substitution
or exchange therefor, in each case as the same shall be modified and
supplemented and in effect from time to time.
"Type" shall have the meaning assigned to such term in Section 1.03
hereof.
"Unrelated Persons" shall mean any Person other than (a) Riggio,
his wife, his siblings, his children or any trust established for the
benefit of Riggio, his wife, his siblings or his children and (b) any
Person directly or indirectly effectively controlled (whether through
legal or beneficial ownership of equity interests in such Person, by
contract or otherwise) by, or by any estate of, any of the Persons
referred to in clause (a).
"Unrestricted Subsidiary" shall mean a Subsidiary acquired or
established by the Company or any Subsidiary of the Company pursuant to
Section 9.05(d)(iv) hereof and designated as an "Unrestricted Subsidiary"
by a notice from the Company to the Lenders no later than three Business
Days prior to the effective date for such designation.
"U.S. Person" shall have the meaning given to that term in Section
5.07(a) hereof.
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<PAGE>
Exhibit 10.1
"Voting Shares" shall mean shares of capital stock of the
Company, of any class or classes (however designated) (a) having by the
terms thereof voting power to elect the members of the board of directors
of the Company or (b) convertible into shares of capital stock of the
Company of the type described in the foregoing clause (a).
"Wholly Owned Subsidiary" shall mean, with respect to any
Person, any corporation, partnership or other entity of which all of the
equity securities or other ownership interests (other than, in the case
of a corporation, directors' qualifying shares) are owned or controlled
by such Person or one or more Wholly Owned Subsidiaries of such Person.
1.02 Accounting Terms and Determinations
(a) Except as otherwise expressly provided herein, (i) all
accounting terms used herein shall be interpreted, (ii) all financial
statements and all certificates and reports as to financial matters
required to be delivered to the Lenders hereunder shall (unless otherwise
disclosed to the Lenders in writing at the time of delivery thereof in
the manner described in subsection (b) below) be prepared and (iii) all
calculations made for the purposes of determining compliance with this
Agreement shall (except as otherwise expressly provided herein) be made
in accordance with or by application of generally accepted accounting
principles applied on a basis consistent with those used in the
preparation of the most recent financial statements furnished to the
Lenders hereunder (or, prior to the delivery of the first financial
statements under Section 9.01 hereof, the audited financial statements as
of February 1, 1997, referred to in Section 8.02 hereof) unless (x) the
Company shall notify the Lenders of its objection thereto at the time of
delivery of any financial statements pursuant to Section 9.01 hereof or
(y) the Majority Lenders shall notify the Company (through the
Administrative Agent) of their objection within 30 days after the
delivery of any such financial statements, in either of which events such
interpretations, statements, certificates, reports and calculations shall
be made in accordance with, or by application of, generally accepted
accounting principles on a basis consistent with those used in the
preparation of the most recent financial statements as to which no such
objection shall have been made (or, prior to the delivery of the first
financial statements under Section 9.01 hereof, the audited financial
statements as at February 1, 1997, referred to in Section 8.02 hereof).
(b) The Company shall deliver to the Lenders at the same time as
the delivery of any annual or quarterly financial statement under Section
9.01 hereof (i) a description in reasonable detail of any material
variation between the application of accounting principles employed in
the preparation of such statement and the application of accounting
principles employed in the preparation of the next preceding annual or
quarterly financial statements as to which no objection has been made in
accordance with the last sentence of paragraph (a) above and (ii)
reasonable estimates of the difference between such statements arising as
a consequence thereof.
(c) The Company will not, and will not permit any of its
Subsidiaries (other than an Unrestricted Subsidiary or a Released
Guarantor) to, change the last day of its fiscal year from the Saturday
falling on or nearest to January 31 of each year, or the last days of the
first three fiscal quarters in each of its fiscal years from the Saturday
falling on or nearest to the last day of April, July and October of each
year, respectively.
1.03 Types. The "Type" of a Revolving Credit Loan refers to whether
such Revolving Credit Loan is a Base Rate Loan or a Eurodollar Loan, each of
which constitutes a Type of Revolving Credit Loan.
Section 2. Commitments, Loans, Notes and Prepayments.
2.01 Loans
(a) Revolving Credit Loans. Each Lender severally agrees, on the
terms and conditions of this Agreement,
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Exhibit 10.1
to make loans to the Company in Dollars during the period from and including the
Closing Date to but not including the Revolving Credit Commitment Termination
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of the Revolving Credit Commitment of such Lender as in
effect from time to time, provided that in no event shall the aggregate
principal amount of all Revolving Credit Loans, together with the aggregate
amount of all Letter of Credit Liabilities and the aggregate amount of all
Swingline Loans, exceed the aggregate amount of the Revolving Credit Commitments
as in effect from time to time. Subject to the terms and conditions of this
Agreement, during such period the Company may borrow, repay and reborrow the
amount of the Revolving Credit Commitments by means of Base Rate Loans and
Eurodollar Loans and may Convert Revolving Credit Loans of one Type into
Revolving Credit Loans of the other Type (as provided in Section 2.09 hereof) or
Continue Revolving Credit Loans that are Eurodollar Loans (as provided in
Section 2.09 hereof).
(b) Swingline Loans. The Swingline Bank hereby agrees, on the
terms and conditions of this Agreement, to make Swingline Loans to the
Company in Dollars during the period from and including the date hereof
to but not including the Revolving Credit Commitment Termination Date in
an aggregate principal amount at any one time outstanding up to but not
exceeding the Swingline Commitment; provided that the aggregate unpaid
principal amount of all Swingline Loans and all Revolving Credit Loans,
together with the aggregate amount of all Letter of Credit Liabilities,
at any one time outstanding may not exceed the aggregate amount of the
Revolving Credit Commitments. Subject to the terms of this Agreement, the
Company may borrow, repay and reborrow the amount of the Swingline
Commitment by means of Swingline Loans.
(c) Limit on Eurodollar Loans. No more than 25 separate Interest
Periods in respect of Eurodollar Loans from each Lender may be
outstanding at any one time.
2.02 Borrowings of Loans
(a) Revolving Credit Loans. The Company shall give the
Administrative Agent (which shall promptly notify the Lenders) notice of
each borrowing of Revolving Credit Loans hereunder as provided in Section
4.05 hereof. Not later than 2:00 p.m. New York time on the date specified
for each borrowing of Revolving Credit Loans hereunder, each Lender shall
make available the amount of the Revolving Credit Loan or Revolving
Credit Loans to be made by it on such date to the Administrative Agent at
the Principal Office, in Dollars and immediately available funds, for
account of the Company. The amount so received by the Administrative
Agent shall, subject to the terms and conditions of this Agreement, be
made available by the Administrative Agent to the Company by depositing
the same, in immediately available funds, in an account of the Company
maintained with Chase at the Principal Office designated by the Company.
(b) Swingline Loans.
(i) The Company shall, not later than 3:00 p.m. New
York time on the date on which the Company proposes to borrow a
Swingline Loan, give the Administrative Agent and the Swingline
Bank notice of such borrowing (a "Swingline Borrowing Notice"),
which notice shall be irrevocable and effective only upon
receipt by the Swingline Bank and shall specify the principal
amount of the Swingline Loan to be borrowed (which shall be at
least $1,500,000). Not later than 4:00 p.m. New York time, on
the date specified in each Swingline Borrowing Notice hereunder,
the Swingline Bank shall, subject to the terms of this
Agreement, make the amount of the Swingline Loan to be made by
it on such date available to the Company on such date by
depositing the same, in immediately available funds, in an
account of the Company maintained with the Swingline Bank at its
principal office in New York City designated by the Company.
(ii) The Company hereby irrevocably authorizes and
empowers (which power is coupled with an interest) the Swingline
Bank to deliver, at any time and from time to time, on behalf of
the Company, to the Administrative Agent under Section 2.02(a)
hereof a notice of borrowing of Revolving Credit Loans that are
Base Rate Loans in an amount equal to the then unpaid principal
amount of Swingline Loans.
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<PAGE>
Exhibit 10.1
(iii) In the event that the power of the Swingline Bank
to give such a notice of borrowing on behalf of the Company is
terminated for any reason whatsoever (including, without
limitation, a termination resulting from the occurrence of an
event specified in clause (f) or (g) of Section 10 hereof with
respect to the Company), or the Swingline Bank is otherwise
precluded for any reason whatsoever from giving a notice of
borrowing on behalf of the Company as provided in the preceding
sentence, each Lender shall, upon notice from the Swingline
Bank, promptly purchase from the Swingline Bank a participation
in (or, if and to the extent specified by the Swingline Bank, a
direct interest in) such Swingline Loan in the amount of the
Base Rate Loan it would have been obligated to make pursuant to
such notice of borrowing. Each Lender shall, not later than 2:00
p.m. New York time on the Business Day on which such notice is
given (if such notice is given by 10:00 a.m. New York time) or
noon New York time on the next succeeding Business Day (if such
notice is given after 10:00 a.m. New York time), make available
the amount of the Base Rate Loan to be made by it (or the amount
of the participation or direct interest to be purchased by it,
as the case may be) to the Administrative Agent at the account
specified in Section 2.02(a) hereof and the amount so received
by the Administrative Agent shall be made available to the
Swingline Bank by depositing the same, in immediately available
funds, in an account of the Swingline Bank maintained at the
principal office of the Swingline Bank in New York City
designated by the Swingline Bank. Promptly following its receipt
of any payment in respect of a Swingline Loan, the Swingline
Bank shall pay to each Lender that has acquired a participation
in such Swingline Loan such Lender's proportionate share of such
payment. Anything in this Agreement to the contrary
notwithstanding (including, without limitation, in Section 7.02
hereof), the obligation of each Lender to make its Base Rate
Loan (or purchase its participation or direct interest in the
Swingline Loan, as the case may be) pursuant to this Section
2.02(b)(iii) is unconditional under any and all circumstances
whatsoever and shall not be subject to set-off, counterclaim or
defense to payment that such Lender may have or have had against
the Company, the Administrative Agent, the Swingline Bank or any
other Lender and, without limiting any of the foregoing, shall
be unconditional irrespective of (A) the occurrence of any
Default, (B) the financial condition of the Company, any
Subsidiary Guarantor, the Administrative Agent, the Swingline
Bank or any other Lender or (C) the termination or cancellation
of the Revolving Credit Commitments. The Company agrees that any
Lender so purchasing a participation (or direct interest) in
such Swingline Loan may exercise all rights of set-off, bankers'
lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of
a Swingline Loan in the amount of such participation; provided
that no Lender shall be obligated to purchase participations or
direct interests in any Swingline Loan pursuant to this Section
2.02(b)(iii) if such Swingline Loan was made by the Swingline
Bank after it received notice from the Administrative Agent of
the occurrence and continuance of a Default.
(iv) The Administrative Agent shall promptly furnish to
the Swingline Bank copies of each notice of the existence of any
Default or Event of Default received by it from any Lender or
any Obligor.
2.03 Letters of Credit. Subject to the terms and conditions of this
Agreement, the Revolving Credit Commitments may be utilized, upon the request
of the Company, in addition to the Loans provided for by Section 2.01(a)
hereof, by the issuance by the Issuing Bank of letters of credit (together
with any letters of credit issued by the Issuing Bank under the Existing
Credit Agreement (the "Existing Chase Letters of Credit"), collectively,
"Letters of Credit") for account of the Company or any of its Subsidiaries
(other than an Unrestricted Subsidiary or a Released Guarantor) as specified
by the Company, and the Issuing Bank agrees to issue Letters of Credit on the
terms and conditions set forth herein, provided that in no event shall (i) the
aggregate amount of all Letter of Credit Liabilities, together with the
aggregate principal amount of all Revolving Credit Loans and Swingline
Loans outstanding, exceed the aggregate amount of the Revolving Credit
Commitments as in effect from time to time, (ii) the outstanding
aggregate amount of all Letter of Credit Liabilities exceed $45,000,000
and (iii) the expiration date of any Letter of Credit extend beyond the
earlier of the Revolving Credit Commitment Termination Date and the date
12 months following the issuance of such Letter of Credit. The following
additional provisions shall apply to Letters of Credit:
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Exhibit 10.1
(a) The Company shall give the Administrative Agent at
least three Business Days' irrevocable prior notice (effective
upon receipt) specifying the Business Day (which shall be no
later than 30 days preceding the Revolving Credit Commitment
Termination Date) each Letter of Credit is to be issued and the
account party or parties therefor and describing in reasonable
detail the proposed terms of such Letter of Credit (including
the beneficiary thereof) and the nature of the transactions or
obligations proposed to be supported thereby (including whether
such Letter of Credit is to be a commercial letter of credit or
a standby letter of credit). Upon receipt of any such notice,
the Administrative Agent shall advise the Issuing Bank and each
Lender of the contents thereof. Any amendment, modification or
supplement to any Letter of Credit hereunder shall be made with
prior notice to the Administrative Agent and in accordance with
clause (k) of this Section 2.03.
(b) On each day during the period commencing with the
issuance by the Issuing Bank of any Letter of Credit (or, in the
case of any Existing Chase Letter of Credit, the Closing Date)
and until such Letter of Credit shall have expired or been
terminated, the Revolving Credit Commitment of each Lender shall
be deemed to be utilized for all purposes of this Agreement in
an amount equal to such Lender's Revolving Credit Commitment
Percentage of the then undrawn face amount of such Letter of
Credit. Each Lender (other than the Issuing Bank) agrees that,
upon the issuance of any Letter of Credit hereunder, it shall
automatically and without any further action on the part of the
Administrative Agent, the Issuing Bank or such Lender acquire a
participation in the Issuing Bank's liability under such Letter
of Credit in an amount equal to such Lender's Revolving Credit
Commitment Percentage of such liability, and each Lender (other
than the Issuing Bank) thereby shall absolutely, unconditionally
and irrevocably assume, as primary obligor and not as surety,
and shall be unconditionally obligated to the Issuing Bank to
pay and discharge when due, its Revolving Credit Commitment
Percentage of the Issuing Bank's liability under such Letter of
Credit.
(c) Upon receipt from the beneficiary of any Letter of
Credit of any demand for payment under such Letter of Credit,
the Issuing Bank shall promptly notify the Company (through the
Administrative Agent) of the amount to be paid by the Issuing
Bank as a result of such demand and the date on which payment is
to be made by the Issuing Bank to such beneficiary in respect of
such demand. Notwithstanding the identity of the account party
of any Letter of Credit, the Company hereby unconditionally
agrees to pay and reimburse the Administrative Agent for account
of the Issuing Bank for the amount of each demand for payment
under such Letter of Credit at or prior to the date on which
payment is to be made by the Issuing Bank to the beneficiary
thereunder, without presentment, demand, protest or other
formalities of any kind.
(d) Forthwith upon its receipt of a notice referred to
in paragraph (c) of this Section 2.03, the Company shall advise
the Administrative Agent whether or not the Company intends to
borrow hereunder to finance its obligation to reimburse the
Issuing Bank for the amount of the related demand for payment
and, if it does, submit a notice of such borrowing as provided
in Section 4.05 hereof. In the event that the Company fails to
so advise the Administrative Agent, or if the Company fails to
reimburse the Issuing Bank for a demand for payment under a
Letter of Credit by the date of such payment, the Administrative
Agent shall give each Lender prompt notice of the amount of the
demand for payment, specifying such Lender's Revolving Credit
Commitment Percentage of the amount of the related demand for
payment.
(e) Each Lender (other than the Issuing Bank) shall pay
to the Administrative Agent for account of the Issuing Bank at
the Principal Office in Dollars and in immediately available
funds, the amount of such Lender's Revolving Credit Commitment
Percentage of any payment under a Letter of Credit upon notice
by the Issuing Bank (through the Administrative Agent) to such
Lender requesting such payment and specifying such amount. Each
such Lender's obligation to make such payments to the
Administrative Agent for account of the Issuing Bank under this
paragraph (e), and the Issuing Bank's right to receive the same,
shall be absolute and unconditional and shall not be affected by
any circumstance whatsoever, including, without limitation, the
failure of any other Lender to make its payment under this
paragraph (e), the
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<PAGE>
Exhibit 10.1
financial condition of the Company (or any other account party), the
existence of any Default or the termination of the Revolving Credit
Commitments (provided that the relevant Letter of Credit shall have
been issued by the Issuing Bank prior to the Revolving Credit
Commitment Termination Date). Each such payment to the Issuing Bank
shall be made without any offset, abatement, withholding or reduction
whatsoever.
(f) Upon the making of each payment by a Lender to the
Issuing Bank pursuant to paragraph (e) above in respect of any
Letter of Credit, such Lender shall, automatically and without
any further action on the part of the Administrative Agent, the
Issuing Bank or such Lender, acquire (i) a participation in an
amount equal to such payment in the Reimbursement Obligation
owing to the Issuing Bank by the Company hereunder and under the
Letter of Credit Documents relating to such Letter of Credit and
(ii) a participation in a percentage equal to such Lender's
Revolving Credit Commitment Percentage in any interest or other
amounts payable by the Company hereunder and under such Letter
of Credit Documents in respect of such Reimbursement Obligation
(other than the commissions, charges, costs and expenses payable
to the Issuing Bank pursuant to paragraph (g) of this Section
2.03). Upon receipt by the Issuing Bank from or for account of
the Company of any payment in respect of any Reimbursement
Obligation or any such interest or other amount (including by
way of setoff or application of proceeds of any collateral
security) the Issuing Bank shall promptly pay to the
Administrative Agent for account of each Lender entitled
thereto, such Lender's Revolving Credit Commitment Percentage of
such payment, each such payment by the Issuing Bank to be made
in the same money and funds in which received by the Issuing
Bank. In the event any payment received by the Issuing Bank and
so paid to the Lenders hereunder is rescinded or must otherwise
be returned by the Issuing Bank, each Lender shall, upon the
request of the Issuing Bank (through the Administrative Agent),
repay to the Issuing Bank (through the Administrative Agent) the
amount of such payment paid to such Lender, with interest at the
rate specified in paragraph (j) of this Section 2.03.
(g) The Company shall pay to the Issuing Bank an
issuance fee on the daily average undrawn amount of each Letter
of Credit for the period from and including the date of issuance
of such Letter of Credit (or, in the case of any Existing Chase
Letter of Credit, from and including the Closing Date) to and
including the date such Letter of Credit is drawn in full,
expires or is terminated, at a rate per annum equal to
Applicable Margin for Eurodollar Loans (without giving effect to
clause (ii) of the definition of "Applicable Margin") as in
effect from time to time (such issuance fee to be
non-refundable, to be paid in arrears on each Quarterly Date and
on the Revolving Credit Commitment Termination Date and to be
calculated, for any day, after giving effect to any payments
made under such Letter of Credit on such day). The Issuing Bank
shall pay to the Administrative Agent for account of each Lender
(other than the Issuing Bank), from time to time at reasonable
intervals (but in any event at least quarterly), but only to the
extent actually received from the Company, an amount equal to
such Lender's Revolving Credit Commitment Percentage of all such
fees in respect of each Letter of Credit (including, for the
period from and after the Closing Date, each Chase Letter of
Credit), including any such fee in respect of any period of any
renewal or extension thereof. In addition, the Company shall pay
to the Issuing Bank a fronting fee on the daily average undrawn
amount of each Letter of Credit for the period from and
including the date of issuance of such Letter of Credit (or, in
the case of any Existing Chase Letter of Credit, from and
including the Closing Date) to and including the date such
Letter of Credit is drawn in full, expires or is terminated, at
a rate per annum equal to 1/10 of 1% (such fronting fee shall be
non-refundable, shall be paid in arrears on each Quarterly Date
and on the Revolving Credit Commitment Termination Date and
shall be calculated, for any day, after giving effect to any
payments made under such Letter of Credit on such day) together
with all commissions, charges, costs and expenses in the amounts
customarily charged by the Issuing Bank from time to time in
like circumstances with respect to the issuance of each Letter
of Credit and drawings and other transactions relating thereto.
(h) Promptly following the end of each calendar quarter, the
Issuing Bank shall deliver (through
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<PAGE>
Exhibit 10.1
the Administrative Agent) to each Lender and the Company a notice
describing the aggregate amount of all Letters of Credit issued during
such quarter. Upon the request of any Lender from time to time, the
Issuing Bank shall deliver any other information reasonably requested
by such Lender with respect to each Letter of Credit then outstanding.
(i) The issuance by the Issuing Bank of each Letter of
Credit shall, in addition to the conditions precedent set forth
in Section 7 hereof, be subject to the conditions precedent that
(i) such Letter of Credit shall be in such form and contain such
terms as shall be satisfactory to the Issuing Bank consistent
with its then current practices and procedures with respect to
letters of credit of the same type, and shall support such
transactions as shall be consistent with the Company's ordinary
course of business and (ii) the Company shall have executed and
delivered such applications, agreements and other instruments
relating to such Letter of Credit as the Issuing Bank shall have
reasonably requested consistent with its then current practices
and procedures with respect to letters of credit of the same
type, provided that in the event of any conflict between any
such application, agreement or other instrument and the
provisions of this Agreement or any Security Document, the
provisions of this Agreement and the Security Documents shall
control.
(j) To the extent that any Lender fails to pay any
amount required to be paid pursuant to paragraph (e) or (f) of
this Section 2.03 on the due date therefor, such Lender shall
pay interest to the Issuing Bank (through the Administrative
Agent) on such amount from and including such due date to but
excluding the date such payment is made (i) during the period
from and including such due date to but excluding the date three
Business Days thereafter, at a rate per annum equal to the
Federal Funds Rate (as in effect from time to time) and (ii)
thereafter, at a rate per annum equal to the Base Rate (as in
effect from time to time) plus 2%.
(k) The issuance by the Issuing Bank of any
modification or supplement to any Letter of Credit hereunder
shall be subject to the same conditions applicable under this
Section 2.03 to the issuance of new Letters of Credit, and no
such modification or supplement shall be issued hereunder unless
either (i) the respective Letter of Credit affected thereby
would have complied with such conditions had it originally been
issued hereunder in such modified or supplemented form or (ii)
the Majority Lenders shall have consented thereto.
(l) Each Lender agrees that on the Closing Date it
shall automatically acquire a participation in the Issuing
Bank's liability under each Existing Chase Letter of Credit in
an amount equal to such Lender's Revolving Credit Commitment
Percentage of such liability, and each Lender thereby shall
absolutely, unconditionally and irrevocably assume, as primary
obligor and not as surety, and shall be unconditionally
obligated to the Issuing Bank to pay and discharge when due, its
Commitment Percentage of the Issuing Bank's liability under each
Existing Chase Letter of Credit.
The Company hereby indemnifies and holds harmless each Lender (including
the Issuing Bank) and the Administrative Agent from and against any and
all claims and damages, losses, liabilities, costs or expenses which such
Lender or the Administrative Agent may incur (or which may be claimed
against such Lender or the Administrative Agent by any Person whatsoever)
by reason of or in connection with the execution and delivery or transfer
of or payment or refusal to pay by the Issuing Bank under any Letter of
Credit; provided that the Company shall not be required to indemnify any
Lender or the Administrative Agent for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent,
caused by (x) the willful misconduct or gross negligence of the Issuing
Bank in determining whether a request presented under any Letter of
Credit complied with the terms of such Letter of Credit or (y) the
Issuing Bank's failure to pay under any Letter of Credit after the
presentation to it of a request strictly complying with the terms and
conditions of such Letter of Credit. Nothing in this Section 2.03 is
intended to limit the other obligations of the Company, any Lender or the
Administrative Agent under this Agreement.
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<PAGE>
Exhibit 10.1
2.04 Changes of Commitments
(a) The aggregate amount of the Revolving Credit Commitments and
the Swingline Commitment shall be automatically reduced to zero on the
Revolving Credit Commitment Termination Date.
(b) The Company shall have the right at any time or from time to
time (i) so long as no Revolving Credit Loans, Swingline Loans or Letter
of Credit Liabilities are outstanding hereunder, to terminate the
Revolving Credit Commitments in full and (ii) to reduce the aggregate
unused amount of the Revolving Credit Commitments (for which purpose use
of the Revolving Credit Commitments shall be deemed to include the
aggregate amount of Letter of Credit Liabilities and Swingline Loans);
provided that (x) the Company shall give notice of each such termination
or reduction as provided in Section 4.05 hereof and (y) each partial
reduction shall be in an aggregate amount equal to $5,000,000 or any
integral multiple of $5,000,000 in excess thereof.
(c) The Company shall have the right at any time, so long as no
Swingline Loans are outstanding, to terminate the Swingline Commitment
upon not less than three Business Days' prior notice to the
Administrative Agent and the Swingline Bank, which notice shall specify
the effective date thereof.
(d) The Commitments once terminated or reduced may not be
reinstated.
2.05 Commitment Fees; Excess Usage Fee
(a) The Company shall pay to the Administrative Agent for
account of each Lender a commitment fee on the daily average unused
amount of the Revolving Credit Commitment of such Lender (for which
purpose the aggregate amount of any Letter of Credit Liabilities and the
aggregate amount of the Swingline Commitment (whether or not utilized)
shall be deemed to be a pro rata (based on the Revolving Credit
Commitments) use of each Lender's Revolving Credit Commitment), for the
period from and including the Closing Date to but not including the
earlier of the date the Revolving Credit Commitments are terminated and
the Revolving Credit Commitment Termination Date, at a rate per annum
equal to the Applicable Commitment Fee Percentage. Accrued commitment
fees payable to the Lenders in respect of the Revolving Credit
Commitments shall be payable on each Quarterly Date and on the earlier of
the date the Revolving Credit Commitments are terminated in full and the
Revolving Credit Commitment Termination Date.
(b) The Company shall pay to the Swingline Bank a commitment fee
on the daily average unused amount of the Swingline Commitment, for the
period from and including the Closing Date to but not including the
earlier of the date the Swingline Commitment is terminated in full and
the Revolving Credit Commitment Termination Date, at a rate per annum
equal to the Applicable Commitment Fee Percentage. The accrued commitment
fee payable to the Swingline Bank shall be payable on each Quarterly Date
and on the earlier of the date the Swingline Commitment is terminated in
full and the Revolving Credit Commitment Termination Date.
(c) To the extent that the average principal amount of
Eurodollar Loans outstanding during any fiscal quarter of the Company (or
the portion of the fiscal quarter that occurs prior to the date that the
Revolving Credit Commitments are terminated or expire) exceeds 50% of the
aggregate amount of the Revolving Credit Commitments on the last day of
such fiscal quarter, the Company shall pay to the Administrative Agent,
for the account of the Lenders, an excess usage fee on such excess at a
rate per annum equal to 0.125%. Accrued excess usage fee shall be payable
by the third Business Day following the last Business Day of each fiscal
quarter of the Company.
2.06 Lending Offices. The Revolving Credit Loans of each Type made by
each Lender shall be made and maintained at such Lender's Applicable Lending
Office for Revolving Credit Loans of such Type. The Swingline Loans shall be
made and maintained at the Applicable Lending Office of the Swingline Bank for
Swingline Loans.
2.07 Several Obligations; Remedies Independent. The failure of any
Lender (a "Defaulting Lender") to
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<PAGE>
Exhibit 10.1
make any Loan to be made by it on the date specified therefor shall not relieve
any other Lender of its obligation to make any Loan to be made by it on such
date, but neither any Lender nor the Administrative Agent shall be responsible
for the failure of any Defaulting Lender to make a Loan to be made by such
Defaulting Lender, and no Lender shall have any obligation to the Administrative
Agent or any other Lender for the failure by such Defaulting Lender to make any
Loan required to be made by such Defaulting Lender. The amounts payable by the
Company at any time hereunder and under the Notes to each Lender shall be a
separate and independent debt and each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and the Notes, and it shall not
be necessary for any other Lender or the Administrative Agent to consent to, or
be joined as an additional party in, any proceedings for such purposes.
2.08 Notes
(a) The Revolving Credit Loans made by each Lender shall be
evidenced by a single promissory note of the Company substantially in the
form of Exhibit A-1 hereto, dated the date hereof, payable to the order
of such Lender in a principal amount equal to the amount of its Revolving
Credit Commitment as originally in effect and otherwise duly completed.
(b) The Swingline Loans made by the Swingline Bank shall be
evidenced by a single promissory note of the Company in substantially the
form of Exhibit A-2 hereto, dated the date of this Agreement, payable to
the Swingline Bank in a principal amount equal to the amount of the
Swingline Commitment as originally in effect and otherwise duly
completed. The date and amount of each Swingline Loan and each payment
made on account of the principal thereof, shall be recorded by the
Swingline Bank on its books and, prior to any transfer of the Swingline
Note, endorsed by the Swingline Bank on the schedule attached to such
Swingline Note or any continuation thereof; provided that the failure by
the Swingline Bank to make any such recordation or endorsement shall not
affect any of the obligations of the Company hereunder or under the
Swingline Note to make a payment when due.
(c) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Revolving Credit Loan made by
each Lender to the Company, and each payment made on account of the
principal thereof, shall be recorded by such Lender on its books and,
prior to any transfer of the Revolving Credit Note evidencing Loans held
by it, endorsed by such Lender on the schedule attached to such Revolving
Credit Note or any continuation thereof; provided that the failure of
such Lender to make any such recordation or endorsement shall not affect
the obligations of the Company to make a payment when due of any amount
owing hereunder or under such Revolving Credit Note in respect of the
Revolving Credit Loans.
(e) No Lender shall be entitled to have its Revolving Credit
Notes subdivided by exchange for promissory notes of lesser denominations
or otherwise, except in connection with a permitted assignment of all or
any portion of such Lender's Commitments, Revolving Credit Loans and
Revolving Credit Notes pursuant to Section 12.06(b) hereof.
(f) The Swingline Bank shall not be entitled to have its
Swingline Note subdivided, by exchange for promissory notes of lesser
denominations or otherwise, except in connection with a permitted
assignment of all of any portion of the Swingline Bank's Swingline
Commitments, Swingline Loans and Swingline Note pursuant to Section
12.06(g) hereof.
2.09 Optional Prepayments and Conversions or Continuations of Loans.
Subject to Section 4.04 hereof, the Company shall have the right to prepay
Loans, or to Convert Revolving Credit Loans of one Type into Revolving Credit
Loans of another Type or Continue Revolving Credit Loans of one Type as
Revolving Credit Loans of the same Type, at any time or from time to time,
provided that the Company shall give the Administrative Agent notice of each
such prepayment, Conversion or Continuation as provided in Section 4.05 hereof
(and, upon the prepayment date specified in any such notice of prepayment, the
amount to be prepaid shall become due and payable hereunder). Notwithstanding
the foregoing, and without limiting the rights and remedies of the Lenders under
Section 10 hereof,
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<PAGE>
Exhibit 10.1
in the event that any Event of Default shall have occurred and be continuing,
the Administrative Agent may (and at the request of the Majority Lenders shall)
suspend the right of the Company to borrow any Revolving Credit Loan as a
Eurodollar Loan, to Convert any Revolving Credit Loan into a Eurodollar Loan or
to Continue any Revolving Credit Loan as a Eurodollar Loan, in which event all
Eurodollar Loans then outstanding shall be Converted (on the last day(s) of the
respective Interest Periods therefor) into Base Rate Loans.
2.10 Mandatory Prepayments
(a) Sale of Assets. Without limiting the obligation of the
Company to obtain the consent of the Majority Lenders pursuant to Section
9.05 hereof to any Disposition not otherwise permitted hereunder, not
later than five Business Days prior to the occurrence of any Disposition,
the Company will deliver to the Lenders a statement, certified by a
senior officer of the Company, in form and detail reasonably satisfactory
to the Administrative Agent, of the anticipated amount of the Net
Available Proceeds of such Disposition and no later than the Business Day
next succeeding such Disposition, to the extent the Net Available
Proceeds thereof (when taken together with the Net Available Proceeds of
all prior Dispositions for which a prepayment has not yet been made under
this Section 2.10(a)) shall exceed $5,000,000, the Company shall prepay
the Revolving Credit Loans in an aggregate amount, and the Revolving
Credit Commitments shall be automatically reduced by an amount, equal to
100% of the Net Available Proceeds of such Disposition (together with
100% of the Net Available Proceeds of all prior Dispositions as to which
prepayment has not yet been made under this Section 2.10(a)).
(b) Equity Issuance. Upon any Equity Issuance (other than any
issuance of Senior Subordinated Debt) that occurs during the continuance
of any Default, the Company shall prepay the Revolving Credit Loans in an
aggregate amount equal to the Applicable Percentage of the Net Available
Proceeds thereof.
(c) Excess Cash Flow. Not later than the date 90 days after the
end of each fiscal year of the Company (beginning with the fiscal year
commencing on February 1, 1998) for which Excess Cash Flow is greater
than $25,000,000 (but only if a Default is continuing on such 90th day),
the Company shall prepay the Revolving Credit Loans in an aggregate
amount equal to 50% of Excess Cash Flow for such fiscal year.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans
(a) Revolving Credit Loans. The Company hereby promises to pay
to the Administrative Agent for account of each Lender the entire
outstanding principal amount of such Lender's Revolving Credit Loans, and
each Revolving Credit Loan shall mature, on the Revolving Credit
Commitment Termination Date.
(b) Swingline Loans. The Company will pay (or cause to be paid)
to the Swingline Bank the principal of each Swingline Loan at or prior
to, and each Swingline Loan shall mature at, 1:00 p.m. New York time on
the Business Day immediately preceding the Revolving Credit Commitment
Termination Date.
3.02 Interest
(a) Revolving Credit Loans. The Company hereby promises to pay
to the Administrative Agent for account of each Lender interest on the
unpaid principal amount of each Revolving Credit Loan made by such Lender
for the period from and including the date of such Revolving Credit Loan
to but excluding the date such Revolving Credit Loan shall be paid in
full, at the following rates per annum:
(i) during such periods as such Revolving Credit Loan
is a Base Rate Loan, the Base Rate (as in
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<PAGE>
Exhibit 10.1
effect from time to time) plus the Applicable Margin; and
(ii) during such periods as such Revolving Credit Loan
is a Eurodollar Loan, for each Interest Period relating thereto,
the Eurodollar Rate for such Revolving Credit Loan for such
Interest Period plus the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Lender interest at the
applicable Post-Default Rate on any principal of any Revolving Credit
Loan made by such Lender, on any Reimbursement Obligation held by such
Lender and on any other amount payable by the Company hereunder or under
the Revolving Credit Note held by such Lender to or for account of such
Lender, which shall not be paid in full when due (whether at stated
maturity, by acceleration, by mandatory prepayment or otherwise), for the
period from and including the due date thereof to but excluding the date
the same is paid in full. Accrued interest on each Revolving Credit Loan
shall be payable (i) in the case of a Base Rate Loan, quarterly on the
Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day
of each Interest Period therefor and, if such Interest Period is longer
than three months, at three-month intervals following the first day of
such Interest Period, and (iii) in the case of any Revolving Credit Loan,
upon the payment or prepayment thereof or the Conversion of such
Revolving Credit Loan to a Revolving Credit Loan of another Type (but
only on the principal amount so paid, prepaid or Converted), except that
interest payable at the Post-Default Rate shall be payable from time to
time on demand of the Lenders for whose account such interest is payable.
(b) Swingline Loans. The Company will pay (or cause to be paid)
to the Swingline Bank interest on the unpaid principal amount of each
Swingline Loan for the period from and including the day such Swingline
Loan is made to but excluding the date such Swingline Loan is paid in
full at the Federal Funds Rate (as in effect from time to time) plus 3/4
of 1%. Accrued interest on each Swingline Loan shall be payable (i)
quarterly on the Quarterly Dates and (ii) upon the payment or prepayment
thereof (but only on the portion paid or prepaid). The Company will pay
(or cause to be paid) to the Swingline Bank interest at the applicable
Post-Default Rate on any principal of or interest on any Swingline Loan
which shall not be paid in full when due for the period from and
including the date such Swingline Loan shall be due to but excluding the
date the same is paid in full. Interest payable at the Post-Default Rate
shall be payable from time to time on demand.
(c) Notice of Rates. Promptly after the determination of any
interest rate provided for herein or any change therein, the
Administrative Agent shall give notice thereof to the Lenders to which
such interest is payable and to the Company.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01 Payments
(a) Except to the extent otherwise provided herein, all payments
of principal, interest, Reimbursement Obligations and other amounts to be
made by the Company under this Agreement and the Notes, and, except to
the extent otherwise provided therein, all payments to be made by the
Obligors under any other Basic Document, shall be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim,
to the Administrative Agent at the Principal Office, not later than 1:30
p.m. New York time on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day).
(b) Any Lender or the Swingline Bank for whose account any such
payment is to be made may (but shall not be obligated to) debit the
amount of any such payment that is not made by such time to any ordinary
deposit account of the Company with such Lender or the Swingline Bank
(with notice to the Company and the Administrative Agent) and any such
debit shall be deemed to be a payment by the Company.
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<PAGE>
Exhibit 10.1
(c) The Company shall, at the time of making each payment under
this Agreement or any Note for account of any Lender, specify to the
Administrative Agent (which shall notify the intended recipient(s)
thereof) the Loans, Reimbursement Obligations or other amounts payable by
the Company hereunder to which such payment is to be applied, in which
case such payment shall be, subject to Section 4.02 hereof, so applied
(and in the event that the Company fails to so specify, or if an Event of
Default has occurred and is continuing, such payment shall be, subject to
said Section 4.02, applied in such manner as is determined to be
appropriate by the Majority Lenders or, if the Majority Lenders fail to
advise the Administrative Agent of their determination promptly following
a request from the Administrative Agent for such a determination, by the
Administrative Agent).
(d) Each payment received by the Administrative Agent under this
Agreement or any Note for account of any Lender or the Swingline Bank
shall be paid by the Administrative Agent promptly to such Lender or the
Swingline Bank (as the case may be), in immediately available funds, for
account of the Applicable Lending Office of such Lender or the Swingline
Bank (as the case may be) for the Loan or other obligation in respect of
which such payment is made.
(e) If the due date of any payment under this Agreement or any
Note would otherwise fall on a day that is not a Business Day, such date
shall be extended to the next succeeding Business Day, and interest shall
be payable on any principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided
herein:
(a) each borrowing of Revolving Credit Loans under
Section 2.01 hereof shall be made from the Lenders, each payment
of commitment fee under Section 2.05 hereof shall be made for
account of the Lenders and each termination or reduction of the
Commitments under Section 2.04 hereof shall be applied to the
respective Commitments of the Lenders, pro rata according to the
amounts of their respective Commitments;
(b) the making, Conversion and Continuation of
Revolving Credit Loans of a particular Type (other than
Conversions provided for by Section 5.04 hereof) shall be made
pro rata among the Lenders according to the amounts of their
respective Commitments (in the case of making of Revolving
Credit Loans) or their respective Revolving Credit Loans (in the
case of Conversions and Continuations of Revolving Credit
Loans), and Eurodollar Loans having the same Interest Period
shall be allocated pro rata among the Lenders according to the
amounts of their respective Revolving Credit Loans of such Type;
(c) each payment or prepayment of principal of
Revolving Credit Loans shall be made for account of the Lenders
pro rata in accordance with the respective unpaid principal
amounts of Revolving Credit Loans held by the Lenders; and
(d) each payment of interest on Revolving Credit Loans
shall be made for account of the Lenders pro rata in accordance
with the amounts of interest on Revolving Credit Loans then due
and payable to the respective Lenders.
4.03 Computations. Interest on Eurodollar Loans, Swingline Loans and
letter of credit fees shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable, and interest on Base Rate Loans and
Reimbursement Obligations and commitment fees shall be computed on the basis of
a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable.
4.04. Minimum Amounts. Except for mandatory prepayments made pursuant
to Section 2.10 hereof and Conversions or prepayments made pursuant to Section
5.04 hereof, each borrowing, Conversion and partial
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<PAGE>
Exhibit 10.1
prepayment of principal of Revolving Credit Loans shall be in an aggregate
amount equal to $5,000,000 or any integral multiple of $1,000,000 in excess
thereof (borrowings, Conversions or prepayments of or into Revolving Credit
Loans of different Types or, in the case of Eurodollar Loans, having different
Interest Periods at the same time hereunder to be deemed separate borrowings,
Conversions and prepayments for purposes of the foregoing, one for each Type or
Interest Period). Anything in this Agreement to the contrary notwithstanding,
the aggregate principal amount of Eurodollar Loans having the same Interest
Period shall be in an amount at least equal to $5,000,000 and, if any Eurodollar
Loans having the same Interest Period would otherwise be in a lesser principal
amount for any period, such Loans shall be Base Rate Loans during such period.
4.05 Certain Notices. Notices by the Company to the Administrative
Agent of terminations or reductions of Commitments and of borrowings,
Conversions, Continuations and optional prepayments of Revolving Credit Loans,
of Types of Revolving Credit Loans and of the duration of Interest Periods shall
be irrevocable and shall be effective only if received by the Administrative
Agent not later than 1:00 p.m. (or 3:00 p.m. in the case of a borrowing or
prepayment of, Conversions into, Continuations as, or the duration of an
Interest Period for, Eurodollar Loans) New York time on the number of Business
Days prior to the date of the relevant termination, reduction, borrowing,
Conversion, Continuation or optional prepayment or the first day of such
Interest Period specified below:
Number of
Business
Notice Days Prior
Termination or reduction
of Commitments Three
Borrowing or prepayment of,
or Conversions into,
Base Rate Loans Same Day
Borrowing or prepayment of,
Conversions into, Continuations
as, or duration of Interest
Period for, Eurodollar Loans Three
Each such notice of termination or reduction shall specify the amount of
the Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion, Continuation or optional prepayment shall specify
the Type of each Revolving Credit Loan to be borrowed, Converted,
Continued or prepaid, the date of borrowing, Conversion, Continuation or
optional prepayment (which shall be a Business Day), and, if any such
Revolving Credit Loan is to be borrowed or Continued as, or Converted
into, a Eurodollar Loan, the duration of the Interest Period for such
Revolving Credit Loan. The Administrative Agent shall promptly notify the
Lenders of the contents of each such notice. In the event that the
Company fails to select the Type of Revolving Credit Loan, or the
duration of any Interest Period for any Eurodollar Revolving Credit Loan,
within the time period and otherwise as provided in this Section 4.05,
such Revolving Credit Loan (if outstanding as a Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last day of the then
current Interest Period for such Revolving Credit Loan or (if outstanding
as a Base Rate Loan) will remain as, or (if not then outstanding) will be
made as, a Base Rate Loan.
4.06 Non-Receipt of Funds by the Administrative Agent. Unless the
Administrative Agent shall have been notified by a Lender or the Company (the
"Payor") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by such Lender, or an amount payable in respect of a participation in a
Letter of Credit Liability to be acquired by such Lender, hereunder or (in the
case of the Company) a payment to the Administrative Agent for account of one
or more of the Lenders
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<PAGE>
Exhibit 10.1
hereunder (such payment being herein called the "Required Payment"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Administrative Agent, the Administrative Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date; and, if the Payor has not in fact made
the Required Payment to the Administrative Agent, the recipient(s) of such
payment shall, on demand, repay to the Administrative Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date (the "Advance Date") such amount was so made
available by the Administrative Agent until the date the Administrative Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
such day and, if such recipient(s) shall fail promptly to make such payment, the
Administrative Agent shall be entitled to recover such amount, on demand, from
the Payor, together with interest as aforesaid, provided that if the
recipient(s) shall fail to return, and the Payor shall fail to make, the
Required Payment to the Administrative Agent within three Business Days of the
Advance Date, then the Payor and the recipient(s) shall each be obligated to pay
interest on the Required Payment as follows:
(a) if the Required Payment shall represent a payment
to be made by the Company to the Lenders, the Company and the
recipient(s) shall each be obligated retroactively to the
Advance Date to pay interest in respect of the Required Payment
at the Post-Default Rate (and, in case the recipient(s) shall
return the Required Payment to the Administrative Agent, without
limiting the obligation of the Company under Section 3.02 hereof
to pay interest to such recipient(s) at the Post-Default Rate in
respect of the Required Payment);
(b) if the Required Payment shall represent proceeds of
a Loan to be made by the Lenders to the Company, the Payor and
the Company shall each be obligated retroactively to the Advance
Date to pay interest in respect of the Required Payment at the
rate of interest provided for such Required Payment pursuant to
Section 3.02 hereof (and, in case the Company shall return the
Required Payment to the Administrative Agent, without limiting
any claim the Company may have against the Payor in respect of
the Required Payment); and
(c) if the Required Payment shall represent a payment
to be made by a Lender to the Issuing Bank in respect of a
participation in a Letter of Credit Liability to be acquired by
such Lender, the Payor shall be obligated retroactively to the
Advance Date to pay interest in respect of the Required Payment
at the rate of interest provided for such Required Payment
pursuant to Section 3.02 hereof with respect to Base Rate Loans.
Nothing in this Section 4.06 shall require the Company to pay any greater
amount in respect of principal of any Loan, interest on any Loan or any
Letter of Credit Liability than it would be required to pay hereunder in
the absence of this Section 4.06.
4.07 Sharing of Payments, Etc.
(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a
Lender or the Swingline Bank may otherwise have, each Lender and the
Swingline Bank shall be entitled, at its option, to offset balances held
by it for account of the Company at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such
Lender's Revolving Credit Loans, any of the Swingline Loans, any of the
Reimbursement Obligations or any other amount payable to such Lender or
the Swingline Bank (as the case may be) hereunder, that is not paid when
due (regardless of whether such balances are then due to the Company), in
which case it shall promptly thereafter notify the Company and the
Administrative Agent thereof, provided that such Lender's or the
Swingline Bank's (as the case may be) failure to give such notice shall
not affect the validity thereof.
(b) If any Lender shall obtain from any Obligor payment of any
principal of or interest on any Loan or
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<PAGE>
Exhibit 10.1
Letter of Credit Liability owing to it or payment of any other amount under this
Agreement or any other Basic Document through the exercise of any right of
set-off, banker's lien or counterclaim or similar right or otherwise (other than
from the Administrative Agent as provided herein), and, as a result of such
payment, such Lender shall have received a greater percentage of the principal
of or interest on the Loans or Letter of Credit Liabilities or such other
amounts then due hereunder or thereunder by such Obligor to such Lender than the
percentage received by any other Lender, it shall promptly purchase from such
other Lenders participations in (or, if and to the extent specified by such
Lender, direct interests in) the Loans or Letter of Credit Liabilities or such
other amounts, respectively, owing to such other Lenders (or in interest due
thereon, as the case may be) in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that all the Lenders shall
share the benefit of such excess payment (net of any expenses that may be
incurred by such Lender in obtaining or preserving such excess payment) pro rata
in accordance with the unpaid principal of and/or interest on the Loans or
Letter of Credit Liabilities or such other amounts, respectively, owing to each
of the Lenders. To such end all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored.
(c) The Company agrees that any Lender so purchasing such a
participation (or direct interest) pursuant to the foregoing clause (b)
may exercise all rights of set-off, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such
Lender were a direct holder of Loans or other amounts (as the case may
be) owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of any Obligor. If, under
any applicable bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in lieu of a set-off to which this Section 4.07
applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the
rights of the Lenders entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
5.01 Additional Costs
(a) The Company shall pay directly to each Lender from time to
time such amounts as such Lender may reasonably and in good faith
determine to be necessary to compensate such Lender for any increased
costs that such Lender reasonably and in good faith determines are
attributable to its making or maintaining of any Eurodollar Loans or its
obligation to make any Eurodollar Loans hereunder, or any reduction in
any amount receivable by such Lender hereunder in respect of any of such
Loans or such obligation (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"), resulting
from any Regulatory Change that:
(i) changes the basis of taxation of any amounts
payable to such Lender under this Agreement or its Note in
respect of any of such Loans (other than taxes imposed on or
measured by the overall net income of such Lender or of its
Applicable Lending Office for any of such Loans by the
jurisdiction in which such Lender has its principal office or
such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit
or similar requirements (other than, in the case of any Lender
for any period as to which the Company is required to pay any
amount under paragraph (e) below, the reserves against
"Eurocurrency liabilities" under Regulation D therein referred
to) relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, such Lender
(including, without limitation, any of such Loans or any
deposits referred to in the definition of "Eurodollar Rate" in
Section 1.01 hereof), or any commitment of such Lender hereunder
(including, without limitation, the Commitments of such Lender);
or
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<PAGE>
Exhibit 10.1
(iii) imposes any other condition affecting this
Agreement or its Note (or any of such extensions of credit or
liabilities) or its Commitments.
If any Lender requests compensation from the Company under this Section
5.01(a), the Company may, by notice to such Lender (with a copy to the
Administrative Agent), suspend the obligation of such Lender thereafter
to make or Continue Eurodollar Loans, or to Convert Base Rate Loans into
Eurodollar Loans, until the Regulatory Change giving rise to such request
ceases to be in effect (in which case the provisions of Section 5.04
hereof shall be applicable), provided that such suspension shall not
affect the right of such Lender to receive the compensation so requested
to the extent such Lender certifies that such compensation is still
payable notwithstanding such suspension.
(b) Without limiting the effect of the provisions of paragraph
(a) of this Section 5.01, in the event that, by reason of any Regulatory
Change, any Lender either (i) incurs Additional Costs based on or
measured by the excess above a specified level of the amount of a
category of deposits or other liabilities of such Lender that includes
deposits by reference to which the interest rate on Eurodollar Loans is
determined as provided in this Agreement or a category of extensions of
credit or other assets of such Lender that includes Eurodollar Loans or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets that it may hold, then, if such Lender so elects by
notice to the Company (with a copy to the Administrative Agent), the
obligation of such Lender to make or Continue, or to Convert Base Rate
Loans into, Eurodollar Loans hereunder shall be suspended until such
Regulatory Change ceases to be in effect (in which case the provisions of
Section 5.04 hereof shall be applicable) and the Company shall not be
obligated to pay any Additional Costs for which the Lender ceases to be
liable or to incur.
(c) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay
directly to each Lender from time to time on request such amounts as such
Lender may determine reasonably and in good faith to be necessary to
compensate such Lender (or, without duplication, the bank holding company
of which such Lender is a subsidiary) for any costs that it determines
reasonably and in good faith are attributable to the maintenance by such
Lender (or any Applicable Lending Office or such bank holding company),
pursuant to any law or regulation or any interpretation, directive or
request (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) of any court or
governmental or monetary authority
(i) following any Regulatory Change, or
(ii) implementing any risk-based capital guideline or
other requirement (whether or not having the force of law and
whether or not the failure to comply therewith would be
unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority implementing at the
national level the Basel Accord (including, without limitation,
the Final Risk-Based Capital Guidelines of the Board of
Governors of the Federal Reserve System (12 C.F.R. Part 208,
Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final
Risk-Based Capital Guidelines of the Office of the Comptroller
of the Currency (12 C.F.R. Part 3, Appendix A)),
of capital in respect of its Commitments or Loans (such compensation to
include, without limitation, an amount equal to any reduction of the rate
of return on assets or equity of such Lender (or any Applicable Lending
Office or such bank holding company) to a level below that which such
Lender (or any Applicable Lending Office or such bank holding company)
could have achieved but for such law, regulation, interpretation,
directive or request). For purposes of this Section 5.01(c) and Section
5.06 hereof, "Basel Accord" shall mean the proposals for risk-based
capital framework described by the Basel Committee on Banking Regulations
and Supervisory Practices in its paper entitled "International
Convergence of Capital Measurement and Capital Standards" dated July
1988, as amended, modified and supplemented and in effect from time to
time or any replacement thereof.
(d) Each Lender shall notify the Company and the Administrative
Agent of any event occurring after the
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<PAGE>
Exhibit 10.1
date of this Agreement entitling such Lender to compensation under paragraph (a)
or (c) of this Section 5.01 as promptly as practicable, but in any event within
30 days, after such Lender obtains actual knowledge thereof; provided that (i)
if any Lender fails to give such notice within 30 days after it obtains actual
knowledge of such an event, such Lender shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 30 days prior to the date that such Lender does
give such notice and (ii) each Lender will designate a different Applicable
Lending Office for the Loans of such Lender affected by such event if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the reasonable opinion of such Lender, be disadvantageous to
such Lender, except that such Lender shall have no obligation to designate an
Applicable Lending Office located in the United States of America. Each Lender
will furnish to the Company a certificate setting forth the basis and amount of
each request by such Lender for compensation under paragraph (a) or (c) of this
Section 5.01. Determinations and allocations by any Lender for purposes of this
Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or
(b) of this Section 5.01, or of the effect of capital maintained pursuant to
paragraph (c) of this Section 5.01, on its costs or rate of return of
maintaining Loans or its obligation to make Loans, or on amounts receivable by
it in respect of Loans, and of the amounts required to compensate such Lender
under this Section 5.01, shall be conclusive, provided that such determinations
and allocations are made on a reasonable basis and absent demonstrable error.
(e) Without limiting the effect of the foregoing, the Company
shall pay to each Lender on the last day of each Interest Period so long
as such Lender is maintaining reserves against "Eurocurrency liabilities"
under Regulation D (or, unless the provisions of paragraph (b) above are
applicable, so long as such Lender is, by reason of any Regulatory
Change, maintaining reserves against any other category of liabilities
which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or against
any category of extensions of credit or other assets of such Lender which
includes any Eurodollar Loans) an additional amount (determined by such
Lender and notified to the Company through the Administrative Agent)
equal to the product of the following for each Eurodollar Loan for each
day during such Interest Period:
(i) the principal amount of such Eurodollar Loan outstanding
on such day; and
(ii) the remainder of (x) a fraction the numerator of
which is the rate (expressed as a decimal) at which interest
accrues on such Eurodollar Loan for such Interest Period as
provided in this Agreement (less the Applicable Margin) and the
denominator of which is one minus the effective rate (expressed
as a decimal) at which such reserve requirements are imposed on
such Lender on such day minus (y) such numerator; and
(iii) 1/360.
5.02 Limitations on Types of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Rate for
any Interest Period:
(a) the Administrative Agent determines reasonably and
in good faith, which determination shall be conclusive, that
quotations of interest rates for the relevant deposits referred
to in the definition of "Eurodollar Rate" in Section 1.01 hereof
are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of
interest for Eurodollar Loans as provided herein; or
(b) the Majority Lenders determine reasonably and in
good faith, which determination shall be conclusive, and notify
the Administrative Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section
1.01 hereof upon the basis of which the rate of interest for
Eurodollar Loans for such Interest Period is to be determined
are not likely to adequately cover the cost to such Lenders of
making or maintaining Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Company and each Lender
prompt notice thereof and, so long as such
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Exhibit 10.1
condition remains in effect, the Lenders shall be under no obligation to make
additional Eurodollar Loans, to Continue Eurodollar Loans or to Convert Base
Rate Loans into Eurodollar Loans, and the Company shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans, either
prepay such Loans or Convert such Loans into Base Rate Loans in accordance with
Section 2.09 hereof.
5.03 Illegality. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to honor its obligation to make or maintain Eurodollar Loans hereunder,
then such Lender shall promptly notify the Company thereof (with a copy to the
Administrative Agent) and such Lender's obligation to make or Continue, or to
Convert Loans of any other Type into, Eurodollar Loans shall be suspended until
such time as such Lender may again make and maintain Eurodollar Loans (in which
case the provisions of Section 5.04 hereof shall be applicable).
5.04 Treatment of Affected Loans. If the obligation of any Lender to
make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into,
Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof,
such Lender's Eurodollar Loans shall be automatically Converted into Base Rate
Loans on the last day(s) of the then current Interest Period(s) for Eurodollar
Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03
hereof, on such earlier date as such Lender may specify to the Company with a
copy to the Administrative Agent) and, unless and until such Lender gives notice
as provided below that the circumstances specified in Section 5.01 or 5.03
hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans
have been so Converted, all payments and prepayments of
principal that would otherwise be applied to such Lender's
Eurodollar Loans shall be applied instead to its Base Rate
Loans; and
(b) all Loans that would otherwise be made or Continued
by such Lender as Eurodollar Loans shall be made or Continued
instead as Base Rate Loans, and all Base Rate Loans of such
Lender that would otherwise be Converted into Eurodollar Loans
shall remain as Base Rate Loans.
If such Lender gives notice to the Company with a copy to the
Administrative Agent that the circumstances specified in Section 5.01 or
5.03 hereof that gave rise to the Conversion or non-Continuation of such
Lender's Eurodollar Loans pursuant to this Section 5.04 no longer exist
(which such Lender agrees to do promptly upon such circumstances ceasing
to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s)
for such outstanding Eurodollar Loans, to the extent necessary so that,
after giving effect thereto, all Revolving Credit Loans held by the
Lenders holding Eurodollar Loans and by such Lender are held pro rata (as
to principal amounts, Types and Interest Periods) in accordance with
their respective Commitments.
5.05 Compensation. The Company shall pay to the Administrative Agent
for account of each Lender, upon the request of such Lender through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense that such Lender determines is attributable to:
(a) any payment, mandatory or optional prepayment or
Conversion of a Eurodollar Loan made by such Lender for any
reason (including, without limitation, the acceleration of the
Loans pursuant to Section 10 hereof) on a date other than the
last day of the Interest Period for such Loan;
(b) any failure by the Company for any reason
(including, without limitation, the failure of any of the
conditions precedent specified in Section 7 hereof to be
satisfied) to borrow a Eurodollar Loan from such Lender on the
date for such borrowing specified in the relevant notice of
borrowing given under Section 2.02 hereof; or
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Exhibit 10.1
(c) any failure for any reason (including, without
limitation, as provided in Section 5.02 or 5.03 hereof, but
excluding as a result of the failure by such Lender to make a
Loan it is obligated to make hereunder) of a Loan of such Lender
to be Continued as or Converted into a Eurodollar Loan on the
date for such Continuation or Conversion specified in the
relevant notice given under Section 2.09 hereof.
Without limiting the effect of the preceding sentence, such compensation
shall include an amount equal to the excess (if any) of (i) the amount of
interest that otherwise would have accrued on the principal amount so
paid, prepaid or Converted or not borrowed, Continued or Converted for
the period from the date of such payment, prepayment, Conversion or
failure to borrow, Continue or Convert to the last day of the then
current Interest Period for such Loan (or, in the case of a failure to
borrow, Continue or Convert, the Interest Period for such Loan that would
have commenced on the date specified for such borrowing, Continuation or
Conversion) at the applicable rate of interest for such Loan provided for
herein (less, in the case of any failure to borrow a Eurodollar Loan, or
to Continue a Loan as or to Convert a Loan into a Eurodollar Loan, solely
as a result of the limitation set forth in Section 5.02 or 5.03 hereof,
the Applicable Margin for such Loan) over (ii) the amount of interest
that otherwise would have accrued on such principal amount at a rate per
annum equal to the interest component of the amount such Lender would
have bid in the London interbank market for Dollar deposits of leading
banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such Lender).
5.06 Additional Costs in Respects of Letters of Credit. Without
limiting the obligations of the Company under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement heretofore or hereafter issued by any government
or governmental or supervisory authority implementing at the national level the
Basel Accord, there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder and the result shall be to increase the cost to any Lender or
Lenders of issuing (or purchasing participations in) or maintaining its
obligation hereunder to issue (or purchase participations in) any Letter of
Credit or reduce any amount receivable by any Lender hereunder in respect of any
Letter of Credit (which increases in cost, or reductions in amount receivable,
shall be the result of such Lender's or Lenders' reasonable allocation of the
aggregate of such increases or reductions resulting from such event), then, upon
demand by such Lender or Lenders (through the Administrative Agent), the Company
shall pay immediately to the Administrative Agent for account of such Lender or
Lenders, from time to time as specified by such Lender or Lenders (through the
Administrative Agent), such additional amounts as shall be sufficient to
compensate such Lender or Lenders (through the Administrative Agent) for such
increased costs or reductions in amount. A statement as to such increased costs
or reductions in amount incurred by any such Lender or Lenders, submitted by
such Lender or Lenders to the Company shall be conclusive in the absence of
demonstrable error as to the amount thereof.
5.07 U.S. Taxes
(a) The Company agrees to pay to each Lender that is not a U.S.
Person such additional amounts as are necessary in order that the net
payment of any amount due to such non-U.S. Person hereunder after
deduction for or withholding in respect of any U.S. Tax imposed with
respect to such payment (or in lieu thereof, payment of such U.S. Tax by
such non-U.S. Person), will not be less than the amount stated herein to
be then due and payable, provided that the foregoing obligation to pay
such additional amounts shall not apply:
(i) to any payment to a Lender hereunder unless such Lender
is, on the date hereof (or on the date it becomes a Lender as
provided in Section 12.06(b) hereof) and on the date of any
change in the Applicable Lending Office of such Lender, either
entitled to submit a Form 1001 (relating to such Lender and
entitling it to a complete exemption from withholding on all
interest to be received by it hereunder in respect of the Loans)
or Form 4224 (relating to all interest to be received by such
Lender hereunder in respect of the Loans), or
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Exhibit 10.1
(ii) to any U.S. Tax imposed solely by reason of the failure
by such non-U.S. Person to comply with applicable certification,
information, documentation or other reporting requirements
concerning the nationality, residence, identity or connections
with the United States of America of such non-U.S. Person if
such compliance is required by statute or regulation of the
United States of America as a precondition to relief or
exemption from such U.S. Tax.
For the purposes of this Section 5.07(a), (w) "Form 1001" shall mean Form
1001 (Ownership, Exemption, or Reduced Rate Certificate) of the
Department of the Treasury of the United States of America, (x) "Form
4224" shall mean Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the
United States) of the Department of the Treasury of the United States of
America (or in relation to either such Form such successor and related
forms as may from time to time be adopted by the relevant taxing
authorities of the United States of America to document a claim to which
such Form relates), (y) "U.S. Person" shall mean a citizen, national or
resident of the United States of America, a corporation, partnership or
other entity created or organized in or under any laws of the United
States of America, or any estate or trust that is subject to Federal
income taxation regardless of the source of its income and (z) "U.S.
Taxes" shall mean any present or future tax, assessment or other charge
or levy imposed by or on behalf of the United States of America or any
taxing authority thereof or therein.
(b) Within 30 days after paying any amount to the Administrative
Agent or any Lender from which it is required by law to make any
deduction or withholding, and within 30 days after it is required by law
to remit such deduction or withholding to any relevant taxing or other
authority, the Company shall deliver to the Administrative Agent for
delivery to such non-U.S. Person evidence satisfactory to such Person of
such deduction, withholding or payment (as the case may be).
(c) Each Lender that is a Lender on the Closing Date and is not
a U.S. Person agrees to furnish to the Administrative Agent (with a copy
to the Company) on the Closing Date an appropriately completed Form 1001
or Form 4224 and each Lender that becomes a Lender after the Closing Date
pursuant to Section 12.06(b) hereof and is not a U.S. Person agrees to
furnish to the Administrative Agent (with a copy to the Company),
promptly after becoming a Lender, an appropriately completed Form 1001 or
Form 4224.
5.08 Replacement of Certain Lenders
(a) Provided that no Default shall have occurred and be
continuing, the Company may, at any time, replace any Lender (i) that has
requested compensation from the Company pursuant to Section 5.01 or 5.06
hereof or (ii) that has given the Company the notice contemplated by
Section 5.03 hereof or (iii) which is not a U.S. Person and as to which
the Company is obligated to make payments under Section 5.07 hereof, by
giving not less than ten Business Days' prior notice to the
Administrative Agent (which shall promptly notify such Lender), that it
intends to replace such Lender with one or more banks or other financial
institutions (including, but not limited to, any other Lender under this
Agreement) selected by the Company that (a) have agreed to replace such
Lender as provided in this Section 5.08 and (b) are reasonably acceptable
to the Administrative Agent (the Administrative Agent agreeing not to
unreasonably delay notifying the Company whether a proposed replacement
lender is acceptable). Upon the effective date of any replacement under
this Section 5.08 and as a condition to such replacement, the replacement
lender or lenders shall pay to the Lender being replaced the principal of
the Loans held by such Lender and the Company shall pay to such Lender
all accrued interest on such Loans and all other amounts owing to such
Lender hereunder (including any amounts payable under Section 5.05 hereof
as if such Loans were being prepaid by the Company), whereupon each such
replacement bank (if not already a Lender) shall become a "Lender" for
all purposes of this Agreement.
(b) If any Lender that is a Reference Bank (or a Wholly Owned
Subsidiary of a Reference Bank, as the case may be) shall be replaced
pursuant to this Section 5.08, such Reference Bank shall thereupon cease
to be a Reference Bank and, if as a result of the foregoing, there shall
only be two Reference Banks remaining, then the Administrative Agent
(after consultation with the Company) shall, by notice to the Company and
the Banks, designate another
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Exhibit 10.1
Lender as a Reference Bank, so that there shall at all times be three Reference
Banks.
5.09 Consistent Treatment. Each Lender shall apply the provisions of
this Section 5 in substantially the same manner, and to the same extent, as such
Lender applies comparable provisions applicable to similarly-situated borrowers.
Section 6. Guarantee
6.01 Guarantee. The Subsidiary Guarantors hereby jointly and severally
guarantee to each Lender and the Administrative Agent and their
respective successors and assigns the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the
principal of and interest on the Revolving Credit Loans made by the
Lenders to, and the Revolving Credit Note held by each Lender of, and the
principal of and interest on the Swingline Loans made by the Swingline
Bank to, and the Swingline Note of, the Company and all other amounts
(including, without limitation, Reimbursement Obligations) from time to
time owing to the Lenders or the Administrative Agent by the Company
under this Agreement and under the Notes and by any Obligor under any of
the other Basic Documents, in each case strictly in accordance with the
terms thereof (and giving effect to any amendment or modification of such
terms), including all amounts which would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy
Code and the operation of Sections 502(b) and 506(b) of the Bankruptcy
Code (such obligations being herein collectively called the "Guaranteed
Obligations"). The Subsidiary Guarantors hereby further jointly and
severally agree that if the Company shall fail to pay in full when due
(whether at stated maturity, by acceleration or otherwise) any of the
Guaranteed Obligations, the Subsidiary Guarantors will promptly pay the
same, without any demand or notice whatsoever, and that in the case of
any extension of time of payment or renewal of any of the Guaranteed
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, by acceleration or otherwise) in accordance with the
terms of such extension or renewal.
6.02 Obligations Unconditional. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Company under this Agreement, the Notes
or any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 6.02 that the obligations of each
of the Subsidiary Guarantors hereunder shall be absolute and unconditional,
joint and several, under any and all circumstances. Without limiting the
generality of the foregoing, it is agreed that the occurrence of any one or more
of the following shall not alter or impair the liability of any of the
Subsidiary Guarantors hereunder, which liabilities shall remain absolute and
unconditional as described above:
(i) at any time or from time to time, without notice to
the Subsidiary Guarantors, the time for any performance of or
compliance with any of the Guaranteed Obligations shall be
extended, or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions
of this Agreement or the Notes or any other agreement or
instrument referred to herein or therein shall be done or
omitted;
(iii) the maturity of any of the Guaranteed Obligations
shall be accelerated, or any of the Guaranteed Obligations shall
be modified, supplemented or amended in any respect, or any
right under this Agreement or the Notes or any other agreement
or instrument referred to herein or therein shall be waived or
any other guarantee of any of the Guaranteed Obligations
(including the Guarantee hereunder of any other Subsidiary
Guarantor) or any security therefor shall be released or
exchanged in whole or in part or
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Exhibit 10.1
otherwise dealt with; or
(iv) any lien or security interest granted to, or in
favor of, the Administrative Agent or any Lender or Lenders as
security for any of the Guaranteed Obligations shall fail to be
perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment,
demand of payment, protest and all notices whatsoever, and any
requirement that the Administrative Agent or any Lender exhaust any
right, power or remedy or proceed against the Company under this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein, or against any other Person under any other guarantee
of, or security for, any of the Guaranteed Obligations.
6.03 Reinstatements. The obligations of the Subsidiary Guarantors
under this Section 6 shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will indemnify the Administrative Agent and each
Lender on demand for all reasonable costs and expenses (including, without
limitation, reasonable fees of counsel) incurred by the Administrative Agent or
such Lender in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.
6.04 Subrogation. Each Subsidiary Guarantor hereby jointly and
severally agrees that until the payment and satisfaction in full of all
Guaranteed Obligations and the expiration and termination of the Commitments of
the Lenders under this Agreement, they shall not exercise any right or remedy
arising by reason of any performance by them of their guarantee in Section 6.01
hereof, whether by subrogation or otherwise, against the Company or any other
guarantor of any of the Guaranteed Obligations or any security for any of the
Guaranteed Obligations.
6.05 Remedies. The Subsidiary Guarantors jointly and severally agree
that, as between the Subsidiary Guarantors and the Lenders, the obligations of
the Company under this Agreement and the Notes may be declared to be forthwith
due and payable as provided in Section 10 hereof (and shall be deemed to have
become automatically due and payable in the circumstances provided in said
Section 10) for purposes of Section 6.01 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or such obligations
from becoming automatically due and payable) as against the Company and that, in
the event of such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and payable
by the Company) shall forthwith become due and payable by the Subsidiary
Guarantors for purposes of said Section 6.01.
6.06 Continuing Guarantee. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.07 Rights of Contribution. The Subsidiary Guarantors hereby agree,
as between themselves, that if any Subsidiary Guarantor (an "Excess Funding
Guarantor") shall pay Guaranteed Obligations in excess of such Excess Funding
Guarantor's Pro Rata Share (as defined below) of such Guaranteed Obligations
(such excess payment, an "Excess Payment"), each other Subsidiary Guarantor
shall, on demand of such Excess Funding Guarantor (but subject to the next
sentence hereof), pay to such Excess Funding Guarantor an amount equal to such
other Subsidiary Guarantor's Pro Rata Share (such Pro Rata Share, for the
purpose of determining the amount due to the Excess Funding Guarantor under this
Section 6.07, to be determined without reference to the Excess Funding
Guarantor) of such Excess Payment. The payment obligation of each other
Subsidiary Guarantor to an Excess Funding Guarantor under this Section 6.07
shall be subordinate and subject in right of payment to the prior payment in
full of the obligations of such Subsidiary Guarantor under the other provisions
of this Section 6, and such Excess Funding Guarantor shall not exercise any
right or remedy with respect to such Excess Payment until payment and
satisfaction
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<PAGE>
Exhibit 10.1
in full of all of such obligations. For the purposes hereof, "Pro Rata Share"
shall mean, with respect to each Subsidiary Guarantor, the ratio (expressed as a
percentage and determined as of the Closing Date) of (a) the amount by which the
aggregate value of all of the Properties of such Subsidiary Guarantor at their
present fair saleable value exceeds the amount of all of the debts and
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities, but excluding the obligations of such Subsidiary Guarantor under
this Section 6) of such Subsidiary Guarantor to (b) the amount by which the
aggregate value of all of the Properties of all of the Subsidiary Guarantors at
their present fair saleable value exceeds the amount of all of the debts and
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities, but excluding the obligations of such Subsidiary Guarantor under
this Section 6) of all of the Subsidiary Guarantors.
6.08 Limitation on Guarantee Obligations. In any action or proceeding
involving any state corporate law, or any state or Federal bankruptcy,
insolvency, reorganization or other law affecting the rights of creditors
generally, if the obligations of any Subsidiary Guarantor under Section 6.01
hereof would otherwise, taking into account the provisions of Section 6.07
hereof, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under said Section 6.01, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by such Subsidiary Guarantor, any Lender, the Administrative Agent or any
other Person, be automatically limited and reduced to the highest amount which
is valid and enforceable and not subordinated to the claims of other creditors
as determined in such action or proceeding.
6.09 Release of Guarantors. A Subsidiary Guarantor shall be released
from its guarantee obligations under Section 6 hereof, and its Properties shall
be released from the Lien of the Security Agreement, upon the request of the
Company, so long as (a) such Subsidiary Guarantor is not B. Dalton Bookseller,
Inc., Barnes & Noble Booksellers, Inc. or Doubleday Book Shops, Inc. and (b) the
aggregate fair market value of the assets of all such Released Guarantors
calculated as of the time of the respective release does not exceed
$150,000,000. In the event that any Subsidiary Guarantor is so released, from
and after the date of such release:
(i) all financial reports delivered pursuant to this
Agreement shall be prepared as if such Subsidiary was not a
Subsidiary of the Company (and, in addition, the Company shall
furnish the financial reports currently required under Section
9.01(a) and 9.01(c)); and
(ii) all covenants in Sections 9.10 and 9.11 hereof
shall be calculated as if such Subsidiary was not a Subsidiary
of the Company.
Section 7. Conditions Precedent.
7.01 Initial Extension of Credit. The obligation of any Lender or the
Swingline Bank to make its initial extension of credit hereunder (whether by
making a Loan or issuing a Letter of Credit) is subject to (i) the condition
precedent that such extension of credit shall be made on or before November 26,
1997 and (ii) the receipt by the Administrative Agent of the following
documents, each of which shall be satisfactory to the Administrative Agent in
form and substance:
(a) Corporate Documents. The following documents, each
certified as indicated below:
(i) for each Obligor, a copy of the charter, as
amended and in effect, of such Obligor certified as of
a recent date by the Secretary of State of its
jurisdiction of incorporation, and a certificate from
such Secretary of State dated as of a recent date as to
the good standing of and charter documents filed by
such Obligor;
(ii) for each Obligor, a certificate of the
Secretary or an Assistant Secretary of such Obligor,
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Exhibit 10.1
dated the Closing Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of
such Obligor as amended and in effect at all times from
the date on which the resolutions referred to in clause
(B) were adopted to and including the date of such
certificate, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the board
of directors of such Obligor authorizing the execution,
delivery and performance of such of the Basic Documents
to which such Obligor is or is intended to be a party
and the extensions of credit hereunder, and that such
resolutions have not been modified, rescinded or
amended and are in full force and effect, (C) that the
charter of such Obligor has not been amended since the
date of the certification thereto furnished pursuant to
subparagraph (i) above, and (D) as to the incumbency
and specimen signature of each officer of such Obligor
executing such of the Basic Documents to which such
Obligor is intended to be a party and each other
document to be delivered by such Obligor from time to
time in connection therewith (and the Administrative
Agent and each Lender may conclusively rely on such
certificate until it receives notice in writing from
such Obligor); and
(iii) for each Obligor, a certificate of another
officer of such Obligor as to the incumbency and
specimen signature of the Secretary or Assistant
Secretary, as the case may be, of such Obligor.
(b) Officer's Certificate. A certificate of a senior
officer of the Company, dated the Closing Date, to the effect
(x) set forth in the first sentence of Section 7.02 hereof and
(y) that this Agreement and the Loans constitute "Senior
Indebtedness" under the Senior Subordinated Debt Documents.
(c) Opinion of Counsel to the Obligors. An opinion,
dated the Closing Date, of Robinson Silverman Pearce Aronsohn &
Berman LLP, counsel to the Obligors, substantially in the form
of Exhibit C hereto and covering such other matters as the
Administrative Agent may reasonably request (and each Obligor
hereby instructs such counsel to deliver such opinions to the
Lenders and the Administrative Agent).
(d) Opinion of Special New York Counsel to Chase, CIBC
and ING. An opinion, dated the Closing Date, of Mayer, Brown &
Platt, special New York counsel to Chase, CIBC and ING,
substantially in the form of Exhibit D hereto.
(e) Notes. The Notes, duly completed and executed.
(f) Security Agreement. The Security Agreement
Amendment, duly executed and delivered by the Company, the
Subsidiary Guarantors and the Administrative Agent, together
with (i) the certificates identified under the name of such
Obligor in Annex 1 to the Security Agreement, in each case
accompanied by undated stock powers executed in blank and (ii) a
consent by College, in form and substance satisfactory to the
Administrative Agent, to the creation of a Lien on the License
Agreement pursuant to the Security Agreement. In addition, the
Company and the Subsidiary Guarantors shall have taken such
other action (including, without limitation, delivering to the
Administrative Agent, for filing, appropriately completed and
duly executed copies of Uniform Commercial Code financing
statements) as the Administrative Agent shall have requested in
order to perfect the security interests created pursuant to the
Security Agreement.
(g) Insurance. Certificates of insurance evidencing the
existence of all insurance required to be maintained by the
Company pursuant to Section 9.04 hereof.
(h) Repayment of Existing Indebtedness. Evidence that
the principal of and interest on, and all other amounts owing
(including, without limitation, any contingent or other amounts
payable in respect of letters of credit) in respect of, the
Indebtedness indicated on Schedule I hereto as being repaid upon
the Closing Date shall have been (or shall be simultaneously)
repaid in full, that all commitments to extend credit under the
agreements evidencing any such Indebtedness shall have been
canceled or terminated and
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Exhibit 10.1
that any Liens securing any such Indebtedness shall have been
released (or arrangements for such release satisfactory to the
Administrative Agent shall have been made).
(i) Copies of the License Agreement. A copy, certified
as true and correct by a senior officer of the Company, of the
License Agreement.
(j) Other Documents. Such other documents as the
Administrative Agent or special New York counsel to Chase, CIBC
and ING may reasonably request.
The obligation of any Lender or the Swingline Bank to make its initial
extension of credit hereunder is also subject to the payment by the
Company of such fees and reimbursement for expenses as the Company shall
have agreed to pay to any Lender or the Administrative Agent in
connection herewith, including, without limitation, the reasonable fees
and expenses of Mayer, Brown & Platt, special New York counsel to Chase,
CIBC and ING in connection with the negotiation, preparation, execution
and delivery of this Agreement and the Notes and the other Basic
Documents and the extensions of credit hereunder (to the extent that
statements for such fees and expenses have been delivered to the
Company), provided that such fees and expenses may be paid with the
proceeds of the Loans made hereunder on the Closing Date.
7.02 Initial and Subsequent Extensions of Credit. The obligation of
the Lenders and the Swingline Bank to make any Loan or otherwise extend any
credit to the Company upon the occasion of each borrowing or other extension of
credit hereunder (including the initial borrowing or other extension of credit)
is subject to the further conditions precedent that, both immediately prior to
the making of such Loan or other extension of credit and also after giving
effect thereto and to the intended use thereof:
(a) no Default shall have occurred and be continuing; and
(b) the representations and warranties made by the
Obligors in Section 8 hereof, and by each Obligor in each of the
other Basic Documents to which it is a party, shall be true and
complete on and as of the date of the making of such Loan or
other extension of credit with the same force and effect as if
made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific
date, as of such specific date).
Each notice of borrowing or request for the issuance of a Letter of
Credit by the Company hereunder shall constitute a certification by the
Company to the effect set forth in the preceding sentence (both as of the
date of such notice or request and, unless the Company otherwise notifies
the Administrative Agent prior to the date of such borrowing or issuance,
as of the date of such borrowing or issuance).
Section 8. Representatives and Warranties. Each Obligor represents
and warrants to the Administrative Agent and the Lenders that:
8.01 Corporate Existence. Each of the Company and its Subsidiaries
(other than Unrestricted Subsidiaries and Released Guarantors): (a) is a
corporation, partnership or other entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization; (b) has
all requisite corporate or other power, and has all material governmental
licenses, authorizations, consents and approvals, necessary to own its assets
and carry on its business as now being or as proposed to be conducted; and (c)
is qualified to do business and is in good standing in all jurisdictions in
which the nature of the business conducted by it makes such qualification
necessary and where failure so to qualify could, either individually or in the
aggregate, have a Material Adverse Effect.
8.02 Financial Condition. The Company has heretofore furnished to each
of the Lenders the consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at February 1, 1997, and the related consolidated
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Exhibit 10.1
statements of income and cash flows of the Company and its Consolidated
Subsidiaries for the fiscal year ended on said date, with the opinion thereon of
BDO Seidman, and the unaudited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at August 2, 1997 and the related unaudited
consolidated statements of income and cash flows of the Company and the
Consolidated Subsidiaries for the six-month period ended on such date. Such
financial statements are complete and correct and fairly present the
consolidated financial condition of the Company and its Consolidated
Subsidiaries as at said date and the consolidated results of their operations
for the fiscal year ended on said date, all in accordance with generally
accepted accounting principles and practices applied on a consistent basis. None
of the Company nor any of its Subsidiaries has on the date hereof any material
contingent liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said
financial statements (or in the notes thereto) as at said date. Since February
1, 1997, there has been no material adverse change in the consolidated financial
condition or operations of the Company and its Consolidated Subsidiaries taken
as a whole from that set forth in said financial statements as at said date.
8.03 Litigation. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of the Company) threatened against the Company or
any of its Subsidiaries that would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
8.04 No Breach. None of the execution and delivery of this Agreement
and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which any of them
or any of their Property is bound or to which any of them is subject, or
constitute a default under any such agreement or instrument, or (except for the
Liens created pursuant to the Security Documents) result in the creation or
imposition of any Lien upon any material Property of the Company or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument.
8.05 Action. Each Obligor has all necessary corporate power, authority
and legal right to execute, deliver and perform its obligations under each of
the Basic Documents to which it is a party; the execution, delivery and
performance by each Obligor of each of the Basic Documents to which it is a
party have been duly authorized by all necessary corporate action on its part
(including, without limitation, any required shareholder approvals); and this
Agreement has been duly and validly executed and delivered by each Obligor and
constitutes, and each of the Notes and the other Basic Documents when executed
and delivered by each Obligor party thereto (in the case of the Notes, for
value) will constitute, the legal, valid and binding obligation of each Obligor
party thereto, enforceable against such Obligors in accordance with its terms,
except as such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability affecting
the enforcement of creditors' rights and (b) the application of general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
8.06 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof, except for filings
and recordings in respect of the Liens created pursuant to the Security
Documents.
8.07 Use of Credit. Neither the Company nor any of its Subsidiaries
(other than Unrestricted Subsidiaries) is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying Margin Stock,
and no part of the proceeds of any extension of credit hereunder will be used to
buy or carry any Margin Stock.
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Exhibit 10.1
8.08 ERISA. As to each Plan, and, to the knowledge of the Company, as
to each Multiemployer Plan, (a) such Plan or Multiemployer Plan is in compliance
in all material respects with, and has been administered in all material
respects in compliance with, the applicable provisions of ERISA, the Code and
any other Federal or State law, and (b) no event or condition has occurred and
is continuing as to which the Company would be under an obligation to furnish a
report to the Lenders under Section 9.01(e) hereof.
8.09 Taxes. The Company and its Consolidated Subsidiaries are members
of an affiliated group of corporations filing consolidated returns for Federal
income tax purposes, of which the Company is the "common parent" (within the
meaning of Section 1504 of the Code) of such group. The Company and its
Consolidated Subsidiaries have filed all Federal income tax returns and all
other material tax returns that are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received by
the Company or any of its Consolidated Subsidiaries. The charges, accruals and
reserves on the books of the Company and its Consolidated Subsidiaries in
respect of taxes and other governmental charges are, in the opinion of the
Company, adequate.
8.10 Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
8.11 Public Utility Holding Company Act. Neither the Company nor any
of its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
8.12 Material Agreements and Liens.
(a) Part A of Schedule I hereto is a complete and correct list, as
of the date of this Agreement, of each credit agreement, loan agreement,
indenture, securities purchase agreement, letter of credit or other arrangement
providing for or otherwise relating to any Indebtedness or any extension of
credit (or commitment for any extension of credit), other than any trade
accounts payable (except trade accounts payable for borrowed money), to, or
guarantee of any of the foregoing by, the Company or any of its Subsidiaries
(other than any guarantees by any Obligor of obligations of Subsidiary
Guarantors under leases), and the aggregate principal or face amount outstanding
or that may become outstanding under each such arrangement is correctly
described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list, as
of the date of this Agreement, of each Lien securing Indebtedness of any Person
and covering any Property of the Company or any of its Subsidiaries, and the
aggregate Indebtedness secured (or which may be secured) by each such Lien and
the Property covered by each such Lien is correctly described in Part B of said
Schedule I.
8.13 Environmental Matters. Each of the Company and its Subsidiaries
(other than Unrestricted Subsidiaries) has obtained all permits, licenses and
other authorizations required under all applicable Environmental Laws to carry
on its business as now being or as proposed to be conducted, except to the
extent failure to have any such permit, license or authorization would not,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each of such permits, licenses and authorizations is in
full force and effect, and each of the Company and its Subsidiaries (other than
Unrestricted Subsidiaries) is in compliance with the terms and conditions
thereof and is also in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in any applicable Environmental Law or in any regulation,
code, plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder, except to the extent failure to
comply therewith would not, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. In addition, no notice,
notification, demand, request for information, citation, summons or order has
been issued, no complaint has been filed, no penalty
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<PAGE>
Exhibit 10.1
has been assessed and no investigation or review is pending or (to the knowledge
of the Company) threatened by any governmental or other entity with respect to
any alleged failure by the Company or any of its Subsidiaries (other than
Unrestricted Subsidiaries) to have any permit, license or other authorization
required under any applicable Environmental Law in connection with the conduct
of the business of the Company or any of its Subsidiaries (other than
Unrestricted Subsidiaries) or with respect to any generation, treatment,
storage, recycling, transportation, discharge or disposal, or any Release of any
Hazardous Materials generated by the Company or any of its Subsidiaries (other
than Unrestricted Subsidiaries).
8.14 Capitalization. The authorized capital stock of the Company
consists, on the Closing Date, of an aggregate of 100,000,000 shares of common
stock, par value $.001 per share, and 5,000,000 shares of preferred stock, par
value $.001 per share, of which 67,875,339 shares of common stock are duly and
validly issued and outstanding as of October 31, 1997 and each of which shares
of common stock is fully paid and nonassessable, and no shares of preferred
stock have been issued. As of the Closing Date, (x) except for outstanding
employee and director stock options, there are no outstanding Equity Rights with
respect to the Company and (y) there are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire
any shares of capital stock of the Company.
8.15 Subsidiaries, Etc.
(a) Set forth in Part A of Schedule II hereto is a complete and
correct list, as of the date of this Agreement, of all of the Subsidiaries of
the Company, together with, for each such Subsidiary, (i) the jurisdiction of
organization of such Subsidiary, (ii) each Person holding ownership interests in
such Subsidiary and (iii) the nature of the ownership interests held by each
such Person and the percentage of ownership of such Subsidiary represented by
such ownership interests. Except as disclosed in Part A of Schedule II hereto,
as of the date of this Agreement (x) each of the Company and its Subsidiaries
owns, free and clear of Liens (other than Liens created pursuant to the Security
Documents), and has the unencumbered right to vote, all outstanding ownership
interests in each Person shown to be held by it in Part A of Schedule II hereto,
(y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
(b) Set forth in Part B of Schedule II hereto is a complete and
correct list, as of the date of this Agreement, of all Investments (other than
Permitted Investments and Investments disclosed in Part A of said Schedule II
hereto) held by the Company or any of its Subsidiaries in any Person and, for
each such Investment, (x) the identity of the Person or Persons holding such
Investment and (y) the nature of such Investment. Except as disclosed in Part B
of Schedule II hereto, as of the date of this Agreement, each of the Company and
its Subsidiaries owns, free and clear of all Liens (other than Liens created
pursuant to the Security Documents), all such Investments.
(c) None of the Subsidiaries of the Company is, on the date of this
Agreement, subject to any indenture, agreement, instrument or other arrangement
of the type described in Section 9.17 hereof.
8.16 True and Complete Disclosure. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of any
Obligor or any of its Subsidiaries to the Administrative Agent or any Lender in
connection with the negotiation, preparation or delivery of this Agreement and
the other Basic Documents or included herein or therein or delivered pursuant
hereto or thereto, when taken as a whole, do not, as of the date hereof, contain
any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by the Company and its Subsidiaries
to the Administrative Agent and the Lenders in connection with this Agreement
and the other Basic Documents and the transactions contemplated hereby and
thereby will be true, complete and accurate in every material respect, or (in
the case of projections) based on reasonable estimates, on the date as of which
such information is stated or certified. To the Company's knowledge, there is no
fact peculiar to the Company or any of its Subsidiaries (other than Unrestricted
Subsidiaries) that could
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<PAGE>
Exhibit 10.1
have a Material Adverse Effect that has not been disclosed herein, in the other
Basic Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Lenders for use in
connection with the transactions contemplated hereby or thereby.
Section 9. Covenants of the Company. Each Obligor covenants and agrees
with the Lenders and the Administrative Agent that, so long as any Commitment,
Loan or Letter of Credit Liability is outstanding and until payment in full of
all amounts payable by the Company hereunder:
9.01 Financial Statements; Information; Etc. The Company will deliver
the Agent in sufficient quantities for it to deliver to each of the Lenders:
(a) as soon as available and in any event within 45
days after the end of each of the first three fiscal quarters of
the Company, the Company's quarterly report on Form 10-Q for
such fiscal quarter, which includes consolidated financial
statements of the Company and its Consolidated Subsidiaries for
such fiscal quarter;
(b) as soon as possible and in any event:
(i) within 90 days after the end of each
fiscal year of the Company, the Company's annual report
on Form 10-K for such fiscal year, and consolidated
financial statements of the Company and its
Consolidated Subsidiaries for such fiscal year,
accompanied by an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that the
consolidated financial statements fairly present the
consolidated financial position and results of
operations of the Company and its Consolidated
Subsidiaries;
(ii) within 45 days after the end of each of
the first three fiscal quarters of each fiscal year,
and within 90 days after the end of each fiscal year, a
certificate of the Company signed by a senior financial
officer (including the treasurer) of the Company
setting forth the information called for by Exhibit E
hereto;
(c) promptly upon their becoming available, copies of
all registration statements and regular periodic reports (which
shall include form 8-Ks), if any, which the Company shall have
filed with the Securities and Exchange Commission (or any
governmental agency substituted therefor) or any national
securities exchange;
(d) promptly upon the mailing thereof to the public
shareholders of the Company, if any, generally or to holders of
Senior Subordinated Debt generally, copies of all financial
statements, reports and proxy statements so mailed;
(e) as soon as possible, and in any event within ten
days after the Company knows or has reason to believe that any
of the events or conditions specified below with respect to any
Plan or Multiemployer Plan has occurred or exists, a statement
signed by a senior financial officer (including the treasurer)
of the Company setting forth details respecting such event or
condition and the action, if any, that the Company or its ERISA
Affiliate proposes to take with respect thereto (and a copy of
any report or notice required to be filed with or given to PBGC
by the Company or an ERISA Affiliate with respect to such event
or condition):
(i) any reportable event, as defined in
Section 4043(b) of ERISA and the regulations issued
thereunder, with respect to a Plan, as to which PBGC
has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within 30 days of
the occurrence of
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<PAGE>
Exhibit 10.1
such event (provided that such statement shall be required for
a failure to meet the minimum funding standard of Section 412
of the Code or Section 302 of ERISA, including, without
limitation, the failure to make on or before its due date a
required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code unless
the present value of unfunded vested benefits under the
applicable Plan, as determined under PBGC Reg. Sec.
2615.16(b), is less than $5,000,000); and any request for a
waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of
ERISA of a notice of intent to terminate any Plan or
any action taken by the Company or an ERISA Affiliate
to terminate any Plan;
(iii) the institution by PBGC of proceedings
under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan,
or the receipt by the Company or any ERISA Affiliate of
a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer
Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA
Affiliate that results in liability under Section 4201
or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default)
or the receipt by the Company or any ERISA Affiliate of
notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241
or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a
fiduciary of any Multiemployer Plan against the Company
or any ERISA Affiliate to enforce Section 515 of ERISA,
which proceeding is not dismissed within 60 days; and
(vi) the adoption of an amendment to any Plan
that, pursuant to Section 401(a)(29) of the Code or
Section 307 of ERISA, would result in the loss of
tax-exempt status of the trust of which such Plan is a
part if the Company or an ERISA Affiliate fails to
timely provide security to the Plan in accordance with
the provisions of said Sections;
(f) promptly after the Company knows or has reason to
believe that any Default has occurred, a notice of such Default
specifying that such notice is a "Notice of Default" and
describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a description of the
action that the Company has taken or proposes to take with
respect thereto; and
(g) from time to time such other information regarding
the Property, financial condition or operations of the Company
or any of its Subsidiaries (including, without limitation, any
Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA) as any Lender or the
Administrative Agent may reasonably request.
The Company will furnish to the Agent with sufficient copies for the Agent to
deliver to each Lender, at the time it furnishes each set of financial
statements pursuant to paragraph (a) or (b) above, a certificate of a senior
financial officer (including the treasurer) of the Company (i) to the effect
that no Default has occurred and is continuing (or, if any Default has occurred
and is continuing, describing the same in reasonable detail and describing the
action that the Company has taken or proposes to take with respect thereto) and
(ii) setting forth in reasonable detail the computations necessary to determine
whether the Company is in compliance with Sections 9.10 and 9.11 hereof as of
the end of the respective quarterly fiscal period or fiscal year.
9.02 Litigation. The Company will promptly give to each Lender notice
of all legal or arbitral proceedings,
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<PAGE>
Exhibit 10.1
and of all proceedings by or before any governmental or regulatory authority or
agency, and any material development in respect of such legal or other
proceedings (excluding, in any event, proceedings related to the promulgation of
laws or regulations of general applicability), affecting the Company or any of
its Subsidiaries, except proceedings which would not reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect.
Without limiting the generality of the foregoing, the Company will give to each
Lender notice of the assertion of any Environmental Claim by any Person against,
or with respect to the activities of, the Company or any of its Subsidiaries and
notice of any alleged violation of or non-compliance by the Company or any of
its Subsidiaries with any applicable Environmental Law or any permit, license or
authorization required under any such Environmental Law, other than any
Environmental Claim or alleged violation that, and any such non-compliance that,
would not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
9.03 Existence, Etc. The Company will, and will cause each of its
Subsidiaries (other than Unrestricted Subsidiaries and Released Guarantors) to:
(a) preserve and maintain its legal existence and
(unless the loss of the same would not have a material adverse
effect on the Company or such Subsidiary, as the case may be)
all of its material rights, privileges, licenses and franchises
(provided that nothing in this Section 9.03 shall prohibit any
transaction expressly permitted by Section 9.05 hereof);
(b) comply with the requirements of all applicable
laws, rules, regulations and orders of governmental or
regulatory authorities if failure to comply with such
requirements could, either individually or in the aggregate,
have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on its income or
profits or on any of its Property prior to the date on which
penalties attach thereto, except for any such tax, assessment,
charge or levy the payment of which is being contested in good
faith and by proper proceedings and against which adequate
reserves are being maintained in accordance with GAAP;
(d) maintain all of its Properties used or useful in
its business in good working order and condition, ordinary wear
and tear excepted;
(e) keep adequate records and books of account, in
which complete entries will be made in accordance with generally
accepted accounting principles consistently applied; and
(f) permit the Administrative Agent (and, if any
Default shall be continuing, any representatives of any Lender),
during normal business hours and upon reasonable prior written
notice (and in any event no less than two Business Days prior
notice), to examine, copy and make extracts from its books and
records, to inspect any of its Properties, and to discuss its
business and affairs with its officers, all to the extent
reasonably requested (as to both the manner of such examination,
copying, extracting, inspection or discussion, and the scope
thereof) by such Lender or the Administrative Agent (as the case
may be).
9.04 Insurance. The Company will, and will cause each of its
Subsidiaries to, keep insured by financially sound and reputable insurers or, to
the extent consistent with the practice of corporations of similar size engaged
in the retailing business, through self-insurance all Property of a character
usually insured by corporations engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the amounts, and
with such deductibles and limits on coverage, as are customarily insured against
by such corporations and carry such other insurance as is usually carried by
such corporations.
9.05 Prohibition of Fundamental Changes
(a) The Company will not, and will not permit any of its Subsidiaries
(other than Unrestricted Subsidiaries
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<PAGE>
Exhibit 10.1
and Released Guarantors) to, enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution).
(b) The Company will not, and will not permit any of its Subsidiaries
(other than Unrestricted Subsidiaries and Released Guarantors) to, acquire any
business or Property from, or capital stock of, or be a party to any acquisition
of, any Person.
(c) The Company will not, and will not permit any of its Subsidiaries
(other than Unrestricted Subsidiaries and Released Guarantors) to, convey, sell,
lease, transfer or otherwise dispose of, in one transaction or a series of
transactions, any part of its business or Property, whether now owned or
hereafter acquired (including, without limitation, receivables and leasehold
interests).
(d) Notwithstanding the foregoing paragraphs of this Section 9.05:
(i) any Subsidiary of the Company may be merged or
consolidated with or into the Company, if the Company shall be
the continuing or surviving corporation, or with or into any
other Subsidiary (other than an Unrestricted Subsidiary or a
Released Guarantor) of the Company;
(ii) the Company or any of its Subsidiaries may
purchase inventory and other Property to be sold or used in the
ordinary course of business, make Investments permitted by
Section 9.08 hereof, make Capital Expenditures permitted by
Section 9.11 hereof and make Dividend Payments pursuant to
Section 9.09 hereof;
(iii) the Company or any of its Subsidiaries may
convey, sell, lease, transfer or otherwise dispose of (x)
obsolete or worn-out Property, tools or equipment no longer used
or useful in its business so long as the aggregate fair market
value thereof sold in any single fiscal year by the Company and
its Subsidiaries (other than Unrestricted Subsidiaries and
Released Guarantors) shall not exceed $20,000,000, and (y) any
inventory or other Property sold or disposed of in the ordinary
course of business and on ordinary business terms;
(iv) the Company or any Subsidiary of the Company may
acquire, or otherwise make Investments in, the capital stock of,
Equity Rights in, and/or assets of, companies the principal
business of which is substantially related or complementary to
the existing lines of business of the Company and its
Subsidiaries (including the financing of customer purchases)
("Related Businesses"), to the extent permitted by paragraph (j)
of Section 9.08 hereof; and
(v) the Company or any Subsidiary of the Company may
convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, (x) any Equity Right in
any Released Guarantor or Unrestricted Subsidiary and (y) any
Equity Right held by the Company or such Subsidiary in any
Person that is not a Subsidiary of the Company.
9.06 Limitation on Liens. The Company will not, and will not permit
any of its Subsidiaries (other than an Unrestricted Subsidiary or a Released
Guarantor) to, create, incur, assume or suffer to exist any Lien upon any of its
Property, whether now owned or hereafter acquired, except:
(a) Liens created pursuant to the Security Documents or
pursuant to a mortgage granted for the benefit of the Lenders
pursuant to Section 9.11(c) hereof;
(b) Liens in existence on the date hereof and listed in
Part B of Schedule I hereto;
(c) Liens imposed by any governmental authority for
taxes, assessments or charges not yet due or
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<PAGE>
Exhibit 10.1
which are being contested in good faith and by appropriate proceedings
if, unless the amount thereof is not material with respect to it or its
financial condition, adequate reserves with respect thereto are
maintained on the books of the Company or the affected Subsidiaries, as
the case may be, in accordance with GAAP;
(d) carriers', warehousemen's, mechanics',
materialmen's, repairmen's, landlord's or other like Liens
arising in the ordinary course of business which are not overdue
for a period of more than 60 days or which are being contested
in good faith and by appropriate proceedings and Liens securing
judgments but only to the extent for an amount and for a period
not resulting in an Event of Default under Section 10(h) hereof;
(e) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(f) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary
course of business;
(g) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business
and encumbrances consisting of zoning restrictions, easements,
licenses, restrictions on the use of Property or minor
imperfections in title thereto which, in the aggregate, are not
material in amount, and which do not materially interfere with
the ordinary conduct of the business of the Company or any of
its Subsidiaries;
(h) Liens upon Property acquired after the date hereof
(by purchase, construction or otherwise) by the Company or any
of its Subsidiaries, each of which Liens was created solely for
the purpose of securing Indebtedness representing, or incurred
to finance, refinance or refund, the cost (including the cost of
construction) of such Property; provided that (i) no such Lien
shall extend to or cover any Property of the Company or such
Subsidiary other than the Property so acquired and improvements
thereon and (ii) the principal amount of Indebtedness secured by
any such Lien shall at no time exceed 90% of the fair market
value (as determined in good faith by a senior financial officer
(including the treasurer) of the Company) of such Property at
the time it was acquired (by purchase, construction or
otherwise);
(i) Liens on Margin Stock held by the Company or any of
its Subsidiaries (other than any capital stock of the Company or
any of its Subsidiaries); and
(j) any extension, renewal or replacement of the
foregoing; provided that the Liens permitted by this paragraph
shall not extend to or cover any additional Indebtedness or
Property (other than a substitution of like Property).
9.07 Indebtedness. The Company will not, and will not permit any of its
Subsidiaries to, create, incur or suffer to exist any Indebtedness except:
(a) Indebtedness to the Lenders hereunder;
(b) Indebtedness outstanding on the date hereof and
listed in Part A of Schedule I hereto;
(c) the Senior Subordinated Debt;
(d) Indebtedness of Subsidiaries of the Company to the
Company or to other Subsidiaries of the Company (other than
Unrestricted Subsidiaries);
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Exhibit 10.1
(e) Capital Lease Obligations to the extent permitted
by Section 9.11 hereof;
(f) Indebtedness of Unrestricted Subsidiaries;
(g) Indebtedness of Released Guarantors;
(h) additional Indebtedness of the Company and its
Subsidiaries secured by Liens permitted under Section 9.06(h)
hereof in an aggregate amount up to but not exceeding
$40,000,000 at any one time outstanding; and
(i) additional unsecured Indebtedness of the Company
and its Subsidiaries in an aggregate principal amount up to but
not exceeding $100,000,000 at any one time outstanding during
the period from (and including) October 1 in any year to January
31 of the immediately following year; provided that, in each
case, the principal amount (together with any interest thereon)
of such additional unsecured Indebtedness shall be repaid in
full by the January 31 immediately following such October 1.
9.08 Investments. The Company will not, and will not permit any of its
Subsidiaries to, make or permit to remain outstanding any Investments except:
(a) Investments outstanding on the date hereof and
identified in Part B of Schedule II hereto;
(b) Investments constituting (i) operating deposit
accounts with banks and (ii) accounts receivable arising in the
ordinary course of business on ordinary business terms that are
not overdue;
(c) Permitted Investments (provided that any Permitted
Investment of the type described in clause (d) of the definition
thereof in Section 1.01 hereof that ceases to be rated "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1"
(or higher) according to Standard and Poor's Corporation must be
liquidated by the Company within 60 days thereafter);
(d) Investments by the Company and its Subsidiaries in
capital stock of Subsidiaries of the Company to the extent
outstanding on the Closing Date and advances made after such
date by the Company and its Subsidiaries to Subsidiaries of the
Company (other than Unrestricted Subsidiaries and Released
Guarantors) in the ordinary course of business;
(e) Interest Rate Protection Agreements for an
aggregate notional amount not exceeding $300,000,000 at any one
time;
(f) loans and advances to employees not to exceed
$5,000,000 in the aggregate as to the Company and its
Subsidiaries at any one time outstanding;
(g) loans and advances by the Company and its
Subsidiaries to Unrestricted Subsidiaries and Released
Guarantors so long as the aggregate amount thereof at any one
time outstanding shall not exceed (i) during the period
commencing on the date hereof and ending on the last day of the
fiscal year of the Company ending on or nearest to January 31,
1999, $50,000,000, (ii) during the period commencing on the
first day of the fiscal year of the Company commencing on or
nearest to February 1, 1999 and ending on the last day of such
fiscal year, $60,000,000 and (iii) thereafter, $75,000,000;
(h) Investments by Unrestricted Subsidiaries;
(i) Investments by Released Guarantors;
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<PAGE>
Exhibit 10.1
(j) in addition to Investments made in any Released
Guarantor prior to the time it became a Released Guarantor,
additional Investments by the Company and its Subsidiaries, so
long as the aggregate amount paid by the Company and its
Subsidiaries for all such Investments (whether in the form of
cash or other consideration or in the form of liabilities
assumed), net of debt Investments that have been repaid, does
not exceed the sum of:
(i) $150,000,000, plus
(ii) for any period of four consecutive fiscal
quarters of the Company, the excess (if any) of (x) 50%
of Prior Year Excess Cash Flow for such period over (y)
the sum of (A) the aggregate amount of Dividend
Payments made pursuant to Section 9.09(b) hereof, to
the extent paid in reliance on Excess Cash Flow for
such period as contemplated by clause (y) thereof, plus
(B) the amount of Capital Expenditures made by the
Company and its Subsidiaries pursuant to Section
9.11(a)(iii) hereof in such period;
provided that if (x) not later than five Business Days prior to
any Investment pursuant to this paragraph (i) where the
aggregate amount of such Investment (including liabilities
assumed) exceeds $20,000,000, the Company will deliver to the
Agent in sufficient quantities for it to deliver to the Lenders
a certificate of a senior financial officer of the Company to
the effect that, after giving effect to such Investment, the
Company will be in compliance with Section 9.10 hereof, such
certificate to be in form and detail (including calculations)
reasonably satisfactory to the Administrative Agent;
(k) Equity Financed Investments;
(l) Investments to the extent made in capital stock of the
Company; and
(m) Investments made pursuant to Section 9.11(a)(ii) hereof.
9.09 Dividend Payments. The Company will not directly or indirectly,
through a Subsidiary or otherwise, declare or make any Dividend Payment at any
time; provided that the Company may declare and make Dividend Payments in cash:
(a) to any employee of the Company or any of its
Subsidiaries upon the termination of such employee's employment
with the Company or such Subsidiary; to the extent that (i) the
aggregate amount of such Dividend Payments does not exceed
$1,000,000 in any fiscal year of the Company and (ii) on the
date of any such Dividend Payment and after giving effect
thereto, no Default shall have occurred and be continuing;
(b) at any time after January 31, 1998, so long as on
the date of such Dividend Payment and after giving effect
thereto:
(i) no Default shall have occurred and be
continuing; and
(ii) the aggregate amount of Dividend Payments
made pursuant to this clause (b) shall not exceed the
sum of the following: (x) $50,000,000, plus (y) 50% of
cumulative Excess Cash Flow for the period commencing
on February 2, 1997, minus (z) the aggregate amount of
Investments made pursuant to Section 9.08(j)(ii) hereof
and the aggregate amount of Capital Expenditures made
pursuant to Section 9.11(a)(iii) hereof; and
(c) in respect of any Preferred Stock so long as on the
date of any such Dividend Payment and after giving effect
thereto, no Default shall have occurred and be continuing.
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Exhibit 10.1
9.10 Financial Covenants
(a) Fixed Charge. The Company will not permit the Fixed Charge
Ratio for the last day of any fiscal quarter of the Company ending on or
nearest to the respective dates set forth below to be less than the ratio
set forth below opposite such date.
Fiscal Quarter-end Ratio
October 31, 1997 .92 to 1
January 31, 1998 1.20 to 1
April 30, 1998 1.05 to 1
July 31, 1998 1.05 to 1
October 31, 1998 1.05 to 1
January 31, 1999 1.20 to 1
April 30, 1999 1.20 to 1
July 31, 1999 1.20 to 1
October 31, 1999 1.20 to 1
January 31, 2000, and each
fiscal quarter thereafter 1.25 to 1
(b) Interest Coverage Ratio. The Company will not permit the Interest
Coverage Ratio for the last day of any fiscal quarter of the Company ending on
or nearest to the respective dates set forth below to be less than the ratio set
forth below opposite such date:
Fiscal Quarter-end Ratio
October 31, 1997 1.40 to 1
January 31, 1998 1.40 to 1
April 30, 1998 1.40 to 1
July 31, 1998 1.40 to 1
October 31, 1998 1.40 to 1
January 31, 1999 1.45 to 1
April 30, 1999 1.45 to 1
July 31, 1999 1.45 to 1
<PAGE>
Exhibit 10.1
October 31, 1999 1.45 to 1
January 31, 2000, and each
fiscal quarter thereafter 1.50 to 1
(c) Leverage Ratio. The Company will not permit the Leverage
Ratio on the last day of any fiscal quarter of the Company ending on or
nearest to the respective dates set forth below to exceed the ratio set
forth below opposite such date:
Fiscal Quarter-end Ratio
October 31, 1997 4.20 to 1
January 31, 1998 2.10 to 1
April 30, 1998 3.00 to 1
July 31, 1998 3.00 to 1
October 31, 1998 3.00 to 1
January 31, 1999 2.25 to 1
April 30, 1999 2.50 to 1
July 31, 1999 2.50 to 1
October 31, 1999 2.50 to 1
January 31, 2000 2.00 to 1
April 30, 2000 2.25 to 1
July 31, 2000 2.25 to 1
October 31, 2000 2.25 to 1
January 31, 2001 1.75 to 1
April 30, 2001 2.25 to 1
July 31, 2001 2.25 to 1
October 31, 2001 2.25 to 1
January 31, 2002 1.75 to 1
April 30, 2002 2.25 to 1
July 31, 2002 2.25 to 1
9.11 Capital Expenditures; Sale Lease-backs; Etc.
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<PAGE>
Exhibit 10.1
(a) Limit on Capital Expenditures. The Company will not permit
the aggregate amount of Capital Expenditures (other than Equity Financed
Capital Expenditures) in any fiscal year of the Company to exceed the sum
of the following:
(i) for each fiscal year ending on or nearest
to the respective dates set forth below, the amount set
forth opposite such date:
Fiscal Year End Amount
January 31, 1997 $150,000,000
January 31, 1998 $150,000,000
January 31, 1999 $175,000,000
January 31, 2000 $190,000,000
January 31, 2001 $190,000,000
January 31, 2002 $190,000,000; plus
(ii)for such fiscal year, an amount not to
exceed 75% of the aggregate amount of Capital
Expenditures permitted by clause (i) of this Section
9.11(a) for the immediately preceding fiscal year (the
"Carryforward Amount") and not made in such immediately
preceding fiscal year (or, instead of using the
Carryforward Amount to make additional Capital
Expenditures in such fiscal year, all or any portion of
the Carryforward Amount may be used to make Investments
in such fiscal year); plus
(iii) for any period of four consecutive
fiscal quarters of the Company, an additional amount
not to exceed the excess (if any) of (x) 50% of Prior
Year Excess Cash Flow for such period over (y) the sum
of (A) the aggregate amount of Dividend Payments made
pursuant to Section 9.09(b) hereof, to the extent paid
in reliance on Excess Cash Flow for such period as
contemplated by clause (y) thereof, plus (B) the amount
of Investments made by the Company and its Subsidiaries
pursuant to Section 9.08(j)(ii) hereof in such fiscal
year.
For purposes of making determinations under this Section 9.11(a), any
Capital Expenditures shall be allocated first to Equity Financed Capital
Expenditures (to the extent permitted under the definition of "Equity
Financed" in Section 1.01 hereof) and then to the maximum amount of
Capital Expenditures permitted under this Section 9.11(a).
(b) Specified Capital Expenditures. The Company shall not permit
the aggregate amount of expenditures with respect to Projects that have
not yet been made the subject of a Sale Lease-back to exceed $50,000,000
at any time.
(c) Mortgages. If any Project shall not have become the subject
of a Sale Lease-back within 24 months after the first Capital
Expenditures are made with respect to such Project, the Company shall,
within 30 days after the end of such 24th month, deliver or cause to be
delivered to the Administrative Agent one or more mortgages or deeds of
trust and related fixture filings, in form and substance satisfactory to
the Administrative Agent, covering the real property and fixtures (other
than leased fixtures) included in such Project and securing the
obligations of the Obligors hereunder and under the Notes, and shall
cause the same to be duly recorded in the appropriate offices so that
such mortgage or deed of trust constitutes a first priority mortgage Lien
in and to all of such real property and fixtures. Any such mortgage or
deed of trust shall provide that, so long as no Default is continuing,
(i) the Lenders shall release such mortgage or deed of trust to permit
the sale of such real property and (ii) the proceeds of any such sale
need not be applied to the obligations of the Company hereunder.
9.12 Subordinated Indebtedness. Neither the Company nor any of its
Subsidiaries will defease, purchase,
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<PAGE>
Exhibit 10.1
redeem, retire, exchange any securities for or otherwise acquire for value, or
set apart any money or obligations for a sinking, defeasance or other analogous
fund for, the purchase, redemption, retirement or other acquisition of, or make
any voluntary payment or prepayment of the principal of or interest on, or any
other amount owing in respect of, the Senior Subordinated Debt, except for (a)
regularly scheduled payments of principal and interest in respect thereof
required to be made pursuant to the Senior Subordinated Debt Documents to the
extent permitted to be made by the subordination provisions thereof and (b) the
redemption of the Outstanding Subordinated Notes contemplated by Section 9.15
hereof.
9.13 Lines of Business. The Company will not, and will not permit any
of its Subsidiaries to, engage in any line or lines of business activity other
than those engaged in by them on the Closing Date, any Related Businesses and
any other lines of business (in, or in connection with, any medium) related to,
or complementary with, the selling of books.
9.14 Transactions with Affiliates. Except as expressly permitted by
this Agreement, the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly:
(a) make any Investment in an Affiliate of the Company or in
any of its Subsidiaries;
(b) transfer, sell, lease, assign or otherwise dispose of
any Property to any such Affiliate;
(c) merge into or consolidate with or purchase or
acquire Property from any such Affiliate; or
(d) enter into any other transaction directly or
indirectly with or for the benefit of any such Affiliate
(including, without limitation, Guarantees and assumptions of
obligations of any such Affiliate);
provided that (i) any Affiliate of the Company or any of its Subsidiaries
who is an individual may serve as a director, officer or employee of the
Company or any of its Subsidiaries and receive reasonable compensation
for his or her services in such capacity, (ii) the Company and its
Subsidiaries may enter into transactions (other than Investments by the
Company or any of its Subsidiaries in any Affiliate of the Company or any
of its Subsidiaries) in the ordinary course of business if the monetary
or business consideration arising therefrom would be substantially as
advantageous to the Company and its Subsidiaries as the monetary or
business consideration which would obtain in a comparable transaction
with a Person not an Affiliate of the Company or any of its Subsidiaries,
(iii) Investments may be made in Affiliates to the extent permitted under
Section 9.08 hereof and (iv) any Unrestricted Subsidiary or Released
Guarantor may enter into any transaction with a Person not an Affiliate
of the Company.
9.15 Use of Proceeds. The Company will use the proceeds of the Loans
hereunder solely to repay Indebtedness as contemplated by Section 7.01(h)
hereof, to finance Capital Expenditures permitted by Section 9.11 hereof, to
acquire Related Businesses and make other Investments as contemplated by Section
9.08 hereof, to redeem up to $190,000,000 face amount of the Outstanding
Subordinated Notes (and to pay any related fees and premiums), and for general
corporate purposes, including, without limitation, in connection with the
activities contemplated or permitted by this Agreement to be undertaken by the
Company and its Subsidiaries (in compliance with all applicable legal and
regulatory requirements); provided that (a) $200,000,000 of the Commitments
shall be used solely to redeem Outstanding Subordinated Notes (and to pay any
related fees and premiums), and (b) neither the Administrative Agent nor any
Lender shall have any responsibility as to the use of any of such proceeds.
9.16 Certain Obligations Respecting Subsidiaries
(a) Subject to Section 9.05 hereof, the Company will, and will
cause each of its Subsidiaries (other than Unrestricted Subsidiaries and
Released Guarantors) to, take such action from time to time as shall be
necessary to ensure that each of its Subsidiaries (other than
Unrestricted Subsidiaries and Released Guarantors) is, except for any
Permitted Management Ownership, a Wholly Owned Subsidiary.
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<PAGE>
Exhibit 10.1
(b) Without limiting the generality of the foregoing (but subject to
Section 9.05 hereof), the Company will not, and will not permit any of its
Subsidiaries (other than any Unrestricted Subsidiary or Released Guarantor) to,
convey, sell, transfer or otherwise dispose of any shares of capital stock of
any Subsidiary (other than an Unrestricted Subsidiary or a Released Guarantor)
owned by them, nor permit any such Subsidiary (other than an Unrestricted
Subsidiary or a Released Guarantor) to issue any shares of capital stock of any
class whatsoever to any Person (other than to the Company or another Obligor),
except for any Permitted Management Ownership. In the event that any such
additional shares of stock (other than any shares representing any Permitted
Management Ownership) shall be issued by any such Subsidiary, the respective
Obligor agrees forthwith to deliver to the Administrative Agent pursuant to the
Security Agreement the certificates representing such shares of stock,
accompanied by undated stock powers executed in blank and shall take such other
action as the Administrative Agent shall request to perfect the security
interest created therein pursuant to the Security Agreement.
9.17 Additional Subsidiary Guarantors. In the event that the Company
shall, after the date hereof, hold or acquire any Subsidiary (other than an
Unrestricted Subsidiary or a Released Guarantor) that is not a Subsidiary
Guarantor hereunder, the Company will, and will cause each of its Subsidiaries
to, cause such Subsidiary (a) to execute and deliver a written instrument in
form and substance satisfactory to the Administrative Agent pursuant to which
such Subsidiary shall become a "Subsidiary Guarantor" and, thereby, an "Obligor"
hereunder and (b) to deliver such proof of corporate action, incumbency of
officers, opinions of counsel and other documents as is consistent with that
delivered by each Obligor pursuant to Section 7.01 hereof on the Closing Date or
as the Majority Lenders or the Administrative Agent shall have reasonably
requested.
9.18 Modifications of Certain Documents
(a) The Company will not consent to any modification, supplement
or waiver of any provision of the Senior Subordinated Debt Documents
unless the same (x) results in more favorable terms or conditions for the
Company and (y) would not reasonably be expected to have a material
adverse effect on the interests of the Administrative Agent or the
Lenders.
(b) The Company will not consent to any modification, supplement
or waiver of any of the provisions of the License Agreement that would
reasonably be expected to have a material adverse effect on the interests
of the Administrative Agent or the Lenders.
9.19 Sales of Accounts. At all times during which the Company is not
Investment Grade, the Company will not, and will not permit any of its
Subsidiaries (other than Unrestricted Subsidiaries and Released Guarantors) to,
sell with or without recourse, or discount or otherwise sell for less than the
face value thereof, any of their notes or accounts receivable (or any portion
thereof), except for compromises made in the ordinary course of business.
9.20 Release of Collateral. At any time that the Company is Investment
Grade, the Agent shall, at the request of the Company, release all of the
Collateral from the Lien of the Security Agreement.
Section 10. Events of Defaults. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
(a) The Company shall: (i) default in the payment of
any principal of any Loan or any Reimbursement Obligation when
due (whether at stated maturity or upon mandatory or optional
prepayment); or (ii) default in the payment of any interest on
any Loan, any fee or any other amount payable by it hereunder or
under any other Basic Document when due and such default shall
have continued unremedied for three or more Business Days; or
(b) The Company or any of its Significant Subsidiaries
shall default in the payment when due of any principal of or
interest on any of its Indebtedness aggregating $25,000,000 or
more (other than the
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<PAGE>
Exhibit 10.1
Indebtedness referred to in paragraph (a) above); or any event
specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness or any event specified
in any Interest Rate Protection Agreement shall occur if the effect of
such event is to cause, or (with the giving of any notice or the lapse
of time or both) to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause,
such Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its
stated maturity or to have the interest rate thereon reset to a level
so that securities evidencing such Indebtedness trade at a level
specified in relation to the par value thereof or, in the case of an
Interest Rate Protection Agreement, to permit the payments owing under
such Interest Rate Protection Agreement to be liquidated; or
(c) Any representation, warranty or certification made
or deemed made herein or in any other Basic Document (or in any
modification or supplement hereto or thereto) by any Obligor, or
any certificate furnished to any Lender or the Administrative
Agent pursuant to the provisions hereof or thereof, shall prove
to have been false or misleading as of the time made, deemed
made or furnished in any material respect, and (if such false or
misleading representation is reasonably likely to be capable of
being promptly made to be no longer false and misleading by
actions of the Company) the same shall continue unremedied for
at least 30 days after any executive officer of the Company
knows or has reason to believe that such representation,
warranty or certification is false or misleading; or
(d) (i) The Company shall default in the performance of
any of its obligations under any of Sections 9.01(f), 9.03(a),
9.05, 9.06, 9.07, 9.08, 9.09, 9.10, 9.11, 9.12 or 9.14 hereof;
or (ii) any Obligor shall default in the performance of any of
its obligations under Section 4.02 or 5.02 of the Security
Agreement; or (iii) any Obligor shall default in the performance
of any of its other obligations in this Agreement or any other
Basic Document and such default (if remediable) shall continue
unremedied for a period of 30 days after notice thereof to the
Company by the Administrative Agent or any Lender (through the
Administrative Agent); or
(e) The Company or any of its Significant Subsidiaries
shall admit in writing its inability to, or be generally unable
to, pay its debts as such debts become due; or
(f) The Company or any of its Significant Subsidiaries
shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee,
examiner or liquidator of itself or of all or a substantial part
of its Property, (ii) make a general assignment for the benefit
of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage
of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or readjustment of its debts, (v)
fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (vi) take any
corporate action for the purpose of effecting any of the
foregoing; or
(g) A proceeding or case shall be commenced, without
the application or consent of the Company or any of its
Significant Subsidiaries, in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the
Company or such Significant Subsidiary or of all or any
substantial part of its Property, or (iii) similar relief in
respect of the Company or such Significant Subsidiary under any
law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing
(other than an order for relief in an involuntary case under the
Bankruptcy Code) shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief
against the Company or such Significant Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or
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<PAGE>
Exhibit 10.1
(h) A judgment or judgments for the payment of money in
excess of $25,000,000 in the aggregate (exclusive of judgment
amounts to the extent covered by insurance where the insurer has
admitted liability in respect of such judgment) shall be
rendered by one or more courts, administrative tribunals or
other bodies having jurisdiction against the Company or any of
its Significant Subsidiaries and the same shall not be
discharged (or provision shall not be made for such discharge),
or a stay of execution thereof shall not be procured, within 45
days from the date of entry thereof and the Company or the
relevant Significant Subsidiary shall not, within said period of
45 days, or such longer period during which execution of the
same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or
(i) An event or condition specified in Section 9.01(e)
hereof shall occur or exist with respect to any Plan or
Multiemployer Plan and, as a result of such event or condition,
together with all other such events or conditions, the Company
or any ERISA Affiliate shall incur a liability to a Plan, a
Multiemployer Plan or PBGC (or any combination of the foregoing)
which has a Material Adverse Effect; or
(j) There shall have been asserted against the Company
or any of its Significant Subsidiaries claims or liabilities,
whether accrued, absolute or contingent, based on or arising
from the generation, storage, transport, handling or disposal of
Hazardous Materials by the Company or any of its Subsidiaries or
Affiliates, or any predecessor in interest of the Company or any
of its Subsidiaries or Affiliates, or relating to any site or
facility owned, operated or leased by the Company or any of its
Subsidiaries or Affiliates, which claims or liabilities (insofar
as they are payable by the Company or any of its Significant
Subsidiaries but after deducting any portion thereof which is
reasonably expected to be paid by other Persons jointly and
severally liable therefor), in the judgment of the Majority
Lenders are reasonably likely to be determined adversely to the
Company or any of its Significant Subsidiaries, and the amount
thereof is, either individually or in the aggregate, reasonably
likely to have a Material Adverse Effect; or
(k) Any Change of Control shall occur; or
(l) Except for expiration in accordance with its terms,
any of the Security Documents shall be terminated or shall cease
to be in full force and effect, for whatever reason; or at any
time after the Closing Date the Administrative Agent shall not
have (for the benefit of the Lenders), as collateral security
for the Secured Obligations referred to in the Security
Agreement, a valid prior perfected first Lien on and security
interest in the Properties intended to be covered by the
Security Documents, in each case subject to no equal or prior
Liens; or any of the Guarantees set forth in Section 6 hereof
shall cease to be in full force and effect for any reason;
THEREUPON: (1) in the case of an Event of Default other than one referred
to in paragraph (e), (f) or (g) of this Section 10 with respect to any
Obligor, the Administrative Agent may and, upon request of the Majority
Lenders, shall, by notice to the Company, terminate the Commitments
and/or declare all or any portion the principal amount then outstanding
of, and the accrued interest on, the Loans, the Reimbursement Obligations
and all other amounts payable by the Obligors hereunder and under the
Notes (including, without limitation, any amounts payable under Section
5.05 or 5.06 hereof) to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby
expressly waived by each Obligor; and (2) in the case of the occurrence
of an Event of Default referred to in paragraph (e), (f) or (g) of this
Section 10 with respect to any Obligor, the Commitments shall
automatically be terminated and the principal amount then outstanding of,
and the accrued interest on, the Loans, the Reimbursement Obligations and
all other amounts payable by the Obligors hereunder and under the Notes
(including, without limitation, any amounts payable under Section 5.05 or
5.06 hereof) shall automatically become immediately due and payable
without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by each Obligor.
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Exhibit 10.1
In addition, if the Administrative Agent (or the Majority
Lenders through the Administrative Agent) so requests by notice to the
Company upon or following a declaration by the Administrative Agent
pursuant to the preceding paragraph that the principal amount then
outstanding of, and accrued interest on, the Loans and Reimbursement
Obligations and all other amounts payable by the Company hereunder and
under the Notes have become due and payable, the Company shall (and, in
the case of any Event of Default referred to in paragraph (e), (f) or (g)
of this Section 10 with respect to any Obligor, forthwith, without any
demand or the taking of any other action by the Administrative Agent or
such Lenders) provide cover for the Letter of Credit Liabilities by
paying to the Administrative Agent immediately available funds in an
amount equal to the then aggregate undrawn face amount of all Letters of
Credit, which funds shall be held by the Administrative Agent in the
Collateral Account subject to and in accordance with the terms of the
Security Agreement.
Section 11. The Administrative Agent
11.01 Appointment, Powers and Immunities. Each Lender hereby
irrevocably (subject to Section 11.08 hereof) appoints and authorizes the
Administrative Agent to act as its agent hereunder and under the other Basic
Documents with such powers as are specifically delegated to the Administrative
Agent by the terms of this Agreement and of the other Basic Documents, together
with such other powers as are reasonably incidental thereto. The Administrative
Agent (which term as used in this sentence and in Section 11.05 and the first
sentence of Section 11.06 hereof shall include reference to its affiliates and
its own and its affiliates' officers, directors, employees and agents): (a)
shall have no duties or responsibilities except those expressly set forth in
this Agreement and in the other Basic Documents, and shall not by reason of this
Agreement or any other Basic Document be a trustee for any Lender; (b) shall not
be responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement or any other Basic Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Basic Document or any other document referred
to or provided for herein or therein or for any failure by the Company or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required (except to the extent expressly required under Section
11.03 hereof) to initiate or conduct any litigation or collection proceedings
hereunder or under any other Basic Document; and (d) shall not be responsible
for any action taken or omitted to be taken by it hereunder or under any other
Basic Document or under any other document or instrument referred to or provided
for herein or therein or in connection herewith or therewith, except for its own
gross negligence or willful misconduct. The Administrative Agent may employ
agents and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
The Administrative Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a notice of the assignment or
transfer thereof shall have been filed with the Administrative Agent, together
with the consent of the Company to such assignment or transfer (to the extent
provided in Section 12.06(b) hereof).
11.02 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telex,
telegram or cable) reasonably believed by it to be genuine and correct and to
have been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel, independent accountants and other
experts selected by the Administrative Agent. As to any matters not expressly
provided for by this Agreement or any other Basic Document, the Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or thereunder in accordance with instructions given by the
Majority Lenders, and such instructions of the Majority Lenders and any action
taken or failure to act pursuant thereto shall be binding on all of the Lenders.
11.03 Defaults. The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default (other than the non-payment
of principal of or interest on Loans, Reimbursement Obligations
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Exhibit 10.1
or of commitment fees) unless the Administrative Agent has received notice from
a Lender or the Company specifying such Default and stating that such notice is
a notice of default. In the event that the Administrative Agent receives such a
notice of the occurrence of a Default, the Administrative Agent shall give
prompt notice thereof to the Lenders (and shall give each Lender prompt notice
of each such non-payment). The Administrative Agent shall (subject to Sections
11.07 and 12.04 hereof) take such action with respect to such Default as shall
be directed by the Majority Lenders, provided that, unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interest of the Lenders except to the extent that this Agreement
expressly requires that such action be taken, or not be taken, only with the
consent or upon the authorization of the Majority Lenders or all of the Lenders.
11.04 Rights as a Lender. With respect to its Commitments and the Loans
made by it, Chase (and any successor acting as Administrative Agent) in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. Chase (and any successor acting as Administrative Agent) and its
affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Administrative
Agent, and Chase and its affiliates may accept fees and other consideration from
the Obligors for services in connection with this Agreement or otherwise without
having to account for the same to the Lenders.
11.05 Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 12.03 hereof,
but without limiting the obligations of the Company under said Section 12.03)
ratably in accordance with the aggregate principal amount of the Loans and
Reimbursement Obligations held by the Lenders (or, if no Loans or Reimbursement
Obligations are at the time outstanding, ratably in accordance with their
respective Commitments), for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Administrative Agent (including by any Lender) arising out
of or by reason of any investigation in or in any way relating to or arising out
of this Agreement or any other Basic Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses that the Company is obligated to pay under Section 12.03 hereof, but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents, provided that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.
11.06 Non-Reliance on Administrative Agent and Other Lenders. Each
Lender agrees that it has, independently and without reliance on the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and its Subsidiaries and decision to enter into this Agreement and that
it will, independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The Administrative Agent shall
not be required to keep itself informed as to the performance or observance by
any Obligor of this Agreement or any of the other Basic Documents or any other
document referred to or provided for herein or therein or to inspect the
Properties or books of the Company or any of its Subsidiaries. Except for
notices, reports and other documents and information expressly required to be
furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition or business of the Company or any of its Subsidiaries (or any of their
affiliates) that may come into the possession of the Administrative Agent or any
of its affiliates.
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Exhibit 10.1
11.07 Failure to Act. Except for action expressly required of the
Administrative Agent hereunder and under the other Basic Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 11.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
11.08 Resignation or Removal of Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Company, and the Administrative Agent may be removed at
any time with or without cause by the Majority Lenders. Upon any such
resignation or removal, the Majority Lenders shall have the right (after
consultation with and, if no Default is then continuing, approval by, the
Company) to appoint a successor Administrative Agent; provided that such
successor Administrative Agent shall have total assets in excess of
$50,000,000,000. If no successor Administrative Agent shall have been so
appointed by the Majority Lenders and shall have accepted such appointment
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Administrative
Agent, then the retiring Administrative Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent, that shall be a bank that has an
office in New York, New York and shall have total assets in excess of
$50,000,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Section 11 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Administrative Agent.
11.09 Agency Fee. So long as the Commitments are in effect and until
payment in full of the principal of and interest on the Loans and all other
amounts payable by the Company hereunder, the Company will pay to the
Administrative Agent an agency fee in the amount specified in the Fee Letter,
payable annually in advance commencing on the date of execution and delivery of
this Agreement by all parties hereto and on each anniversary thereof. Such fee,
once paid, shall be non-refundable.
11.10 Consents under Basic Documents. Except as otherwise provided in
Section 12.04 hereof with respect to this Agreement, the Administrative Agent
may, with the prior consent of the Majority Lenders (but not otherwise), consent
to any modification, supplement or waiver under any of the Basic Documents,
provided that, without the prior consent of each Lender, the Administrative
Agent shall not (except as provided herein or in the Security Documents) release
any collateral or otherwise terminate any Lien under any Basic Document
providing for collateral security, or agree to additional obligations being
secured by such collateral security (unless the Lien for such additional
obligations shall be junior to the Lien in favor of the other obligations
secured by such Basic Document).
Section 12. Miscellaneous
12.01 Waiver. No failure on the part of the Administrative Agent or any
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement or any Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
12.02 Notices. All notices, requests and other communications provided
for herein and under the Security Documents (including, without limitation, any
modifications of, or waivers, requests or consents under, this
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Exhibit 10.1
Agreement) shall be given or made in writing (including, without limitation, by
telex or telecopy) delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof (below the name
of the Company, in the case of any Subsidiary Guarantor); or, as to any party,
at such other address as shall be designated by such party in a notice to each
other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by telex
or telecopier or personally delivered by hand or overnight courier or, in the
case of a notice sent by first class certified mail, postage prepaid, three days
after mailing in each case given or addressed as aforesaid.
12.03 Expenses, Etc. The Company agrees to pay or reimburse each of
the Lenders and the Administrative Agent for paying: (a) all reasonable
out-of-pocket costs and expenses of the Administrative Agent (including, without
limitation, the reasonable fees and expenses of Mayer, Brown & Platt, special
New York counsel to Chase, CIBC and ING), in connection with (i) the
negotiation, preparation, execution and delivery of this Agreement and the other
Basic Documents and the extensions of credit hereunder, (ii) any modification,
supplement or waiver of any of the terms of this Agreement or any of the other
Basic Documents and (iii) any release of Collateral pursuant to Section 9.20
hereof; (b) all costs and expenses of the Lenders and the Administrative Agent
(including, without limitation, reasonable counsels' fees) in connection with
(i) any Default, any waiver whatsoever thereof, and any enforcement or
collection proceedings resulting therefrom or in connection with the negotiation
of any restructuring or "work-out" (whether or not consummated) of the
obligations of the Company hereunder or under any of the other Basic Documents
and (ii) the enforcement of this Section 12.03; and (c) all transfer, stamp,
documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Basic Documents or any other document referred to herein or therein and
all costs, expenses, taxes, assessments and other charges incurred in connection
with any filing, registration, recording or perfection of any security interest
contemplated by any Basic Document or any other document referred to therein.
The Company hereby agrees to indemnify the Administrative Agent
and each Lender and their respective directors, officers, employees,
attorneys and agents from, and hold each of them harmless against, any
and all losses, liabilities, claims, damages or expenses incurred by any
of them (including, without limitation, any and all losses, liabilities,
claims, damages or expenses incurred by the Administrative Agent to any
Lender, whether or not the Administrative Agent or any Lender is a party
thereto but excluding costs or expenses incurred in connection with
negotiating, documenting or effecting any assignment or participation
made pursuant to Section 12.06 hereof) arising out of or by reason of any
investigation or litigation or other proceedings (including any
threatened investigation or litigation or other proceedings) relating to
the extensions of credit hereunder or any actual or proposed use by the
Company or any of its Subsidiaries of the proceeds of any of the
extensions of credit hereunder, including, without limitation, the
reasonable fees and disbursements of counsel incurred in connection with
any such investigation or litigation or other proceedings (but excluding
any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified), and each Obligor party hereto hereby agrees not to assert
any claim against the Administrative Agent, any Lender, any of their
affiliates or any of their respective directors, officers, employees,
attorneys and agents, on any theory of liability, for special, indirect,
consequential or punitive damages arising out of or otherwise relating to
any of the transactions contemplated herein or in any other Basic
Document. Without limiting the generality of the foregoing, the Company
will (i) indemnify the Administrative Agent for any payments that the
Administrative Agent is required to make under any indemnity issued to
any bank referred to in Section 4.02 of the Security Agreement to which
remittances in respect to Accounts, as defined therein, are to be made
and (ii) indemnify the Administrative Agent and each Lender from, and
hold the Administrative Agent and each Lender harmless against, any
losses, liabilities, claims, damages or expenses described in the
preceding sentence (but excluding, as provided in the preceding sentence,
any loss, liability, claim, damage or expense incurred by reason of the
gross negligence or willful misconduct of the Person to be indemnified)
arising under any Environmental Law as a result of the past, present or
future operations of the Company or any of its Subsidiaries (or any
predecessor in interest to the Company or any of its Subsidiaries), or
the past, present or future condition of any site or facility owned,
operated or leased by the Company or any of its Subsidiaries (or any such
predecessor in interest), or any Release or threatened Release of any
Hazardous Materials from any such site or facility, including any such
Release or threatened Release which shall occur during any period when
the
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Exhibit 10.1
Administrative Agent or any Lender shall be in possession of any such
site or facility following the exercise by the Administrative Agent or
any Lender of any of its rights and remedies hereunder or under any of
the Security Documents unless such Release is solely the direct result of
avoidable conduct on the part of the Administrative Agent or such Lender.
12.04 Amendments, Etc. .Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by the Company, the Administrative Agent
and the Majority Lenders, or by the Company and the Administrative Agent acting
with the consent of the Majority Lenders, and any provision of this Agreement
may be waived by the Majority Lenders or by the Administrative Agent acting with
the consent of the Majority Lenders; provided that:
(a) no modification, supplement or waiver shall, unless
by an instrument signed by all of the Lenders or by the
Administrative Agent acting with the consent of all of the
Lenders (i) increase or extend the term of the Commitments, or
extend the time or waive any requirement for the reduction or
termination of the Commitments, (ii) extend any date fixed for
the payment of principal of or interest on any Loan, the
Reimbursement Obligations or any fee hereunder (other than any
fee payable solely for account of the Administrative Agent, the
Swingline Bank or the Issuing Bank), (iii) reduce the amount of
any such payment of principal or Reimbursement Obligations, (iv)
reduce the rate at which interest is payable thereon or any fee
is payable hereunder (other than any fee payable solely for
account of the Administrative Agent, the Swingline Bank or the
Issuing Bank), (v) increase the rights or reduce the obligations
of the Company to prepay Loans, (vi) alter the terms of any of
Sections 4.02, 4.07 and 11.10 hereof or this Section 12.04,
(vii) modify the definitions of the terms "Majority Lenders" or
modify in any other manner the number or percentage of the
Lenders required to make any determinations or waive any rights
hereunder or to modify any provision hereof, (viii) waive any of
the conditions precedent set forth in Section 7 hereof, (ix)
release any Subsidiary Guarantor from any of its obligations
under Section 6 hereof (except as provided in Section 6.09
hereof) or (x) permit any Obligor to sell all or substantially
all of its Property (except as expressly provided in this
Agreement); and
(b) any modification of any of the rights or
obligations of the Administrative Agent, the Swingline Bank or
the Issuing Bank hereunder shall require the consent of the
Administrative Agent, the Swingline Bank or the Issuing Bank (as
the case may be).
12.05 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
12.06 Assignments and Participations
(a) No Obligor may assign any of its rights or obligations
hereunder or under the Notes without the prior consent of all of the
Lenders and the Administrative Agent.
(b) Each Lender may, at any time or from time to time, assign to
one or more other Eligible Assignees or other Lenders all or any portion
of its Revolving Credit Loans, its Revolving Credit Notes, its
Commitments, and its Letter of Credit Interest (but only with the consent
of the Company and the Administrative Agent (which consents shall not be
unreasonably withheld or delayed) and, in the case of a Revolving Credit
Commitment or a Letter of Credit Interest, the Issuing Bank and, in the
case of a Revolving Credit Commitment, the Swingline Bank); provided that
(i) no such consent by the Company shall be required if any Event of
Default shall have occurred and be continuing at the time of such
assignment; (ii) any such partial assignment (other than any such
assignment to another Lender) shall be in an amount at least equal to
$10,000,000 and, after giving effect thereto, the assignor shall have a
Revolving Credit Commitment at least equal to $10,000,000; and (iii) each
such assignment shall be made in such manner so that the same portion of
the assigning Lender's Revolving Credit Loans, Revolving Credit Note,
Revolving Credit Commitment, and Letter of Credit Interest is assigned to
the respective assignee. Upon execution
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<PAGE>
Exhibit 10.1
and delivery by the assignee to the Company, the Administrative Agent and the
Issuing Lender of an instrument in writing pursuant to which such assignee
agrees to become a "Lender" hereunder (if not already a Lender) having the
Commitments, Loans and, if applicable, Letter of Credit Interest specified in
such instrument, and upon consent thereto by the Company, the Administrative
Agent and the Issuing Lender, to the extent required above, the assignee shall
have, to the extent of such assignment (unless otherwise provided in such
assignment with the consent of the Company, the Administrative Agent and the
Issuing Bank), the obligations, rights and benefits of a Lender hereunder
holding the Commitments, Loans and, if applicable, Letter of Credit Interest (or
portions thereof) assigned to it (in addition to the Commitments, Loans and
Letter of Credit Interest, if any, theretofore held by such assignee) and the
assigning Lender shall, to the extent of such assignment, be released from the
Commitments (or portion thereof) so assigned. Upon each such assignment the
assigning Lender shall pay the Administrative Agent an assignment fee of $3,500.
(c) A Lender may, at any time or from time to time, sell or
agree to sell to one or more other Persons a participation in all or any
part of any Loans or Letter of Credit Interest held by it, or in its
Commitments, in which event each purchaser of a participation (a
"Participant") shall be entitled to the rights and benefits of the
provisions of Sections 9.01(g), 5.05, 5.06, 5.07 and 12.03 hereof with
respect to its participation in such Loans, Letter of Credit Interest and
Commitments as if (and the Company shall be directly obligated to such
Participant under such provisions as if) such Participant were a "Lender"
for purposes of said Section, but, except for the rights of the Lenders
under Section 4.06(c) hereof, shall not have any other rights or benefits
under this Agreement or any Note or any other Basic Document (the
Participant's rights against such Lender in respect of such participation
to be those set forth in the agreements executed by such Lender in favor
of the Participant). All amounts payable by the Company to any Lender
under Section 5 hereof in respect of the Loans and Letter of Credit
Interest held by it, and its Commitments, shall be determined as if such
Lender had not sold or agreed to sell any participations in such Loans,
Letter of Credit Interest and Commitments, and as if such Lender were
funding each of such Loan, Letter of Credit Interest and Commitments in
the same way that it is funding the portion of such Loan, Letter of
Credit Interest and Commitments in which no participations have been
sold. In no event shall a Lender that sells a participation agree with
the Participant to take or refrain from taking any action hereunder or
under any other Basic Document except that such Lender may agree with the
Participant that such Lender will not, without the consent of the
Participant, agree to (i) increase or extend the term, or extend the time
or waive any requirement for the reduction or termination, of such
Lender's Commitments, (ii) extend any date fixed for the payment of
principal of or interest on the related Loan or Loans, Reimbursement
Obligations or any portion of any fee hereunder payable to the
Participant, (iii) reduce the amount of any such payment of principal,
(iv) reduce the rate at which interest is payable thereon, or any fee
hereunder payable to the Participant, to a level below the rate at which
the Participant is entitled to receive such interest or fee, (v) increase
the rights or reduce the obligations of the Company to prepay the related
Loans or (vi) consent to any modification, supplement or waiver of this
Agreement or any of the other Basic Documents to the extent that the
same, under Section 11.10 or 12.04 hereof, requires the consent of each
Lender.
(d) In addition to the assignments and participations permitted
by the foregoing provisions of this Section 12.06, any Lender may assign
and pledge all or any portion of its Loans and its Note to any Federal
Reserve Bank as collateral security pursuant to Regulation A and any
Operating Circular issued by such Federal Reserve Bank, and such Loans
and Note shall be fully transferrable as provided therein. No such
assignment shall release the assigning Lender from its obligations
hereunder.
(e) A Lender may furnish any information concerning the Company
or any of its Subsidiaries in the possession of such Lender from time to
time to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 12.13
hereof.
(f) Anything in this Section 12.06 to the contrary
notwithstanding, neither the Company nor any of its Subsidiaries or
Affiliates may acquire (whether by assignment, participation or
otherwise), and no Lender shall assign or participate to the Company or
any of its Subsidiaries or Affiliates, any interest in any Commitments,
Loan or Reimbursement Obligation without the prior consent of each
Lender.
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<PAGE>
Exhibit 10.1
(g) The Swingline Bank may not assign or sell participations in
all or any part of its Swingline Loans, the Swingline Note or the
Swingline Commitment; provided that the Swingline Bank may assign to
another Lender all of its obligations, rights and benefits in respect of
the Swingline Loans, the Swingline Note and the Swingline Commitment with
the consent of the Company (such consent not to be unreasonably withheld
or delayed). The Company may, from time to time, upon at least 30 days
prior notice, replace the Lender then acting as Swingline Bank with one
or more other Lenders, or add one or more other Lenders as additional
Swingline Banks (and, if so replaced with more than one other Lender, or
any other Swingline Banks are so added, such Lenders acting as Swingline
Bank shall enter into arrangements to ensure compliance with the terms
and conditions hereof relating to the Swingline Commitment). Upon the
effectiveness of any such assignment, the assignee shall have the
obligations, rights and benefits of the Swingline Bank hereunder, and the
Swingline Bank shall be released from the Swingline Commitment.
12.07 Survival. The obligations of the Company under Sections 5.01,
5.05, 5.06, 5.07 and 12.03 hereof, the obligations of each Subsidiary Guarantor
under Section 6.03 hereof, and the obligations of the Lenders under Section
11.05 and Section 12.13 hereof shall survive the repayment of the Loans and
Reimbursement Obligations and the termination of the Commitments for a period of
two years (provided that any claim or demand made by the Administrative Agent or
any Lender with respect to any such obligation prior to the end of such two-year
period shall survive the expiration of such period). In addition, each
representation and warranty made, or deemed to be made by a notice of any
extension of credit (whether by means of a Loan or a Letter of Credit), herein
or pursuant hereto shall survive the making of such representation and warranty
for a period of two years (provided that any claim or demand made by the
Administrative Agent or any Lender with respect to any such representation or
warranty prior to the end of such two-year period shall survive the expiration
of such period), and no Lender shall be deemed to have waived, by reason of
making any extension of credit hereunder (whether by means of a Loan or a Letter
of Credit), any Default which may arise by reason of such representation or
warranty proving to have been false or misleading, notwithstanding that such
Lender or the Administrative Agent may have had notice or knowledge or reason to
believe that such representation or warranty was false or misleading at the time
such extension of credit was made.
12.08 Captions. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.10 Governing Law; Submission to Jurisdiction. This Agreement and the
Notes shall be governed by, and construed in accordance with, the law of the
State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York state court sitting in New York City for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each Obligor irrevocably waives, to the fullest extent
permitted by applicable law, any objection which it may now or hereafter have to
the laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum.
12.11 Waiver of Jury Trial. EACH OF THE OBLIGORS, THE ADMINISTRATIVE
AGENT, THE LENDERS, THE ISSUING BANK AND THE SWINGLINE BANK HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
-65-
<PAGE>
Exhibit 10.1
12.12 Complete Agreement. This Agreement, the Notes and the other Basic
Documents contain the entire and exclusive agreement of the parties hereto with
reference to the matters discussed herein or therein. This Agreement and the
other Basic Documents supersede all prior drafts and communications with respect
thereto.
12.13 Confidentiality. Each Lender and the Administrative Agent agrees
(on behalf of itself and each of its affiliates, directors, officers, employees
and representatives) to use such precautions as it uses to maintain the
confidentiality of its own confidential information, and in accordance with safe
and sound banking practices, any information supplied to it by the Company or
any of its Subsidiaries pursuant to this Agreement that is not publicly
available, provided that nothing herein shall limit the disclosure of any such
information (i) to the extent required by statute, rule, regulation or judicial
process, (ii) to counsel for any of the Lenders or the Administrative Agent,
(iii) to bank examiners, auditors or accountants, (iv) to the Administrative
Agent or any other Lender, (v) in connection with any litigation to which any
one or more of the Lenders or the Administrative Agent is a party, (vi) to a
subsidiary or affiliate of such Lender or (vii) to any assignee or participant
(or prospective assignee or participant) so long as such assignee or participant
(or prospective assignee or participant) first executes and delivers to the
respective Lender and the Company a confidentiality agreement in a form
reasonably acceptable to the Company and such Lender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first
above written.
BARNES & NOBLE, INC.
By____________________________
Title:
Address for Notices:
122 Fifth Avenue
New York, New York 10011
Attention: Chief Financial Officer
Telecopier No.: (212) 675-0413
Telephone No.: (212) 633-3300
With a copy to:
Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael N. Rosen, Esq.
Telecopier No.: (212) 541-4630
Telephone No.: (212) 541-2200
-67-
<PAGE>
Exhibit 10.1
SUBSIDIARY GUARANTORS
B. DALTON BOOKSELLER, INC.
By____________________________
Title:
BARNES & NOBLE BOOKSELLERS, INC.
By____________________________
Title:
BARNESANDNOBLE.COM INC.
By____________________________
Title:
MARBORO BOOKS CORP.
By___________________________
Title:
DOUBLEDAY BOOK SHOPS, INC.
By___________________________
Title:
CCI HOLDINGS, INC.
By___________________________
Title:
-68-
<PAGE>
Exhibit 10.1
LENDERS
THE CHASE MANHATTAN BANK
Revolving Credit Commitment
$70,000,000
By____________________________
Title:
Lending Office for all Loans:
One Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
1411 Broadway
New York, New York 10018
Attention: Ms. Maria B. Florez
Telecopier No.: (212) 391-2465
Telephone No.: (212) 391-7642
-69-
<PAGE>
Exhibit 10.1
LENDERS
CIBC INC.
Revolving Credit Commitment
$45,000,000
By____________________________
Title:
Lending Office for all Loans:
c/o Canadian Imperial Bank of Commerce
Two Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, Georgia 30339
Address for Notices:
c/o Canadian Imperial Bank of Commerce
Two Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, Georgia 30339
Attention: Ms. Kim Perrone
Telecopier No.: (404) 319-4950
Telephone No.: (404) 319-4829
-70-
<PAGE>
Exhibit 10.1
LENDERS
ING (U.S.) CAPITAL CORPORATION
Revolving Credit Commitment
$45,000,000
By___________________________
Title:
Lending Office for all Loans:
135 East 57th Street
New York, New York 10022-2101
Address for Notices:
135 East 57th Street
New York, New York 10022-2101
Attention: Mr. Alex J. van der Laan
Telecopier No.: (212) 758-7925
Telephone No.: (212) 409-1851
-71-
<PAGE>
Exhibit 10.1
LENDERS
THE BANK OF NOVA SCOTIA
Revolving Credit Commitment
$35,000,000
By___________________________
Title: Authorized Signatory
Lending Office for all Loans:
The Bank of Nova Scotia
One Liberty Plaza
New York, New York 10006
Address for Notices:
One Liberty Plaza
New York, New York 10006
Attention: Ms. Meredith Wedeking
Telecopier No.: (212) 225-5090
Telephone No.: (212) 225-5017
-72-
<PAGE>
Exhibit 10.1
LENDERS
FIRST UNION NATIONAL BANK
Revolving Credit Commitment
$35,000,000
By___________________________
Title: Vice President
Lending Office for all Loans:
190 River Road, 2nd Floor
Summit, NJ 07901
Attention: Robert H. Doherty, SVP
Telecopier No.: (908) 598-3085
Telephone No.: (908) 598-3076
Address for Notices:
190 River Road, 2nd Floor
Summit, NJ 07901
Attention: Mary Tenore
Telecopier No.: (908) 598-3084
Telephone No.: (908) 598-3065
-73-
<PAGE>
Exhibit 10.1
LENDERS
THE INDUSTRIAL BANK OF JAPAN, LIMITED
Revolving Credit Commitment
$35,000,000
By___________________________
Title:
Lending Office for all Loans:
The Industrial Bank of Japan, Limited
New York Branch
1251 Avenue of the Americas
New York, NY 10020-1104
Address for Notices:
1251 Avenue of the Americas
New York, NY 10020-1104
Attention: Mr. J. Kenneth Biegen
Telecopier No.: (212) 282-4488
Telephone No.: (212) 282-3460
-74-
<PAGE>
Exhibit 10.1
LENDERS
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
Revolving Credit Commitment
$35,000,000
By___________________________
Title:
By___________________________
Title:
Lending Office for all Loans:
245 Park Avenue
New York, New York 10167
Attention: Corporate Services Dept.
Fax: (212) 818-0233
Phone: (212) 916-7800
Address for Notices:
245 Park Avenue
New York, NY 10167
Attention: Dana W. Hemenway
Telecopier No.: (212) 916-7837
Telephone No.: (212) 916-7924
-75-
<PAGE>
Exhibit 10.1
LENDERS
SUMMIT BANK
Revoling Credit Commitment
$35,000,000 By___________________________
Title:
Lending Office for all Loans:
750 Walnut Avenue, 3rd Floor
Cranford, N.J. 07016
Attention: Dave Lyons
Fax: 908-709-6433
Phone: 908-709-5361
Address for Notices:
750 Walnut Avenue, 3rd Floor
Cranford, N.J. 07016
Attention: Carolyn Swiss
Telecopier No.: 201-641-4462
Telephone No.: 201-229-5288
-76-
<PAGE>
Exhibit 10.1
LENDERS
BANK OF MONTREAL
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
Lending Office for all Loans:
Bank of Montreal
115 South LaSalle Street
13th Floor West
Chicago, IL 60603
Attention: Robert Cannon
Fax: (312) 750-1789
Phone: (312) 750-3475
Address for Notices:
Bank of Montreal
115 South LaSalle Street
11th Floor West
Chicago, IL 60603
Attention: Ninfa Arenas
Telecopier No.: (312) 750-4345
Telephone No.: (312) 750-3453
-77-
<PAGE>
Exhibit 10.1
LENDERS
THE BANK OF NEW YORK
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
Lending Office for all Loans:
1 Wall Street
New York, New York 10286
Address for Notices:
1 Wall Street
New York, New York 10286
Attention: Howard F. Bascom, Jr.
Telecopier No.: (212) 635-1481
Telephone No.: (212) 635-7894
-78-
<PAGE>
Exhibit 10.1
LENDERS
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
Lending Office for all Loans:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10020
Attention: Lillian Kim
Fax: (212) 782-6445
Phone: (212) 782-4225
Address for Notices:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10020
Attention: Rolando Uy
Telecopier No.: (212) 766-3127
Telephone No.: (201) 413-8570
-79-
<PAGE>
Exhibit 10.1
LENDERS
CORESTATES BANK, N.A.
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
Lending Office for all Loans:
Corestates Bank, N.A.
1345 Chestnut Street
Philadelphia, PA 19101-7618
Address for Notices:
1345 Chestnut Street
Philadelphia, PA 19101-7618
Attention: Mr. John A. Ginter
Telecopier No.: (215) 973-7671
Telephone No.: (215) 973-2253
-80-
<PAGE>
Exhibit 10.1
LENDERS
CREDIT LYONNAIS NEW YORK BRANCH
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
Lending Office for all Loans:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Address for Notices:
1301 Avenue of the Americas
New York, New York 10019
Attention: Silvana Burdick
Telecopier No.: (212) 459-3179
Telephone No.: (212) 261-7343
-81-
<PAGE>
Exhibit 10.1
LENDERS
DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
By___________________________
Title:
Lending Office for all Loans:
31 West 52nd Street
24th Floor
New York, NY 10019
Address for Notices:
31 West 52nd Street
24th Floor
New York, NY 10019
Attention: Ms. Susan M. O'Connor
Telecopier No.: (212) 469-7936
Telephone No.: (212) 469-8208
-82-
<PAGE>
Exhibit 10.1
LENDERS
MELLON BANK, N.A.
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
Lending Office for all Loans:
Mellon Bank, N.A.
Loan Administration
Room 1203 Three Mellon Bank Center
Pittsburgh, PA 15259-0003
Address for Notices:
One Mellon Bank Center
Room 151-4535
Pittsburgh, PA 15258-0001
Attention: Ms. Maribeth Donnelly
Telecopier No.: (412) 236-1914
Telephone No.: (412) 236-2472
-83-
<PAGE>
Exhibit 10.1
LENDERS
SAKURA BANK LTD.
Revolving Credit Commitment
$25,000,000 By___________________________
Title: Vice President
Lending Office for all Loans:
277 Park Avenue
New York, NY 10172
Attention: Patricia Walsh
Fax: (212) 756-6781
Phone: (212) 756-6788
Address for Notices:
277 Park Avenue
New York, NY 10172
Attention: Stephen Chan
Telecopier No.: (212) 888-7651
Telephone No.: (212) 756-6774
-84-
<PAGE>
Exhibit 10.1
LENDERS
THE SUMITOMO TRUST & BANKING CO., LTD
NEW YORK BRANCH
Revolving Credit Commitment
$25,000,000 By___________________________
Title:
Lending Office for all Loans:
The Sumitomo Trust & Banking Company., Ltd.
New York Branch
527 Madison Avenue
New York, NY 10022
Address for Notices:
527 Madison Avenue
New York, New York 10022
Attention: Mr. Hiro Mizuno
Telecopier No.: (212) 418-4848
Telephone No.: (212) 326-0751
-85-
<PAGE>
Exibit 10.1
LENDERS
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
Lending Office for all Loans:
55 East 52nd Street
New York, New York 10055
Attention: Haruyo Niki
Fax: 212-832-1428
Phone: 212-339-1123
Address for Notices:
55 East 52nd Street
New York, New York 10055
Attention: Eva Cordova
Telecopier No.: 212-754-2171
Telephone No.: 212-339-1145
-86-
<PAGE>
Exhibit 10.1
LENDERS
WELLS FARGO BANK N.A.
Revolving Credit Commitment
$25,000,000
By___________________________
Title:
By___________________________
Title:
Lending Office for all Loans:
420 Montgomery Street 9th Fl.
San Francisco, CA 95163
Address for Notices:
420 Montgomery Street, 9th Floor
San Francisco, CA 95163
Attention: Theresa Croce
Telecopier No.: (415) 989-4319
Telephone No.: (415) 396-3629
-87-
<PAGE>
Exhibit 10.1
LENDERS
SUNTRUST BANK, ATLANTA
Revolving Credit Commitment
$20,000,000
By___________________________
Title:
By___________________________
Title:
Lending Office for all Loans:
SunTrust Bank, Atlanta
25 Park Place, 21st Floor
Atlanta, GA 30303
Attention: Kara King
Fax: (404) 575-2730
Phone: (404) 230-5413
Address for Notices:
SunTrust Bank, Atlanta
25 Park Place, 21st Floor
Atlanta, GA 30303
Attention: Kara King
Fax: (404) 575-2730
Phone: (404) 230-5413
-88-
<PAGE>
Exhibit 10.1
LENDERS
ABN-AMRO BANK, N.V.
New York Branch
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
By___________________________
Title:
Lending Office for all Loans:
500 Park Avenue
New York, New York 10022
Address for Notices:
500 Park Avenue
New York, New York 10022
Attention: Scott Boras
Telecopier No.: (212) 446-4203
Telephone No.: (212) 446-4274
-89-
<PAGE>
Exhibit 10.1
LENDERS
DG BANK Deutsche Genossenschaftsbank
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
By___________________________
Title:
Lending Office for all Loans:
Cayman Islands
Attention: Norah McCann
Fax: (212) 745-1556
Phone: (212) 745-1584
Address for Notices:
609 Fifth Avenue
NY, NY 10017
Attention: Sabine Wendt
Telecopier No.: (212) 745-1556
Telephone No.: (212) 745-1559
-90-
<PAGE>
Exhibit 10.1
LENDERS
FIRST HAWAIIAN BANK
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
999 Bishop Street, 11th Floor
Honolulu, Hawaii 96813
Address for Notices:
999 Bishop Street, 11th Floor
Honolulu, Hawaii 96813
Attention: Scott Nahme
Telecopier No.: (808) 525-6372
Telephone No.: (808) 525-8781
-91-
<PAGE>
Exhibit 10.1
LENDERS
FIRST NATIONAL BANK OF MARYLAND
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
25 S.Charles St.
Baltimore, Md. 21201
Attention: Stewart T. Shettle
Fax: 410-545-2047
Phone: 410-244-4104
Address for Notices:
25 S.Charles St.
Baltimore, Md. 21201
Attention: Stewart T. Shettle
Telecopier No.: 410-545-2047
Telephone No.: 410-244-4104
-92-
<PAGE>
Exhibit 10.1
LENDERS
FLEET NATIONAL BANK
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
Fleet Bank
MA0F0320
One Federal Street
Boston, MA 02110-2010
Attention: Thomas J. Bullard
Fax: (617) 346-0689
Phone: (617) 346-0146
Address for Notices:
Fleet Bank
MA0F0320
One Federal Street
Boston, MA 02110-2010
Attention: Thomas J. Bullard
Telecopier No.: (617) 346-0689
Telephone No: (617) 346-0146
-93-
<PAGE>
Exhibit 10.1
LENDERS
THE FUJI BANK, LIMITED
NEW YORK BRANCH
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
The Fuji Bank, Limited
New York Branch
Two World Trade Center
New York, New York 10048
Address for Notices:
Two World Trade Center
New York, New York 10048
Attention: Mark Hanslin
Telecopier No.: (212) 912-0516
Telephone No.: (212) 898-2073
-94-
<PAGE>
Exhibit 10.1
LENDERS
HIBERNIA NATIONAL BANK
Revolving Credit Commitment
$15,000,000 By_______________
Title:
Lending Office for all Loans:
313 Carondelet Street
New Orleans, LA 70130
Address for Notices:
313 Carondelet Street
New Orleans, LA 70130
Attention: Ms. Stephanie Freeman
Banking Officer
Telecopier No.: (504) 533-5344
Telephone No.: (504) 533-3345
-95-
<PAGE>
Exhibit 10.1
LENDERS
IBJ SCHRODER BANK & TRUST COMPANY
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
One State Street
New York, New York 10004
Address for Notices:
One State Street
New York, New York 10004
Attention: Mark H. Minter
Telecopier No.: (212) 858-2768
Telephone No.: (212) 858-2255
-96-
<PAGE>
Exhibit 10.1
LENDERS
MERITA BANK LTD
NEW YORK BRANCH
Revolving Credit Commitment
$15,000,000 By___________________________
Title:
By___________________________
Title:
Lending Office for all Loans:
Merita Bank Ltd.
New York Branch
437 Madison Avenue
New York, NY 10022
Address for Notices:
437 Madison Avenue
New York, NY 10022
Attention: Frank Maffei
Telecopier No.: (212) 318-9318
Telephone No.: (212) 318-9561
-97-
<PAGE>
Exhibit 10.1
LENDERS
THE MITSUBISHI TRUST AND
BANKING CORPORATION
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
520 Madison Avenue
New York, New York 10022
Address for Notices:
520 Madison Avenue
New York, New York 10022
Attention: Bea Kossodo
Telecopier No.: (212) 644-6825
Telephone No.: (212) 891-8363
-98-
<PAGE>
Exhibit 10.1
LENDERS
SANWA BANK LTD
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
The Sanwa Bank Ltd, New York Branch
Attention: Paul Judicke
Fax: (212) 754-1304
Phone: (212) 339-6366
Address for Notices:
The Sanwa Bank, Ltd., New York Branch
55 East 52nd Street
New York, NY 10055
Attention: R. Hara
Telecopier No.: (212) 754-2368
Telephone No.: (212) 339-6390
-99-
<PAGE>
Exhibit 10.1
LENDERS
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
277 Park Avenue
New York, New York 10172
Address for Notices:
277 Park Avenue
New York, New York 10172
Attention: Mr. Michael B. Novellino
Telecopier No.: (212) 224-5188
Telephone No.: (212) 224-4142
-100-
<PAGE>
Exhibit 10.1
LENDERS
THE TOYO TRUST & BANKING CO., LTD.
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
666 Fifth Avenue
New York, NY 10103
Attention: Paul St. Mauro, AVP
Fax: (212) 307-3498
Phone: (212) 307-3411
Address for Notices:
666 Fifth Avenue
New York, NY 10103
Attention: Paul St. Mauro, AVP
Telecopier No.: (212) 307-3498
Telephone No.: (212) 307-3411
-101-
<PAGE>
Exhibit 10.1
LENDERS
WACHOVIA BANK, N.A.
Revolving Credit Commitment
$15,000,000
By___________________________
Title:
Lending Office for all Loans:
Wachovia Bank, N.A.
Attention: Lisa M. Shawl
Fax: (404) 332-6898
Phone: (404) 332-6580
Address for Notices:
191 Peachtree Street
28th Floor
Atlanta, GA 30303
Attention: Demetria Chastang
Telecopier No.: (404) 332-6898
Telephone No.: (404) 332-1114
-102-
<PAGE>
Exhibit 10.1
LENDERS
THE YASUDA TRUST & BANKING COMPANY,
LIMITED
Revolving Credit Commitment
$10,000,000
By___________________________
Title:
Lending Office for all Loans:
Suite 801
666 Fifth Avenue
New York, NY 10103
Attention: J. Powers
Fax: (212) 373-5796
Phone: (212) 373-5729
Address for Notices:
Suite 801
666 Fifth Avenue
New York, NY 10103
Attention: R. Ortiz
Telecopier No.: (212) 373-5797
Telephone No.: (212) 373-5755
-103-
<PAGE>
Exhibit 10.1
SWINGLINE BANK
Swingline Commitment THE CHASE MANHATTAN BANK
$50,000,000
By____________________________
Title:
Lending Office for all Loans:
One Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
1411 Broadway
New York, New York 10018
Attention: Ms. Maria B. Florez
Telecopier No.: (212) 391-2465
Telephone No.: (212) 391-7642
-104-
<PAGE>
Exhibit 10.1
ADMINISTRATIVE AGENT
THE CHASE MANHATTAN BANK ,
as Administrative Agent
By____________________________
Title:
Lending Office for all Loans:
One Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
1411 Broadway
New York, New York 10018
Attention: Ms. Maria B. Florez
Telecopier No.: (212) 391-2465
Telephone No.: (212) 391-7642
-105-
<PAGE>
SCHEDULE 1
MATERIAL AGREEMENTS AND LIENS
-----------------------------
Part A -- Material Agreements
Aggregate
Principal
Balance or Amount of
Face Amount Unused
Credit Institution Type of Agreement Outstanding Commitment
- ------------------ ----------------- ----------- ----------
United States Trust Amended and Restated $190,000,000 0
Company of New York, Indenture of Barnes &
as Trustee Noble, Inc., dated as
of 7/23/93, for 11-7/8%
Senior Subordinated
Notes
<PAGE>
Part B - Liens
-----
Corporation Description Secured Party
- ----------- ----------- -------------
Barnes & Noble, Inc. Security interest in one Xerox Corporation
- -------------------- Xerox 1090 together with 835 Hope Street
any and all additions, P.O. Box 4901, MS 1-1
substitutions, accessories Stamford, CT 06907
or other or different
equipment added to or
replacing part of the
specified equipment and
all proceeds.
Security interest in all Hitachi Data Systems Corp.
right, title and interest 750 Central Expressway
in, to and under (1) Santa Clara, CA 95056
Computer Equipment Purchase
Agreement C0149/L, dated
1/25/95, between debtor
and secured party; (2) all
payments due and to become
due under such Agreement;
and (3) all computer and
peripheral equipment
subject to such Agreement.
Barnes & Noble
Booksellers, Inc. Security interest in all Key Bank of Vermont
----------------- contracts, permits, plans 149 Bank Street
and specifications and Burlington, VT 05402
other instruments and
agreements relating to the
construction of a bookstore
located at 100 Dorset Street
South Burlington, Vermont.
-2-
<PAGE>
SCHEDULE II
SUBSIDIARIES AND INVESTMENTS
----------------------------
Part A - Subsidiaries
------------
<TABLE>
<CAPTION>
Registered Owner
Jurisdiction of (and Percentage of
Subsidiary Organization Ownership) Shares Outstanding
---------- ------------ ------------------ ------------------
<S> <C> <C> <C>
B. Dalton Bookseller, Inc. Minnesota Barnes & Noble, Inc. 360 shares of common
(100%) stock, par value $100.00
per share
Barnes & Noble Booksellers, Inc. Delaware Barnes & Noble, Inc. 100 shares of common
(100%) stock, par value $1.00
per share
Marboro Books Corp. New York Barnes & Noble, Inc. 10 shares of common
(100%) stock, no par value
Doubleday Book Shops, Inc. Delaware B. Dalton 1,000 shares of common
Bookseller, Inc. stock, par value $1.00
(100%) per share
CCI Holdings, Inc. Texas Barnes & Noble, Inc. 3,000 shares of common
(100%) stock, par value $1.00
Barnes and Noble.com Inc. Delaware Barnes & Noble, Inc. 100 shares of common
(100%) stock, par value $1.00
Calmark Limited (Unrestricted United Barnes & Noble, Inc. 600,000 shares of
Subsidiary) Kingdom (80%) common stock, par
value (pounds)1.00
</TABLE>
Part B - Investments
-----------
1. Note payable to Barnes & Noble, Inc., dated March 13, 1996, issued by
Calendar Club Inc. (n/k/a CCI Holdings, Inc.) in the principal amount of
$3,000,000 due February 13, 2005, which note has been assumed by and is an
obligation of Calendar Club L.L.C., a Delaware limited liability company
(the "LLC").
2. Note payable to Barnes & Noble, Inc., dated March 13, 1996, issued by the
LLC in the principal amount of $1,500,000, due February 13, 2005.
3. CCI Holdings, Inc.'s 50% membership interest in the LLC.
4. Limited partnership interest in Parkway Plaza Associates, a New York
limited partnership.
5. 20% interest in Chapters Inc. an Ontario corporation.
<PAGE>
PROMISSORY NOTE
$70,000,000 November 18, 1997
New York, New York
FOR VALUE RECEIVED, BARNES & NOBLE, INC., a Delaware
corporation (the "Company"), hereby promises to pay to THE CHASE
MANHATTAN BANK (the "Lender"), for account of its respective Applicable
Lending Offices provided for by the Amended and Restated Credit Agreement
referred to below, at the principal office of The Chase Manhattan Bank at
One Chase Manhattan Plaza, New York, New York 10081, the principal sum of
SEVENTY MILLION DOLLARS ($70,000,000) (or such lesser amount as shall
equal the aggregate unpaid principal amount of the Revolving Credit Loans
made by the Lender to the Company under the Amended and Restated Credit
Agreement), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts
provided in the Amended and Restated Credit Agreement, and to pay
interest on the unpaid principal amount of each such Revolving Credit
Loan, at such office, in like money and funds, for the period commencing
on the date of such Revolving Credit Loan until such Revolving Credit
Loan shall be paid in full, at the rates per annum and on the dates
provided in the Amended and Restated Credit Agreement.
The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Revolving Credit Loan made by the
Lender to the Company, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any
transfer of this Note, endorsed by the Lender on the schedule attached
hereto or any continuation thereof, provided that the failure of the
Lender to make any such recordation or endorsement shall not affect the
obligations of the Company to make a payment when due of any amount owing
under the Amended and Restated Credit Agreement in respect of the
Revolving Credit Loans made by the Lender.
This Note is one of the Revolving Credit Notes referred
to in the Amended and Restated Credit Agreement dated as of November 18,
1997 (as modified and supplemented and in effect from time to time, the
"Amended and Restated Credit Agreement") between the Company, the
Subsidiaries of the Company identified on the signature pages thereof
under the caption "SUBSIDIARY GUARANTORS", the lenders named therein and
The Chase Manhattan Bank, as Administrative Agent, and evidences
Revolving Credit Loans made by the Lender thereunder. Terms used but not
defined in this Note have the respective meanings assigned to them in the
Amended and Restated Credit Agreement.
The Amended and Restated Credit Agreement provides for
the acceleration of the maturity of this Note upon the occurrence of
certain events and for prepayments of Revolving Credit Loans upon the
terms and conditions specified therein.
Except as permitted by Sections 12.06(b) and 12.06(d)
of the Amended and Restated Credit Agreement, this Note may not be
assigned by the Lender to any other Person.
This Note shall be governed by, and construed in
accordance with, the law of the State of New York.
BARNES & NOBLE, INC.
By____________________________
Title:
<PAGE>
SCHEDULE OF LOANS
This Note evidences Revolving Credit Loans made,
Continued or Converted under the within-described Amended and Restated
Credit Agreement to the Company, on the dates, in the principal amounts,
of the Types, bearing interest at the rates and having Interest Periods
(if applicable) of the durations set forth below, subject to the
payments, Continuations, Conversions and prepayments of principal set
forth below:
<TABLE>
<CAPTION>
Amount
Paid,
Date Made, Principal Duration of Prepaid, Unpaid
Continued or Amount Type of Interest Interest Continued Princiapal Notation
Converted of Loan Loan Rate Period or Converted Amount Made by
- ---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-2
[Form of Swingline Note]
PROMISSORY NOTE
$_______________ November __, 1997
New York, New York
FOR VALUE RECEIVED, BARNES & NOBLE, INC., a Delaware
corporation (the "Company"), hereby promises to pay to __________________
(the "Swingline Bank"), for account of its respective Applicable Lending
Offices provided for by the Amended and Restated Credit Agreement
referred to below, at the principal office of The Chase Manhattan Bank at
One Chase Manhattan Plaza, New York, New York 10001 the principal sum of
_______________ Dollars (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Swingline Loans made by the
Swingline Bank to the Company under the Amended and Restated Credit
Agreement), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts
provided in the Amended and Restated Credit Agreement, and to pay
interest on the unpaid principal amount of each such Swingline Loan, at
such office, in like money and funds, for the period commencing on the
date of such Swingline Loan until such Swingline Loan shall be paid in
full, at the rates per annum and on the dates provided in the Amended and
Restated Credit Agreement.
The date, amount, interest rate and maturity date of
each Swingline Loan made by the Swingline Bank to the Company, and each
payment made on account of the principal thereof, shall be recorded by
the Swingline Bank on its books and, prior to any transfer of this Note,
endorsed by the Swingline Bank on the schedule attached hereto or any
continuation thereof, provided that the failure of the Swingline Bank to
make any such recordation or endorsement shall not affect the obligations
of the Company to make a payment when due of any amount owing under the
Amended and Restated Credit Agreement in respect of the Swingline Loans
made by the Swingline Bank.
This Note is the Swingline Note referred to in the
Amended and Restated Credit Agreement dated as of November __, 1997 (as
modified and supplemented and in effect from time to time, the "Amended
and Restated Credit Agreement") between the Company, the Subsidiaries of
the Company identified on the signature pages thereof under the caption
"SUBSIDIARY GUARANTORS", the lenders named therein and The Chase
Manhattan Bank, as Administrative Agent, and evidences Swingline Loans
made by the Swingline Bank thereunder. Terms used but not defined in this
Note have the respective meanings assigned to them in the Amended and
Restated Credit Agreement.
The Amended and Restated Credit Agreement provides for
the acceleration of the maturity of this Note upon the occurrence of
certain events and for prepayments of Swingline Loans upon the terms and
conditions specified therein.
Except as permitted by Sections 12.06(d) and 12.06(g)
of the Amended and Restated Credit Agreement, this Note may not be
assigned by the Swingline Bank to any other Person.
This Note shall be governed by, and construed in
accordance with, the law of the State of New York.
BARNES & NOBLE, INC.
By____________________________
Title:
<PAGE>
SCHEDULE OF LOANS
This Note evidences Swingline Loans made under the
within-described Amended and Restated Credit Agreement to the Company, on
the dates, in the principal amounts, bearing interest at the rates and
maturing on the dates set forth below, subject to the payments of
principal set forth below:
<TABLE>
<CAPTION>
Principal Unpaid
Date Amount Interest Maturity Amount Principal Notation
Made of Loan Rate Date Paid Amount Made by
------ ---------- -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT C
[Form of Opinion of Counsel to the Obligors]
November __, 1997
To the Lenders party to the
Amended and Restated Credit
Agreement referred to
below and The Chase Manhattan Bank,
as Administrative Agent
Ladies and Gentlemen:
We have acted as counsel to Barnes & Noble, Inc. (the
"Company") and its subsidiaries in connection with the Amended and
Restated Credit Agreement (the "Credit Agreement") dated as of November
__, 1997, among the Company, the Subsidiaries of the Company identified
on the signature pages thereof under the caption "SUBSIDIARY GUARANTORS",
the lenders named therein and The Chase Manhattan Bank, as
Administrative Agent, providing for extensions of credit to be made by
said lenders to the Company in an aggregate amount not exceeding
$850,000,000. Terms defined in the Credit Agreement are used herein as
defined therein.
In rendering the opinions expressed below, we have examined (a)
the Basic Documents and (b) the originals or conformed copies of such
corporate records, agreements and instruments of the obligors,
certificates of public officials and of officers of the Obligors, and
such other documents and records, and such matters of law, as we have
deemed appropriate as a basis for the opinions hereinafter expressed. In
our examination, we have assumed the genuineness of all signatures, the
authenticity of documents submitted to us as originals and the conformity
with authentic original documents of all documents submitted to us as
copies. When relevant facts were not independently established, we have
relied upon statements of governmental officials and upon representations
made in or pursuant to the Basic Documents and certificates and
statements of appropriate representatives of the obligors.
In rendering the opinions expressed below, we have assumed that,
other than with respect to the Obligors, all of the documents referred to
in this opinion have been duly authorized by, have been duly executed and
delivered by, and constitute legal, valid, binding and enforceable
obligations of, all of the parties to such documents, that all
signatories to such documents have been duly authorized and that all such
parties are duly organized and validly existing and have the power and
authority (corporate or other) to execute, deliver and perform such
documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and
has the necessary corporate power to make and perform the Credit
Agreement and the Notes and the other Basic Documents to which it is a
party and to borrow under the Credit Agreement. Each Subsidiary
Guarantor is a corporation duly incorporated, validly existing and in
good standing under the laws of the respective state indicated opposite
its name in Schedule II to the Credit Agreement. The Company is duly
qualified to transact business in the State of New York and, to our
knowledge, the Subsidiary Guarantors are duly qualified to transact
business in all such jurisdictions where failure so to qualify would
reasonably be expected to have a material adverse effect on the
financial condition or operations of the Company and its Consolidated
Subsidiaries taken as a whole. Each Subsidiary Guarantor has the
necessary corporate power to make and perform the Credit Agreement
<PAGE>
and the other Basic Documents to which it is a party.
2. The making and performance by each Obligor of the Credit
Agreement and the other Basic Documents to which it is a party including,
in the case of the Company, the Notes and the borrowings by the Company
under the Credit Agreement have been duly authorized by all necessary
corporate action, and do not and will not violate any provision of any
applicable law or regulation or any provision of the charter or by-laws
of any Obligor or result in the breach of, or constitute a default or
require any consent under, or (except for the Liens created pursuant to
the Security Documents) result in the creation of any Lien upon any
material Property of the Company or any Subsidiary Guarantor pursuant to,
any indenture or other material agreement or instrument known to us to
which the Company or any Subsidiary Guarantor is a party or by which the
Company or any Subsidiary Guarantor or its Properties may be bound.
3. The Credit Agreement, the Security Agreement, and the
Security Agreement Amendment constitute, and the Notes when executed and
delivered for value will constitute, legal, valid and binding obligations
of the respective Obligor enforceable in accordance with their respective
terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
applicability affecting the enforcement of creditors' rights and (b) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and
except that no opinion is expressed as to Section 4.07(c) or Section 11
(other than Section 11.09) of the Credit Agreement.
We express no opinion as to the effect, or applicability, upon
the obligations of any Subsidiary Guarantor under the Credit Agreement,
the Security Agreement, and the Security Agreement Amendment of any
Federal or state law relating to fraudulent conveyances or transfers. In
addition, we express no opinion as to (i) whether a Federal or state
court outside of the State of New York would give effect to the choice of
New York law provided for in the Credit Agreement and the Notes and in
the other Basic Documents, (ii) the second sentence of Section 12.10 of
the Credit Agreement, insofar as such sentence relates to the subject
matter jurisdiction of the United States District Court for the Southern
District of New York to adjudicate any controversy related to the Credit
Agreement or the Notes or (iii) the waiver of inconvenient forum set
forth in Section 12.10 of the Credit Agreement with respect to
proceedings in the United States District Court for the Southern District
of New York. We also wish to point out that the obligations of the
Obligors under the Security Agreement and the Security Agreement
Amendment may be subject to possible limitations upon the exercise of
remedial or procedural provisions contained in the Security Agreement and
the Security Agreement Amendment, provided that such limitations do not,
in our opinion, make the remedies and procedures which will be afforded
to the Administrative Agent and the Lenders inadequate for the practical
realization of the substantive benefits purported to be provided to the
Administrative Agent and the Lenders by the Security Agreement and the
Security Agreement Amendment. Finally, we wish to point out that
provisions of the Basic Documents which permit the Administrative Agent
or any Lender to take action or make determinations, or to benefit from
indemnities and similar undertakings of the Obligors, may be subject to a
requirement that such action be taken or such determinations be made, and
that any action or inaction by the Administrative Agent or any Lender
which may give rise to a request for payment under such an undertaking be
taken or not taken, on a reasonable basis and in good faith.
4. There are no legal or arbitral proceedings, and no
proceedings by or before any governmental or regulatory authority or
agency, pending or (to our knowledge) threatened against the Company or
any Subsidiary Guarantor that would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
5. No authorizations, consents, approvals, licenses, filings or
registrations with any governmental or regulatory authority or agency are
required in connection with the execution, delivery or performance by any
Obligor of the Basic Documents to which it is a party, except the filings
and recordings of Liens to be created pursuant to the Security Documents.
6. The Security Agreement (as amended by the Security Agreement
Amendment) is effective to create, in favor of the Administrative Agent
for the benefit of the Lenders thereunder, a valid security interest (to
the
<PAGE>
extent that Article 9 of the Uniform Commercial Code is applicable
thereto) in the right, title and interest of the Obligors in the
Collateral (as defined in the Security Agreement), as collateral security
for the payment of the Secured Obligations (as so defined), except that
the security interest in Collateral in which any obligor acquires rights
after the commencement of a case against it under the Bankruptcy Code
will be limited by Section 552 of the Bankruptcy Code. By virtue of the
filings described in Annex 1 attached hereto, all such security interests
which can be perfected by a Uniform Commercial Code filing in the United
States of America will have been, upon such filings being completed, so
perfected. We express no opinion as to the right, title or interest of
any obligor in any of the Collateral.
7. The issued and outstanding shares of capital stock of each
Issuer under and as defined in the Security Agreement (as amended by the
Security Agreement Amendment) is correctly described in Annex 1 thereto,
and represented by the certificates therein identified. The security
interest in the Pledged Stock under and as defined in the Security
Agreement (as amended by the Security Agreement Amendment) represented by
each such certificate constitutes a valid, perfected security interest so
long as the Administrative Agent holds such certificates.
In rendering the foregoing opinions, we have assumed, without
independent investigation, that (i) the Company has not issued the Notes
and no Subsidiary Guarantor has guaranteed the Secured Obligations with
actual intent to hinder, delay or defraud their respective present or
future creditors, (ii) upon issuance of the Notes by the Company and the
guarantee by the Subsidiary Guarantors, neither the Company nor any
Subsidiary Guarantors was insolvent or engaged, or about to engage, in a
business or transaction for which the property remaining with the Company
or any Subsidiary Guarantors, as the case may be, was unreasonably small
capital, or intended to incur, or believed that it was incurring, debts
beyond its ability to pay as they become due, and (iii) each of the
Company and each Subsidiary Guarantor will satisfy in full any final
judgment against it in any action for money damages that either results
from an action pending against it on the date the Notes and the guarantee
were issued or docketed against it on such date.
The foregoing opinions are limited to matters involving the
Federal laws of the United States, the laws of the State of New York and,
to the extent necessary, the General Corporation Law of the State of
Delaware, and we do not express any opinion as to the laws of any other
jurisdiction.
This opinion letter is provided to you by us pursuant to Section
7.01(c) of the Credit Agreement and may not be relied upon by any other
person or for any purpose other than in connection with the transactions
contemplated by the Basic Documents without our prior written consent in
each instance.
Very truly yours,
<PAGE>
ANNEX 1
Jurisdictions of filings of
U.C.C. Financing Statements
<TABLE>
<CAPTION>
Obligor Jurisdiction of Filings
- ------- -----------------------
<S> <C> <C>
1. Barnes & Noble, Inc. 1. (a) Secretary of State of the State of New York
(b) Nassau County Clerk
(c) New York County Clerk
2. B. Dalton Bookseller, Inc. 2. (a) Secretary of State of the State of New York
(b) Nassau County Clerk
(c) New York County Clerk
(d) Secretary of State of the State of New Jersey
(e) Middlesex County Clerk
3. Barnes & Noble Booksellers, Inc. 3. (a) Secretary of State of the State of New York
(b) Nassau County Clerk
(c) New York County Clerk
4. Marboro Books Corp. 4. (a) Secretary of State of the State of New York
(b) Nassau County Clerk
(c) New York County Clerk
(d) Secretary of State of the State of New Jersey
(e) Bergen County Clerk
5. Doubleday Book Shops, Inc. 5. (a) Secretary of State of the State of New York
(b) Nassau County Clerk
(c) New York County Clerk
6. CCI Holdings, Inc. 6. (a) Secretary of State of the State of New York
(b) Nassau County Clerk
(c) New York County Clerk
(d) Secretary of State of the State of Texas
(e) Travis County Clerk
7. Barnes and Noble Online, Inc. 7. (a) Secretary of State of the State of New York
(b) Nassau County Clerk
(c) New York County Clerk
(d) Secretary of State of the State of New Jersey
(e) Bergen County Clerk
</TABLE>
<PAGE>
EXHIBIT D
[Form of Opinion of Special New York Counsel
to Chase, CIBC and ING]
November __, 1997
To: The Lenders party to the
Credit Agreement referred to
below and The Chase Manhattan Bank
as Administrative Agent
Re: Barnes & Noble, Inc.
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase Manhattan
Bank, CIBC Inc. and ING (U.S.) Capital Corporation in connection with
the Amended and Restated Credit Agreement dated as of November __, 1997
(the "Amended and Restated Credit Agreement") between Barnes & Noble,
Inc. (the "Company"), the Subsidiaries of the Company identified on the
signature pages thereof under the caption "SUBSIDIARY GUARANTORS" (the
"Subsidiary Guarantors"), the Lenders identified in the Amended and
Restated Credit Agreement (the "Lenders") and The Chase Manhattan Bank,
as Administrative Agent. All capitalized terms defined in the Amended and
Restated Credit Agreement are used with the same meanings, unless
otherwise defined, in this opinion letter.
In rendering the opinions expressed below, we have examined (a)
the Amended and Restated Credit Agreement, the Note, the Security
Agreement and the Security Agreement Amendment (collectively, the "Loan
Documents") and (b) such corporate records of the Obligors and such other
documents as we have deemed necessary as a basis for the opinions
expressed below. In our examination, we have assumed the genuineness of
all signatures, the authenticity of documents submitted to us as
originals and the conformity with authentic original documents of all
documents submitted to us as copies. When relevant facts were not
independently established, we have relied upon statements of governmental
officials and upon representations made in or pursuant to the Loan
Documents and certificates of appropriate representatives of the
Obligors.
In rendering the opinions expressed below, we have assumed that
all of the documents referred to in this opinion have been duly
authorized by, have been or (in the case of the Notes) will be duly
executed and delivered by, and (except, to the extent set forth below, as
to the Obligors) constitute legal, valid, binding and enforceable
obligations of, all of the parties to such documents, that all
signatories to such documents have been duly authorized and that all such
parties are duly organized and validly existing and have the power and
authority (corporate or other) to execute, deliver and perform such
documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. The Amended and Restated Credit Agreement constitutes, and
the Notes when duly executed and delivered for value will constitute, the
legal, valid and binding obligations of the Company, enforceable against
it in accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally and except as
the enforceability of such Loan Documents is subject to the application
of general principles of equity (regardless of
<PAGE>
whether considered in a proceeding in equity or at law), including
without limitation (a) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and (b)
concepts of materiality, reasonableness, good faith and fair dealing.
2. The Amended and Restated Credit Agreement constitutes the
legal, valid and binding obligation of each Subsidiary Guarantor,
enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally
and except as the enforceability of the Amended and Restated Credit
Agreement is subject to the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at law),
including without limitation (a) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and (b)
concepts of materiality, reasonableness, good faith and fair dealing.
3. The Security Agreement and the Security Agreement Amendment
constitute the legal, valid and binding obligation of each Obligor,
enforceable against it in accordance with its terms, except (a) as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally,
(b) as the enforceability of the Security Agreement and the Security
Agreement Amendment is subject to the application of general principles
of equity (regardless of whether considered in a proceeding in equity or
at law), including without limitation (1) the possible unavailability of
specific performance, injunctive relief or any other equitable remedy and
(2) concepts of materiality, reasonableness, good faith and fair dealing
and (c) that the enforceability of the obligations of the Obligors under
the Security Agreement and the Security Agreement Amendment may be
subject to possible limitations upon the exercise of remedial or
procedural provisions contained in the Security Agreement (as amended by
the Security Agreement Amendment), provided that (subject to clauses (a)
and (b) above) such limitations do not, in our opinion, make the remedies
and procedures afforded to the Administrative Agent and the Lenders
inadequate for the practical realization of the substantive benefits
purported to be provided to the Administrative Agent and the Lenders by
the Security Agreement and the Security Agreement Amendment.
The foregoing opinions are also subject to the following
comments and qualifications:
(a) The enforceability of Section 12.03 of the Amended and
Restated Credit Agreement may be limited by laws rendering unenforceable
indemnification contrary to Federal or state securities laws and the
public policy underlying such laws.
(b) The enforceability of provisions in the Loan Documents to
the effect that terms may not be waived or modified except in writing may
be limited under certain circumstances.
(c) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Lender is located (other than the State of
New York) that limits the interest, fees or other charges it may impose,
(ii) Section 4.07(c) of the Amended and Restated Credit Agreement or the
last sentence of Section 2.02(b), (iii) the second sentence of Section
12.10 of the Amended and Restated Credit Agreement insofar as such
sentence relates to the subject matter jurisdiction of the United States
District Court for the Southern District of New York to adjudicate any
controversy related to the Loan Documents and (iv) the waiver of
inconvenient forum set forth in Section 12.10 of the Amended and Restated
Credit Agreement with respect to proceedings in the United States
District Court for the Southern District of New York.
(d) We express no opinion as to the applicability to the
obligations of the Subsidiary Guarantors (or the enforceability of such
obligations) of Section 548 of the Bankruptcy Code or Article 10 of the
New York Debtor and Creditor Law, or any other provision of law, relating
to fraudulent conveyances, transfers or obligations. Nevertheless, we
have assumed, without independent verification, that you have made or
caused to be made such valuations and projections as you have deemed
necessary to demonstrate and satisfy yourselves that, after giving effect
to the respective guarantee, each Subsidiary Guarantor will not (i) be
insolvent, (ii) have liabilities (including contingent, unmatured and
subordinated liabilities) that are beyond its ability to pay as such
liabilities mature or (iii) have an unreasonably small capital with which
to conduct its business.
-2-
<PAGE>
The foregoing opinions are limited to matters involving the
federal laws of the United States of America and the laws of the State of
New York, and we do not express any opinion as to the laws of any other
jurisdiction.
This opinion letter is provided to you by us pursuant to Section
7.01(d) of the Amended and Restated Credit Agreement and may not be
relied upon by any other person or for any purpose other than in
connection with the transactions contemplated by the Loan Documents
without our prior written consent in each instance.
Very truly yours,
DKD/ILA
-3-
<PAGE>
EXHIBIT E
[Form of Compliance Certificate]
QUARTERLY REPORT
Re: Amended and Restated Credit Agreement dated as of
November __, 1997 (as modified and supplemented and in
effect from time to time, the "Amended and Restated
Credit Agreement") between Barnes & Noble, Inc., the
Subsidiary Guarantors party thereto, certain lenders
and The Chase Manhattan Bank , as Administrative Agent
for said lenders
This Certificate is delivered pursuant to paragraph
(b)(ii) of Section 9.01 of the above-referenced Amended and Restated
Credit Agreement and has been prepared in accordance with the terms and
provisions of said Amended and Restated Credit Agreement. Terms used
herein and defined in the Amended and Restated Credit Agreement shall
have their respective defined meanings when used herein. Section
references used in Annex A hereto refer to sections of the Amended and
Restated Credit Agreement. Entries on Annex A hereto shall relate to the
fiscal periods referred to in the Amended and Restated Credit Agreement
for determination thereof and represent descriptive references only to
the corresponding components set forth in the relevant sections of the
Amended and Restated Credit Agreement (and the definitions therein
ancillary thereto). This Certificate relates to the fiscal period of the
Company ending __________________.
The Company hereby certifies that the information
contained on Annex A hereto is true and correct in all material respects
and that no Default has occurred and is continuing.
BARNES & NOBLE, INC.
By_________________________
Title:
Date: _________________
<PAGE>
Annex A
to QUARTERLY
REPORT
QUARTERLY REPORT
For the period ending ____________
Section 9.07(h). Purchase Money Debt.
(a) Outstanding amount of purchase
money debt at period-end date: __________
(b) maximum permitted amount: $40,000,000
Section 9.07(i) Unsecured Debt.
(a) Outstanding amount of additional
unsecured debt at period-end date: __________
(b) maximum permitted amount: $100,000,000
Section 9.08(j) Additional Equity Investments.
(a) Equity Investments in
Unrestricted Subsidiaries
made fiscal year-to-date: __________
(b) maximum permitted amount: __________
Section 9.10(a). Fixed Charge Ratio.
(a) EBITDA for the period of four consecutive fiscal
quarters ending on or most recently ended prior to
period-end date:
Earnings before Income Taxes __________
Consolidated Company
Adjustments, primarily
investments __________
Gross Interest Expense __________
-1-
<PAGE>
Net Interest Expense __________
Interest Income __________
Deferred Fees __________
Other non cash charges __________
Proceeds from Exercise
of Employee Stock Options __________
Depreciation and Amortization __________
Deferred Fee Amortization __________
EBITDA __________
(b) Debt Service for such period:
Interest Expense __________
Capital Expenditures __________
Investments __________
Debt Service __________
(c) aggregate amount (without duplication)
of Investments in Affiliates for such
period that either (x) consist of equity
interests or (y) constitute acquisitions
of the capital stock or assets of
other companies: __________
(d) Equity Financed Investments and
Capital Expenditures (up to $25,000,000) __________
(e) sum of (b) plus (c) minus (d): __________
(f) Fixed Charge Ratio equals (a)
divided by (d): __________
(g) minimum permitted ratio: __________
-2-
<PAGE>
Section 9.10(b). Interest Coverage Ratio.
(a) EBITDAR for the period of four
consecutive fiscal quarters ending
on or most recently ended prior to
period-end date:
EBITDA ___________
Rents ___________
EBITDAR ___________
(b) Interest Expense for
such period: ___________
(c) Rental Payments for such period
(to the extent not included in
Interest Expense) for such period ____________
(d) sum of (b) plus (c): ____________
(e) Interest Coverage Ratio
equals (a) divided by (d): ____________
(f) minimum permitted ratio: ____________
Section 9.10(c). Leverage.
(a) Funded Debt:
Subordinated Debentures ___________
Senior Facilities ___________
LOC's ___________
Other ___________
Funded Debt ___________
(b) EBITDA for the period of four
consecutive fiscal quarters
ending on or most recently
<PAGE>
-3-
ended prior to period-end date: __________
(c) Leverage Ratio equals
(a) divided by (b): __________
(d) maximum permitted ratio: __________
Section 9.11(a). Capital Expenditures.
(a) Capital Expenditures made to
date in this Fiscal Year: __________
(b) maximum permitted amount: __________
Section 9.11(b). Specified Capital Expenditures.
(a) Expenditures with respect
to Projects not yet flipped: __________
(b) maximum permitted amount: $50,000,000
-4-
<PAGE>
Exhibit 10.3
AMENDMENT TO PLEDGE AND SECURITY AGREEMENT
AMENDMENT TO PLEDGE AND SECURITY AGREEMENT, dated as of November 18,
1997, between BARNES & NOBLE, INC., a corporation duly organized and validly
existing under the laws of the State of Delaware (the "Company"); each of the
Subsidiaries of the Company identified under the caption "SUBSIDIARY
GUARANTORS" on the signature pages hereof (individually, a "Subsidiary
Guarantor" and, collectively, the "Subsidiary Guarantors" and, together with
the Company, the "Obligors"); and THE CHASE MANHATTAN BANK, as agent for the
lenders or other financial institutions or entities party, as lenders, to the
Credit Agreement referred to below (in such capacity, together with its
successors in such capacity, the "Administrative Agent").
The Company, the Subsidiary Guarantors, certain lenders and
the Administrative Agent are parties to a Amended and Restated Credit
Agreement dated as of November 18, 1997 (as modified and supplemented and in
effect from time to time, the "Amended and Restated Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions of
credit (by making of loans and issuing letters of credit) to be made by said
lenders to the Company in an aggregate principal or face amount not exceeding
$850,000,000 (as that amount may be increased as provided therein). The
Obligors and the Agent wish to amend the Security Agreement referred to in the
Amended and Restated Credit Agreement in certain respects and, accordingly,
agree as follows:
Section 2. Definitions. Except as otherwise defined in this
Amendment, terms defined in the Amended and Restated Credit Agreement are used
herein as defined therein.
Section 3. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 below, but effective as of the date hereof
the Security Agreement shall be amended as follows:
a. Amount of Credit Agreement. The second paragraph of the
Security Agreement is amended by replacing the reference to
"$550,000,000" with a reference to "$850,000,000."
b. Name Change. The Administrative Agent has changed its
name from The Chase Manhattan Bank (National Association) to The
Chase Manhattan Bank and each reference in the Security Agreement to
The Chase Manhattan Bank (National Association) shall be deemed to be
a reference to The Chase Manhattan Bank.
c. Annex 1. Annex 1 to the Security Agreement shall be
amended in its entirety to read as Annex 1 hereto.
d. Annex 2. Annex 2 to the Security Agreement shall be
amended in its entirety to read as Annex 2 hereto.
e. Annex 3. Annex 3 to the Security Agreement shall be
amended in its entirety to read as Annex 3 hereto.
f. Annex 4. Annex 4 to the Security Agreement shall be
amended in its entirety to read as Annex 4 hereto.
g. Annex 5. Annex 4 to the Security Agreement shall be
amended in its entirety to read as Annex 5 hereto.
h. Amendment and Restatement of Credit Agreement. Each
reference in the Security Agreement to the Credit Agreement shall be
deemed to be a reference to the Amended and Restated Credit
Agreement.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments set forth in Section 2 shall become effective, as of the date
hereof, upon the due execution and delivery of this Amendment by the
<PAGE>
Exhibit 10.3
Obligors and the Agent.
Section 5. Miscellaneous. Except as herein provided, the Security
Agreement shall remain unchanged and in full force and effect. This Amendment
may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment by signing any such counterpart. This
Amendment shall be governed by, and construed in accordance with, the internal
laws of the State of New York.
2
<PAGE>
Exhibit 10.3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the day and year first above written.
BARNES & NOBLE, INC.
By ___________________________________
Title:
SUBSIDIARY GUARANTORS
B. DALTON BOOKSELLER, INC.
By ___________________________________
Title:
BARNES & NOBLE BOOKSELLERS, INC.
By ___________________________________
Title:
BARNESANDNOBLE.COM, INC.
By ___________________________________
Title:
MARBORO BOOKS CORP.
By ___________________________________
Title:
DOUBLEDAY BOOK SHOPS, INC.
By ___________________________________
Title:
3
<PAGE>
Exhibit 10.3
CCI HOLDINGS, INC.
By ___________________________________
Title:
4
<PAGE>
Exhibit 10.3
THE CHASE MANHATTAN BANK, as Administrative Agent
By ___________________________________
Title:
5
<PAGE>
Exhibit 10.3
ANNEX 1
PLEDGED STOCK
BARNES & NOBLE, INC.
- --------------------
Issuer Certificate Registered Number of Shares
Nos. Owner
------ ----------- ---------- ----------------
B. Dalton C-1 Barnes & 360 shares of common
Bookseller, Inc. Noble, Inc. stock, par value $100
Barnes & Noble 1 Barnes & 100 shares of common
Superstores, Inc. Noble, Inc. stock, par value $1
Marboro Books Corp. 4 Barnes & 10 shares of common
Noble, Inc. stock, no par value
CCI Holdings, Inc. 1 Barnes & 3,000 shares of common
Noble, Inc. stock, par value $1
B. DALTON BOOKSELLER, INC.
- --------------------------
Doubleday Book 5 B. Dalton 1,000 shares of common
Shops, Inc. Bookseller, stock, par value $1
Inc.
BARNES & NOBLE SUPERSTORES, INC.
- --------------------------------
None
MARBORO BOOKS CORP.
- -------------------
None
DOUBLEDAY BOOK SHOPS, INC.
- --------------------------
None
CCI HOLDINGS, INC.
- ------------------
None
6
<PAGE>
Exhibit 10.3
ANNEX 2
LIST OF PATENTS AND PATENT APPLICATIONS
BARNES & NOBLE, INC.
- --------------------
File Patent Country Registration No. Date
- ------------------------------------------------------------------------------
NONE
B. DALTON BOOKSELLER, INC.
- --------------------------
File Patent Country Registration No. Date
- ------------------------------------------------------------------------------
NONE
BARNES & NOBLE SUPERSTORES, INC.
- --------------------------------
File Patent Country Registration No. Date
- ------------------------------------------------------------------------------
NONE
MARBORO BOOKS CORP.
- -------------------
File Patent Country Registration No. Date
- ------------------------------------------------------------------------------
NONE
DOUBLEDAY BOOK SHOPS, INC.
- --------------------------
File Patent Country Registration No. Date
- ------------------------------------------------------------------------------
NONE
CCI HOLDINGS, INC.
- ------------------
File Patent Country Registration No. Date
- ------------------------------------------------------------------------------
NONE
1
<PAGE>
Exhibit 10.3
ANNEX 3
LIST OF TRADE NAMES, TRADEMARKS, SERVICES MARKS,
TRADEMARK AND SERVICE MARK REGISTRATIONS AND
APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS
A. U.S. Trademarks
---------------
BARNES & NOBLE, INC.
- --------------------
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- ------------------------------------------------------------------------------
None
B. DALTON BOOKSELLER, INC.
- --------------------------
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- ------------------------------------------------------------------------------
Books Dalton (Design) 1,643,985 (R) 05-07-91
Books Dalton 1,667,902 (R) 12-10-91
B. Dalton Jr. 1,684,036 (R) 04-21-92
B. Dalton Jr. (Design) 1,667,039 (R) 12-03-91
The Wordpublisher (Design) 1,607,811 (R) 07-24-90
Book$avers 1,597,933 (R) 05-22-90
P.B. Pages 1,814,553 (R) 12-28-93
B. Dalton's 1,293,494 (R) 09-04-84
Barnes & Noble Jr. (Design) 1,609,403 (R) 08-07-90
Barnes & Noble Jr. 1,606,005 (R) 07-10-90
B. Dalton Bookseller 846,824 (R) 03-26-68
B. Dalton 1,158,498 (R) 06-23-81
Hooked on Books 1,147,660 (R) 02-24-81
1
<PAGE>
Exhibit 10.3
People Who Know Books
Know B. Dalton 1,306,552 (R) 11-20-84
Amaranth Press 1,404,928 (R) 08-12-86
Reader's Express 1,646,374 (R) 05-28-91
Pickwick 1,047,832 (R) 09-07-86
Lamp of Learning (Design) 1,607,811 (R) 07-24-90
BARNES & NOBLE SUPERSTORES, INC.
- --------------------------------
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- ------------------------------------------------------------------------------
Bookstar (Design) 1,558,604 (R) 09-26-89
MARBORO BOOKS CORP.
- -------------------
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- ------------------------------------------------------------------------------
None
CCI HOLDINGS, INC.
- ------------------
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- ------------------------------------------------------------------------------
None
DOUBLEDAY BOOK SHOPS, INC.
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- ------------------------------------------------------------------------------
The Old Corner (Mass.) 0025314 (R) 12-11-94
Bookstore
Books of All Publishers
Since 1910 (and Design) 1,516,823 (R) 12-13-88
2
<PAGE>
Exhibit 10.3
B. U.S. Tradenames
---------------
Barnes & Noble
Marboro Books
Bookstop
3
<PAGE>
Exhibit 10.3
Foreign Trademarks
------------------
BARNES & NOBLE, INC.
- --------------------
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ------------------------------------------------------------------------------
NONE
B. DALTON BOOKSELLER, INC.
- --------------------------
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ------------------------------------------------------------------------------
NONE
BARNES & NOBLE SUPERSTORES, INC.
- --------------------------------
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ------------------------------------------------------------------------------
NONE
MARBORO BOOKS CORP.
- -------------------
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ------------------------------------------------------------------------------
NONE
DOUBLEDAY BOOK SHOPS, INC.
- --------------------------
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ------------------------------------------------------------------------------
NONE
CCI HOLDINGS, INC.
- ------------------
Application (A) Registration or
Mark Registration (R) Country Filing Date (F)
- ------------------------------------------------------------------------------
NONE
4
<PAGE>
Exhibit 10.3
ANNEX 4
LIST OF CONTRACTS, LICENSES AND OTHER AGREEMENTS
RELATING TO INTELLECTUAL PROPERTY
BARNES & NOBLE, INC.
- --------------------
License Agreement dated as of February 11, 1989 between Barnes & Noble College
Bookstores, Inc. and Barnes & Noble Discount Bookstores, Inc. (a predecessor
of B. Dalton Bookseller, Inc.)
B. DALTON BOOKSELLER, INC.
- --------------------------
Letter Agreement dated as of February 21, 1989 from Scribner's Book Companies,
Inc. and MacMillan, Inc. to B. Dalton Bookseller, Inc.
BARNES & NOBLE SUPERSTORES, INC.
- --------------------------------
NONE
MARBORO BOOKS CORP.
- -------------------
NONE
DOUBLEDAY BOOK SHOPS, INC.
- --------------------------
Trade Mark and Service Mark License dated as of May 31, 1990 between Bantam
Doubleday Dell Publishing Group, Inc. and Doubleday Book Shops, Inc.
CCI HOLDINGS, INC.
- ------------------
NONE
1
<PAGE>
Exhibit 10.3
ANNEX 5
LIST OF LOCATIONS
BARNES & NOBLE, INC. B. DALTON BOOKSELLER, INC.
- ------------------- --------------------------
1. 122 Fifth Avenue 1. 122 Fifth Avenue
New York, NY 10011 New York, NY 10011
2. 1400 Old Country Road 2. 1400 Old Country Road
Westbury, New York 11590 Westbury, NY 11590
BARNES & NOBLE SUPERSTORES, INC. 3. Center Point Industrial Park
- ------------------------------- 12 South Middlesex Avenue
Cranbury, NJ 08512
1. 122 Fifth Avenue
New York, NY 10011 4. 21 South Middlesex Avenue
Cranbury, NJ 08512
2. 1400 Old Country Road
Westbury, New York 11590 5. 40 Commerce Drive
South Brunswick, NJ 08846
MARBORO BOOKS CORP. CCI HOLDINGS, INC.
- ------------------- ------------------
1. 122 Fifth Avenue 1. 122 Fifth Avenue
New York, NY 10011 New York, NY 10011
2. 1400 Old Country Road 2. 1400 Old Country Road
Westbury, New York 11590 Westbury, NY 11590
3. One Pond Road 3. 11600 Manchaca Road
Rockleigh, NJ 07647 Austin, TX 78748
DOUBLEDAY BOOK SHOPS, INC.
- --------------------------
1. 122 Fifth Avenue
New York, NY 10011
2. 1400 Old Country Road
Westbury, New York 11590
<PAGE>
Exhibit 10.8
BARNES & NOBLE, INC.
EMPLOYEES' RETIREMENT PLAN
Effective as of January 1, 1987
Amended and Restated as of January 1, 1998
<PAGE>
Exhibit 10.8
BARNES & NOBLE, INC.
EMPLOYEES' RETIREMENT PLAN
INTRODUCTION
B. Dalton Bookseller, Inc., prior to 1987 a wholly-owned subsidiary of
Dayton-Hudson Corporation, established the B. Dalton Company Employees'
Retirement Plan as of January 1, 1987 ("B. Dalton Plan"). Effective
January 1, 1992, the Pension Plan for Employees of Doubleday Book Shops,
Inc. was merged into the B. Dalton Plan.
As of January 1, 1994, sponsorship of the B. Dalton Plan was transferred
from B. Dalton Bookseller, Inc. to Barnes & Noble, Inc.. The B. Dalton
Plan was amended and restated in its entirety and renamed the Barnes &
Noble, Inc. Employees' Retirement Plan effective as of January 1, 1994
("Plan").
This amendment and restatement of the Plan is effective as of January 1,
1998 and incorporates the provisions of the Retirement Protection Act of
1994 as part of the General Agreement on Tariffs and Trade.
Except as otherwise herein specified, the rights and benefits of any
Participant who retires or whose employment is terminated are determined
in accordance with the provisions of the Plan in effect and operative at
the time of such retirement or termination.
<PAGE>
Exhibit 10.8
BARNES & NOBLE, INC.
EMPLOYEES' RETIREMENT PLAN
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS .......................................................1
ARTICLE 2. PARTICIPATION ....................................................13
2.01 Participation Requirements .....................................13
2.02 Determination of Eligibility Service ...........................13
2.03 Events Affecting Participation .................................13
2.04 Participation upon Reemployment ................................14
ARTICLE 3. SERVICE ..........................................................15
3.01 Years of Vesting Service .......................................15
3.02 Credited Service ...............................................18
3.03 Restoration of Retired Participant or Other Former Eligible
Employee to Service ............................................19
ARTICLE 4. ELIGIBILITY FOR AND AMOUNT OF BENEFITS ...........................24
4.01 Normal Retirement ..............................................24
4.02 Late Retirement ................................................25
4.03 Early Retirement ...............................................27
4.04 Vesting ........................................................27
4.05 Spouse's Pension ...............................................28
4.06 Maximum Benefit Limitation .....................................32
4.07 Transfers and Employment with an Affiliate .....................33
ARTICLE 5. PAYMENT OF PENSIONS ..............................................35
5.01 Automatic Form of Payment ......................................35
5.02 Optional Forms of Payment ......................................36
5.03 Election of Options ............................................39
5.04 Commencement of Payments .......................................41
5.05 Distribution Limitation ........................................42
5.06 Direct Rollover of Certain Distributions .......................42
ARTICLE 6. CONTRIBUTIONS ....................................................44
6.01 Employer's Contributions .......................................44
6.02 Return of Contributions ........................................44
ARTICLE 7. ADMINISTRATION OF PLAN ...........................................45
7.01 Plan Sponsor and Plan Administrator ............................45
7.02 Administrative Responsibilities ................................45
<PAGE>
BARNES & NOBLE, INC.
EMPLOYEES' RETIREMENT PLAN
TABLE OF CONTENTS
(cont'd)
Page
7.03 Delegation of Responsibilities .................................46
7.04 Certified Earnings and Bonding .................................46
7.05 Service in More Than One Fiduciary Capacity ....................46
7.06 Indemnification ................................................47
7.07 Establishment of Rules .........................................47
7.08 Correction of Errors ...........................................47
7.09 Prudent Conduct ................................................48
7.10 Actuary ........................................................48
7.11 Maintenance of Accounts ........................................48
7.12 Records ........................................................48
7.13 Appointment of Investment Manager ..............................48
7.14 Expenses of Administration .....................................49
7.15 Claims and Review Procedures ...................................49
ARTICLE 8. MANAGEMENT OF FUNDS ..............................................53
8.01 Funding Agent ..................................................53
8.02 Exclusive Benefit Rule .........................................54
8.03 Funding Policy .................................................54
ARTICLE 9. GENERAL PROVISIONS ...............................................55
9.01 Nonalienation ..................................................55
9.02 Conditions of Employment Not Affected by Plan ..................55
9.03 Facility of Payment ............................................56
9.04 Information ....................................................56
9.05 Top-Heavy Provisions ...........................................56
9.06 Offsets ........................................................60
9.07 Construction ...................................................60
9.08 Prevention of Escheat ..........................................61
ARTICLE 10. AMENDMENT, MERGER, AND TERMINATION ..............................62
10.01 Amendment of Plan .............................................62
10.02 Merger, Consolidation, or Transfer ............................62
10.03 Additional Participating Employers ............................63
10.04 Termination of Plan ...........................................63
10.05 Limitation Concerning Highly Compensated Employees or Highly
Compensated Former Employees ..................................64
10.06 Doubleday Book Shops, Inc .....................................65
<PAGE>
BARNES & NOBLE, INC.
EMPLOYEES' RETIREMENT PLAN
TABLE OF CONTENTS
(cont'd)
Page
APPENDIX A. ACTUARIAL FACTORS ...............................................66
APPENDIX B. PROVISIONS APPLICABLE TO EMPLOYEES OF DOUBLEDAY BOOK SHOPS, INC .68
<PAGE>
Exhibit 10.8
BARNES & NOBLE, INC.
EMPLOYEES' RETIREMENT PLAN
ARTICLE 1. DEFINITIONS
1.01 "Accrued Benefit" means, as of any date of determination, the
normal retirement Pension of a Participant computed under
Section 4.01 on the basis of the Participant's Final Average
Compensation, the number of years of Credited Service and other
applicable components of the Plan formula, as of that date.
1.02 "Actuarial Equivalent" means the equivalent value when computed
on the basis of the IRS Mortality Table and IRS Interest Rate,
except as otherwise specified in the Plan or Appendix A.
1.03 "Administrator" means the Company in its role described in Article 7.
1.04 "Affiliate" means any company not participating in the Plan
which is (i) a member of a controlled group of corporations (as
defined in Section 414(b) of the Code) which also includes as a
member the Employer; (ii) any trade or business under common
control (as defined in Section 414(c) of the Code) with the
Employer; (iii) any organization (whether or not incorporated)
which is a member of an affiliated service group (as defined in
Section 414(m) of the Code) which includes the Employer; or (iv)
any other entity required to be aggregated with the Employer
pursuant to regulations under Section 414(o) of the Code.
Notwithstanding the foregoing sentence, for purposes of Section
4.06, Section 3.01(e)(iii), and Section 3.02(c)(iii), the
definitions in Sections 414(b) and (c) of the Code shall be
modified as provided in Section 415(h) of the Code.
<PAGE>
Page 2
1.05 "Annuity Starting Date" means, unless the Plan expressly
provides otherwise, the first day of the first period for which
an amount is due as an annuity or any other form.
1.06 "Beneficiary" means the person or persons named by a Participant
by written designation filed with the Administrator to receive
payments after the Participant's death.
1.07 "Board of Directors" means the Board of Directors of the
Company, as from time to time constituted, or any executive
committee thereof authorized to act for said Board of Directors.
1.08 "Break in Service" means a period which constitutes a break in
an Eligible Employee's Years of Vesting Service, as provided in
Section 3.01(c).
1.09 "Certified Earnings" means the basic cash remuneration paid to
an Eligible Employee for services rendered to the Employer,
determined prior to any pre-tax contributions under a "qualified
cash or deferred arrangement" (as defined under Section 401(k)
of the Code and its applicable regulations) or under a
"cafeteria plan" (as defined under Section 125 of the Code and
its applicable regulations), including salary, hourly wages,
commissions, overtime pay, and bonus pay, but excluding (a)
expense allowances or reimbursements, payments or contributions
to or for the benefit of the Participant under this Plan or any
other employee benefit plan, deferred compensation payments
under any deferred compensation plan, merchandise discounts or
benefits in the form or use of property, except to the extent
such amounts are required to be included in determining the
Eligible Employee's regular rate of pay under the Federal Fair
Labor Standards Act for purposes of computing his overtime pay,
(b) any bonus paid to the Eligible Employee under a plan or
policy of the Employer that is paid in a calendar year other
than the
<PAGE>
Page 3
calendar year in which such bonus would normally be
paid under such plan or policy, or (c) amounts paid by any
entity other than the Employer.
However, effective on and after January 1, 1989 and before
January 1, 1994, Certified Earnings taken into account for any
purpose under the Plan, including the determination of Final
Average Compensation, shall not exceed $200,000 per year. Except
as provided below, as of January 1 of each calendar year on and
after January 1, 1990 and before January 1, 1994, the applicable
limitation as determined by the Commissioner of Internal Revenue
for that calendar year shall become effective as the maximum
Certified Earnings to be taken into account for Plan purposes
for that calendar year only in lieu of the $200,000 limitation
set forth above. Commencing with the Plan Year beginning in
1994, Certified Earnings taken into account for any purpose
under the Plan, including the determination of Final Average
Compensation, shall not exceed $150,000, as adjusted in
accordance with Sections 401(a)(17)(B) and 415(d)(1)A) of the
Code.
1.10 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
1.11 "Company" means prior to January 1, 1994, B. Dalton Bookseller,
Inc., and thereafter, Barnes & Noble, Inc. and any successor
thereof by merger, purchase, or otherwise.
1.12 "Covered Compensation" means, for any Participant, the average,
rounded to the nearest $3,000, of the taxable wage bases in
effect under Section 230 of the Social Security Act for each
year in the 35-year period ending with the calendar year in
which the Participant attains (or will attain) his Social
Security Retirement Age. In determining a Participant's Covered
Compensation for any Plan Year, the taxable wage base for the
current Plan Year and any subsequent Plan Year
<PAGE>
Page 4
shall be assumed to be the same as the taxable wage base in effect as
of the beginning of the Plan Year for which the determination is made.
1.13 "Credited Service" means service recognized for purposes of
computing the amount of any benefit, determined as provided in
Section 3.02.
1.14 "Effective Date" means January 1, 1987.
1.15 "Eligible Employee" means any Employee who receives from an
Employer compensation other than a pension, severance pay,
retainer or fee under contract, but excluding any individual
classified by the Employer as a Leased Employee or independent
contractor, regardless of their classification by the Internal
Revenue Service for tax withholding purposes, any person who is
included in a unit of Employees covered by a collective
bargaining agreement which does not provide for his membership
in the Plan, any non-resident alien with no U.S.-source income
(as described in Code Section 861(a)(3)), and any Employee whose
services are performed outside the continental United States
(including Alaska and Puerto Rico) or Hawaii, or whose base of
operations is outside the continental U.S. (including Alaska and
Puerto Rico) or Hawaii.
1.16 "Employee" means any person who is employed by an Employer.
1.17 "Employer" means the Company with respect to its employees; or
any other company participating in the Plan as provided in
Section 10.03 with respect to its employees.
1.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
<PAGE>
Page 5
1.19 "Final Average Compensation" means the average annual Certified
Earnings of a Participant during the five consecutive Plan Years
in the last ten or fewer Plan Years during which he completes at
least 1,000 Hours of Service in each such Plan Year affording
the highest such average, or during all of the Plan Years in
which he completes 1,000 Hours of Service, if less than five
years. The Plan Year in which the Participant first completes an
Hour of Service and/or the Plan Year in which he incurs a
Termination of Employment shall be included in the determination
of Final Average Compensation, even if he completed less than
1,000 Hours of Service in each of such Plan Years, if the
inclusion of Certified Earnings in either or both of such Plan
Years results in a higher Final Average Compensation, provided
that such Plan Years are within the last ten consecutive Plan
Years.
1.20 "Five Percent Owner" means with respect to a corporation, any
person who owns (or is considered as owning within the meaning
of Code Section 318) more than 5 percent of the outstanding
stock of the corporation or stock possessing more than 5 percent
of the total voting power of the corporation.
1.21 "Funding Agent" means the trustee or trustees or the legal
reserve life insurance company by whom the funds of the Plan are
held, as provided in Article 8.
1.22 "Highly Compensated Employee" means with respect to a Plan Year
commencing on or after January 1, 1997, any employee of the
Employer or an Affiliate (whether or not eligible for the Plan)
who:
(a) was a Five Percent Owner for such Plan Year or the
prior Plan Year, or
<PAGE>
Page 6
(b) for the preceding Plan Year received Statutory
Compensation in excess of $80,000 (as adjusted by the
Secretary of the Treasury from time to time), and, if
the Employer so elects, was among the highest 20
percent of employees for the preceding Plan Year when
ranked by Statutory Compensation paid for that year
excluding, for purposes of determining the number of
such employees, such employees as the Administrator
may determine on a consistent basis pursuant to
Section 414(q) of the Code. For this purpose,
"Statutory Compensation" shall mean the wages,
salaries, and other amounts paid in respect of an
employee for services actually rendered to an Employer
or an Affiliate and including amounts excluded from
the income of an employee pursuant to Sections 125,
402(e)(3), 402(h)(1)(B), and 403(b) of the Code, but
excluding deferred compensation, stock options, and
other distributions which receive special tax benefits
under the Code.
Notwithstanding the foregoing, employees who are nonresident
aliens and who receive no earned income from the Employer or an
Affiliate which constitutes income from sources within the
United States shall be disregarded for all purposes of this
Section.
The provisions of this Section shall be further subject to such
additional requirements as shall be described in Section 414(q)
of the Code and its applicable regulations, which shall override
any aspects of this Section inconsistent therewith.
1.23 "Hour of Service" means, with respect to any applicable computation
period,
(a) each hour for which the Employee is paid or entitled
to payment for the performance of duties for the
Employer or an Affiliate,
(b) each hour for which an Employee is paid or entitled to
payment by the Employer or an Affiliate on account of
a period during which no duties are performed, whether
or not the
<PAGE>
Page 7
employment relationship has terminated, due to
vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave
of absence, but not more than 501 hours for any single
continuous period,
(c) each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to
by the Employer or an Affiliate, excluding any hour
credited under (a) or (b), which shall be credited to
the computation period or periods to which the award,
agreement or payment pertains, rather than to the
computation period in which the award, agreement or
payment is made,
(d) solely for purposes of determining whether an Employee
has incurred a Break in Service under the Plan, each
hour for which an Employee would normally be credited
under paragraph (a) or (b) above during a period of
Parental Leave but not more than 501 hours for any
single continuous period. In the case in which hours
cannot be determined, eight hours of service per day
of such absence shall be credited. However, the number
of hours credited to an Employee under this paragraph
(d) during the computation period in which the
Parental Leave began, when added to the hours credited
to an Employee under paragraphs (a) through (c) above
during that computation period, shall not exceed 501.
If the number of hours credited under this paragraph
(d) for the computation period in which the Parental
Leave began is zero, the provisions of this paragraph
(d) shall apply as though the Parental Leave began in
the immediately following computation period, and
(e) solely for purposes of determining whether an Employee
has incurred a Break in Service under the Plan, each
hour for which an Employee would normally be credited
under paragraph (a) or (b) above during a period of
leave for the birth, adoption or placement of a child,
to care for a spouse or an immediate family member
with a serious illness or
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Page 8
for the Employee's own illness pursuant to the Family
and Medical Leave Act of 1993 and its regulations.
For purposes of paragraph (b), a payment shall be deemed to be
made by or due from an Employer or Affiliate regardless of
whether such payment is made by or due from an Employer or
Affiliate directly, or indirectly through, among others, a trust
fund or insurer to which the Employer or Affiliate contributes
or pays premiums, and regardless of whether contributions made
or due to the trust fund, insurer or other entity are for the
benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
No more than 501 hours shall be credited under paragraph (b)
above for the non-performance of duties for any single
continuous period (whether or not such period occurs in a single
computation period).
No hours shall be credited on account of any period during which
the Employee performs no duties and receives payment solely for
the purpose of complying with unemployment compensation,
workers' compensation or disability insurance laws.
The Hours of Service credited shall be determined as required by
Title 29 of the Code of Federal Regulations, Section
2530.200b-2(b) and (c). In crediting Hours of Service hereunder,
each Employee for whom the Employer or Affiliate does not
maintain hourly work records and who completes at least one Hour
of Service (pursuant to paragraphs (a), (b), or (c) above)
during any week shall be credited with 45 Hours of Service for
such week. For each other Employee, Hours of Service shall be
credited based on the number of hours actually worked.
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1.24 "IRS Interest Rate" means the annual rate of interest on 30-year
Treasury Securities as published by the Commissioner in the
calendar month preceding the applicable Stability Period.
1.25 "IRS Mortality Table" means the mortality table prescribed by
the Secretary of the Treasury under Section 417(e)(3)(A)(ii)(I)
of the Code as in effect on the first day of the applicable
Stability Period.
1.26 "Leased Employee" means any person as so defined in Section 414(n) of
the Code.
1.27 "Limitation Year" means the calendar year.
1.28 "Normal Retirement Age" means an Eligible Employee's 65th
birthday or the fifth anniversary of the date he becomes a
Participant, if later.
1.29 "Normal Retirement Date" means the last day of the calendar month in
which an Eligible Employee reaches his Normal Retirement Age.
1.30 "Parental Leave" means a period in which the Eligible Employee
is absent from work immediately following his or her active
employment because of the Eligible Employee's pregnancy, the
birth of the Eligible Employee's child, the placement of a child
with the Eligible Employee in connection with the adoption of
that child by the Eligible Employee, or for purposes of caring
for that child for a period beginning immediately following
birth or placement.
1.31 "Participant" means any person included in the membership of the Plan,
as provided in Article 2.
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1.32 "Pension" means annual payments under the Plan as provided in
Article 5.
1.33 "Plan" means the Barnes & Noble, Inc. Employees' Retirement
Plan, as set forth in this document or as amended from time to
time.
1.34 "Plan Year" means the calendar year.
1.35 "Protected Benefit" means, as of any date of determination,
the Accrued Benefit of a Participant and
(a) any right of the Participant under the terms of the
Plan as of such date to have such Accrued Benefit
commence on a date other than the Normal Retirement
Date,
(b) any right of the Participant under the terms of the
Plan as of such date to have such Accrued Benefit
payable in an optional form of payment, and
(c) the methodology under the terms of the Plan as of such
date for determining the amount of benefit payable as
a result of the exercise of any right of the
Participant expressed in paragraph (a) or (b) above.
For the sole purposes of paragraph (c) above, any provision of
the Plan that requires payment of a Participant's Pension in a
form other than that described in Section 5.01(a) shall be
considered to be the exercise of a right by the Participant
therefor.
1.36 "Qualified Joint and Survivor Annuity" means an annuity
described in Section 5.01(b).
1.37 "Social Security Retirement Age" means age 65 with respect to a
Participant who was born before January 1, 1938; age 66 with
respect to a Participant who was born after December 31,
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Page 11
1937 and before January 1, 1955; and age 67 with respect to a
Participant who was born after December 31, 1954.
1.38 "Spousal Consent" means the irrevocable, written consent given
by a Participant's spouse to an election made by the Participant
of a specified form of Pension, a designation of a specified
Beneficiary as provided in Article 5, or the waiver of the
spouse's benefit payable under Section 4.05. The specified form
or specified Beneficiary shall not be changed unless further
Spousal Consent is given, unless the spouse expressly waives the
right to consent to any future changes. Spousal Consent shall be
duly witnessed by a notary public and shall acknowledge the
effect on the spouse of the Participant's election. The
requirement for Spousal Consent may be waived by the
Administrator in the event that the Participant establishes to
its satisfaction that he has no spouse, that such spouse cannot
be located, that a legal separation has occurred or under such
other circumstances as may be permitted under applicable
Treasury Department regulations. Spousal Consent shall be
applicable only to the particular spouse who provides such
consent.
1.39 "Stability Period" means the Plan Year in which occurs the
Annuity Starting Date for the distribution.
1.40 "Suspendible Month" means a month in which the Participant
completes at least 40 Hours of Service with the Employer or an
Affiliate.
1.41 "Termination of Employment" means the date the Employee's
employment with the Employer and all Affiliates ceases, as
determined by the Employer, due to his resignation, discharge,
retirement, death, failure to return to active service at the
end of an authorized leave of absence or the authorized
extension(s) thereof, failure to return to service when duly
called following a
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Page 12
temporary layoff, or the occurrence of any event or circumstance under
the policy of the Employer or Affiliate, or predecessor employer, in
effect from time to time that results in the termination of the
Employer/Employee relationship; provided, however, that a Termination
of Employment shall not be deemed to have occurred while an
Employee, prior to his Normal Retirement Date, is receiving, or
fulfilling a six-month waiting period to be eligible to receive,
payments under a long-term disability plan of the Employer
(assuming the Employee makes timely application therefor).
1.42 "Trustee" means the trustee or trustees in the separate trust
forming part of this Plan and any additional or successor
Trustees as may be appointed by the Company pursuant to
Article 8.
1.43 "Trust Fund" means the aggregate of assets described in Article 8.
1.44 "Year of Eligibility Service" means the period of service
recognized for purposes of determining eligibility for
membership in the Plan, determined as provided in Section 2.02.
1.45 "Years of Vesting Service" means the period of service
recognized for purposes of determining eligibility for a vested
Pension under the Plan, determined as provided in Section 3.01.
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ARTICLE 2. PARTICIPATION
2.01 Participation Requirements
Every person who was a Participant in the Plan on December 31,
1997 shall continue to be a Participant on January 1, 1998.
Every other Employee shall become a Participant in the Plan as
of the first day of the calendar month coinciding with or
immediately following (a) the date he completes one Year of
Eligibility Service or (b) his 21st birthday, whichever is
later, provided he is then an Eligible Employee.
2.02 Determination of Eligibility Service
Solely for purposes of this Article, a Year of Eligibility
Service shall be the 12-month period beginning on the date an
Eligible Employee first completes an Hour of Service upon hire
or rehire, or any Plan Year beginning after that date, in which
he completes at least 1,000 Hours of Service. In the event an
Eligible Employee incurs a Break in Service prior to his
completing one Year of Eligibility Service, upon his
reemployment, he shall be credited with one Year of Eligibility
Service for the 12-month period beginning on the date he first
completes an Hour of Service after he incurs a Break in Service
or any Plan Year beginning after that date, in which he
completes at least 1,000 Hours of Service.
2.03 Events Affecting Participation
A person's participation in the Plan shall end when he is no
longer employed by the Employer or an Affiliate if he is not
entitled to either an immediate or a deferred Pension under the
Plan. Participation shall continue while on approved leave of
absence from service or during a period while he is not an
Eligible Employee but is in the employ of the Employer or an
Affiliate, but no Years of Vesting Service or Credited Service
shall be counted for that period, except as
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Page 14
specifically provided in Article 3 and Section 4.07, and such person's
benefit shall be determined in accordance with the provisions of the
Plan in effect on the date he ceased to be an Eligible Employee.
2.04 Participation upon Reemployment
If an Eligible Employee's participation in the Plan ends and he
again becomes an Eligible Employee, he shall be considered a new
Eligible Employee for all purposes of the Plan, except as
provided in Section 3.03.
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Page 15
ARTICLE 3. SERVICE
3.01 Years of Vesting Service
(a) A Plan Year in which an Eligible Employee completes at least
1,000 Hours of Service counts as a full Year of Vesting Service.
Except as provided below, no Years of Vesting Service is counted
for any Plan Year in which an Eligible Employee completes less
than 1,000 Hours of Service, except that the Plan Year during
which he first completed an Hour of Service and the Plan Year
containing his Termination of Employment shall be aggregated for
the purpose of determining if the Eligible Employee shall be
credited with an additional Year of Vesting Service, provided
the Eligible Employee works at an annualized rate of 1,000 Hours
of Service in the Plan Year in which his Termination of
Employment occurs.
(b) Service rendered prior to January 1, 1989 shall be recognized
for vesting purposes to the extent that such service was
recognized for such purpose under the terms of the Plan as in
effect prior to such date.
(c) An Eligible Employee shall incur a one-year Break in
Service for any Plan Year after the year in which an Eligible
Employee first becomes employed during which he does not
complete more than 500 Hours of Service. If an Eligible
Employee who has not completed the vesting requirements for
a vested Pension has a Break in Service in which the number of
consecutive one-year Breaks in Service equals or exceeds
five, the service rendered before his most recent Break in
Service shall be excluded from his Years of Vesting Service.
If an Eligible Employee terminates his employment with the
Employer and all Affiliates and is reemployed after having a
Break in Service, his service before the Break in Service
shall be excluded from his Years of Vesting Service, except
as provided in Section 3.03. A period during which an
Eligible
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Page 16
Employee is on a leave of absence approved by the Employer or on
temporary layoff shall not be considered as a Break in Service,
provided he returns to work at the end of an approved leave of absence
or upon recall when notified after a temporary layoff.
(d) If an Eligible Employee shall have been absent from the service
of the Employer because of service in the Armed Forces of the
United States and if he shall have returned to the service of
the Employer having applied to return while his reemployment
rights were protected by law, that absence shall not count as a
Break in Service, but instead shall be counted as Years of
Vesting Service.
(e) Each of the following periods of service shall be counted in a
person's Years of Vesting Service to the extent that it would be
recognized under paragraphs (a) through (c) above with respect
to Eligible Employees:
(i) a period of service as an Employee, but not an
Eligible Employee, of the Employer,
(ii) a period of service as an employee of an
Affiliate (excluding any period of service prior to
the date the entity became an Affiliate, unless
otherwise provided by the Board of Directors), and
(iii) in the case of a person who is a Leased Employee
before or after a period of service as an Eligible
Employee or a period of service described in (i) or
(ii) above, a period during which he has performed
services for the Employer or an Affiliate as a Leased
Employee.
The Break in Service rules of Sections 3.01 and 3.03 shall be
applied as though all such periods of service were service as an
Eligible Employee.
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(f) Notwithstanding any provision of this Section 3.01 to the
contrary, all Years of Vesting Service calculations for an
Eligible Employee hired prior to January 1, 1976 shall be
made using the elapsed time method described in IRS Regulation
Section 1.410(a)-7T. Service with regard to an individual
hired prior to January 1, 1976 shall begin on the date the
Eligible Employee first completes an Hour of Service and
ends on the Eligible Employee's severance date. For
purposes of this Section 3.01(f), "severance date" means the
earlier of (i) the date an Eligible Employee quits, retires,
is discharged or dies or (ii) the first anniversary of the
date on which an Eligible Employee is first absent from
service, with or without pay, for any other reason such as
vacation, sickness, disability, layoff or leave of
absence. If the employment of an Eligible Employee hired
prior to January 1, 1976 is terminated and he is later
reemployed within one year, the period between his severance
date and the date of his reemployment shall be included in
his Years of Vesting Service. However, if his employment is
terminated during a period of absence from service for
reasons such as vacation, sickness, disability, layoff or
leave of absence approved by the Employer, service shall be
counted for the period from his severance date to the date of
his reemployment only if he is reemployed within one year of
the first day of that absence. For purposes of this Section
3.01(f), a Break in Service shall occur if an Eligible
Employee is not reemployed within one year after a severance
date; provided, however, that is an Eligible Employee's
employment is terminated or if the Eligible Employee is
otherwise absent from work because of Parental Leave (as
defined in Section 1.30), a Break in Service shall occur only
if the Eligible Employee is not reemployed or does not
return to active service within two years of his severance
date; and provided further that the first year of such
absence for Parental Leave, measured from his severance date,
shall not be considered in determining the Eligible Employee's
"period of Break in Service" for purposes of Section 3.01(c).
<PAGE>
Page 18
3.02 Credited Service
(a) A full year of Credited Service shall be counted for each Plan
Year during which an Eligible Employee completes 1,000 Hours of
Service as an Eligible Employee. If an Eligible Employee does
not complete 1,000 Hours of Service during the Plan Years in
which he first completes an Hour of Service or incurs his
Termination of Employment, he shall receive credit for a
fractional year equal to the actual number of months worked
during such Plan Years, provided that he was working at the rate
of 1,000 Hours of Service per Plan Year. For purposes of the
preceding sentence, an Eligible Employee shall receive credit
for a month of service, provided he has worked 15 or more days
during such month.
(b) Credited Service shall include, to the extent required by law,
any period of absence from service with the Employer due to
service in the Armed Forces of the United States which is
counted in an Eligible Employee's Years of Vesting Service as
provided in Section 3.01(d) and which occurs after the date the
Employee meets the requirements to be an Eligible Employee.
(c) Credited Service shall not be credited for any period in which a
Participant is (i) not an Eligible Employee but is in the employ
of the Employer, or (ii) in the employ of an Affiliate, or (iii)
performing services for the Employer or an Affiliate as a Leased
Employee.
(d) Notwithstanding any provision of this Section 3.02 to the
contrary, all Credited Service calculations for a
Participant employed by the Company prior to January 1, 1976
shall be made using the elapsed time method as described in IRS
Regulation Section 1.410(a)-7T. Service with regard to an
individual hired prior to January 1, 1976 shall begin on
the date the Eligible Employee first completes an Hour of
Service and ends on the Eligible Employee's severance
date. For purposes of this Section 3.02(d), "severance
date" means the earlier of (i) the date an
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Page 19
Eligible Employee quits, retires, is discharged or dies or (ii) the
first anniversary of the date on which an Eligible Employee is
first absent from service, with or without pay, for any other
reason such as vacation, sickness, disability, layoff or leave of
absence.
3.03 Restoration of Retired Participant or Other Former Eligible
Employee to Service
(a) If a Participant in receipt of a Pension is restored to service
with the Employer as an Eligible Employee, the following shall
apply:
(i) His Pension shall continue through the month in which he
completes at least 960 Hours of Service, after which (A) if
his restoration to service occurs after his Normal Retirement
Date, his Pension shall be suspended during each Suspendible
Month (unless the provisions of Sections 4.02(c) and 5.04(b)
are applicable), and any optional benefit shall remain in
effect, unless the Participant shall elect otherwise; if the
Participant had commenced payment prior to his Normal
Retirement Date, however, any additional Pension he accrues
after his restoration to service shall be paid to his
surviving spouse in accordance with the provisions of Section
4.05 if he should die in active service, and (B) if his
restoration to service occurs before his Normal Retirement
Date, his Pension shall be suspended during each Suspendible
Month (unless the provisions of Sections 4.02(c) and 5.04(b)
are applicable), and any election of an optional benefit in
effect shall be void.
(ii) Any Years of Vesting Service and Credited Service to which he
was entitled when he retired or terminated service shall be
restored to him.
(iii) Upon later retirement or termination his Pension shall be
based on the benefit formula then in effect and his Certified
Earnings and Credited Service before and after the period when
he was not in the service of the Employer reduced by an amount
that is the
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Page 20
Actuarial Equivalent of the benefits, if any, he received
before the earlier of the date of his restoration to service
or his Normal Retirement Date.
(iv) The part of the Participant's Pension upon later retirement
payable with respect to Credited Service rendered before his
previous Termination of Employment shall never be less than
the amount of his previous Pension modified to reflect any
option in effect on his later retirement.
(v) Upon later retirement of a Participant in service after his
Normal Retirement Date, payment of the Participant's Pension
shall resume no later than the third month after the latest
Suspendible Month during the period of restoration, and shall
be adjusted, if necessary, in compliance with Title 29 of the
Code of Federal Regulations, Section 2530.203-3 in a
consistent and nondiscriminatory manner.
(vi) If a monthly Pension payment is made for a calendar month and
it is determined after the Participant's later retirement and
subsequent recommencement of benefits that such payment was
subject to permanent withholding pursuant to the provisions of
this paragraph (a), the amount of such payment shall be
applied as an offset against subsequent monthly payments
unless the Participant has previously repaid the overpayment.
However, the amount of any such offset shall not exceed, in
any month after the Participant attains Normal Retirement Age,
25 percent of the monthly total benefit payment that would
have been paid but for the offset.
(vii) The Employer shall notify a Participant of any suspension
under subparagraph (i) above. The notice shall conform to the
requirements of Section 2530.203-3(b)(4) of the Department of
Labor Regulations. The provisions of this Section shall be
administered in accordance with Section 2530.203-3 of the
Department of Labor Regulations.
<PAGE>
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(b) If a Participant entitled to but not in receipt of a Pension,
or a former Participant, or an Eligible Employee who was
never a Participant is reemployed without having had a Break
in Service, his Years of Vesting Service and Credited
Service shall be determined as provided in Sections 3.01 and
3.02, and if reemployed as an Eligible Employee, he shall,
in the case of a former Participant, immediately be restored
as a Participant as of his date of reemployment, and in the
case of an Eligible Employee who was never a Participant,
become a Participant in accordance with Section 2.01.
However, if a former Participant received a lump sum
settlement in lieu of a Pension, the Credited Service to
which he was entitled at the time of his termination of
service shall be restored to him in accordance with the
provisions of Section 3.03(c)(ii).
(c) If a Participant entitled to but not in receipt of a Pension or
a former Participant who received a lump sum settlement in lieu
of a Pension is reemployed after having had a Break in Service,
the following shall apply:
(i) The Years of Vesting Service to which he was previously
entitled shall be restored to him, and if reemployed as an
Eligible Employee, he shall immediately be restored as a
Participant as of his date of reemployment.
(ii) Any Credited Service to which the Participant was entitled at
the time of his termination of service shall be restored to
him, except that if he received a lump sum settlement by the
end of the second Plan Year following the Plan Year in which
he incurred a Termination of Employment, that Credited Service
shall not be restored to him.
(iii) Upon later termination or retirement of a Participant whose
previous Credited Service has been restored under this
paragraph (c), his Pension shall be based on the benefit
formula then in effect and his Certified Earnings and Credited
Service before and after the period when he was not in the
service of the Employer, and shall be reduced, if
applicable, but not below zero, by an amount of Actuarial
Equivalent value to any lump
<PAGE>
Page 22
sum settlement received upon his prior termination. However,
in no event shall the reduction provided for in the preceding
sentence exceed the portion of the Participant's Pension based
on the period of Credited Service included in the calculation
of the lump sum payment.
(d) If a former Participant who is not entitled to a Pension is
restored to service, either as an Eligible Employee or as an
Employee, after having had a Break in Service, the following
shall apply:
(i) He shall again become a Participant as of his date of
restoration to service as an Eligible Employee.
(ii) Upon his restoration to membership, the Years of Vesting
Service to which he was previously entitled shall be restored
to him if the total number of consecutive one-year Breaks in
Service does not equal or exceed five.
(iii) Any Credited Service to which the Participant was entitled at
the time of his Termination of Employment of service which is
included in the Years of Vesting Service so restored shall be
restored to him.
(iv) Upon later termination or retirement of a Participant whose
previous Credited Service has been restored under this
paragraph (d), his Pension, if any, shall be based on the
benefit formula then in effect and his Certified Earnings and
Credited Service before and after the period when he was not
an Eligible Employee.
(e) If an Eligible Employee who was never a Participant is restored
to service with the Employer, after having had a Break in
Service, the Years of Vesting Service to which he was previously
entitled under Section 3.01(e) shall be restored to him if he
would be entitled to nonforfeitable benefits under the Plan if
he were a Participant, or otherwise, if the total number of
consecutive one-year Breaks in Service does not equal or exceed
five.
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ARTICLE 4. ELIGIBILITY FOR AND AMOUNT OF BENEFITS
4.01 Normal Retirement
(a) The right of a Participant to his normal retirement Pension
shall be nonforfeitable as of his Normal Retirement Age. A
Participant who has attained his Normal Retirement Age may
retire from service with the Employer and all Affiliates and
receive a normal retirement Pension beginning on his Normal
Retirement Date, or he may postpone his retirement and remain in
service after his Normal Retirement Date, in which event the
provisions of Section 4.02 shall be applicable.
(b) Subject to the provisions of Section 5.01, the annual normal
retirement Pension payable upon retirement on a Participant's
Normal Retirement Date (provided he is alive on such
date) shall be equal to .7 percent of the Participant's
Final Average Compensation not in excess of Covered
Compensation, plus 1.3 percent of such Final Average
Compensation in excess of Covered Compensation, multiplied
by the number of years of his Credited Service up to 35 such
years; provided, however, that the annual normal retirement
Pension of a Participant who is affected by the imposition
of the $150,000 limitation on Certified Earnings provided
in Section 1.09 shall be equal to the greater of (i) the
Participant's Pension calculated under the provisions of the
Plan as determined with regard to such imposition or (ii) a
Pension equal to the Participant's Accrued Benefit
determined as of December 31, 1993 plus the Participant's
Accrued Benefit based solely on service after such date under
the provisions of the Plan as determined with regard to
such imposition. For purposes of the Plan, the Accrued
Benefit as of December 31, 1993 shall be determined with
regard to the $200,000 limitation on Certified Earnings
provided in Section 1.09, but not less than the
Participant's Accrued Benefit determined as of December 31,
1988. However, the annual normal retirement Pension shall
never be less than the greatest
<PAGE>
Page 24
annual amount of reduced early retirement Pension which the
Participant could have received under Section 4.03 before his
Normal Retirement Date and no increase in Covered Compensation shall
decrease a Participant's Accrued Benefit under the Plan.
(c) Except as otherwise provided in Section 401(l) of the Code and
applicable regulations thereunder, the cumulative permitted
disparity fraction for purposes of computing a Participant's
normal retirement Pension shall not exceed 35.
(d) Notwithstanding the foregoing, the minimum monthly Pension
payable to a Participant shall be equal to $2.00 multiplied by
his years of Credited Service.
4.02 Late Retirement
(a) If a Participant postpones his retirement as provided in Section
4.01(a), upon his Termination of Employment from the Employer
and all Affiliates, he shall be entitled to a late retirement
Pension beginning on the first day of the calendar month after
the Administrator receives his written application to retire,
which shall be his late retirement date.
(b) A Participant who remains in service after his Normal
Retirement Date shall be entitled to a monthly retirement
Pension for each month during the postponement period which
does not constitute a Suspendible Month. Upon later
retirement, the Participant shall be entitled to an immediate
late retirement Pension beginning on the Participant's late
retirement date (provided he is alive on such date), and
subject to the provisions of Section 5.01, shall be equal to
the amount determined in accordance with Section 4.01 based
on the Participant's Credited Service and Final Average
Compensation as of his late retirement date reduced by an
amount that is the Actuarial Equivalent of any benefits
he previously received pursuant to the preceding sentence;
<PAGE>
Page 25
provided that if the Participant's actual late retirement
date is later than the first day of the first Plan Year
following his Normal Retirement Date, his late retirement
Pension shall be recomputed as of the first day of each
subsequent Plan Year before the Participant's actual late
retirement date (and as of his actual late retirement date)
as if each such date were Participant's late retirement date;
and provided further that no reduction hereunder as of the
date of any such recomputation shall reduce the Participant's
late retirement Pension below the amount of late retirement
Pension payable to the Participant prior to such recomputation.
(c) (i) In the event a Participant's Pension is required to
begin under Section 5.04(b) prior to January 1,
1998 and while the Participant is in active service,
such required beginning date shall not be the
Participant's Annuity Starting Date for purposes
of Article 5 and the Participant shall receive a
late retirement Pension commencing on or before
such required beginning date in an amount
determined as if he had retired on such date. The
Pension payable to the Participant during his
period of active service shall be in the form of a
single life annuity. Upon subsequent retirement,
the Participant's Pension shall be paid in
accordance with the Participant's form of payment
election made pursuant to Article 5.
(ii) In the event a Participant's Pension is required to
begin under Section 5.04(b) on or after January 1,
1998 and while the Participant in active service,
such beginning date shall be the Participant's
Annuity Starting Date for purposes of Article 5,
and his Pension shall be paid in accordance with the
Participant's form of payment election made pursuant
to Article 5.
(iii) As of each succeeding December 31 prior to the
Participant's actual late retirement date (and as of
his actual late retirement date), the Participant's
Pension shall be recomputed to reflect additional
accruals. The Participant's recomputed Pension shall
then be reduced by the Actuarial Equivalent of the
<PAGE>
Page 26
total payments of his late retirement Pension which
were paid prior to each such recomputation to
arrive at the Participant's late retirement
Pension; provided that no such reduction shall reduce
the Participant's late retirement Pension below
the amount of late retirement Pension payable to the
Participant prior to the recomputation of such
Pension.
4.03 Early Retirement
(a) A Participant who has not reached his Normal Retirement Date but
who, prior to his Termination of Employment from the Employer
and all Affiliates, has reached his 55th birthday and completed
five Years of Vesting Service may retire from service with the
Employer and all Affiliates and receive an early retirement
Pension beginning on the first day of the calendar month after
the Administrator receives his written application to retire,
which shall be his early retirement date (provided he is living
on such date).
(b) The early retirement Pension shall be a deferred Pension
beginning on the Participant's Normal Retirement Date, and
subject to the provisions of Section 5.01, shall be equal to his
Accrued Benefit. However, the Participant may elect to receive
an early retirement Pension beginning on the first day of any
calendar month before his Normal Retirement Date, provided that
an early payment date shall be subject to the notice and timing
requirements described in Section 5.03(b). In that case, the
Participant's Pension shall be reduced pursuant to Table 2 of
Appendix A.
4.04 Vesting
(a) A Participant shall be 100 percent vested in, and have a
nonforfeitable right to, his Accrued Benefit upon completion of
five Years of Vesting Service, counted since the first day of
the Plan Year in which his 18th birthday occurs if the
Participant was hired on or after January 1, 1990. If
<PAGE>
Page 27
the Participant's employment is subsequently terminated for reasons
other than retirement or death, he shall be eligible to receive his
vested Pension after the Administrator receives his written application
for the Pension.
(b) Notwithstanding the foregoing, a Participant who was an Eligible
Employee of the Employer on the Effective Date and whose accrued
benefit under the Dayton Hudson Corporation Retirement Plan was
transferred to the Plan shall be 100 percent vested in, and have
a nonforfeitable right to, his Accrued Benefit under the Plan.
(c) The vested Pension shall begin on the Participant's Normal
Retirement Date, and subject to the provisions of Section 5.01,
shall be equal to his Accrued Benefit. However, the Participant
may elect to have his vested Pension begin on the first day of
any calendar month before his Normal Retirement Date (provided
he is living on such date). In that case, the Participant's
Pension shall be reduced pursuant to Table 2 of Appendix A.
4.05 Spouse's Pension
(a) If a married Participant:
(i) dies in active service after reaching age 55 and completing 15
years of Credited Service, or
(ii) dies in active service prior to reaching age 55 and completing
15 years of Credited Service but after having met the
requirements for a Pension pursuant to Section 4.01, 4.02,
4.03 or 4.04, or
(iii) dies after retiring on any Pension, or after terminating
service with entitlement to a vested Pension, but in either
case before his Annuity Starting Date,
<PAGE>
Page 28
a spouse's Pension shall be payable to his surviving spouse
for life provided that he and his spouse have been married
throughout the one-year period ending on the date of his
death.
(b) The spouse's Pension shall commence on what would have been the
Participant's Normal Retirement Date (or the first day of the
month following his date of death, if later). However, the
Participant's spouse may elect to begin receiving payments as of
the first day of any month following the Participant's date of
death and prior to what would have been his Normal Retirement
Date, provided such election is made on a form provided by the
Administrator during the 90-day period ending on the date the
payments to the spouse commence.
(c) (i) The spouse's Pension payable to the eligible spouse,
if any, of a married Participant described in
paragraph (a)(i) above shall be equal to 50 percent
of the monthly Pension the Participant would have
received if he had a Termination of Employment on
the day before his death and elected to have his
Pension commence on his Normal Retirement Date in
the form of a single life annuity. This spouse's
Pension shall be payable for the life of the
eligible spouse and shall not be reduced for
commencement prior to what would have been the
Participant's Normal Retirement Date.
(ii) Before reduction in accordance with paragraph (d)
below (with regard to a Participant who has had a
Termination of Employment), the spouse's Pension
payable to the eligible spouse, if any, of a
Participant described in paragraph (a)(ii) or
(a)(iii) above, shall be equal to the amount of
benefit the spouse would have received if the
Pension to which the Participant was entitled at his
date of death had commenced on his Normal Retirement
Date (or the first day of the month following his
date of death, if later) in the form of a
Qualified Joint and Survivor Annuity and the
Participant had died immediately thereafter.
However, if within the 90 day period prior to his
Annuity Starting Date a
<PAGE>
Page 29
Participant has elected an optional form of Pension which
provides for monthly payments to his spouse for life in an
amount equal to at least 50 percent but not more than 100
percent of the monthly amount payable under the option for
the life of the Participant and such option is the
Actuarial Equivalent of the Qualified Joint and Survivor
Annuity, such optional form of Pension shall be used for
computing the spouse's Pension instead of the Qualified
Joint and Survivor Annuity. The spouse's Pension shall be
further adjusted to reflect its commencement prior to
the Participant's Normal Retirement Date as follows:
(A) if the spouse of a Participant who dies
after having met the requirements for early
retirement elects early commencement in
accordance with paragraph (b) above, the
amount of the Pension payable to the spouse
will be based on the amount of early
retirement Pension to which the Participant
would have been entitled if he had
requested benefit commencement at that
earlier date, reduced in accordance with
Section 4.03(b); and
(B) if the spouse of any other Participant who
dies prior to his Annuity Starting Date
elects early commencement in accordance
with paragraph (b) above, the amount of the
Pension payable to the spouse shall be based
on the amount of vested Pension to which the
Participant would have been entitled if he had
requested benefit commencement at that
earlier date, reduced in accordance with
Section 4.04(c).
(d) With respect to a Participant who has incurred a Termination
of Employment and whose spouse would have been entitled to a
spouse's Pension under this Section had the Participant's
death occurred prior to his Annuity Starting Date, the
Pension subsequently payable to such Participant or the
spouse's Pension payable to his spouse after his death,
whichever is applicable, shall be reduced by the applicable
percentage shown in the following table for each full month
that the
<PAGE>
Page 30
provisions of this Section 4.05 are in effect with respect to the
Participant after his Termination of Employment and prior to the
Participant's Annuity Starting Date or his date of death, if earlier.
Notwithstanding the foregoing, no such reduction shall be made
with respect to any period before the later of (i) the date
the Administrator furnishes the Participant the notice of his
right to waive the spouse's Pension in accordance with paragraph
(e) below or (ii) the commencement of the election period
specified in paragraph (f) below.
Monthly Reduction for Spouse's Coverage After
Retirement or
Other Termination of Service
----------------------------------------------------
Age Reduction
------------------------ ---------------------
55 but less than 65 .05%
45 but less than 55 .03%
less than 45 .01%
(e) The Employer shall furnish to each Participant a written
explanation in nontechnical language which describes (i)
the terms and conditions of the spouse's Pension, including
an explanation of the relative financial effect on the
Participant's Pension of an election to waive the spouse's
Pension, (ii) the Participant's right to make, and the
effect of, an election to waive the spouse's Pension, (iii)
the rights of the Participant's spouse, and (vi) the right
to make, and the effect of, a revocation of such an election.
The Employer shall furnish the written explanation of
the spouse's Pension to each Participant as soon as
practicable following the date the Participant incurs a
Termination of Employment, but in no case later than one year
after such date. The written explanation described above
shall be furnished to a Participant even though he is not
married.
(f) An election to waive the spouse's Pension provided under this
Section, or any revocation of that election, may be made at any
time during the period beginning on the date of the
Participant's Termination of Employment and ending on the
Participant's Annuity Starting Date or his date of death, if
earlier. Any election to waive the spouse's Pension or any
revocation of that election
<PAGE>
Page 31
shall be made on a form provided by the Administrator, and shall be
effective when received by the Administrator. Any election to waive the
spouse's Pension shall be effective only if it includes Spousal Consent
to such election.
4.06 Maximum Benefit Limitation
Notwithstanding any provision of the Plan to the contrary, the
maximum annual Pension payable to a Participant under the Plan
shall be subject to the limitations set forth in Section 415 of
the Code and any regulations issued thereunder. If the Pension
begins before the Participant's 62nd birthday, the dollar
limitation described in Section 415(b)(1)(A) of the Code shall
be the Actuarial Equivalent of the maximum benefit payable at
age 62. If the Pension begins after the Participant's Social
Security Retirement Age, such dollar limitation shall be the
Actuarial Equivalent of the maximum benefit payable at the
Social Security Retirement Age. If the Pension is payable
neither as a life annuity nor as a qualified joint and survivor
annuity with the Participant's spouse as beneficiary, the
maximum limitation shall be the Actuarial Equivalent of the
maximum limitation otherwise applicable. Actuarial Equivalent
for the purposes of this Section 4.06 shall be determined in
accordance with Section 415(b) of the Code and the regulations
or rulings issued thereunder and using the Plan's early
retirement, late retirement or optional benefit factors as
appropriate, or if less, using factors calculated from the IRS
Mortality Table, if applicable, and (i) with respect to an
adjustment required under Section 415(b)(2)(B) or (C) of the
Code, the IRS Interest Rate if the Pension is subject to the
provisions of Section 417(e)(3) of the Code or 5 percent
otherwise; and (ii) with respect to an adjustment required under
Section 415(b)(2)(D) of the Code, an interest rate of 5 percent.
If a Participant is a participant in any qualified defined
contribution plan required to be taken into account for purposes
of applying the combined plan limitations contained in Section
415(e) of
<PAGE>
Page 32
the Code, then for any year the sum of the defined
benefit plan fraction and the defined contribution plan
fraction, as such terms are defined in said Section 415(e),
shall not exceed 1.0. If for any year the foregoing combined
plan limitation would be exceeded, the benefit provided under
this Plan shall be reduced to the extent necessary to meet that
limitation.
As of January 1 of each calendar year commencing on or after
January 1, 1988, the dollar limitation as determined by the
Commissioner of Internal Revenue for that calendar year shall
become effective as the maximum permissible dollar amount of
Pensions payable under the Plan during the Limitation Year
ending within that calendar year, including Pensions payable to
Participants who retired prior to that Limitation Year.
4.07 Transfers and Employment with an Affiliate
(a) If an Eligible Employee (i) becomes employed by the Employer
in any capacity other than as an Eligible Employee as defined
in Article 1, (ii) becomes employed by an Affiliate, or
(iii) becomes a Leased Employee, he shall retain any
Credited Service he has under this Plan. Upon his later
retirement or termination of employment with the Employer or
Affiliate (or upon benefit commencement in the case of a
Leased Employee), any benefits to which the Eligible
Employee is entitled under the Plan shall be determined
under the Plan provisions in effect on the date he ceases
to be an Eligible Employee as defined in Article 1, and
only on the basis of his Credited Service accrued and
Certified Earnings paid while he was an Eligible Employee as
defined in Article 1.
(b) Subject to the Break in Service provisions of Article 3, in the
case of a person who (i) was originally employed by the Employer in any
capacity other than as an Eligible Employee as defined in Article 1,
(ii) was originally employed by an Affiliate, or (iii) was originally
providing services to the Employer as a Leased Employee, and
thereafter becomes
<PAGE>
Page 33
an Eligible Employee, upon his later retirement or termination of
employment, the benefits payable under the Plan shall be computed under
the Plan provisions in effect at that time, and only on the basis of
the Credited Service accrued and Certified Earnings paid while he is an
Eligible Employee as defined in Article 1.
<PAGE>
Page 34
ARTICLE 5. PAYMENT OF PENSIONS
5.01 Automatic Form of Payment
(a) If the Participant is not married on his Annuity Starting Date,
his Pension shall be payable in monthly installments ending with
the last monthly payment before death, unless the Participant
has elected an optional benefit as provided in Section 5.02.
(b) If the Participant is married on his Annuity Starting Date,
and if he has not elected an optional form of benefit as
provided in Section 5.02, the Pension payable shall be in
the form of a Qualified Joint and Survivor Annuity that is the
Actuarial Equivalent of the Pension otherwise payable,
providing for a reduced Pension payable to the Participant
during his life, and after his death providing that one-half of
that reduced Pension will continue to be paid during the
life of, and to, the spouse to whom he was married on his
Annuity Starting Date. Notwithstanding the preceding, if
an option described in Section 5.02 provides for payments
continuing after the Participant's death for the life of a
Beneficiary at a rate of at least 50 percent but not more
than 100 percent of the Pension payable for the life of the
Participant and if such option, with the spouse to whom the
Participant is married on his Annuity Starting Date named as
Beneficiary, would be of greater actuarial value than the
joint and survivor annuity described above, such option
with such spouse as Beneficiary shall be the Qualified Joint
and Survivor Annuity.
(c) In any case, a lump sum payment that is the Actuarial Equivalent
shall be made in lieu of all benefits if the present value of the
Pension payable to or on the behalf of the Participant determined as
of the Participant's Normal Retirement Date or actual Termination of
Employment, if later, amounts to $3,500 (effective January 1, 1998,
$5,000 or less). In determining the amount of a lump sum payment
payable under this
<PAGE>
Page 35
paragraph to a Participant whose Annuity Starting Date is on or
after January 1, 1998, (i) Actuarial Equivalent shall mean a
benefit, in the case of a lump sum benefit payable prior to a
Participant's Normal Retirement Date, of equivalent value to the
benefit which would otherwise have been provided commencing at the
Participant's Normal Retirement Date, and (ii) the Actuarial
Equivalent shall be determined by using the IRS Mortality Table and the
IRS Interest Rate. Unless otherwise permitted by applicable law,
the determination as to whether a lump sum payment is due shall
be made as soon as practicable following the Participant's
termination of service or death. Any lump sum benefit payable shall
be made as soon as practicable following such determination and in
any event prior to the date Pension payments would have otherwise
commenced as an annuity.
In the event a Participant is not entitled to any Pension upon his
Termination of Employment, he shall be deemed cashed-out under the
provisions of this paragraph (c) as of the date he terminated service.
However, if a Participant described in the preceding sentence is
subsequently restored to service, the provisions of Section 3.03 shall
apply to him without regard to such sentence.
5.02 Optional Forms of Payment
Any Participant may, subject to the provisions of Section 5.03,
elect to convert the Pension otherwise payable to him into an
optional benefit that is the Actuarial Equivalent, as provided
in one of the options named below.
Ten-Year Certain and Life A modified Pension payable
Option during the Participant's
life; if the Participant
dies within 120 months of his
Annuity
<PAGE>
Page 36
Starting Date, the balance of those
monthly payments shall be paid to the
Beneficiary named by him when
he elected the option; provided that
if the Beneficiary does not survive
the 120-month period, a lump sum
payment that is the Actuarial
Equivalent as determined in Table 1
of Appendix A of the remaining
payments shall be paid to the estate
of the last to survive of the
Participant and the Beneficiary.
50% Joint & Survivor A modified Pension payable
Option during the Participant's life
and after his death payable
at 50 percent of the rate of
his modified Pension during
the life of, and to, the
Beneficiary named by him when
he elected the option. The
Pension payable to the
Participant shall be
determined by multiplying the
amount that would be paid to
the Participant as a single
life annuity by a reduction
factor of 90 percent,
increased by 1/2 of 1 percent
(but not to more than 100
percent) for each year by
which the Beneficiary is
older than the Participant
and decreased by 1/2 of 1
percent for each year the
Beneficiary is younger than
the Participant.
75% Joint & Survivor A modified Pension payable
Option during the Participant's life
and after his death payable
at 75 percent of the rate of
his modified Pension during
the life of, and to, the
Beneficiary named by him when
he elected the option. The
Pension payable to the
Participant shall be
determined by multiplying the
amount that would be paid to
the Participant
<PAGE>
Page 37
as a single life annuity by a
reduction factor of 85 percent,
increased by 1/2 of 1 percent
(but not to more than 100 percent)
for each year by which the
Beneficiary is older than the
Participant and decreased by 1/2 of 1
percent for each year the Beneficiary
is younger than the Participant.
100% Joint & Survivor A modified Pension payable
Option during the Participant's life
and Option after his death
payable at 100 percent of the
rate of his modified Pension
during the life of, and to,
the Beneficiary named by him
when he elected the option.
The Pension payable to the
Participant shall be
determined by multiplying the
amount that would be paid to
the Participant as a single
life annuity by a reduction
factor of 80 percent,
increased by 1/2 of 1 percent
(but not to more than 100
percent) for each year by
which the Beneficiary is
older than the Participant
and decreased by 1/2 of 1
percent for each year the
Beneficiary is younger than
the Participant.
Lump Sum or Installment If the total present value of
Option the Pension payable is more
than $3,500 ($5,000
effective January 1, 1998)
but less than $7,000, the
Participant may elect either
a single cash lump sum or
monthly installments over a
period to be selected by the
Participant. In determining
the amount of a lump sum
optional benefit available
under this Section to a
Participant whose Annuity
Starting Date is on or after
January 1, 1998, (a)
Actuarial Equivalent shall
mean a benefit, in the case
of a lump sum benefit payable
<PAGE>
Page 38
prior to a Participant's
Normal Retirement Date, of
equivalent value to the
benefit which would otherwise
have been provided commencing
at the Participant's Normal
Retirement Date, and (b)
Actuarial Equivalent shall be
determined on the basis of
the IRS Mortality Table and
the IRS Interest Rate.
If a Participant dies after Pension payments have commenced, any
payments continuing on to his spouse or Beneficiary shall be
distributed at least as rapidly as under the method of
distribution being used as of the Participant's date of death.
5.03 Election of Options
(a) A married Participant's election of any option shall only be
effective if Spousal Consent to the election is received by the
Administrator, unless:
(i) the option provides for monthly payments to his spouse for
life after the Participant's death, in an amount equal to at
least 50 percent but not more than 100 percent of the monthly
amount payable under the option to the Participant, and
(ii) the option is of actuarial equivalent value to the Qualified
Joint and Survivor Annuity.
(b) The Employer shall furnish to each Participant, no less
than 30 days and no more than 90 days, before his Annuity
Starting Date a written explanation in nontechnical language
of the terms and conditions of the Pension payable to the
Participant in the normal and optional forms described in
Sections 5.01 and 5.02. Such explanation shall include a
general description of the eligibility conditions for, and
the material features and relative values of, the optional
forms of Pensions under the Plan, any rights the Participant
may have to defer commencement of his Pension, the
<PAGE>
Page 39
requirement for Spousal Consent as provided in paragraph
(a) above, and the right of the Participant to make, and to
revoke, elections under Section 5.02.
(c) A Participant's Annuity Starting Date may not occur less than 30
days after receipt of the notice described in paragraph (b). An
election under Section 5.02 shall be made on a form provided by
the Administrator and may be made during the 90-day period
ending on the Participant's Annuity Starting Date, but not prior
to the date the Participant receives the written explanation
described in paragraph (b).
(d) Notwithstanding the provisions of paragraph (c) above, a
Participant may, after having received the notice, affirmatively
elect to have his benefit commence sooner than 30 days following
his receipt of the notice, provided all of the following
requirements are met:
(i) the Administrator clearly informs the Participant
that he has a period of at least 30 days after
receiving the notice to decide when to have his
benefits begin, and if applicable, to choose a
particular optional form of payment;
(ii) the Participant affirmatively elects a date for his
benefits to begin, and if applicable, an optional form
of payment, after receiving the notice;
(iii) the Participant is permitted to revoke his election
until the later of his Annuity Starting Date or seven
days following the day he received the notice;
(iv) payment does not commence less than seven days
following the day after the notice is received by the
Participant; and
(v) the Participant's Annuity Starting Date is after the
date the notice is provided.
(e) An election of an option under Section 5.02 may be revoked on
a form provided by the Administrator, and subsequent
elections and revocations may be made at any time and from
time
<PAGE>
Page 40
to time during the election period specified in
paragraph (c) or (d) above, whichever is applicable. An
election of an optional benefit shall be effective on the
Participant's Annuity Starting Date and may not be modified or
revoked after his Annuity Starting Date unless otherwise
provided under paragraph (d) above. A revocation of any
election shall be effective when the completed form is
filed with the Administrator. If a Participant who has
elected an optional benefit dies before the date the election
of the option becomes effective, the election shall be
revoked except as provided in Section 4.05(c). If the
Beneficiary designated under an option dies before the date
the election of the option becomes effective, the
election shall be revoked.
5.04 Commencement of Payments
(a) Except as otherwise provided in Article 4 or this Article 5,
payment of a Participant's Pension shall begin as soon as
administratively practicable following the latest of (i) the
Participant's 65th birthday, (ii) the fifth anniversary of the
date on which he became a Participant, or (iii) the
Participant's Termination of Employment, (but not more than 60
days after the close of the Plan Year in which the latest of
(i), (ii) or (iii) occurs); provided, however, that if the
amount of the payment to be made cannot be determined by 60 days
following the Plan Year in which the latest of (i), (ii), or
(iii) occur, a payment retroactive to that date shall be made.
(b) Notwithstanding the preceding paragraph and except as
provided below, in the case of a Participant in active
service who owns either (i) more than 5 percent of the
outstanding stock of the Employer or (ii) stock possessing
more than 5 percent of the total combined voting power of
all stock of the Employer, the Participant's Pension shall
begin not later than the April 1 following the calendar year in
which he attains age 70 1/2. On and after the first day of
the Plan Year beginning in 1989, payment in active service
of any Participant's Pension shall begin not
<PAGE>
Page 41
later than April 1 of the calendar year following the calendar year
in which he attains age 70 1/2, provided that such commencement in
active service shall not be required with respect to a Participant
who attains age 70 1/2prior to January 1, 1988 and who is not a
5-percent owner as described above.
5.05 Distribution Limitation
Notwithstanding any other provision of this Article 5, all
distributions from this Plan shall conform to the regulations
issued under Section 401(a)(9) of the Code, including the
incidental death benefit provisions of Section 401(a)(9)(G) of
the Code. Further, such regulations shall override any Plan
provision that is inconsistent with Section 401(a)(9) of the
Code. For purposes of Section 401(a)(9) of the Code, the life
expectancies of Participants and their spouses shall not be
recalculated.
5.06 Direct Rollover of Certain Distributions
(a) This Section applies to certain distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election
under this Article, a distributee may elect, at the time and in
the manner prescribed by the Administrator, to have any portion
of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a
direct rollover.
(b) The following definitions apply to the terms used in this
Section:
(i) An "eligible rollover distribution" is any distribution of all
or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee
<PAGE>
Page 42
or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more; any distribution
to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution
that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with
respect to employer securities);
(ii) An "eligible retirement plan" is an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to
the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity;
(iii) A "distributee" includes an Eligible Employee or former
Eligible Employee. In addition, the Eligible Employee's or
former Eligible Employee's surviving spouse and the Eligible
Employee's or former Eligible Employee's spouse or former
spouse who is the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or
former spouse; and
(iv) A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
In the event that the provisions of this Section 5.06 or any
part thereof cease to be required by law as a result of
subsequent legislation or otherwise, this Section or any
applicable part thereof shall be ineffective without the
necessity of further amendments to the Plan.
<PAGE>
Page 43
ARTICLE 6. CONTRIBUTIONS
6.01 Employer's Contributions
It is the intention of the Employer to continue the Plan and
make the contributions that are necessary to maintain the Plan
on a sound actuarial basis and to meet the minimum funding
standards prescribed by law. However, subject to the provisions
of Article 10, the Employer may discontinue its contributions
for any reason at any time.
6.02 Return of Contributions
(a) The Employer's contributions to the Plan are conditioned upon
their deductibility under Section 404 of the Code. If all or
part of the Employer's deductions for contributions to the Plan
are disallowed by the Internal Revenue Service, the portion of
the contributions to which that disallowance applies shall be
returned to the Employer without interest, but reduced by any
investment loss attributable to those contributions. The return
shall be made within one year after the date of the disallowance
of deduction.
(b) The Employer may recover without interest the amount of its
contributions to the Plan made on account of a mistake in fact,
reduced by any investment loss attributable to those
contributions, if recovery is made within one year after the
date of those contributions.
<PAGE>
Page 44
ARTICLE 7. ADMINISTRATION OF PLAN
7.01 Plan Sponsor and Plan Administrator
The Company shall be the "plan administrator" and the "plan
sponsor" of the Plan, as such terms are used in ERISA and the
Code.
7.02 Administrative Responsibilities
(a) Except as expressly otherwise provided herein, the Company
shall be the named fiduciary that has the authority to
control and manage the administration and operation of the
Plan, and shall have the sole and complete discretion to
interpret and administer the terms of the Plan and to
determine eligibility for benefits and the amount of any such
benefits pursuant to the terms of the Plan, and in so doing
the Company may correct defects, supply omissions and
reconcile inconsistencies to the extent necessary to
effectuate the Plan, and such actions shall be binding and
conclusive on all persons. The Company shall prescribe such
forms, make such rules, regulations, interpretations and
computations and shall take such other action to administer the
Plan as it may deem appropriate. In administering the Plan,
the Company shall act in a nondiscriminatory manner to the
extent required by Section 401(a) and related provisions of
the Code and shall at all times discharge its duties with
respect to the Plan in accordance with the standards set
forth in Section 404(a)(1) of ERISA.
(b) Except in cases where the Plan expressly requires action on
behalf of the Company to be taken by the Board of Directors,
action on behalf of the Company may be taken by any of the
following:
(i) the Board of Directors;
(ii) the chief executive officer of the Company; or
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(iii) any person or persons or committee to whom
responsibilities for the operation and administration
of the Plan are allocated, by resolution of the Board
of Directors or by written instrument executed by the
chief executive officer of the Company and filed with
its permanent records, but action of such person or
persons or committee shall be within the scope of said
allocation.
7.03 Delegation of Responsibilities
The Company may engage such attorneys, actuaries, accountants,
consultants or other persons to render advice or to perform
services with regard to any of its responsibilities under the
Plan as it shall determine to be necessary or appropriate. The
duties and responsibilities of the Company under the Plan shall
be carried out by the directors, officers and employees of the
Company, acting on behalf of the Company in their capacities as
directors, officers and employees and not as individual
fiduciaries.
7.04 Certified Earnings and Bonding
Except to the extent permitted by applicable regulations, no
Eligible Employee shall receive any compensation from the Plan
for his services rendered to the Plan. The Company shall
purchase such bonds as may be required under ERISA.
7.05 Service in More Than One Fiduciary Capacity
Any individual, entity or group of persons may serve in more
than one fiduciary capacity with respect to the Plan and/or the
funds of the Plan.
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7.06 Indemnification
In addition to any other applicable arrangements for
indemnification, the Employers jointly and severally agree to
indemnify and hold harmless, to the extent permitted by law,
each director, officer, and employee of the Employers against
any and all liabilities, losses, costs, or expenses (including
legal fees) of whatsoever kind and nature which may be imposed
on, incurred by, or asserted against such person at any time by
reason of such person's services as a fiduciary in connection
with the Plan, but only if such person did not act dishonestly,
or in bad faith, or in willful violation of the law or
regulations under which such liability, loss, cost, or expense
arises.
7.07 Establishment of Rules
Subject to the limitations of the Plan, the Administrator from
time to time shall establish rules for the administration of the
Plan and the transaction of Plan business. The Administrator
shall have discretionary authority to interpret the Plan and to
make factual determinations (including but not limited to,
determination of an individual's eligibility for Plan
participation, the right and amount of any benefit payable under
the Plan and the date on which any individual ceases to be a
Participant). The determination of the Administrator as to the
interpretation of the Plan or any disputed question shall be
conclusive and final to the extent permitted by applicable law.
7.08 Correction of Errors
It is recognized that in the operation and administration of the
Plan certain mathematical and accounting errors may be made or
mistakes may arise by reason of factual errors in information
supplied to the Company or Funding Agent. The Company shall have
power to cause such equitable adjustments to be made to correct
for such errors as the Company in its discretion considers
appropriate. Such adjustments shall be final and binding on all
persons.
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7.09 Prudent Conduct
The Administrator shall use that degree of care, skill, prudence
and diligence that a prudent man acting in a like capacity and
familiar with such matters would use in a similar situation.
7.10 Actuary
As an aid to the Administrator in fixing the rate of
contributions payable to the Plan, the actuary designated by the
Company shall make annual actuarial valuations of the contingent
assets and liabilities of the Plan, and shall submit to the
Company the rates of contribution recommended for use.
7.11 Maintenance of Accounts
The Administrator shall maintain accounts showing the fiscal
transactions of the Plan and shall keep in convenient form such
data as may be necessary for actuarial valuations of the Plan.
7.12 Records
Each Employer, each fiduciary with respect to the Plan, and each
other person performing any functions in the operation or
administration of the Plan or the management or control of the
assets of the Plan shall keep such records as may be necessary
or appropriate in the discharge of their respective functions
hereunder, including records required by ERISA or any other
applicable law. Records shall be retained as long as necessary
for the proper administration of the Plan and at least for any
period required by ERISA or other applicable law.
7.13 Appointment of Investment Manager
The Company, in its sole discretion, shall determine the
investment policy for the Plan. However, the Company may, in its
sole discretion, appoint one or more investment managers to
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manage the assets of the Plan (including the power to acquire
and dispose of all or part of such assets) as the Company shall
designate. In that event, the authority over and responsibility
for the management of the assets so designated shall be the sole
responsibility of that investment manager.
For purposes of this Article, the term "investment manager"
means an individual who:
(a) Has the power to manage, acquire or dispose of any
asset of the Plan;
(b) Is (i) registered as an investment advisor under the
Investment Advisors Act of 1940, (ii) is a bank, as
defined in that Act, or (iii) is an insurance company
qualified to perform services described in paragraph
(a) above; and
(c) Has acknowledged in writing that he is a fiduciary
with respect to the Plan.
7.14 Expenses of Administration
All expenses that arise in connection with the administration of
the Plan, including but not limited to the compensation of the
Trustee, administrative expenses and proper charges and
disbursements of the Trustee and compensation and other expenses
and charges of any enrolled actuary, counsel, accountant,
specialist, or other person who has been retained by the Company
in connection with the administration thereof, shall be paid
from the funds of the Plan held by the Trustee under the trust
agreement adopted for use in implementing the Plan, to the
extent not paid by the Employer.
7.15 Claims and Review Procedures
(a) Applications for benefits and inquiries concerning the Plan (or
concerning present or future rights to benefits under the Plan)
shall be submitted to the Company in writing. An application
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for benefits shall be submitted on the prescribed form and shall be
signed by the Participant, or in the case of a benefit payable
after his death, by his Beneficiary.
(b) In the event that an application for benefits is denied in
whole or in part, the Company shall notify the applicant in
writing of the denial and of the right to review of the
denial. The written notice shall set forth, in a manner
calculated to be understood by the applicant, specific
reasons for the denial, specific references to the provisions
of the Plan on which the denial is based, a description of any
information or material necessary for the applicant to
perfect the application, an explanation of why the material
is necessary, and an explanation of the review procedure
under the Plan. The written notice shall be given to the
applicant within a reasonable period of time (not more than
90 days) after the Company received the application, unless
special circumstances require further time for processing and
the applicant is advised of the extension. In no event shall
the notice be given more than 180 days after the Company
received the application.
(c) The Company shall from time to time appoint a committee (the
"Review Panel") that shall consist of three individuals who may,
but need not, be Eligible Employees. The Review Panel shall be
the named fiduciary that has the authority to act with respect
to any appeal from a denial of benefits or a determination of
benefit rights.
(d) An applicant whose application for benefits was denied
in whole or part, or the applicant's duly authorized
representative, may appeal the denial by submitting to the
Review Panel a request for a review of the application
within 60 days after receiving written notice of the denial
from the Company. The Company shall give the applicant or his
representative an opportunity to review pertinent materials,
other than legally privileged documents, in preparing the
request for a review. The request for a review shall be in
writing and addressed
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to the Review Panel. The request for a review shall set forth all of
the grounds on which it is based, all facts in support of the request
and any other matters that the applicant deems pertinent. The
Review Panel may require the applicant to submit such additional
facts, documents or other materials as it may deem necessary or
appropriate in making its review.
(e) The Review Panel shall act on each request for a review
within 60 days after receipt, unless special circumstances
require further time for processing and the applicant is
advised of the extension. In no event shall the decision on
review be rendered more than 120 days after the Review Panel
received the request for a review. The Review Panel
shall give prompt written notice of its decision to the
applicant and or the Company. In the event that the Review
Panel confirms the denial of the application for benefits in
whole or in part, the notice shall set forth, in a manner
calculated to be understood by the applicant, the specific
reasons for the decision and specific references to the
provisions of the Plan on which the decision is based.
(f) The Review Panel shall adopt such rules, procedures and
interpretations of the Plan as it deems necessary or appropriate
in carrying out its responsibilities under this Section 7.15. In
carrying out such responsibilities, the Review Panel shall have
the sole and complete discretion to interpret and administer the
terms of the Plan and to determine eligibility for benefits and
the amount of any such benefits pursuant to the terms of the
Plan, and in so doing the Review Panel may correct defects,
supply omissions and reconcile inconsistencies to the extent
necessary to effectuate the Plan, and such actions shall be
binding and conclusive on all persons.
(g) No legal action for benefits under the Plan shall be brought
unless and until the claimant (i) has submitted a written
application for benefits in accordance with paragraph (a), (ii)
has been
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notified by the Company that the application is denied,
(iii) has filed a written request for a review of the
application in accordance with paragraph (d) and (iv) has been
notified in writing that the Review Panel has affirmed the
denial of the application; provided, however, that legal action
may be brought after the Company or the Review Panel has failed
to take any action on the claim within the time prescribed by
paragraphs (b) and (e) above.
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ARTICLE 8. MANAGEMENT OF FUNDS
8.01 Funding Agent
(a) All the funds of the Plan shall be held by a Funding Agent
appointed from time to time by the Company under a trust
instrument or an insurance or annuity contract adopted, or as
amended, by the Company for use in providing the benefits of
the Plan and paying its expenses not paid directly by the
Company. The Company shall have the right to determine the
form and substance of each trust agreement and group
annuity contract under which any part of the funds of the Plan
is held, subject only to the requirement that they are not
inconsistent with the provisions of the Plan. Any such
trust agreement may contain provisions pursuant to which the
trustee will make investments on direction of a third
party. The Company shall have no liability for the payment of
benefits under the Plan nor for the administration of the
funds paid over to the Funding Agent.
(b) The Company shall issue such written directions to the Funding
Agent as are necessary to accomplish distributions to the
Participants and Beneficiaries in accordance with the provisions
of the Plan.
(c) The Funding Agent shall be entitled to receive such reasonable
compensation for its services as may be agreed upon with the
Company. The Funding Agent shall also be entitled to
reimbursement for all reasonable and necessary costs, expenses,
and disbursements incurred by it in the performance of its
services. Such compensation and reimbursements shall be paid
from the Trust Fund if not paid directly by the Company.
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8.02 Exclusive Benefit Rule
Except as otherwise provided in the Plan, no part of the corpus
or income of the funds of the Plan shall be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants and other persons entitled to benefits under the
Plan and paying Plan expenses not otherwise paid by the
Employer, before the satisfaction of all liabilities with
respect to them. No person shall have any interest in or right
to any part of the earnings of the funds of the Plan, or any
right in, or to, any part of the assets held under the Plan,
except as and to the extent expressly provided in the Plan.
8.03 Funding Policy
The Company shall adopt a procedure, and revise it from time to
time as it shall consider advisable, for establishing and
carrying out a funding policy and method consistent with the
objectives of the Plan and the requirements of ERISA. It shall
advise each Funding Agent of the funding policy in effect from
time to time.
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ARTICLE 9. GENERAL PROVISIONS
9.01 Nonalienation
Except as required by any applicable law, no benefit under the
Plan shall in any manner be anticipated, assigned or alienated,
and any attempt to do so shall be void. However, payment shall
be made in accordance with the provisions of any judgment,
decree, or order which:
(a) creates for, or assigns to, a spouse, former
spouse, child or other dependent of a Participant the right to
receive all or a portion of the Participant's benefits under
the Plan for the purpose of providing child support, alimony
payments or marital property rights to that spouse, child or
dependent,
(b) is made pursuant to a State domestic relations law,
(c) does not require the Plan to provide any type of benefit, or
any option, not otherwise provided under the Plan, and
(d) otherwise meets the requirements of Section 206(d) of ERISA,
as amended, as a "qualified domestic relations order", as
determined by the Administrator.
If the present value of any series of payments meeting the
criteria set forth in clauses (a) through (d) above amounts to
$3,500 or less, a lump sum payment that is the Actuarial
Equivalent, determined in the manner described in Section
5.01(c), shall be made in lieu of the series of payments.
9.02 Conditions of Employment Not Affected by Plan
Participation in the Plan shall not confer any legal rights upon
any Eligible Employee or other person for a continuation of
employment, nor shall it interfere with the right of the
Employer (which right is hereby reserved) to discharge any
Eligible Employee and to treat him without regard to the effect which
that treatment might have upon him as a
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Participant or potential Participant of the Plan.
9.03 Facility of Payment
If in the opinion of the Administrator a Participant or other
person entitled to a benefit hereunder is unable to care for his
affairs because of illness or accident or because he is a minor,
the Administrator may direct that any benefit due him, unless
claim shall have been made for the benefit by a duly appointed
guardian or other legal representative, be paid to his spouse, a
child, a parent or other blood relative, or any other person or
institution then in the opinion of the Administrator caring for
or maintaining the Participant or other person during this
period, or to a person with whom he resides. Any payment so made
shall be a complete discharge of the liabilities of the Plan for
that benefit.
9.04 Information
Each Participant or other person entitled to a benefit, before
any benefit shall be payable to him or on his account under the
Plan, shall file with the Company the information that it shall
require to establish his rights and benefits under the Plan.
9.05 Top-Heavy Provisions
(a) The following definitions apply to the terms used in this Section:
(i) "applicable determination date" means the last day of the
preceding Plan Year;
(ii) "top-heavy ratio" means the ratio of (A) the present value of
the cumulative Accrued Benefits under the Plan for key
employees to (B) the present value of the cumulative Accrued
Benefits under the Plan for all key employees and non-key
employees; provided, however, that if an individual has not
performed services for the Employer at
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any time during the five-year period ending on the applicable
determination date, any accrued benefit for such individual
(and the account of such individual) shall not be taken into
account;
(iii) "applicable valuation date" means the date within the preceding
Plan Year as of which annual Plan costs are or would be
computed for minimum funding purposes;
(iv) "key employee" means an employee who is in a category of
employees determined in accordance with the provisions of
Section 416(i)(1) and (5) of the Code and any regulations
thereunder, and where applicable, on the basis of the Eligible
Employee's remuneration (which, with respect to any Eligible
Employee, shall mean the wages, salaries, and other amounts
paid in respect of such Eligible Employee by the Employer or
an Affiliate for personal services actually rendered,
determined before any pre-tax contributions under a "qualified
cash or deferred arrangement", as defined in Section 401(k) of
the Code and its applicable regulations, or under a "cafeteria
plan", as defined in Section 125 of the Code and its
applicable regulations, and shall include, but not by way of
limitation, bonuses, overtime payments, and commissions, and
shall exclude deferred compensation, stock options, and other
distributions which receive special tax benefits under the
Code);
(v) "non-key employee" means any employee who is not a key
employee;
(vi) "average remuneration" means the average annual remuneration
of a Participant for the five consecutive years of his Years
of Vesting Service during which he received the greatest
aggregate remuneration, as limited by Section 401(a)(17) of
the Code, from the Employer or an Affiliate, excluding any
remuneration for service after the last Plan Year with respect
to which the Plan is top-heavy;
(vii) "required aggregation group" means each other qualified plan
of the Employer or an Affiliate (including plans that
terminated within the five-year period ending on the
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determination date) in which there are members who are key
employees or which enables the Plan to meet the requirements
of Section 401(a)(4) or 410 of the Code; and
(viii) "permissive aggregation group" means each plan in the required
aggregation group and any other qualified plan(s) of the
Employer or an Affiliate in which all members are non-key
employees, if the resulting aggregation group continues to
meet the requirements of Sections 401(a)(4) and 410 of the
Code.
(b) For purposes of this Section, the Plan shall be "top-heavy"
with respect to any Plan Year if as of the applicable
determination date the top-heavy ratio exceeds 60 percent.
The top-heavy ratio shall be determined as of the applicable
valuation date in accordance with Section 416(g)(3) and
(4)(B) of the Code on the basis of the UP-1984 Mortality
Table and an interest rate of 5 percent per year compounded
annually. For purposes of determining whether the Plan is
top-heavy, the present value of Accrued Benefits under the
Plan will be combined with the present value of accrued
benefits or account balances under each other plan in the
required aggregation group, and in the Employer's
discretion, may be combined with the present value of
accrued benefits or account balances under any other
qualified plan(s) in the permissive aggregation group. The
accrued benefit of a non-key employee under the Plan or any
other defined benefit plan in the aggregation group shall be
(i) determined under the method, if any, that uniformly
applies for accrual purposes under all plans maintained by
the Employer or an Affiliate, or (ii) if there is no such
method, as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under the fractional rule
described in Section 411(b)(1)(C) of the Code.
(c) The following provisions shall be applicable to Participants for
any Plan Year with respect to which the Plan is top-heavy:
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(i) In lieu of the vesting requirements specified in Section 4.04,
a Participant shall be vested in, and have a nonforfeitable
right to, a percentage of his Accrued Benefit determined in
accordance with the provisions of Section 1.01 and
subparagraph (ii) below, as set forth in the following vesting
schedule:
Years of Vesting Percentage
Service Vested
---------------- -----------
Less than 2 years 0%
2 years 20
3 years 40
4 years 60
5 or more years 100
(ii) The Accrued Benefit of a Participant who is a non-key employee
shall not be less than 2 percent of his average remuneration
multiplied by the number of years of his Years of Vesting
Service, not in excess of 10, during the Plan Years for which
the Plan is top-heavy. That minimum benefit shall be payable
at a Participant's Normal Retirement Date. If payments
commence at a time other than the Participant's Normal
Retirement Date, the minimum Accrued Benefit shall be the
Actuarial Equivalent of that minimum benefit.
(iii) The multiplier "1.25" in Sections 415(e)(2)(B)(i) and
(3)(B)(i) of the Code shall be reduced to "1.0", and the
dollar amount "$51,875" in Section 415(e)(6)(B)(i)(I) of the
Code shall be reduced to "$41,500".
(d) If the Plan is top-heavy with respect to a Plan Year and ceases
to be top-heavy for a subsequent Plan Year, the following
provisions shall be applicable:
(i) The Accrued Benefit in any such subsequent Plan Year shall
not be less than the minimum Accrued Benefit provided in
paragraph (c)(ii) above, computed as of the end of the most
recent Plan Year for which the Plan was top-heavy.
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(ii) If a Participant has completed three years of Years of
Vesting Service on or before the last day of the most recent
Plan Year for which the Plan was top-heavy, the vesting
schedule set forth in paragraph (c)(i) above shall continue
to be applicable.
(iii) If a Participant has completed at least two, but less than
three, years of Years of Vesting Service on or before the
last day of the most recent Plan Year for which the Plan was
top-heavy, the vesting provisions of Section 4.04 shall
again be applicable; provided, however, that in no event
shall the vested percentage of a Participant's Accrued Benefit
be less than the percentage determined under paragraph (c)(i)
above as of the last day of the most recent Plan Year for
which the Plan was top-heavy.
9.06 Offsets
Notwithstanding the foregoing provisions, the monthly amounts
otherwise payable hereunder shall be reduced by the amount
(expressed on a comparable basis that is an Actuarial
Equivalent) of the monthly pension, if any, to which the
Participant is entitled under any other pension plan that meets
the requirements of Section 401(a) of the Code, or any
comparable section or sections of any future legislation that
amends, supplements, or supersedes said section, and that is
financed in whole or in part by an Employer but only to the
extent such other pension is attributable to employer
contributions and to the same period of service for which the
pension is being paid under this Plan.
9.07 Construction
(a) The Plan shall be construed, regulated and administered under
ERISA as in effect from time to time, and the laws of the State
of New York, except where ERISA controls.
(b) The masculine pronoun shall mean the feminine where
appropriate, and vice versa.
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(c) The titles and headings of the Articles and Sections in this
Plan are for convenience only. In case of ambiguity or
inconsistency, the text rather than the titles or headings shall
control.
9.08 Prevention of Escheat
If the Administrator cannot ascertain the whereabouts of any
person to whom a payment is due under the Plan, the
Administrator may, no earlier than three years from the date
such payment is due, mail a notice of such due and owing payment
to the last known address of such person as shown on the records
of the Administrator or the Employer. If such person has not
made written claim therefor within three months of the date of
the mailing, the Administrator may, if it so elects and upon
receiving advice from counsel to the Plan, direct that such
payment and all remaining payments otherwise due such person be
canceled on the records of the Plan and the amount thereof
applied to reduce the contributions of the Employer. Upon such
cancellation, the Plan shall have no further liability therefor
except that, in the event such person or his Beneficiary later
notifies the Administrator of his whereabouts and requests the
payment or payments due to him under the Plan, the amount so
applied shall be paid to him in accordance with the provisions
of the Plan.
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ARTICLE 10. AMENDMENT, MERGER, AND TERMINATION
10.01 Amendment of Plan
The Company, by action of its Board of Directors or by action of
a person so authorized by resolution of the Board of Directors,
reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate, to amend in
whole or in part any or all of the provisions of the Plan.
However, no amendment shall make it possible for any part of the
funds of the Plan to be used for, or diverted to, purposes other
than for the exclusive benefit of persons entitled to benefits
under the Plan, before the satisfaction of all liabilities with
respect to them. No amendment shall be made which has the effect
of decreasing the Protected Benefit of any Participant or of
reducing the nonforfeitable percentage of the Accrued Benefit of
a Participant below the nonforfeitable percentage computed under
the Plan as in effect on the date on which the amendment is
adopted, or if later, the date on which the amendment becomes
effective.
10.02 Merger, Consolidation, or Transfer
The Board of Directors may, in its sole discretion, merge this
Plan with another qualified plan, subject to any applicable
legal requirements. However, the Plan may not be merged or
consolidated with, and its assets or liabilities may not be
transferred to, any other plan unless each person entitled to
benefits under the Plan would, if the resulting plan were then
terminated, receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately
before the merger, consolidation, or transfer if the Plan had
then terminated.
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10.03 Additional Participating Employers
(a) If any company is now or becomes a subsidiary or
associated company of an Employer, the Board of Directors
may include the employees of that company in the
membership of the Plan upon appropriate action by that
company necessary to adopt the Plan. In that event, or if
any persons become Eligible Employees of an Employer as the
result of merger or consolidation or as the result of
acquisition of all or part of the assets or business of another
company, the Board of Directors shall determine to what
extent, if any, credit and benefits shall be granted for
previous service with the subsidiary, associated or other
company, but subject to the continued qualification of the
trust for the Plan as tax-exempt under the Code.
(b) Any subsidiary or associated company may terminate its
participation in the Plan upon appropriate action by it, in
which event the funds of the Plan held on account of
Participants in the employ of that company shall be determined
by the Administrator and shall be applied as provided in Section
10.04 if the Plan should be terminated, or shall be segregated
by the Trustee as a separate trust, pursuant to certification to
the Trustee by the Administrator, continuing the Plan as a
separate plan for the employees of that company under which the
board of directors of that company shall succeed to all the
powers and duties of the Board of Directors, including the
appointment of the administrator.
10.04 Termination of Plan
The Company, by action of its Board of Directors, may terminate
the Plan for any reason at any time. In case of termination of
the Plan, the rights of Participants to their Protected Benefits
as of the date of the termination, to the extent then funded or
protected by law, if greater, shall be nonforfeitable. The funds
of the Plan shall be used for the exclusive benefit of persons
entitled to benefits under the Plan as of the date of
termination, except as provided in Section 6.02.
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However, any funds not required to satisfy all liabilities of the Plan
for benefits because of erroneous actuarial computation shall be
returned to the Employer. The Administrator shall determine on
the basis of actuarial valuation the share of the funds of the
Plan allocable to each person entitled to benefits under the
Plan in accordance with Section 4044 of ERISA, or corresponding
provision of any applicable law in effect at the time. In the
event of a partial termination of the Plan, the provisions of
this Section shall be applicable to the Participants affected by
that partial termination.
10.05 Limitation Concerning Highly Compensated Employees or Highly
Compensated Former Employees
(a) The provisions of this Section shall apply (i) in the event
the Plan is terminated, to any Participant who is a Highly
Compensated Employee or highly compensated former employee
(as those terms are defined in Section 414(q) of the Code) of
the Employer or an Affiliate and (ii) in any other event,
to any Participant who is one of the 25 Highly Compensated
Employees or highly compensated former employees of the
Employer or Affiliate with the greatest compensation in
any Plan Year. The amount of the annual payments to any one of
the Participants to whom this Section applies shall not be
greater than an amount equal to the annual payments that
would be made on behalf of the Participant during the year
under a single life annuity that is the Actuarial Equivalent
of the sum of the Participant's Accrued Benefit and the
Participant's other benefits under the Plan.
(b) If, (i) after payment of Pension or other benefits to any one
of the Participants to whom this Section applies, the value
of Plan assets equals or exceeds 110 percent of the value of
current liabilities (as that term is defined in Section
412(l)(7) of the Code) of the Plan, (ii) the value of the
Accrued Benefit and other benefits of any one of the
Participants to whom this Section applies is less than 1 percent of
the value of current liabilities of
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the Plan, or (iii) the value of the benefits payable to a Participant
to whom this Section applies does not exceed the amount described in
Section 411(a)(11)(A) of the Code, the provisions of paragraph (a)
above will not be applicable to the payment of benefits to such
Participant.
(c) Notwithstanding paragraph (a) of this Section, in the event the
Plan is terminated, the restriction of this Section shall not be
applicable if the benefit payable to any Highly Compensated
Employee and any highly compensated former employee is limited
to a benefit that is nondiscriminatory under Section 401(a)(4)
of the Code.
(d) If it should subsequently be determined by statute, court
decision acquiesced in by the Commissioner of Internal Revenue,
or ruling by the Commissioner of Internal Revenue, that the
provisions of this Section are no longer necessary to qualify
the Plan under the Code, this Section shall be ineffective
without the necessity of further amendment to the Plan.
10.06 Doubleday Book Shops, Inc.
Appendix B constitutes an integral part of the Plan and is
applicable with respect to (i) those Participants included in
the Plan who are employees of Doubleday Book Shops, Inc., and
(ii) those former employees of Doubleday Book Shops, Inc. with
continuing rights under the Pension Plan for Eligible Employees
of Doubleday Book Shops, Inc. as of December 31, 1991. Such
employees and former employees are subject to all the terms and
conditions of the Plan, except as otherwise provided by
Appendix B.
<PAGE>
Page 65
APPENDIX A. ACTUARIAL FACTORS
TABLE 1
TEN-YEAR CERTAIN & LIFE FACTOR REDUCTION CHART
Nearest Age Factor
-------------------- --------------------
65 .930
64 .935
63 .940
62 .945
61 .950
60 .955
59 .960
58 .965
57 .970
56 .975
55 .980
54 .985
53 .990
52 .995
51 or less 1.000
<PAGE>
Page 66
APPENDIX A
(cont'd)
TABLE 2
REDUCTION FACTORS IF BENEFITS BEGIN BEFORE NORMAL RETIREMENT DATE
LIFE ONLY BENEFITS
(Interpolate for ages less than a whole year.)
Age Reduction Factor Age Reduction Factor
------ ------------------ ------ ------------------
64 .933 44 .194
63 .867 43 .179
62 .800 42 .165
61 .733 41 .153
60 .667 40 .141
59 .633 39 .131
58 .600 38 .121
57 .567 37 .112
56 .533 36 .104
55 .500 35 .097
54 .456 34 .090
53 .417 33 .083
52 .381 32 .077
51 .349 31 .072
50 .320 30 .067
49 .293 29 .062
48 .270 28 .058
47 .248 27 .054
46 .228 26 .050
45 .210 25 .047
<PAGE>
Page 67
APPENDIX B. PROVISIONS APPLICABLE TO EMPLOYEES OF DOUBLEDAY BOOK SHOPS, INC.
This Appendix B constitutes an integral part of the Plan and is
applicable with respect to (i) those Participants included in the Plan
who are employees of Doubleday Book Shops, Inc., and (ii) those former
employees of Doubleday Book Shops, Inc. with continuing rights under the
Pension Plan for Eligible Employees of Doubleday Book Shops, Inc. as of
December 31, 1991. Such employees and former employees are subject to
all the terms and conditions of the Plan, except as otherwise provided
by this Appendix B. Section references in this Appendix B correspond to
appropriate Sections of the Plan.
ARTICLE 1. DEFINITIONS
1.02 "Actuarial Equivalent" means a benefit of equivalent value,
determined using a 7 percent interest rate and the UP-1984
Mortality Table. For purposes of determinations under Section
4.04, the applicable factors set forth in Table 2 of this
Appendix B shall be used. For purposes of determinations under
Section 5.02, the Actuary shall use the applicable factors set
forth in Table 1 of this Appendix B
1.09 "Compensation" shall include amounts received by an Eligible
Employee from an Affiliate, provided such compensation would
otherwise meet the definition of Certified Earnings in Section
1.09 of the Plan.
1.15 "Eligible Employee" means an Employee:
(a) who is not included in a unit of Employees covered by a
collective bargaining agreement between employee
representatives and an Employer if such retirement benefits
were the
<PAGE>
Page 68
subject of good faith bargaining, unless such agreement
expressly provides for the inclusion of such persons as
Participants in the Plan;
(b) who is not covered under another defined benefit retirement
program as an employee employed by an Affiliate; or
(c) who is not classified by Doubleday Book Shops, Inc. as a
leased employee (as defined in Section 414(n)(2) of the Code)
or as an independent contractor, regardless of his or her
classification by the Internal Revenue Service for tax
withholding purposes.
1.16 "Employee" means any person employed by Doubleday Book Shops,
Inc., excluding demonstrators. A "full-time Employee" means an
Employee who, on the basis of his regular stated work schedule,
is classified as a full-time Employee. A "part-time Employee"
means an Employee who, on the basis of his regular stated work
schedule, is classified as a part-time Employee.
1.19 "Final Average Compensation" The "Final Average Compensation"
for purposes of determining the normal monthly retirement
pension (as defined in Section 4.01 of this Appendix B) is the
average of such Participant's Compensation for those five
consecutive Plan Years within the last ten Plan Years preceding
the calendar year in which the Participant's Termination of
Employment occurs (as defined in Section 1.36 of this Appendix
B) with the Employer and all Affiliates that produces the
highest average. If such Participant has less than five
consecutive full calendar years of employment with the Employer
and all Affiliates, Final Average Compensation shall be computed
with respect to his actual full calendar years of employment
with the Employer and all Affiliates.
<PAGE>
Page 69
1.41 "Termination of Employment" of a full-time Employee shall be
deemed to occur on the earlier of:
(a) his resignation, discharge, retirement, or death; or
(b) the first anniversary of the first date of a period in which
the full-time Employee is absent from work (with or without
pay) with the Employer for any other reason (e.g., vacation,
holiday, disability, leave of absence, or layoff).
The "Termination of Employment" of a part-time Employee shall be
deemed to occur on the earliest of his resignation, discharge,
retirement, or death.
ARTICLE 2. PARTICIPATION
2.01 Participation Requirements
(a) Each Employee of Doubleday Book Shops, Inc. who was a
participant in the Pension Plan for Employees of Doubleday Book
Shops, Inc. on December 31, 1991 will become a Participant of
the Plan on January 1, 1992, provided he is an Eligible Employee
on such date. As of January 1, 1992, Participants in the Plan
shall include all retired or terminated participants with
entitlement to benefits under the Pension Plan for Employees of
Doubleday Book Shops, Inc. on December 31, 1991. Any retirement
benefit which would have been payable to or on behalf of any
such retired or terminated participants under the Pension Plan
for Employees of Doubleday Book Shops, Inc. shall be payable
from the Plan.
(b) On and after January 1, 1992, any Employee of Doubleday Book
Shops, Inc. shall become a Participant in the Plan on the date
he first completes an Hour of Service or the date he becomes an
Eligible Employee, if later.
<PAGE>
Page 70
ARTICLE 3. SERVICE
3.01 Years of Vesting Service
(a) "Year of Vesting Service" means with respect to an employee of
Doubleday Book Shops, Inc.:
(i) with respect to a part-time Employee, a Plan Year in which
such Employee has completed 1,000 or more Hours of Service;
and
(ii) with respect to a full-time Employee, a 12-month period of
uninterrupted employment rendered by such Employee with the
Employer during the period beginning on the date the Employee
first completes an Hour of Service and ending on the
Employee's Termination of Employment;
subject, however, to the service rules of Section 3.01 of the
Plan and the following provisions of this Section 3.01.
If a full-time Employee's employment is terminated and he is
later reemployed within one year, the period between his
Termination of Employment and the date of his reemployment shall
be included in Years of Vesting Service. However, if his
employment is terminated during a period of absence from service
for reasons such as vacation, sickness, disability, layoff, or
leave of absence approved by the Employer, the period from his
Termination of Employment to the date of his reemployment shall
be counted in his Years of Vesting Service only if he is
reemployed within one year of the first day of such absence.
(b) Notwithstanding the foregoing provisions of this Section 3.01,
an Employee of Doubleday Book Shops, Inc. shall not be deemed to
have incurred a One Year Break in Service if the Employee is
absent from work because of:
(i) Service in the Armed Forces of the United States;
<PAGE>
Page 71
(ii) An authorized leave of absence for sickness, vacation or
sabbatical granted in writing and for a period not in excess
of two years, or a temporary layoff for less than 12 months.
Leaves of absence shall be authorized in a nondiscriminatory
manner; or
(iii) Disability, other than permanent and total disability, as
defined in Section 4.09 of this Appendix B, causing an
absence.
(c) Service rendered prior to April 1, 1990 to Doubleday & Company,
Inc. or any affiliated entity thereof within the meaning of
Sections 414(b), (c), (m), and (o) of the Code shall be
recognized for vesting purposes under the terms of the Pension
Plan for Employees of Doubleday & Company, Inc. and its
Associated Employers as in effect on March 31, 1990.
3.02 Credited Service
Credited Service for purposes of this Appendix B means all Years
of Vesting Service rendered as an Employee of Doubleday Book
Shops, Inc., except as provided below. Any period between a
Termination of Employment (as defined in Section 1.41 of this
Appendix B) and a reemployment date which is counted as Years of
Vesting Service as provided in Section 3.01 of this Appendix B
shall not be counted as Credited Service, except that Credited
Service shall include any period of absence from service with
the Employer due to service in the Armed Forces of the United
States which is counted in a Participant's Years of Vesting
Service as provided in the Plan. An Employee's Credited Service
rendered prior to a Termination of Employment will not be
restored to him upon subsequent reemployment if the Employee
received a lump sum amount as provided in Section 5.01(c).
<PAGE>
Page 72
3.03 Reemployment
(a) If a Participant is reemployed by Doubleday Book Shops, Inc. and
works at least eight days during a calendar month, any pension
payments he is currently receiving shall be discontinued. After
said month and prior to the month following his subsequent
Termination of Employment, pension payments that the Participant
would otherwise be entitled to receive shall be permanently
withheld for each calendar month in which he works at least
eight days.
(b) If a Participant's employment with Doubleday Book Shops, Inc.
continues after he attains Normal Retirement Age, his pension
payments will be permanently withheld for each calendar month in
which he works at least eight days.
(c) If a Participant who was an employee of Doubleday Book Shops,
Inc. is rehired by any other Employer, the provisions set
forth in Section 3.03 of the Plan shall control.
3.04 Change in Employment Status
(a) If an Employee employed by Doubleday Book Shops, Inc. on
a full-time basis becomes employed on a part-time basis,
his Years of Vesting Service prior to the date of such
change in status shall be determined under the provisions
of Section 3.01 of this Appendix B as applicable to a full-time
Employee and his subsequent Years of Vesting Service shall be
determined under the provisions of Section 3.01 of this
Appendix B as applicable to a part-time Employee; provided,
however, that in determining his Years of Vesting Service
with respect to the Plan Year in which such change in status
occurs, 190 Hours of Service will be counted for each month
(or part thereof) of employment prior to the date such
change took place.
<PAGE>
Page 73
(b) If an Employee of Doubleday Book Shops, Inc. who is employed
on a part-time basis becomes employed on a full-time basis,
his Years of Vesting Service prior to the first day of the Plan
Year coincident with or next following such change in status
shall be determined under the provisions of Section 3.01 of
this Appendix B as applicable to a part-time Employee and his
subsequent Years of Vesting Service shall be determined
under the provisions of Section 3.01 of this Appendix B
as applicable to a full-time Employee; provided, however,
that in the Plan Year in which such change in status occurs,
such Employee will be credited with one full Year of Vesting
Service if he completes 1,000 Hours of Service in such Plan
Year. If the Employee is not credited with one full Year of
Vesting Service in such Plan Year in accordance with the
prior sentence, his Years of Vesting Service for the Plan
Year in which the change in status occurred shall equal the
Years of Vesting Service that would have been counted if the
Employee had remained a full-time Employee up to the earlier
of the end of such Plan Year or his Termination of
Employment.
ARTICLE 4. ELIGIBILITY FOR AND AMOUNT OF BENEFITS
4.01 Normal Retirement
(a) The normal retirement Pension of a Participant attributable
to his period of employment as an Employee of Doubleday Book
Shops, Inc. shall be a monthly amount, payable at his Normal
Retirement Date, equal to:
1/12 of 1.1 percent of Final Average Compensation up
to Covered Compensation for each year of Credited
Service (maximum 30 years) plus 1.67% of Final Average
Compensation greater than Covered Compensation for
each year of Credited Service (maximum 30 years).
<PAGE>
Page 74
4.03 Early Retirement
If a Participant elects to begin payment of his early retirement
Pension prior to his Normal Retirement Date, the Pension payable
with respect to his period of employment as an Employee of
Doubleday Book Shops, Inc. shall be equal to his accrued monthly
Pension, as determined under this Appendix B, reduced by 5
percent for each full year that the date the Participant's early
retirement benefit commences precedes his Normal Retirement
Date, with pro rata reductions hereunder based on fractions of a
year.
4.05 Spouse's Pension
(a) If a Participant who:
(i) is an Employee of Doubleday Book Shops, Inc.
dies in active service prior to his Annuity Starting Date
having met the requirement for any pension benefit under
Article 4;
(ii) was an Employee of Doubleday Book Shops, Inc. dies after
Termination of Employment but prior to his Annuity Starting
Date with entitlement to a pension benefit under Article 4; or
(iii) was an Employee of Doubleday Book Shops, Inc. dies while
accruing service under Section 4.09 of this Appendix B and
prior to his Annuity Starting Date having met the requirement
for any pension benefit under Article 4;
his eligible surviving spouse (if any) shall be entitled to a
monthly Pension payable for life. The first payment of such
survivor Pension benefit shall be made on the first day of the
month following what would have been the Participant's Normal
Retirement Date or his date of death, if later. However, the
eligible surviving spouse may elect to begin receiving payments
on the first day of the month coinciding with or following the
month in which the Participant would have attained age 55 and
prior to his Normal Retirement Date or the date of the
Participant's death, if
<PAGE>
Page 75
later. The last monthly payment shall be made as of the first day of
the month in which the eligible surviving spouse's death occurs.
The amount of each monthly payment shall be equal to the amount
of benefit the eligible surviving spouse would have received if
the Pension benefit to which the Participant was entitled to as
of his date of death had commenced on his Normal Retirement Date
(or his date of death, if later) in the form of a Qualified
Joint and Survivor Annuity and the Participant had died
immediately thereafter. If the eligible surviving spouse elects
an earlier commencement date, the amount of each payment shall
be further adjusted to reflected commencement prior the
Participant's Normal Retirement Date as follows:
(i) If the Participant's death occurred after he attained age 55
and the eligible surviving spouse elects early commencement,
the monthly Pension payable to the eligible surviving spouse
shall be based on the amount of the benefit determined under
Section 4.01 of this Appendix B to which the Participant would
have been entitled if he had requested benefit commencement in
the form of a Qualified Joint and Survivor Annuity at that
earlier date, reduced as provided in Section 4.03 of this
Appendix.
(ii) If the Participant's death occurred before he attained age 55
and the eligible surviving spouse elects a commencement date
on or after the date the Participant would have attained age
55, the monthly pension payable to the eligible surviving
spouse shall be based on the amount of benefit determined
under Section 4.01 of this Appendix B to which the Participant
would have been entitled if he had commenced payment in the
form of a Qualified Joint and Survivor Annuity at that earlier
date, reduced in accordance with the provisions of Section
4.04 of this Appendix.
<PAGE>
Page 76
(b) A Participant described in paragraph (a) may not elect to
waive the survivor annuity coverage under paragraph (a).
4.08 Protection of Benefits Accrued Prior to January 1, 1992
Notwithstanding any provisions to the contrary, each Participant
who was a participant in the Pension Plan for Employees of
Doubleday Book Shops, Inc. on December 31, 1991 and who became a
Participant in the Plan on January 1, 1992 shall not have his
benefit (including optional forms of benefit and other benefits
protected under Internal Revenue Code Section 411(d)(6) and
regulations thereunder) accrued as of December 31, 1991 under
the terms of the Pension Plan for Employees of Doubleday Book
Shops, Inc. as in effect on such date reduced or eliminated.
4.09 Disability Retirement
In the event a Participant, while he is an Employee of Doubleday
Book Shops, Inc., becomes permanently and totally disabled
before his Normal Retirement Date so that he is no longer able
to continue in employment in the same or similar capacity, such
Participant shall continue to be credited with Years of Vesting
Service and years of Credited Service for all Plan purposes
while he is permanently and totally disabled, but his Final
Average Compensation shall be calculated as of the date he
becomes permanently and totally disabled. Such Participant shall
receive his retirement benefit as of his Normal Retirement Date
unless he elects in writing to the Administrator that such
benefit commence at an early retirement date. A Participant
shall be deemed "permanently and totally disabled" if the
Participant is entitled to and is receiving disability benefits
under the Social Security Act.
<PAGE>
Page 77
ARTICLE 5. PAYMENT OF PENSIONS
5.02 Optional Forms of Payment
In lieu of the amount and form of Pension payable to him under
the Plan, and subject to any Spousal Consent required, a
Participant may, under such rules as the Employer may prescribe,
elect to have his Pension attributable to his employment as an
Employee of the Doubleday Book Shops, Inc. (as determined under
this Appendix B) paid under any of the following options:
(a) The Ten-Year Certain and Life Option available under the Plan,
determined by multiplying the amount that would be paid to him
on a life only basis by the applicable reduction factor from
Table 1 of this Appendix B.
(b) A Five-Year Certain and Life Option that is a modified Pension
payable during the Participant's life; if the Participant dies
within 60 months of his Annuity Starting Date, the balance of
those monthly payments shall be paid to the Beneficiary named
by him when he elected the option. The monthly amount payable
under this option will be determined by multiplying the amount
that would be paid to the Participant on a life-only basis by
the applicable reduction factor from Table 1 of this Appendix
B.
(c) The 50% Joint and Survivor Option available under the Plan,
determined by multiplying the amount that would be paid to him
on a life only basis by a reduction factor which is 90
percent, increased by 3/10 of 1 percent (but not more than 100
percent) for each year the contingent annuitant is older than
the Participant, and decreased by 3/10 of 1 percent for each
year the contingent annuitant is younger than the Participant.
(d) The 100% Joint and Survivor Option available under the Plan,
determined by multiplying the amount that would be paid to him
on a life-only basis by a reduction factor which is 82
percent, increased by 6/10 of 1 percent (but not more than 100
percent) for each year the contingent annuitant is older than
the Participant, and decreased by 6/10 of 1 percent for each
year the contingent
<PAGE>
Page 78
annuitant is younger than the Participant.
In the event the Beneficiary named under the provisions of
paragraph (a) or (c) above fails to survive the Participant and
the Participant has not designated a contingent beneficiary, the
Beneficiary shall be deemed to be in the order of sequence
below: (1) the Participant's eligible surviving spouse, if any,
(2) his children then living, (3) his brothers or sisters then
living, or (4) his estate. If the designated Beneficiary
survives the Participant but dies prior to receiving the full
number of payments under the five- or ten-year certain and life
option and the Participant has not designated a contingent
Beneficiary, distribution of the remaining payments will be made
to the Beneficiary's estate.
<PAGE>
Page 79
APPENDIX A
TABLE 1
FIVE- OR TEN-YEAR CERTAIN AND LIFE FACTOR REDUCTION CHART
<TABLE>
<CAPTION>
Participant's Five-Year Ten-Year Participant's Five-Year Ten-Year
Attained Age Certain & Life Certain & Life Attained Age Certain & Life Certain & Life
- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
70 .957 .864 49 .998 .981
69 .962 .877 48 .999 .982
68 .966 .889 47 1.000 .983
67 .970 .901 46 1.000 .984
66 .974 .911 45 1.000 .985
65 .977 .921 44 1.000 .986
64 .980 .929 43 1.000 .987
63 .982 .937 42 1.000 .988
62 .984 .943 41 1.000 .989
61 .986 .949 40 1.000 .990
60 .987 .954 39 1.000 .991
59 .988 .959 38 1.000 .992
58 .990 .963 37 1.000 .993
57 .990 .966 36 1.000 .994
56 .991 .969 35 1.000 .995
55 .992 .972 34 1.000 .996
54 .993 .974 33 1.000 .997
53 .994 .976 32 1.000 .998
52 .995 .978 31 1.000 .999
51 .996 .979 30 and less 1.000 1.000
50 .997 .980
</TABLE>
<PAGE>
Page 80
APPENDIX B
TABLE 2
REDUCTION FACTORS IF DEFERRED VESTED PARTICIPANT'S BENEFITS BEGIN
BEFORE NORMAL RETIREMENT DATE
(interpolate for ages less than a whole year)
Participant's Participant's
Attained Age Factor Attained Age Factor
--------------- -------- --------------- --------
65 1.000 44 .139
64 .893 43 .128
63 .799 42 .118
62 .717 41 .109
61 .645 40 .101
60 .582 39 .093
59 .526 38 .087
58 .476 37 .080
57 .432 36 .074
56 .393 35 .069
55 .358 34 .064
54 .326 33 .059
53 .298 32 .055
52 .272 31 .051
51 .250 30 .048
50 .229 29 .044
49 .210 28 .041
48 .193 27 .038
47 .177 26 .036
46 .163 25 .033
45 .150
<PAGE>
EXHIBIT 13.1
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Barnes & Noble, Inc.
and its wholly owned subsidiaries (collectively, the Company) set forth on the
following pages should be read in conjunction with the consolidated financial
statements and notes included elsewhere in this report. The Company's fiscal
year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last
day of January. The Statement of Operations Data for the 52 weeks ended January
31, 1998 (fiscal 1997), the 53 weeks ended February 1, 1997 (fiscal 1996) and
the 52 weeks ended January 27, 1996 (fiscal 1995) and the Balance Sheet Data as
of January 31, 1998 and February 1, 1997 are derived from, and are qualified by
reference to, audited consolidated financial statements which are included
elsewhere in this report. The Statement of Operations Data for the 52 weeks
ended January 28, 1995 (fiscal 1994) and January 29, 1994 (fiscal 1993) and the
Balance Sheet Data as of January 27, 1996, January 28, 1995 and January 29, 1994
are derived from audited consolidated financial statements not included in this
report. Certain prior-period amounts have been reclassified for comparative
purposes.
<TABLE>
<CAPTION>
FISCAL YEAR
(Thousands of dollars, except per share data) 1997 1996 1995 1994 1993
- ---------------------------------------------- ---- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Barnes & Noble stores(1) $ 2,245,531 1,861,177 1,349,830 952,697 614,646
B. Dalton stores(2) 509,389 564,926 603,204 646,876 688,220
BarnesandNoble.com 14,601 -- -- -- --
Other 27,331 22,021 23,866 23,158 34,520
----------- ---------- ---------- ---------- ----------
Total revenues 2,796,852 2,448,124 1,976,900 1,622,731 1,337,386
Cost of sales and occupancy 2,019,291 1,785,392 1,444,555 1,192,123 989,526
----------- ---------- ---------- ---------- ----------
Gross profit 777,561 662,732 532,345 430,608 347,860
Selling and administrative expenses 540,423 465,687 383,692 316,457 267,699
Depreciation and amortization 76,951 59,806 47,881 36,617 29,077
Pre-opening expenses 12,918 17,571 12,160 9,021 8,940
Restructuring charge(3) -- -- 123,768 -- --
----------- ---------- ---------- ---------- ----------
Operating profit (loss) 147,269 119,668 (35,156) 68,513 42,144
Interest expense, net and amortization of
deferred financing fees(4) 37,666 38,286 28,142 22,955 25,807
----------- ---------- ---------- ---------- ----------
Earnings (loss) before provision (benefit) for
income taxes and extraordinary charge 109,603 81,382 (63,298) 45,558 16,337
Provision (benefit) for income taxes 44,935 30,157 (10,322) 20,085 8,584
----------- ---------- ---------- ---------- ----------
Earnings (loss) before extraordinary charge 64,668 51,225 (52,976) 25,473 7,753
Extraordinary charge(5) 11,499 -- -- -- --
----------- ---------- ---------- ---------- ----------
Net earnings (loss)(6) $ 53,169 51,225 (52,976) 25,473 7,753
=========== ========== =========== ========== ==========
Earnings (loss) per common share(7)
Basic
Earnings (loss) before extraordinary charge $ 0.96 0.77 (0.85) 0.42 0.15
Extraordinary charge $ 0.17 -- -- -- --
Net earnings (loss) $ 0.79 0.77 (0.85) 0.42 0.15
Diluted
Earnings (loss) before extraordinary charge $ 0.93 0.75 (0.85) 0.41 0.15
Extraordinary charge $ 0.17 -- -- -- --
Net earnings (loss) $ 0.76 0.75 (0.85) 0.41 0.15
Weighted average common shares outstanding(7)
Basic 67,237,000 66,103,000 62,434,000 59,970,000 52,039,000
Diluted 69,836,000 67,886,000 62,434,000 61,560,000 52,255,000
</TABLE>
11
<PAGE>
Selected Consolidated Financial Data Continued
<TABLE>
<CAPTION>
FISCAL YEAR
(Thousands of dollars, except per share data) 1997 1996 1995 1994 1993
- ---------------------------------------------- ---- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
STORE OPERATING DATA:
Stores open at end of period
Barnes & Noble stores(1) 483 431 358 268 203
B. Dalton stores(2) 528 577 639 698 734
----------- ---------- ---------- ---------- ----------
Total 1,011 1,008 997 966 937
=========== ========== ========== ========== ==========
Comparable store sales increase (decrease)(8)
Barnes & Noble stores(1) 9.4% 7.3% 6.9% 12.6% 8.6%
B. Dalton stores(2) (1.1) (1.0) (4.3) (2.3) (0.3)
Capital Expenditures $ 121,903 171,885 154,913 88,763 81,116
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 264,719 212,692 226,500 155,976 182,403
Total assets $ 1,591,171 1,446,647 1,315,342 1,026,418 895,863
Long-term debt, less current portions $ 284,800 290,000 262,400 190,000 190,000
Shareholders' equity $ 531,755 455,989 400,235 358,173 328,841
</TABLE>
(1) Also includes 20 Bookstop and 25 Bookstar stores.
(2) Also includes 18 Doubleday Book Shops, nine Scribner's Bookstores and
seven smaller format bookstores operated under the Barnes & Noble trade
name representing the Company's original retail strategy.
(3) Restructuring charge includes restructuring and asset impairment losses
recognized upon adoption of Statement of Financial Accounting Standards
No. 121, "Impairment of Long-Lived Assets and Assets to be Disposed Of."
(4) Interest expense for fiscal 1997, 1996, 1995, 1994, and 1993 is net of
interest income of $446, $2,288, $2,138, $3,008 and $1,838, respectively.
(5) Reflects a net extraordinary charge during fiscal 1997 due to the early
extinguishment of debt, consisting of: (i) a pre-tax charge of $11,281
associated with the redemption premium on the Company's senior subordinated
notes; (ii) the associated write-off of $8,209 of unamortized deferred
finance costs; and (iii) the related tax benefits of $7,991 on the
extraordinary charge.
(6) Net earnings (loss) does not give effect to preferred stock dividends.
Holders of the Company's Series C Preferred Stock were entitled to dividends
of $4,466 during fiscal 1993. Such accumulated dividends were paid from the
proceeds of the Company's initial public offering completed on October 4,
1993 (IPO). Accumulated dividends on all other series of preferred stock
outstanding were converted into common stock or waived during fiscal 1993.
(7) All share and per-share amounts have been restated to give effect to a
two-for-one stock split completed by the Company during fiscal 1997, and to
reflect the adoption, in fiscal 1997, of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" for all periods presented. Fiscal
1993 earnings per share were computed on a pro forma basis and give effect
to certain employee stock options using the treasury stock method, the
number of shares issued upon the conversions of preferred stock and the
exercise of warrants in connection with the IPO and the number of shares
issued equal in value to the redemption price of the Series C Preferred
Stock, including accumulated and unpaid dividends.
(8) Comparable store sales increase (decrease) is calculated on a 52-week basis,
and includes sales of stores that have been open for 12 months for B. Dalton
stores and 15 months for Barnes & Noble stores (due to the high sales volume
associated with grand openings). Comparable store sales for fiscal years
1997 and 1996 include relocated Barnes & Noble stores and exclude B. Dalton
stores which the company has closed or has a formal plan to close.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
Saturday closest to the last day of January. As used in this section, "fiscal
1997" represents the 52 weeks ended January 31, 1998, "fiscal 1996" represents
the 53 weeks ended February 1, 1997 and "fiscal 1995" represents the 52 weeks
ended January 27, 1996.
GENERAL
Barnes & Noble, Inc. (Barnes & Noble or the Company), the world's
largest bookseller*, as of January 31, 1998 operates 483 "super" stores, 65 of
which were opened in fiscal 1997, under the Barnes & Noble Booksellers, Bookstop
and Bookstar trade names, and 528 mall bookstores under the B. Dalton
Booksellers, Doubleday Book Shops and Scribner's Bookstore trade names. Barnes &
Noble publishes books under its own imprint for exclusive sale through its
retail stores and mail-order catalogs. The Company is also the exclusive
bookseller in America Online's Marketplace (keyword: BarnesandNoble) and
maintains its own Web site (BarnesandNoble.com), operating the "world's largest
bookseller online." The Company employed approximately 27,200 full- and
part-time booksellers and created nearly 3,200 new jobs nationwide during fiscal
1997 primarily due to its Barnes & Noble store expansion.
Barnes & Noble is the largest operator of book "super" stores in the
United States* with 483 Barnes & Noble stores located in 48 states and the
District of Columbia as of January 31, 1998. With more than 30 years of
bookselling experience, management has a strong sense of customers' changing
needs and the Company leads book retailing with a "community store" concept.
Barnes & Noble's typical store offers a comprehensive title base, a cafe, a
children's section, a music department and a calendar of ongoing events,
including author appearances and children's activities, that make each Barnes &
Noble store an active part of its community. Management estimates that as much
as 80% of the sales generated by a new Barnes & Noble store is incremental to
the community in which the store is located, representing a combination of
previously unfulfilled and newly created demand.
Barnes & Noble stores range in size from 10,000 to 60,000 square feet
depending upon market size, and each store features an authoritative selection
of books, ranging from 60,000 to 175,000 titles. The comprehensive title
selection is diverse and reflects local interests. To further this diversity,
Barnes & Noble emphasizes books published by small and independent publishers
and university presses. Bestsellers represent only 3% of Barnes & Noble store
sales. In addition to the extensive on-site selection, each store can fill
customers' special order requests from the more than one million books in print.
Barnes & Noble stores opened during fiscal 1997 added 1.6 million square
feet to the Barnes & Noble base, bringing the total square footage to 10.8
million square feet, a 16% increase over the prior year. Barnes & Noble stores
generated more than 80% of the Company's total revenues in fiscal 1997. The
Company plans to open approximately 60 Barnes & Noble stores in 1998 which are
expected to average 26,000 square feet in size.
At the end of fiscal 1997, the Company operated 528 B. Dalton stores in
45 states and the District of Columbia. B. Dalton stores employ merchandising
strategies that target the "middle-American" consumer book market, offering a
wide range of bestsellers and general-interest titles. Doubleday and Scribner's
bookstores utilize a more upscale format aimed at the "carriage trade" in
higher-end shopping malls and place a greater emphasis on hardcover and gift
books. Most B. Dalton stores range in size from 2,800 to 6,000 square feet, and
while they are appropriate to the size of adjacent mall tenants, the opening of
superstores in nearby locations continues to have a significant impact on B.
Dalton stores.
The Company is continuing to execute its strategy to maximize returns
from its B. Dalton division in response to declining sales attributable
primarily to superstore competition and, to a lesser extent, weaker overall
consumer traffic in shopping malls. Part of the Company's strategy has been to
close underperforming stores, which has resulted in the closing of more than 50
B. Dalton stores per year since 1989.
The Company has also been expanding the size of some of its new B.
Dalton stores and is seeking better locations within malls. A new B. Dalton
prototype was developed for this purpose in 1993 and, since that time, more than
100 new or converted stores have been opened and are performing, on average,
better than the remaining store base.
* based upon sales reported in trade publications and public filings
13
<PAGE>
Complementing its leadership position as the world's largest bookseller,
Barnes & Noble is the world's largest supplier of books through catalogs*. The
Company mails over 15 million catalogs each year and maintains a list of over
one million customers worldwide. Barnes & Noble's extensive catalog mailings
have created substantial global name recognition which has benefited both the
retail stores and the online business.
During 1997, the Company, through its wholly owned subsidiary
BarnesandNoble.com Inc., became the exclusive bookseller in America Online's
Marketplace, linking the world's largest bookseller with the world's most
popular Internet online service. The exclusive four-year agreement gives
BarnesandNoble.com an extensive presence throughout America Online. The Company
further extended its brand awareness by launching its own web site
(BarnesandNoble.com) through which it has entered into thousands of strategic
online alliances and affiliations, including Lycos, Web Crawler, ZDNet, The New
York Times and Disney. The Company believes that it brings significant
competitive advantages to the online bookselling market, including its
distribution expertise, proprietary title database, large customer base and
brand recognition.
The Company further differentiates its product offerings from those of
its competitors by publishing books under its own Barnes & Noble Books imprint
for exclusive sale in its retail stores, direct-mail catalogs and through
BarnesandNoble.com. With publishing and distribution rights to over 1,500
titles, Barnes & Noble Books offers customers high-quality books at excellent
values and generates attractive gross margins.
The Company also maintains an equity investment in Chapters Inc., an
Ontario company which is publicly traded on the Toronto Stock Exchange. Chapters
is the largest book retailer in Canada and the third largest in North America*,
operating 347 bookstores, including 29 superstores, as of the end of fiscal
1997.
RESULTS OF OPERATIONS
The Company's revenues, operating profit (loss), comparable store sales,
store openings, store closings and number of stores open at year end are
set forth below:
FISCAL YEAR
(Thousands of dollars) 1997 1996 1995
- ---------------------- ---- ---- ----
REVENUES
Retail business $ 2,782,251 2,448,124 1,976,900
BarnesandNoble.com 14,601 -- --
------------ ---------- ----------
Total $ 2,796,852 2,448,124 1,976,900
============ ========== ==========
Operating profit (loss)
Retail business $ 162,664 119,668 (35,156)
BarnesandNoble.com (15,395) -- --
------------ ---------- ----------
Total $ 147,269 119,668 (35,156)
============ ========== ==========
COMPARABLE STORE SALES
INCREASE (DECREASE)(1)
Barnes & Noble stores(2) 9.4% 7.3% 6.9%
B. Dalton stores(3) (1.1) (1.0) (4.3)
============ ========== ==========
STORES OPENED
Barnes & Noble stores(2) 65 91 97
B. Dalton stores(3) 4 10 10
------------ ---------- ----------
Total 69 101 107
============ ========== ==========
STORES CLOSED
Barnes & Noble stores(2) 13 18 7
B. Dalton stores(3) 53 72 69
------------ ---------- ----------
Total 66 90 76
============ ========== ==========
NUMBER OF STORES OPEN AT YEAR END
Barnes & Noble stores(2) 483 431 358
B. Dalton stores(3) 528 577 639
------------ ---------- ----------
Total 1,011 1,008 997
============ ========== ==========
SQUARE FEET OF SELLING SPACE
AT YEAR END (IN MILLIONS)
Barnes & Noble stores(2) 10.8 9.3 7.0
B. Dalton stores(3) 2.0 2.2 2.4
------------ ---------- ----------
Total 12.8 11.5 9.4
============ ========== ==========
(1) Comparable store sales for B. Dalton stores are determined using stores
open at least 12 months. Comparable store sales for Barnes & Noble stores
are determined using stores open at least 15 months, due to the high sales
volume associated with grand openings. Comparable store sales increase
(decrease) is computed on a 52-week basis for fiscal 1996.
(2) Also includes 20 Bookstop and 25 Bookstar stores.
(3) Also includes 18 Doubleday Book Shops, nine Scribner's Bookstores and seven
smaller format bookstores operated under the Barnes & Noble trade name
representing the Company's original retail strategy.
* based upon sales reported in trade publications and public filings
14
<PAGE>
The following table sets forth, for the periods indicated, the
percentage relationship that certain items bear to total revenues of the
Company:
FISCAL YEAR 1997 1996 1995
- ----------- ---- ---- ----
Revenues 100.0% 100.0% 100.0%
Cost of sales and occupancy 72.2 72.9 73.1
------ ------ ------
Gross margin 27.8 27.1 26.9
Selling and administrative expenses 19.3 19.0 19.4
Depreciation and amortization 2.8 2.5 2.4
Pre-opening expenses 0.4 0.7 0.6
Restructuring charge -- -- 6.3
------ ------ ------
Operating margin(1) 5.3 4.9 (1.8)
Interest expense, net and amortization
of deferred financing fees 1.4 1.6 1.4
------ ------ ------
Earnings (loss) before provision
(benefit) for income taxes and
extraordinary charge(1) 3.9 3.3 (3.2)
Provision (benefit) for income taxes(1) 1.6 1.2 (0.5)
------ ------ ------
Earnings (loss) before extraordinary
charge(1) 2.3 2.1 (2.7)
Extraordinary charge 0.4 -- --
------ ------ ------
Net earnings (loss) 1.9% 2.1% (2.7)%
====== ====== =======
(1) If operating margin, earnings (loss) before provision (benefit) for
income taxes and extraordinary charge, provision (benefit) for income
taxes and earnings (loss) before extraordinary charge were presented
before the effects of the restructuring charge of $123,768 during fiscal
1995, the percentage relationship that these items would bear to total
revenues of the Company would be 4.5%, 3.1%, 1.4% and 1.7%,
respectively.
52 WEEKS ENDED JANUARY 31, 1998 COMPARED WITH 53 WEEKS ENDED FEBRUARY 1, 1997
Revenues
The Company's revenues increased 14.2% during fiscal 1997 to $2.797
billion from $2.448 billion during fiscal 1996. Fiscal 1996 includes 53 weeks;
excluding the impact of the 53rd week, revenues increased 16.0%. Fiscal 1997
revenues from Barnes & Noble stores, which contributed 80.3% of total revenues,
increased 20.7% to $2.246 billion from $1.861 billion in fiscal 1996.
The increase in revenues was primarily due to the 9.4% increase in
Barnes & Noble comparable store sales and the opening of an additional 65 Barnes
& Noble stores during 1997. This increase was slightly offset by declining
revenues of B. Dalton stores which closed 53 stores and posted a comparable
store sales decline of 1.1%. BarnesandNoble.com, the Company's new online
subsidiary, also contributed to the increase in revenue, posting $14.6 million
of revenues during its first partial year of operations.
Cost of Sales and Occupancy
The Company's cost of sales and occupancy includes costs such as rental
expense, common area maintenance, merchant association dues, lease-required
advertising and adjustments for LIFO.
Cost of sales and occupancy increased 13.1% during fiscal 1997 to $2.019
billion from $1.785 billion in fiscal 1996 resulting in an increase in the
Company's gross margin rate to 27.8% in fiscal 1997 from 27.1% in fiscal 1996.
The gross margin expansion reflects more direct buying, reduced costs of
shipping and handling, and improvements in merchandise mix.
Selling and Administrative Expenses
Selling and administrative expenses increased $74.7 million, or 16.0% to
$540.4 million in fiscal 1997 from $465.7 million in fiscal 1996. Selling and
administrative expenses increased to 19.3% of revenues during fiscal 1997 from
19.0% during fiscal 1996 primarily as a result of the start-up expenses from
BarnesandNoble.com. Excluding BarnesandNoble.com, selling and administrative
expenses would have declined to 18.9% of revenues, reflecting operating leverage
improvement.
15
<PAGE>
Depreciation and Amortization
Depreciation and amortization increased $17.2 million, or 28.8%, to
$77.0 million in fiscal 1997 from $59.8 million in fiscal 1996. The increase was
primarily the result of the new Barnes & Noble stores opened during fiscal 1997
and fiscal 1996.
Pre-Opening Expenses
Pre-opening expenses declined in fiscal 1997 to $12.9 million from $17.6
million in fiscal 1996 reflecting fewer new stores compared with prior years.
Operating Profit
Operating profit increased to $147.3 million in fiscal 1997 from $119.7
million in fiscal 1996. Despite the $15.4 million operating loss from
BarnesandNoble.com, operating margin improved to 5.3% of revenues during fiscal
1997 from 4.9% of revenues during fiscal 1996. Excluding BarnesandNoble.com,
operating margin for the retail business improved to 5.8% of revenues.
Interest Expense, Net and Amortization of Deferred Financing Fees
Interest expense, net of interest income, and amortization of deferred
financing fees decreased $0.6 million in fiscal 1997 to $37.7 million from $38.3
million in fiscal 1996. The decline was primarily due to lower borrowings under
the Company's senior credit facilities.
Provision for Income Taxes
Barnes & Noble's effective tax rate was 41.0% during fiscal 1997
compared with 37.1% during fiscal 1996. The fiscal 1996 provision reflected a
non-recurring $3.0 million rehabilitation tax credit.
Extraordinary Charge
As a result of obtaining a new senior credit facility during
fiscal 1997, the Company called its outstanding $190 million, 11 7/8% senior
subordinated notes on January 15, 1998, at a call premium of 5.9375%. The
extraordinary charge reflects (on an after-tax basis) such call premium along
with the write-off of related deferred financing fees.
Earnings
Fiscal 1997 earnings before extraordinary charge increased $13.4
million, or 26.2%, to $64.7 million (or $0.93 per diluted share) from $51.2
million (or $0.75 per diluted share) during fiscal 1996. The extraordinary
charge in fiscal 1997 of $11.5 million equated to $0.17 per diluted share
resulting in net earnings during fiscal 1997 of $53.2 million (or $0.76 per
diluted share).
All share and per-share amounts contained in this annual report have
been restated to reflect a two-for-one split of the Company's common stock in
September of 1997, and the adoption of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS 128). Implementation of SFAS 128
did not have a material effect on the Company's diluted earnings per share. SFAS
128 requires the disclosure of basic earnings per share in addition to diluted
earnings per share.
53 WEEKS ENDED FEBRUARY 1, 1997, COMPARED WITH 52 WEEKS ENDED JANUARY 27, 1996
Revenues
The Company's revenues increased 23.8% during fiscal 1996 to $2.448
billion from $1.977 billion during fiscal 1995. Fiscal 1996 includes 53 weeks;
excluding the impact of the 53rd week, revenues increased 21.5%. During fiscal
1996, revenues from Barnes & Noble stores rose 37.9% to $1.861 billion from
$1.350 billion during fiscal 1995 and contributed 76.0% of total revenues, up
from 68.3% during fiscal 1995. B. Dalton stores generated revenues of $564.9
million (or 23.1% of total revenues) during fiscal 1996, down from $603.2
million (or 30.5% of total revenues) during fiscal 1995.
The increase in revenues was primarily attributable to an increase in
sales from Barnes & Noble stores. The Company opened 91 Barnes & Noble stores
and closed 18 during fiscal 1996 (12 of which were relocated), increasing square
footage by 33% in fiscal 1996. Comparable store sales for Barnes & Noble stores,
which excludes the impact of the 53rd week of sales, increased 7.3% during
fiscal 1996, in comparison to 6.9% during fiscal 1995. During fiscal 1996,
revenues of B. Dalton stores declined, primarily due to the 72 store closings
and a comparable store sales decrease of 1.0%.
16
<PAGE>
Cost of Sales and Occupancy
The Company's cost of sales and occupancy includes costs such as rental
expense, common area maintenance, merchant association dues, lease-required
advertising and adjustments for LIFO.
Cost of sales and occupancy increased 23.6% during fiscal 1996 to $1.785
billion from $1.445 billion during fiscal 1995, but decreased as a percentage of
revenues to 72.9% during fiscal 1996 from 73.1% during fiscal 1995 due to
improvements in merchandise mix, as well as increases in merchandise margins due
to more direct purchasing. Excluding the impact of LIFO, cost of sales and
occupancy as a percentage of revenues declined to 72.9% in fiscal 1996 from
73.4% in fiscal 1995.
Selling and Administrative Expenses
Selling and administrative expenses increased $82.0 million, or 21.4% to
$465.7 million during fiscal 1996 from $383.7 million during fiscal 1995. The
Company's operating leverage continued to improve as selling and administrative
expenses decreased as a percentage of revenues to 19.0% during fiscal 1996 from
19.4% during fiscal 1995.
Depreciation and Amortization
Depreciation and amortization increased $11.9 million, or 24.9%, to
$59.8 million during fiscal 1996 from $47.9 million during fiscal 1995. The
increase was primarily a result of the addition of 91 Barnes & Noble stores
during fiscal 1996.
Pre-Opening Expenses
Pre-opening expenses increased $5.4 million, or 44.5%, to $17.6 million
during fiscal 1996 from $12.2 million during fiscal 1995. As the Company
amortizes pre-opening expenses over the respective store's first 12 months of
operation, the increase reflects the opening of 109 new Barnes & Noble stores
during the second half of fiscal 1995 and the first half of fiscal 1996 compared
with 68 stores in the corresponding period of the previous year.
Operating Profit (Loss)
Operating profit, before the effects of the $123.8 million restructuring
charge in fiscal 1995, increased $31.1 million, or 35.0% to $119.7 million
during fiscal 1996 from $88.6 million during fiscal 1995. As a percentage of
revenues, operating profit increased to 4.9% during fiscal 1996 from 4.5% during
fiscal 1995 (before the effects of the restructuring charge), reflecting
improved operating leverage.
Interest Expense, Net and Amortization of Deferred Financing Fees
Interest expense, net of interest income, and amortization of deferred
financing fees increased $10.2 million, or 36.0%, to $38.3 million during fiscal
1996 from $28.1 million during fiscal 1995. The increase resulted from a rise in
borrowings under the Company's credit facility to finance working capital and
capital expenditures. The impact of the increased borrowings was partially
offset by a reduction in the Company's weighted-average interest rate on its
short-term borrowings.
Provision (Benefit) for Income Taxes
The Company's income tax provision during fiscal 1996 was $30.2 million
compared with $26.1 million in fiscal 1995 (before the effects of the $123.8
million restructuring charge). Barnes & Noble's effective tax rate was 37.1%
during fiscal 1996 and 43.2% during fiscal 1995 (before the effects of the
restructuring charge). Such rates exceeded the federal statutory rate primarily
due to the combined effects of goodwill amortization and state and local taxes.
The fiscal 1996 provision also reflects a non-recurring $3.0 million
rehabilitation tax credit.
Net Earnings (Loss)
As a result of the factors discussed above, the Company's net earnings
in fiscal 1996 increased to $51.2 million from $34.3 million in fiscal 1995
(before the effects of the $123.8 million restructuring charge). Fiscal 1996
earnings increased due to the continuing improvement in Barnes & Noble operating
profits combined with accelerating revenues over which to spread overhead costs.
Net earnings per diluted share were $0.75 during fiscal 1996 compared
with $0.53 during fiscal 1995 (before the effects of the restructuring charge).
Net earnings increased 49.3% while earnings per diluted share increased 41.5%
due to an increase in the diluted weighted-average shares outstanding to 67.9
million shares during fiscal 1996 from 64.3 million shares during fiscal 1995,
reflecting the full-year impact of 5.0 million common shares issued in October
of 1995.
17
<PAGE>
SEASONALITY
The Company's business, like that of many retailers, is seasonal, with
the major portion of sales and operating profit realized during the quarter
which includes the Christmas selling season. The growth in Barnes & Noble stores
continues to reduce such seasonal fluctuation. During fiscal 1997, the Company
reported operating profit in all four quarters for the first time since the
Company began its "super" store expansion.
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements are generally at their highest during the
Company's fiscal quarter ending on or about January 31 due to the higher
payments to vendors for holiday season merchandise purchases and the
replenishment of merchandise inventories following this period of increased
sales. In addition, the Company's sales and merchandise inventory levels will
fluctuate from quarter-to-quarter as a result of the number and timing of new
store openings, as well as the amount and timing of sales contributed by new
stores.
Cash flows from operating activities, funds available under its
revolving credit facility and vendor financing continue to provide the Company
with liquidity and capital resources for store expansion, seasonal working
capital requirements and capital investments.
Cash Flow. Cash flows provided from (used by) operating activities were
$169.2 million, $119.5 million and ($56.8) million during fiscal 1997, 1996,
and 1995, respectively. The increased cash flow in fiscal 1997 was primarily due
to the improvement in net earnings. In fiscal 1996, improvement in cash flows
from operations was the result of increased net earnings and more efficient
working capital management; revenues increased 23.8% while inventory levels
declined 1.1% through faster inventory turns.
The weighted-average age per square foot of the Company's 483 Barnes &
Noble stores was 2.8 years as of January 31, 1998 and is expected to increase to
approximately 3.3 years by January 30, 1999. As the relatively young Barnes &
Noble stores mature, and as the number of new stores opened during the fiscal
year decreases as a percentage of the existing store base, the increasing
operating profits of Barnes & Noble stores are expected to generate a greater
portion of cash flows required for working capital, including new store
inventories and capital expenditures. Earnings before interest, taxes,
depreciation and amortization (EBITDA) increased $44.7 million or 24.9% to
$224.2 million in fiscal 1997 from $179.5 million in fiscal 1996. This
improvement was achieved despite the start-up losses of BarnesandNoble.com.
Capital Structure. Strong cash flows from operations, coupled with
improved working capital management, strengthened the Company's balance sheet
during fiscal 1997. The Company's shareholders' equity increased 16.6% to $531.8
million (net of the $11.5 million extraordinary charge) as of January 31, 1998,
from $456.0 million as of February 1, 1997, and return on beginning equity
increased to 14.2% in fiscal 1997 (excluding the extraordinary charge) from
12.8% during fiscal 1996. The Company's market capitalization more than doubled
during fiscal 1997, reflecting the market's recognition of the Company's strong
performance.
On November 18, 1997, the Company obtained an $850 million senior credit
facility (the New Facility) with a syndicate led by The Chase Manhattan Bank.
The New Facility, structured as a five-year revolving credit, refinanced an
existing $450 million revolving credit and $100 million term loan facility (the
Old Facility). Net proceeds are available for general corporate purposes and
were used to redeem all of the Company's outstanding $190 million, 11 7/8%
senior subordinated notes on January 15, 1998.
The New Facility permits borrowings at various interest rate options
based on the prime rate or London Interbank Offer Rate (LIBOR) depending upon
certain financial tests and significantly reduces the interest rate margins over
LIBOR contained in the Old Facility. In addition, the agreement requires the
Company to pay a commitment fee up to 0.25% of the unused portion depending upon
certain financial tests. The New Facility contains covenants, limitations and
events of default typical of credit facilities of this size and nature.
The amount outstanding under the Company's New Facility has been
classified as long-term debt in the accompanying consolidated balance sheets due
to both the terms of the New Facility and the Company's intent and ability to
maintain principal amounts outstanding through November 2002.
Borrowings under the Company's senior credit facilities averaged $184.5
million, $186.6 million and $62.0 million and peaked at $304.9 million, $292.8
million and $152.2 million during fiscal 1997, 1996 and 1995, respectively.
Capital Investment. Capital expenditures totaled $121.9 million, $171.9
million and $154.9 million during fiscal 1997, 1996
18
<PAGE>
and 1995, respectively. Capital expenditures in fiscal 1998,primarily for
approximately 60 new Barnes & Noble stores as well as computer hardware and
software associated with the Company's new store point-of-sale system, are
expected to be between $150 million and $175 million, although commitment to
such expenditures has not yet been made.
Based on current operating levels and the store expansion planned for
the next fiscal year, management believes cash flows generated from operating
activities, short-term vendor financing and its borrowing capacity under its
revolving credit facility will be sufficient to meet the Company's working
capital and debt service requirements, and support the development of its short-
and long-term strategies for at least the next 12 months.
Year 2000. The Company is continuing its comprehensive evaluation of all
computer systems and microprocessors and is in the process of replacing,
modifying and/or converting those systems which are not year 2000 compliant. The
incremental cost over the next two years is being determined as part of the
continuing evaluation. Management does not expect such costs to have a material
adverse impact on the financial position or results of operations of the
Company.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains certain forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to the Company that are based on the beliefs of the
management of the Company as well as assumptions made by and information
currently available to the management of the Company. When used in this annual
report, the words "anticipate," "believe," "estimate," "expect," "intend,"
"plan" and similar expressions, as they relate to the Company or the management
of the Company, identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events, the outcome of which
is subject to certain risks, including among others general economic and market
conditions, decreased consumer demand for the Company's products, possible
disruptions in the Company's computer or telephone systems, increased or
unanticipated costs or effects associated with year 2000 compliance by the
Company or its service or supply providers, possible work stoppages, or
increases in labor costs, possible increases in shipping rates or interruptions
in shipping service, effects of competition, possible disruptions or delays in
the opening of new stores or the inability to obtain suitable sites for new
stores, higher than anticipated store closing or relocation costs, higher
interest rates, the performance of the Company's online initiatives such as
BarnesandNoble.com, unanticipated increases in merchandise or occupancy costs,
and other factors which may be outside of the Company's control. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from
those described therein as anticipated, believed, estimated, expected, intended
or planned. Subsequent written and oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this paragraph.
19
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year
(Thousands of dollars, except per share data) 1997 1996 1995
- --------------------------------------------- ---- ---- ----
Revenues $ 2,796,852 2,448,124 1,976,900
Cost of sales and occupancy 2,019,291 1,785,392 1,444,555
----------- ---------- ----------
Gross profit 777,561 662,732 532,345
----------- ---------- ----------
Selling and administrative expenses 540,423 465,687 383,692
Depreciation and amortization 76,951 59,806 47,881
Pre-opening expenses 12,918 17,571 12,160
Restructuring charge -- -- 123,768
----------- ---------- ----------
Operating profit (loss) 147,269 119,668 (35,156)
Interest (net of interest income of $446,
$2,288 and $2,138, respectively) and
amortization of deferred financing fees 37,666 38,286 28,142
----------- ---------- ----------
Earnings (loss) before provision
(benefit) for income taxes and
extraordinary charge 109,603 81,382 (63,298)
Provision (benefit) for income taxes 44,935 30,157 (10,322)
----------- ---------- ----------
Earnings (loss) before extraordinary
charge 64,668 51,225 (52,976)
Extraordinary charge due to early
extinguishment of debt, net of tax
benefits of $7,991 11,499 -- --
----------- ---------- ----------
Net earnings (loss) $ 53,169 51,225 (52,976)
=========== ========== ==========
Earnings (loss) per common share
Basic
Earnings (loss) before extraordinary
charge $ 0.96 0.77 (0.85)
Extraordinary charge due to early
extinguishment of debt, net of
tax benefits $ 0.17 -- --
Net earnings (loss) $ 0.79 0.77 (0.85)
Diluted
Earnings (loss) before extraordinary
charge $ 0.93 0.75 (0.85)
Extraordinary charge due to early
extinguishment of debt, net of
tax benefits $ 0.17 -- --
Net earnings (loss) $ 0.76 0.75 (0.85)
Weighted average common shares outstanding
Basic 67,237,000 66,103,000 62,434,000
Diluted 69,836,000 67,886,000 62,434,000
See accompanying notes to consolidated financial statements.
BARNES & NOBLE 1997
20
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except per share data) January 31, 1998 February 1, 1997
- --------------------------------------------- ---------------- ----------------
Assets
Current assets:
Cash and cash equivalents $ 12,697 12,447
Receivables, net 43,858 45,558
Merchandise inventories 852,107 732,203
Prepaid expenses and other current assets 68,902 76,747
------------ ----------
Total current assets 977,564 866,955
------------ ----------
Property and equipment:
Land and land improvements 681 681
Buildings and leasehold improvements 347,598 326,392
Fixtures and equipment 378,058 289,684
------------ ----------
726,337 616,757
Less accumulated depreciation and amortization 244,207 181,983
------------ ----------
Net property and equipment 482,130 434,774
------------ ----------
Intangible assets, net 90,237 93,494
Other noncurrent assets 41,240 51,424
------------ ----------
Total assets $ 1,591,171 1,446,647
============ ==========
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility $ -- 40,000
Accounts payable 459,795 373,340
Accrued liabilities 253,050 240,923
------------ ----------
Total current liabilities 712,845 654,263
------------ ----------
Long-term debt 284,800 290,000
Other long-term liabilities 61,771 46,395
Shareholders' equity:
Common stock; $.001 par value; 100,000,000
shares authorized; 67,921,830 and 66,376,250
shares issued and outstanding, respectively 68 66
Additional paid-in capital 468,860 446,265
Retained earnings 62,827 9,658
------------ ----------
Total shareholders' equity 531,755 455,989
------------ ----------
Commitments and contingencies -- --
------------ ----------
Total liabilities and shareholders' equity $ 1,591,171 1,446,647
============ ==========
See accompanying notes to consolidated financial statements.
BARNES & NOBLE 1997
21
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Additional Retained
Common paid-in earnings
(Thousands of dollars) Stock capital (deficit) Total
- ------------------------- ------- ----------- --------- -----
Balance at January 28, 1995 $ 60 346,704 11,409 358,173
Issuance of 5,000,000 shares of
common stock 5 88,720 -- 88,725
Exercise of 750,894 common stock
options, including tax benefits of
$3,470 1 6,312 -- 6,313
Net loss -- -- (52,976) (52,976)
----- ------- -------- --------
Balance at January 27, 1996 66 441,736 (41,567) 400,235
Exercise of 459,022 common stock
options, including tax benefits of
$2,272 -- 4,529 -- 4,529
Net earnings -- -- 51,225 51,225
----- ------- -------- --------
Balance at February 1, 1997 66 446,265 9,658 455,989
Exercise of 1,545,580 common stock
options, including tax benefits of
$8,253 2 22,595 -- 22,597
Net earnings -- -- 53,169 53,169
----- ------- -------- --------
Balance at January 31, 1998 $ 68 468,860 62,827 531,755
===== ======= ======== ========
See accompanying notes to consolidated financial statements.
BARNES & NOBLE 1997
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year
(Thousands of dollars) 1997 1996 1995
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 53,169 51,225 (52,976)
Adjustments to reconcile net earnings (loss) to net cash flows from
operating activities:
Depreciation and amortization 78,629 61,652 50,185
Loss (gain) on disposal of property and equipment 853 (130) 4,657
Deferred taxes 11,598 6,604 (32,110)
Restructuring charge -- -- 123,768
Extraordinary charge due to early extinguishment of debt, net of tax benefits 11,499 -- --
Increase in other long-term liabilities for scheduled rent increases in
long-term leases 16,350 15,663 10,670
Changes in operating assets and liabilities, net (2,884) (15,477) (161,038)
----------- --------- ----------
Net cash flows from operating activities 169,214 119,537 (56,844)
----------- --------- ----------
Cash flows from investing activities:
Purchases of property and equipment (121,903) (171,885) (154,913)
Proceeds from sales of property and equipment -- 177 551
Net increase in other noncurrent assets (13,177) (16,787) (2,378)
----------- --------- ----------
Net cash flows from investing activities (135,080) (188,495) (156,740)
----------- --------- ----------
Cash flows from financing activities:
Net increase (decrease) in revolving credit facility 244,800 (32,400) 72,400
Proceeds from issuance of long-term debt -- 100,000 --
Repayment of long-term debt (290,000) -- --
Proceeds from issuance of common stock, net -- -- 88,725
Proceeds from exercise of common stock options including related tax benefits 22,597 4,529 6,313
Payment of note premium (11,281) -- --
----------- --------- ----------
Net cash flows from financing activities (33,884) 72,129 167,438
----------- --------- ----------
Net increase (decrease) in cash and cash equivalents 250 3,171 (46,146)
Cash and cash equivalents at beginning of year 12,447 9,276 55,422
----------- --------- ----------
Cash and cash equivalents at end of year $ 12,697 12,447 9,276
=========== ========= ==========
Changes in operating assets and liabilities, net:
Receivables, net $ 1,700 3,461 (19,191)
Merchandise inventories (119,904) 8,148 (241,432)
Prepaid expenses and other current assets 9,721 (19,502) (17,340)
Accounts payable and accrued liabilities 105,599 (7,584) 116,925
----------- --------- ----------
Changes in operating assets and liabilities, net $ (2,884) (15,477) (161,038)
=========== ========= ==========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 37,845 38,103 27,656
Income taxes $ 20,282 24,574 19,937
</TABLE>
See accompanying notes to consolidated financial statements.
BARNES & NOBLE 1997
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 52 weeks ended January 31, 1998 (fiscal 1997), the 53 weeks
ended February 1, 1997 (fiscal 1996) and the 52 weeks ended January 27, 1996
(fiscal 1995).
(Thousands of dollars, except per share data)
1. Summary of Significant Accounting Policies
Business
Barnes & Noble, Inc. (Barnes & Noble), through its wholly owned
subsidiaries (collectively, the Company), is primarily engaged in the sale of
books through four principal bookselling strategies: its "super" store strategy
through its wholly owned subsidiary Barnes & Noble Booksellers, Inc., under its
Barnes & Noble Booksellers, Bookstop and Bookstar trade names (hereafter
collectively referred to as Barnes & Noble stores), its mall strategy through
its wholly owned subsidiaries B. Dalton Bookseller, Inc. and Doubleday Book
Shops, Inc., under its B. Dalton stores, Doubleday Book Shops and Scribner's
Bookstore trade names (hereafter collectively referred to as B. Dalton stores),
its direct-mail strategy through its wholly owned subsidiary Marboro Books
Corp., and its e-commerce strategy through its wholly owned subsidiary
BarnesandNoble.com Inc.
Consolidation
The consolidated financial statements include the accounts of Barnes &
Noble and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain prior-period
amounts have been reclassified for comparative purposes.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, the Company is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost
is determined primarily by the retail inventory method on the first-in,
first-out (FIFO) basis for 83% and 79% of the Company's merchandise inventories
as of January 31, 1998 and February 1, 1997, respectively. The remaining
merchandise inventories are valued on the last-in, first-out (LIFO) method.
If substantially all of the merchandise inventories currently valued at
LIFO costs were valued at current costs, merchandise inventories would increase
approximately $5,102 and $8,800 as of January 31, 1998 and February 1, 1997,
respectively.
Property and Equipment
Property andequipment are carried at cost, less accumulated depreciation
and amortization. For financial reporting purposes, depreciation is computed
using the straight-line method over estimated useful lives. For tax purposes,
different methods are used. Maintenance and repairs are expensed as incurred,
while betterments and major remodeling costs are capitalized. Leasehold
improvements are capitalized and amortized over the shorter of their estimated
useful lives or the terms of the respective leases. Capitalized lease
acquisition costs are being amortized over the average lease terms of the
underlying leases. Costs incurred in purchasing management information systems
are capitalized and included in property and equipment. These costs are
amortized over their estimated useful lives from the date the systems become
operational.
Intangible Assets and Amortization
The costs in excess of net assets of businesses acquired are carried as
intangible assets, net of accumulated amortization, in the accompanying
consolidated balance sheets. The net intangible assets, consisting primarily of
goodwill and trade names, of $61,484 and $28,753 as of January 31, 1998, $63,604
and $29,890
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
as of February 1, 1997, are amortized over 40 years using the straight-line
method.
Amortization of goodwill and trade names included in depreciation
and amortization in the accompanying consolidated statements of
operations is $3,257, $3,305 and $4,272 during fiscal 1997, 1996 and
1995, respectively. Accumulated amortization at January 31, 1998 and
February 1, 1997 was $41,293 and $38,036, respectively.
The Company periodically evaluates the recoverability of goodwill and
considers whether this goodwill should be completely or partially written off or
the amortization periods accelerated. The Company assesses the recoverability of
this goodwill based upon several factors, including management's intention with
respect to the acquired operations and those operations' projected undiscounted
store-level cash flows.
Deferred Charges
Costs incurred to obtain long-term financing are amortized over the
terms of the respective debt agreements using the straight-line method, which
approximates the interest method. Unamortized costs included in other noncurrent
assets as of January 31, 1998 and February 1, 1997 were $1,764 and $9,789,
respectively. Unamortized costs of $8,209 were included in the extraordinary
loss due to early extinguishment of debt for fiscal 1997. Amortization expense
included in interest and amortization of deferred financing fees is $1,678,
$1,846, and $2,304 during fiscal 1997, 1996 and 1995, respectively.
Revenue Recognition
Revenue from sales of the Company's products is recognized at the time
of sale.
The Company sells memberships which entitle purchasers to additional
discounts. The membership revenue is deferred and recognized as income over the
twelve-month membership period.
Sales returns (which are not significant) are recognized at the time
returns are made.
Pre-opening Expenses
Costs directly associated with the opening of new stores, primarily
payroll and occupancy costs, are deferred and amortized over the respective
store's first 12 months of operations.
Closed Store Expenses
Upon a formal decision to close or relocate a store, the Company charges
unrecoverable costs to expense. Such costs include the net book value of
abandoned fixtures and leasehold improvements and a provision for future lease
obligations, net of expected sublease recoveries. Costs associated with store
closings of $5,113 during fiscal 1995 are included in selling and administrative
expenses in the accompanying consolidated statements of operations.
Net Earnings (Loss) Per Common Share
In 1997 the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS 128). Under SFAS 128, the presentation of
primary and fully diluted earnings per share is replaced by basic and diluted
earnings per share. Basic earnings per share includes no dilutive effect of
common stock equivalents and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding.
Diluted earnings per share reflects, in periods in which they have a dilutive
effect, the impact of common shares issuable upon exercise of stock options.
Also, as more fully described in Note 7, the Company effected a two-for-one
stock split during September 1997. Accordingly, all historical weighted average
share and per share amounts have been restated to reflect the stock split and
the adoption of SFAS 128.
Income Taxes
The provision (benefit) for income taxes includes federal, state and
local income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. The deferred tax assets and liabilities are measured using the
enacted tax rates and laws that are expected to be in effect when the
differences reverse.
Stock Options
The Company accounts for all transactions under which employees receive
shares of stock or other equity instruments in the Company or the Company incurs
liabilities to employees in amounts based on the price of its stock in
accordance with the
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Generally, compensation expense is not recognized for
stock option grants. The Company has not adopted the fair value method
encouraged, but not required, by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation."
Reporting Period
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
Saturday closest to the last day of January. The reporting periods ended January
31, 1998, February 1, 1997 and January 27, 1996 contained 52 weeks, 53 weeks and
52 weeks, respectively.
2. Receivables, Net
Receivables represent customer, bankcard, landlord and other receivables
due within one year as follows:
January 31, February 1,
1998 1997
----------- ------------
Trade accounts $ 6,628 4,790
Bankcard receivables 15,536 12,800
Receivables from landlords for
leasehold improvments 16,715 19,374
Other receivables 4,979 8,594
------- ------
Total receivables, net $43,858 45,558
======= =======
3. Debt
Revolving Credit Facility
On November 18, 1997, the Company obtained an $850,000 senior credit
facility (the New Facility) with a syndicate led by The Chase Manhattan Bank.
The New Facility, structured as a five-year revolving credit, refinanced an
existing $450,000 revolving credit and $100,000 term loan facility (the Old
Facility). The New Facility permits borrowings at various interest rate options
based on the prime rate or London Interbank Offer Rate (LIBOR) depending upon
certain financial tests. In addition, the agreement requires the Company to pay
a commitment fee up to 0.25% of the unused portion depending upon certain
financial tests. The New Facility contains covenants, limitations and events of
default typical of credit facilities of this size and nature, including
financial covenants which require the Company to meet, among other things, cash
flow and interest coverage ratios and which limit capital expenditures. The New
Facility is secured by the capital stock, accounts receivable and general
intangibles of the Company's subsidiaries.
Net proceeds from the New Facility are available for general corporate
purposes and were used to redeem all of the Company's outstanding $190,000,
11 7/8% senior subordinated notes on January 15, 1998. As a result of the
refinancings, the Company recorded an extraordinary charge of $11,499 (net of
applicable taxes) due to the early extinguishment of debt during fiscal 1997.
The extraordinary charge represents the payment of a call premium associated
with the redemption of the senior subordinated notes of $6,656 (net of
applicable taxes) and the write-off of unamortized fees of $4,843 (net of
applicable taxes).
The Company from time to time enters into interest rate swap agreements
to manage interest costs and risk associated with changes in interest rates.
These agreements effectively convert underlying variable - rate debt based on
prime rate or LIBOR to fixed - rate debt through the exchange of fixed and
floating interest payment obligations without the exchange of underlying
principal amounts. During fiscal 1996, the Company entered into interest rate
swap agreements totaling $100,000 with maturities ranging from 1999 to 2000. As
of January 31, 1998 the Company had outstanding $125,000 of swaps with
maturities ranging from 1999 to 2003. The Company recorded interest expense
associated with these agreements of $306 and $365 during fiscal years 1997 and
1996, respectively.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Selected information related to the Company's revolving credit facility
is as follows:
Fiscal Year 1997 1996 1995
- ----------- ---- ---- ----
Balance at end of year $ 284,800 40,000 72,400
Average balance outstanding during the year $ 105,127 101,671 62,036
Maximum borrowings outstanding during the year $ 304,900 192,800 152,200
Weighted average interest rate during the year 7.12% 7.56% 8.13%
Interest rate at end of year 6.60% 6.87% 8.21%
The balance outstanding as of January 31, 1998 reflects the refinancing
of the senior subordinated notes and the term loan.
The average balance outstanding during the period was based on the
number of days outstanding. The weighted average interest rate during the period
was calculated as the result of dividing the related interest expense by average
borrowings outstanding.
Fees expensed with respect to the unused portion of the Company's
revolving credit commitment were $1,204, $911 and $454, during fiscal 1997,1996
and 1995, respectively.
Long-Term Debt
As of January 31, 1998 the $284,800 balance outstanding under the
Company's New Facility has been classified as long-term debt based on the terms
of the credit agreement and the Company's intention to maintain principal
amounts outstanding through November 2002. As of February 1, 1997 classified as
long - term debt were both the $190,000, 11 7/8% senior subordinated notes based
on the January 15, 2003 maturity date, and the $100,000 term loan outstanding
under the Old Facility which had scheduled repayments starting in 1998. The
subordinated notes and the term loan were paid on January 15, 1998 and November
18, 1997, respectively.
The Company has no agreements to maintain compensating balances.
4. Fair Values of Financial Instruments
The carrying values of cash and cash equivalents reported in the
accompanying consolidated balance sheets approximate fair value due to the
short-term maturities of these assets.
The aggregate fair value of the revolving credit facility, classified as
long-term debt as of January 31, 1998, approximates its carrying amount, because
of its recent and frequent repricing based upon market conditions. The fair
value of long-term debt, consisting of the senior subordinated notes and term
loan as of February 1, 1997, is based upon quoted market prices. Interest rate
swap agreements are valued based on market quotes obtained from dealers. The
fair value of the investment in Chapters Inc. is based on quoted market prices
and conversion rates at January 31, 1998 and February 1, 1997.
The carrying amounts and fair values of the Company's financial
instruments as of January 31, 1998 and February 1, 1997 are as follows:
January 31, February 1,
1998 1997
----------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
Cash and cash equivalents $ 12,697 12,697 12,447 12,447
Revolving credit facility $ 284,800 284,800 40,000 40,000
Long-term debt $ -- -- 290,000 307,575
Interest rate swaps liability $ -- 1,463 -- 218
Investment in Chapters Inc. $ 17,686 31,445 8,541 11,843
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
5. Employees' Retirement and Defined Contribution Plans
The Company maintains a noncontributory defined benefit pension plan
(the Pension Plan) for the benefit of substantially all of its employees who
meet certain eligibility requirements, primarily age and length of service.
Benefits provided by the Pension Plan are based on years of credited service,
the employee's compensation for any of five consecutive years in the last ten
years of service and covered earnings for Social Security benefits. The
Company's contributions to the Pension Plan are generally in amounts determined
by independent consulting actuaries.
The Company also sponsors a defined contribution plan (the Savings Plan)
for the benefit of substantially all of its employees who meet certain
eligibility requirements, primarily age and length of service. The Savings Plan
allows employees to invest up to 15% of their current gross cash compensation on
a pre-tax or post-tax basis, at their option. The Company's contributions to the
Savings Plan are generally in amounts based upon a certain percentage of the
employees' pre-tax contributions.
A summary of the components of net periodic pension cost for the Pension
Plan and the total contributions charged to employee benefit expenses for the
Savings Plan follows:
Fiscal Year 1997 1996 1995
- ----------- ---- ---- ----
Defined benefit plans:
Service cost $ 3,294 2,542 1,475
Interest cost 1,666 1,354 1,011
Actual return on plan assets (4,165) (2,378) (3,202)
Net amortization and deferral 2,398 914 2,047
-------- ------- -------
Net periodic pension cost $ 3,193 2,432 1,331
======== ======= =======
Defined contribution plan $ 2,545 2,115 1,495
======== ======= =======
Actuarial assumptions used in determining the net periodic pension costs
and the funded status of the Pension Plan are as follows:
January 31, February 1, January 27,
1998 1997 1996
----------- ----------- -----------
Discount rate (beginning of year) 7.5% 8.8% 7.5%
Discount rate (end of year) 7.3% 7.5% 8.8%
Expected long-term rate of return on
plan assets 9.5% 9.5% 9.8%
Assumed rate of compensation increase 4.3% 4.3% 4.3%
The following table sets forth the funded status of the Pension Plan and
the pension liability recognized for the Pension Plan in the accompanying
consolidated balance sheets:
January 31, February 1,
1998 1997
----------- -----------
Actuarial present value of benefit
obligation:
Vested benefits $ (14,244) (12,138)
Nonvested benefits (3,484) (2,114)
---------- --------
Accumulated benefit obligation (17,728) (14,252)
Effect of projected future compensation increases (13,006) (7,126)
---------- --------
Projected benefit obligation (30,734) (21,378)
Plan assets at market value 22,909 18,565
---------- --------
Projected benefit obligation in excess of plan assets (7,825) (2,813)
Unrecognized net loss 3,490 100
Unrecognized net obligation remaining 220 274
Unrecognized prior service cost (201) (219)
---------- --------
Pension liability $ (4,316) (2,658)
========== ========
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits to retired employees (the Plan). Only
those employees receiving benefits or retired as of April 1, 1993 are eligible
to participate in the Plan and receive these benefits. The Plan is unfunded. The
following table sets forth the status of the Plan and the postretirement health
care liability of the Plan, which is attributable solely to retirees, recognized
in the accompanying consolidated balance sheets as of January 31, 1998 and
February 1, 1997 using a discount rate of 7.3% and 7.5%, respectively.
January 31, February 1,
1998 1997
------------ -----------
Accumulated post retirement benefit obligation $ (1,975) (4,349)
Unrecognized (gain) loss (2,407) 137
--------- --------
Postretirement health care liability $ (4,382) (4,212)
========= ========
The net periodic cost for the postretirement health care benefits under
the Plan is related to interest costs of $315, $326 and $375 during fiscal 1997,
1996 and 1995, respectively. The unrecognized (gain) loss resulting from the
impact of experience changes on current assumptions is recorded over the average
remaining life expectancy of the Plan participants.
The health care cost trend rate used to measure the expected cost of the
Plan benefits is assumed to be 8.0% in 1998, declining at one-half percent
decrements each year through 2004 to 5.0% in 2004 and each year thereafter. The
health care cost trend assumption has a significant effect on the amounts
reported. For example, a 1% increase in the health care cost trend rate would
increase the accumulated postretirement benefit obligation by approximately $198
as of January 31, 1998 and the net periodic cost by approximately $32 during
fiscal 1997.
6. Income Taxes
The Company files a consolidated federal return. Federal and state
income tax provisions (benefits) for fiscal 1997, 1996 and 1995 are as follows:
Fiscal Year 1997 1996 1995
- ----------- ---- ---- ----
Current:
Federal $ 26,324 18,413 17,317
State 7,013 5,140 4,471
--------- ------ -------
33,337 23,553 21,788
-------- ------ --------
Deferred:
Federal 9,575 5,300 (25,717)
State 2,023 1,304 (6,393)
-------- ------ --------
11,598 6,604 (32,110)
-------- ------ --------
Total $ 44,935 30,157 (10,322)
======== ====== ========
A reconciliation between the provision (benefit) for income taxes and
the expected provision (benefit) for income taxes at the federal statutory
rate of 35% during fiscal 1997, 1996, and 1995,is as follows:
Fiscal Year 1997 1996 1995
- ----------- ---- ---- ----
Expected provision (benefit)
for income taxes at
federal statutory rate $ 38,361 28,484 (22,154)
Amortization of goodwill
and trade names and
write-down of goodwill 1,140 1,157 12,978
State income taxes, net of
federal income tax benefit 5,873 3,341 2,906
Rehabilitation tax credit -- (2,974) --
Other, net (439) 149 (4,052)
-------- ------ --------
Provision (benefit) for
income taxes $ 44,935 30,157 (10,322)
======== ====== ========
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The tax effects of temporary differences that give rise to significant
components of the Company's deferred tax assets and liabilities as of
January 31, 1998 and February 1, 1997 are as follows:
January 31, February 1,
1998 1997
------------ ------------
Deferred tax liabilities:
Operating expenses $ (10,103) (6,910)
Depreciation (16,359) (7,979)
---------- ---------
Total deferred tax liabilities (26,462) (14,889)
---------- ---------
Deferred tax assets:
Inventory 6,604 4,828
Lease transactions 16,108 13,007
Reversal of estimated accruals 5,418 5,701
Restructuring charge 21,825 26,599
Insurance liability 2,265 2,769
Deferred income 7,058 4,296
Other 824 2,927
---------- ---------
Total deferred tax assets 60,102 60,127
---------- ---------
Net deferred tax assets $ 33,640 45,238
========== =========
7. Shareholders' Equity
On September 22, 1997, the Company effected a two-for-one stock split in
the form of a stock dividend. One additional share was issued for each share of
common stock held by shareholders of record as of September 2, 1997. Share and
per share amounts for all periods presented have been adjusted to reflect this
split.
On October 2, 1995, the Company completed a public offering of 5,000,000
shares of common stock (restated for the September 1997 two - for-one stock
split) which generated proceeds of $88,725 after deducting underwriting
discounts and commissions and expenses. The net proceeds were used for general
corporate purposes, including the financing of capital expenditures and
inventory purchases in connection with the accelerated expansion of the Barnes &
Noble store operations.
8. Restructuring Charge
From 1989 through 1995, the Company closed, on average, between 50 and
60 mall bookstores per year primarily due to increasing competition from
superstores and declining mall traffic. During the fourth quarter of fiscal
1995, the Company accelerated its mall bookstore closing program with the aim of
forming a core of more profitable B. Dalton stores, and provided for these
closing costs and asset valuation adjustments through a non-cash restructuring
charge, and early adoption of Statement of Financial Accounting Standards No.
121, "Accounting for Impairment of Long-Lived Assets and Assets to be Disposed
of" (SFAS 121). In January 1996, the Company recorded a non-cash charge to
operating earnings of $123,768 ($87,303 after tax or $1.32 per share) to reflect
the aggregate impact of its restructuring plan and change in accounting policy.
The charge to earnings included a $33,000 write-down of goodwill, and $45,862
related to the write-down of fixed assets and other long-term assets. The
Company has substantially completed the store closing program.
The following table sets forth the restructuring liability activity:
Balance Fiscal Balance Fiscal Balance
at Jan 27, 1996 at Feb 1, 1997 at Jan 31,
1996 Activity 1997 Activity 1998
---------- --------- --------- -------- ----------
Provision for
store closings $ 5,974 4,442 1,532 1,532 --
Lease termination costs 32,833 2,371 30,462 9,026 21,436
Other 6,099 4,497 1,602 1,602 --
-------- ------ ------ ------- --------
Total $ 44,906 11,310 33,596 12,160 21,436
======== ======= ======= ======= =======
The remaining liability, which primarily represents outstanding lease
liabilities, is expected to be paid out over the next several years.
9. Stock Option Plans
The Company currently has two incentive plans under which stock options
have been or may be granted to officers, directors and key employees of the
Company the 1991 Employee Incentive Plan (the 1991 Plan) and the 1996
Incentive Plan (the 1996 Plan). The options to purchase common shares generally
are issued at fair market value on the date of the grant, begin vesting after
one year in 33 1/3% or 25% increments per year, expire ten years from issuance
and are conditioned upon continual employment during the vesting period.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The 1996 Plan and the 1991 Plan allow the Company to grant options to
purchase up to 6,000,000 and 4,732,704 shares of common stock, respectively.
In addition to the two incentive plans, the Company has granted stock
options to certain key executives and directors. The vesting terms and
contractual lives of these grants are similar to that of the incentive plans.
In accordance with the Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company discloses
the pro forma impact of recording compensation expense utilizing the
Black-Scholes model. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the Black-Scholes model does not necessarily provide a
reliable measure of the fair value of its stock options.
Had compensation cost for the Company's stock option grants been
determined based on the fair value at the stock option grant dates consistent
with the method of SFAS 123, the Company's net earnings and diluted earnings per
share for fiscal 1997, 1996 and 1995, would have been reduced by approximately
$3,863 or $0.06 per share, $5,305 or $0.08 per share, and $1,448 or $0.02 per
share, respectively.
Because the application of the pro forma disclosure provisions of SFAS
123 are required only to be applied to grants of options made by the Company
during fiscal 1995 and after, the above pro forma amounts may not be
representative of the effects of applying SFAS 123 to future years.
The weighted-average fair value of the options granted during fiscal
1997, 1996 and 1995 were estimated at $8.05, $4.66 and $5.99 respectively, using
the Black-Scholes option-pricing model with the following assumptions:
volatility of 28%, risk-free interest rate of 6.54% in fiscal 1997, 6.63% in
fiscal 1996, and 6.59% in fiscal 1995, and an expected life of six years.
A summary of the status of the Company's stock options is presented
below:
Weighted-Average
(Thousands of shares) Shares Exercise Price
- --------------------- ------ ----------------
Balance, January 28, 1995 7,624 $ 8.73
Granted 1,180 14.31
Exercised (750) 3.79
Forfeited (152) 13.11
Balance, January 27, 1996 7,902 9.95
Granted 1,856 14.63
Exercised (460) 4.95
Forfeited (156) 14.97
Balance, February 1, 1997 9,142 11.07
Granted 2,254 19.31
Exercised (1,546) 9.28
Forfeited (186) 16.25
-------
Balance, January 31, 1998 9,664 $13.17
=======
Options exercisable as of January 31, 1998, February 1, 1997 and January
27, 1996 were 6,558,000, 7,070,000 and 4,520,000, respectively. Options
available for grant under the plans were 2,354,000, 4,422,000 and 121,000
at January 31, 1998, February 1, 1997 and January 27, 1996, respectively.
The following table summarizes information as of January 31, 1998
concerning outstanding and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------ Options Exercisable
Weighted ----------------------------
-Average Weighted Weighted
Range of Number Remaining -Average Number -Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (000Os) Life Price (000Os) Price
--------- ------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$ 3.21 - $ 3.77 1,117 4.90 $ 3.57 1,117 $ 3.57
$10.00 - $15.00 5,735 6.04 $12.19 5,257 $12.03
$17.13 - $23.00 2,700 9.06 $18.53 184 $17.44
$27.00 - $32.06 112 9.86 $30.10 -- $ --
------- ------ -------
$ 3.21 - $32.06 9,664 6.80 $13.17 6,558 $10.74
======= ======
</TABLE>
10. Leases
The Company leases retail stores, warehouse facilities, office space and
equipment. Substantially all of the retail stores are leased under
noncancelable agreements which expire at various dates through 2020 with
various renewal options for additional
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
periods. The agreements, which have been classified as operating leases,
generally provide for both minimum and percentage rentals and require the
Company to pay all insurance, taxes and other maintenance costs. Percentage
rentals are based on sales performance in excess of specified minimums at
various stores.
Rental expense under operating leases are as follows:
Fiscal Year 1997 1996 1995
- ------------ ---- ---- ----
Minimum rentals $ 253,472 222,700 179,941
Percentage rentals 3,216 2,750 2,532
--------- -------- --------
$ 256,688 225,450 182,473
========= ======== =========
Future minimum annual rentals, excluding percentage rentals, required
under leases that had initial, noncancelable lease terms greater than one year,
as of January 31, 1998 are:
Fiscal Year
-----------
1998 $ 256,588
1999 250,230
2000 240,798
2001 235,819
2002 222,158
After 2002 1,471,425
-----------
$ 2,677,018
===========
Future minimum annual rentals for stores scheduled for closing pursuant
to the Company's restructuring plan are included in the preceding table.
Future rental payments representing the exit costs associated with these
store closings were included in the Company's non-cash restructuring
charge of $123,768 recorded during fiscal 1995 and, therefore, do not
represent future operating expenses. Minimum rental obligations may
decline in the future, as the leases for these stores subject to the
restructuring plan are terminated or the restructuring plan is otherwise
completed.
11. Litigation
Various claims and lawsuits arising in the normal course of business are
pending against the Company. The subject matter of these proceedings primarily
includes commercial disputes and employment issues. The results of these
proceedings are not expected to have a material adverse effect on the Company's
consolidated financial position or results of operations.
12. Certain Relationships and Related Transactions
The Company leases space for its executive offices in properties in
which a principal shareholder/director/executive officer of the Company has a
minority interest. The space was rented at an aggregate annual rent including
real estate taxes of approximately $1,309, $1,307 and $1,376 in fiscal years
1997, 1996 and 1995, respectively.
Marboro Books Corp., the Company's mail-order subsidiary, leases a
76,000 square foot office/warehouse from a partnership in which a principal
shareholder/director/executive officer of the Company has a 50% interest,
pursuant to a lease expiring in 2023. Pursuant to such lease, the Company paid
$743, $665 and $664 in fiscal years 1997, 1996 and 1995, respectively.
The Company is provided with certain package shipping services by the
LTA Group, Inc. (LTA), a company in which the brother of a principal
shareholder/director/executive officer of the Company acquired a 20% interest
during fiscal 1996. The Company paid LTA $11,528 and $9,100 for such services
during fiscal years 1997 and 1996, respectively.
The Company leases retail space in a building in which Barnes & Noble
College Bookstores, Inc. (B&N College), a company owned by a principal
shareholder/director/executive officer of the Company, subleases space for its
executive offices. Occupancy costs allocated by the Company to B&N College for
this space totaled $634 and $544 for the fiscal years ended January 31, 1998 and
February 1, 1997, respectively. In connection with the space, the Company
reimbursed B&N College during fiscal 1997, for a landmark tax credit totaling
$726.
B&N College also allocated certain expenses it incurred on behalf of the
Company for salaries, employee benefit plan expenses and office support
services. These charges are included in selling and administrative expenses in
the accompanying consolidated statements of operations and approximated $75,
$115, and $1,219 for fiscal 1997, 1996 and 1995, respectively. The Company
charged B&N College $473 during fiscal 1997 for capital expenditures, business
insurance and other operating costs incurred on their behalf.
The Company uses a jet aircraft owned by B&N College and pays for the
costs and expenses of operating the aircraft based upon the Company's usage.
Such costs, which include fuel, insurance, personnel and other costs,
approximate $1,910, $1,685 and $1,298 during fiscal 1997, 1996 and 1995,
respectively, and are included in the accompanying consolidated statements of
operations.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
On November 27, 1996, Babbage's Etc., LLC (Babbage's), a company owned
by a principal shareholder/director/executive officer of the Company, acquired
substantially all of the assets of Software Etc. Stores, Inc. (Software), a
company (formerly a division of the Company) in which two principal
shareholder-directors had an ownership interest, and assumed the operations of
14 retail software departments located within Barnes & Noble stores. As of
January 31, 1998, there are 13 of these departments remaining. The Company pays
all rent related to these properties for which it receives a license fee from
Babbage's equal to 7.0% of the gross sales of such departments. The Company also
provides real estate and construction services to Babbage's and purchases
business insurance on its behalf for which the Company is reimbursed for its
incremental costs to provide such services. The Company charged Software and
Babbage's, on a combined basis, $1,430, $1,282 and $4,992 during fiscal 1997,
1996, and 1995, respectively, for such services, license fees, rent, operating
costs, insurance costs and benefit coverage. Babbage's also purchases
merchandise from the Company at prices equal to the Company's cost to obtain and
ship the merchandise.
13. Selected Quarterly Financial Information (Unaudited)
A summary of quarterly financial information for each of the last two
fiscal years is as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Quarter End Total Fiscal
On or About April 1997 July 1997 October 1997 January 1998 year 1997
----------------------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 595,731 617,748 614,831 968,542 2,796,852
Operating profit 3,102 7,441 10,001 126,725 147,269
Earnings (loss) before extraordinary charge (3,861) (1,366) 65 69,830 64,668
Net earnings (loss) (3,861) (1,366) 65 58,331 53,169
Basic earnings per common share
Earnings (loss) before extraordinary charge (0.06) (0.02) 0.00 1.03 0.96
Net earnings (loss) (0.06) (0.02) 0.00 0.86 0.79
Diluted earnings per common share
Earnings (loss) before extraordinary charge (0.06) (0.02) 0.00 0.98 0.93
Net earnings (loss) (0.06) (0.02) 0.00 0.81 0.76
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996 Quarter End Total Fiscal
On or About April 1996 July 1996 October 1996 January 1997(1) year 1996(2)
----------------------- ---------- --------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 508,755 524,321 532,563 882,485 2,448,124
Operating profit (loss) (141) 5,622 4,578 109,609 119,668
Net earnings (loss) (5,393) (2,721) (2,622) 61,961 51,225
Basic earnings (loss) per common share (0.08) (0.04) (0.04) 0.93 0.77
Diluted earnings (loss) per common share (0.08) (0.04) (0.04) 1.91 0.75
</TABLE>
(1) The fourth quarter of 1996 includes 14 weeks.
(2) Fiscal 1996 includes 53 weeks.
33
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Barnes & Noble, Inc.
We have audited the accompanying consolidated balance sheets of Barnes &
Noble, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the fiscal years ended January
31, 1998, February 1, 1997, and January 27, 1996, respectively. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Barnes &
Noble, Inc. and its subsidiaries as of January 31, 1998 and February 1, 1997 and
the results of their operations and their cash flows for the fiscal years ended
January 31, 1998, February 1, 1997 and January 27, 1996, in conformity with
generally accepted accounting principles.
New York, New York
March 10, 1998
Sd/-
BDO Seidman, LLP
<PAGE>
Exhibit 10.21
BARNES & NOBLE, INC.
122 Fifth Avenue
New York, New York 10011
As of April 1, 1998
Mr. Stephen Riggio
1114 84th Street
Brooklyn, New York 11228
Dear Mr. Riggio:
We refer to the employment agreement between us dated as of
July 15, 1993 (the "Employment Agreement"). This will confirm our agreement
that the term of the Employment Agreement is hereby extended through July 14,
2000. Thereafter, the Employment Agreement shall renew annually for an
additional twelve-month period unless terminated by either of us on at least
twelve months' prior written notice to the other.
This letter shall also confirm that, notwithstanding
anything in the Employment Agreement to the contrary: (i) you are currently
Vice Chairman of the Company and Chairman and Chief Executive Officer of
BarnesandNoble.com Inc., and your duties and responsibilities under the
Employment Agreement, as extended hereby, shall be consistent with such
offices; (ii) your annual salary under the Employment Agreement, as extended
hereby, shall be at least the amount of your current annual salary or such
higher amount as determined by the Company; and (iii) your bonus compensation
under the Employment Agreement, as extended hereby, shall be determined in
accordance with the Company's Supplemental Compensation Plan.
If the foregoing accurately reflects our agreement, kindly,
sign and return to us the enclosed duplicate copy of this letter.
BARNES & NOBLE, INC.
By:-----------------------------
Leonard Riggio
Chairman of the Board and
Chief Executive Officer
ACCEPTED AND AGREED TO:
- ---------------------------------
Stephen Riggio
<PAGE>
Exhibit 10.21
BARNES & NOBLE, INC.
122 Fifth Avenue
New York, New York 10011
As of April 1, 1998
Mr. Mitchell S. Klipper
3 Clearmeadow Lane
Woodbury, New York 11791
Dear Mr. Klipper:
We refer to the employment agreement between us dated as of
April 1, 1993 (the "Employment Agreement"). This will confirm our agreement
that the term of the Employment Agreement is hereby extended through March 31,
2000. Thereafter, the Employment Agreement shall renew annually for an
additional twelve-month period unless terminated by either of us on at least
twelve months' prior written notice to the other.
This letter shall also confirm that, notwithstanding
anything in the Employment Agreement to the contrary: (i) you are currently
Executive Vice President of the Company and President of Barnes & Noble
Development, and your duties and responsibilities under the Employment
Agreement, as extended hereby, shall be consistent with such offices; (ii)
your annual salary under the Employment Agreement, as extended hereby, shall
be at least the amount of your current annual salary or such higher amount as
determined by the Company; and (iii) your bonus compensation under the
Employment Agreement, as extended hereby, shall be determined in accordance
with the Company's Supplemental Compensation Plan.
If the foregoing accurately reflects our agreement, kindly,
sign and return to us the enclosed duplicate copy of this letter.
BARNES & NOBLE, INC.
By:---------------------------
Leonard Riggio
Chairman of the Board and
Chief Executive Officer
ACCEPTED AND AGREED TO:
- ---------------------------------
Mitchell S. Klipper
<PAGE>
Exhibit 21.1
Subsidiaries of Barnes & Noble, Inc.
1. Barnes & Noble Booksellers, Inc., a Delaware corporation, a wholly owned
subsidiary of Barnes & Noble, Inc. (the "Company").
2. B. Dalton Bookseller, Inc., a Minnesota corporation ("B. Dalton"), a wholly
owned subsidiary of the Company.
3. Doubleday Book Shops, Inc., a Delaware corporation ("DBSI"), a wholly owned
subsidiary of B. Dalton.
4. Marboro Books Corp., a New York corporation, a wholly owned subsidiary of
the Company.
5. CCI Holdings, Inc., a Texas corporation, a wholly owned subsidiary of the
Company.
6. BarnesandNoble.com Inc., a Delaware corporation, a wholly owned subsidiary
of the Company.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Barnes & Noble, Inc.
New York, New York
We hereby consent to the incorporation by reference of our report dated March
10, 1998 relating to the consolidated financial statements of Barnes & Noble,
Inc. and subsidiaries, incorporated by reference into the Company's Annual
Report on Form 10-K for the year ended January 31, 1998, into the prospectuses
constituting a part of the following registration statements: No. 33-84826 on
Form S-3, No. 33-89258 on Form S-3, No. 33-270333 on Form S-8, No. 33-89260 on
Form S-8, and No. 33-97410 on Form S-3.
We also consent to the references to us under the caption "Experts" in the
Prospectuses.
BDO Seidman, LLP
New York, New York
April 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 12,697
<SECURITIES> 0
<RECEIVABLES> 43,858
<ALLOWANCES> 0
<INVENTORY> 852,107
<CURRENT-ASSETS> 977,564
<PP&E> 726,337
<DEPRECIATION> 244,207
<TOTAL-ASSETS> 1,591,171
<CURRENT-LIABILITIES> 712,845
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 531,687
<TOTAL-LIABILITY-AND-EQUITY> 1,591,171
<SALES> 2,796,852
<TOTAL-REVENUES> 2,796,852
<CGS> 2,019,291
<TOTAL-COSTS> 2,019,291
<OTHER-EXPENSES> 630,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,666
<INCOME-PRETAX> 109,603
<INCOME-TAX> 44,935
<INCOME-CONTINUING> 64,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 11,499
<NET-INCOME> 53,169
<EPS-PRIMARY> .79
<EPS-DILUTED> .76
</TABLE>
