<PAGE>
FORM 10-Q
------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
-------------------- -------------------
Commission file number 0-21182
-------------
ORCHARD SUPPLY HARDWARE STORES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4214109
- - ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6450 Via Del Oro, San Jose, California 95119
- - -------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(408) 281-3500
- - ------------------------------
(Registrant's telephone number,
including area code)
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
--- ---
At May 1, 1994 there were 6,982,981 shares of the registrant's Common Stock,
$0.01 par value, outstanding.
Page 1 of 13
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
May 1, 1994 and January 30, 1994 3
Condensed Consolidated Statements of Operations:
Three Month Periods Ended May 1, 1994 and
May 2, 1993 4
Condensed Consolidated Statements of Cash Flows:
Three Month Periods Ended May 1, 1994 and May 2, 1993 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENT
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
MAY 1, JANUARY 30,
1994 1994
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,467 $ 75,588
Accounts receivable, net 13,801 13,245
Inventories 86,139 82,494
Prepaid expenses and other 8,717 6,575
Assets held for disposal 6,133 6,133
---------- ----------
Total current assets 149,257 184,035
PROPERTY, PLANT AND EQUIPMENT, net 115,603 105,874
OTHER ASSETS, net 19,784 19,826
---------- ----------
Total assets $ 284,644 $ 309,735
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Account payable, accrued and other liabilities $ 64,416 $ 56,818
Notes payable 782 1,494
Current portion of capital leases
and long term debt 746 30,727
---------- ----------
Total current liabilities 65,944 89,039
OTHER LIABILITIES, net of current portion 1,448 2,596
CAPITAL LEASES AND LONG-TERM DEBT,
net of current portion 136,758 156,273
---------- ----------
Total liabilities 204,150 247,908
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 70 69
Preferred stock 8 --
Additional paid-in-capital 91,845 72,275
Less notes receivable from
sale of common stock (166) (171)
Accumulated deficit (11,263) (10,346)
---------- ----------
Total equity 80,494 61,827
---------- ----------
Total liabilities and stockholders' equity $ 284,644 $ 309,735
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3.
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MAY 1, MAY 2,
1994 1993
---------- ----------
<S> <C> <C>
Sales $ 96,555 $ 90,361
Cost of goods sold 61,949 58,413
---------- ----------
Gross margin 34,606 31,948
Selling, general and administrative expenses 28,818 25,638
Pre-opening expenses 3,766 161
---------- ----------
Operating income 2,022 6,149
Interest expense 2,939 4,163
---------- ----------
Income (loss) before provision for income taxes
and extraordinary item (917) 1,986
Income tax provision (benefit) -- --
---------- ----------
Income (loss) before extraordinary item (917) 1,986
Extraordinary item -- (5,363)
---------- ----------
Net loss (917) (3,377)
Preferred stock dividends 217 814
---------- ----------
Net loss available to common stock $ (1,134) $ (4,191)
---------- ----------
---------- ----------
Income (loss) per common and equivalent share:
Income (loss) before extraordinary item $ (0.16) $ 0.40
Extraordinary item -- (1.83)
---------- ----------
Net loss $ (0.16) $ (1.43)
---------- ----------
---------- ----------
Weighted average number of common and
common equivalent shares outstanding 6,969 2,928
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4.
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MAY 1, 1994 MAY 2, 1993
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (917) $ (3,377)
Non-cash adjustments to net loss-
Depreciation and amortization 1,867 1,684
Accretion of debt discount -- 19
Loss on asset disposals -- 23
Write-off of deferred financing costs -- 1,315
Premium on repayment of subordinated debentures -- 4,048
Changes in assets and liabilities-
Increase (decrease) in accounts receivable (556) 17
Increase in inventories (3,645) (1,323)
Increase (decrease) in prepaid expenses and other (2,142) 548
Increase in accounts payable, accrued and other liabilities 8,737 2,073
---------- ----------
Total Adjustments 4,261 8,404
---------- ----------
Net cash provided by operating activities 3,344 5,027
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (11,200) (1,349)
---------- ----------
Net cash used in investing activities (11,200) (1,349)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public stock offering -- 48,624
Proceeds from issuance of preferred stock 19,400 --
Common stock issued upon exercise of warrants 439 --
Payment of notes receivable from sale of capital stock 5 3
Principal payments on capital leases and long-term debt (49,496) (44,700)
Premium on redemption of long term debt (2,287) (4,048)
Payment of preferred stock dividend -- (2,500)
Transaction costs (594) (54)
Proceeds (repayment) of notes payable, net (712) 1,921
Repurchase of capital stock -- (6)
---------- ----------
Net cash used in financing activities (33,265) (760)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (41,121) 2,918
CASH AND CASH EQUIVALENTS, beginning of period 75,588 4,475
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 34,467 $ 7,393
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5.
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto for the year ended January
30, 1994 included in the Company's Form 10-K.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) that
are, in the opinion of management, necessary to state fairly the results for the
periods presented. The results for such periods are not necessarily indicative
of the results to be expected for the full fiscal year.
2. EARNINGS PER SHARE
Net income (loss) per common and equivalent share is computed by dividing net
income (loss) available to common stock (net income less preferred stock
dividend requirements) by the weighted average number of common and equivalent
shares. Common and equivalent shares include common stock issuable upon
exercise of stock options and warrants (using the treasury stock method) less
shares assumed repurchase with the proceeds from the management notes.
Equivalents included in the weighted average number of shares assume the
conversion of options outstanding under the Nonqualified Stock Option Plan and
the warrants, unless antidilutive. Certain options granted to the President are
excluded from the calculation due to their contingent nature.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common stock issued by the Company during the 12-month period prior to the
initial public offering and stock options and warrants granted during the same
period for which a measurement date has been established have been included in
the calculation of common and common equivalent shares using the treasury stock
method as if they were outstanding for all applicable periods.
6.
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. PREFERRED STOCK ISSUANCE AND REDEMPTION OF LONG-TERM DEBT
On February 25, 1994, the Company consummated a series of transactions
consisting of the following:
1. Issuing to an affiliate 800,000 shares of 6% Cumulative Convertible
Preferred Stock at a price of $24.25 per share ("Preferred Stock
Offering").
2. Retirement of the remaining $19.3 million 14.5% Senior Subordinated
Discount Notes with the proceeds of the preferred stock issuance.
3. Retirement of $30.0 million 9.0% Senior Notes ("Old Senior Notes") with
proceeds from the offering of 9 3/8% Senior Notes ("Notes") which were
issued in January, 1994.
4. INCREASE IN AUTHORIZED SHARES OF STOCK
On May 20, 1994 the stockholders approved an increase in the number of shares of
Common Stock that the Company is authorized to issue from 8,000,000 to
16,000,000.
5. PRE-OPENING EXPENSES
Costs relating to the preparation and opening of new stores are expensed as
incurred. These expenses consist principally of store merchandising and
stocking expenses, personnel recruitment and training costs and grand opening
advertising and promotional expenses.
7.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company completed the acquisition of six former Builders Emporium store
sites (Pasadena, Burbank, Van Nuys and Hollywood in metropolitan Los Angeles,
and Pismo Beach and Redding in Central and Northern California, respectively) on
November 16, 1993 and completed the acquisition of the three other sites (South
Pasadena and West Los Angeles in metropolitan Los Angeles and Goleta in the
Santa Barbara area) on December 22, 1993 (the "Expansion").
The Company has incurred substantial pre-opening expenses in connection with
opening the nine Expansion store sites which will approximate $5.6 million in
fiscal 1994. Four of these stores were opened late in the first quarter of
fiscal 1994 and the five remaining stores were opened in May, 1994. These pre-
opening expenses, which consist principally of store merchandising and stocking
expenses, personnel recruitment and training costs and grand-opening advertising
and promotional expenses, commenced in the fourth quarter of fiscal 1993 and
will continue into the second quarter of 1994.
As the Company accelerates its new store opening program, operating expenses as
a percent of sales for the new stores will initially be higher, adversely
affecting overall operating margins until these new stores achieve sales
maturity. In addition, the Company expects that it will generally experience
higher marketing, distribution and occupancy costs in its new stores in the
metropolitan Los Angeles market. The Company believes, however, that these
higher expenses will be offset by higher sales at these stores than are typical
of mature Orchard stores in Northern and Central California. The Company
expects that the impact of these factors will be to reduce operating margins in
fiscal 1994 and thereafter so long as the Company continues to open a large
number of stores relative to its existing store base.
RESULTS OF OPERATIONS
The following table sets forth selected results of operations as percentages of
sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MAY 1, 1994 MAY 2, 1993
----------- -----------
<S> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.8 35.4
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . 29.8 28.4
Pre-opening expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 0.2
----- -----
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 4.7
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 4.6
----- -----
Income (loss) before provision for income taxes and extraordinary item . . . . . (0.9) 2.2
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . -- --
----- -----
Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . (0.9) 2.2
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (5.9)
----- -----
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.9)% (3.7)%
----- -----
----- -----
</TABLE>
8.
<PAGE>
Sales for the first quarter ended May 1, 1994 increased 6.9% to $96.6 million
from $90.4 million in the first quarter of 1993. Increased sales as a result of
eight new stores opened since the first quarter of 1993 were partially offset by
a 1.5% decrease in comparable store sales. The comparable store sales decrease
reflects the unseasonably cloudy and rainy weather which occurred during the
last two weeks of the 1994 first quarter.
Gross margin increased $2.7 million from $31.9 million for the first quarter of
fiscal 1993 to $34.6 million for the comparable period of fiscal 1994. As a
percentage of sales gross margin increased from 35.4% for the first quarter of
fiscal 1993 to 35.8% for the first quarter of fiscal 1994. The increase in
gross margin percentage resulted from an increase in purchase markup due mainly
to a reduction in the cost of merchandise, as well as reduced permanent
markdowns and inventory shrinkage provision.
Selling, general and administrative expenses for the first quarter of fiscal
1994 were 29.8% of sales compared with 28.4% of sales for the first quarter of
fiscal 1993, an increase of 1.4% of sales. The increase is partially
attributable to rent and payroll costs of the eight new stores opened since the
first quarter of fiscal 1993. The negative impact of the comparable store sales
decline on the sales base also contributed to higher selling, general and
administrative expenses as a percentage of sales.
Operating income decreased by $4.1 million from $6.1 million for the first
quarter of 1993 to $2.0 million for the comparable period of 1994, primarily
due to a $3.6 million increase in pre-opening expenses associated with the
Company's increased expansion program. Pre-opening expenses are expensed as
incurred. For the first quarter of 1994, pre-opening expenses included $2.0
million related to the four stores opened late in that quarter and $1.8 million
related to subsequent store openings.
Interest expense decreased from $4.2 million for the first quarter of fiscal
1993 to $2.9 million for the first quarter 1994. Interest expense for the first
quarter of 1994 excludes $0.7 million of construction period interest that was
capitalized on new store construction projects, which in subsequent periods will
be expensed. The first quarter of 1994 also included additional interest income
of $0.2 million.
The Company did not record a tax provision or tax benefit as a result of the
benefit of net operating loss carryforwards against which a valuation allowance
has previously been provided.
The results of operations for the first quarter of fiscal 1993 include an
extraordinary charge of $5.4 million from the early extinguishment of $44.7
million of 14.5% Subordinated Notes on April 30, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from the funding of the Company's
capital expenditures, working capital requirements, ongoing expansion program,
and debt service on indebtedness.
Orchard Supply's funded debt obligations include (i) up to $20.0 million of
revolving credit availability under Orchard Supply's senior revolving credit
facility (the "Financing Agreement") (with an $8.0 million sublimit for
guarantees of letters of credit) of which no borrowings and $6.3 million of
guarantees of letters of credit were outstanding as of May 1, 1994, (ii) $21.2
million outstanding under a store mortgage facility, (iii) $13.7 million
aggregate principal amount of warehouse mortgage notes, (iv) $1.0 million of
store mortgages assumed in connection with the acquisition of a former Builders
Emporium store site and (v) $100.0 million aggregate principal amount of Notes.
Orchard Supply's debt instruments contain financial and operating covenants
including, among other things, requirements that the company maintain certain
financial ratios and satisfy certain financial tests and limitations on the
Company's ability to make capital expenditures, to incur other indebtedness, and
to pay dividends. As of May 1, 1994, the Company and Orchard Supply were in
compliance with all covenants contained in such debt instruments.
On February 25, 1994, the Company used the proceeds of the Preferred Stock
Offering to redeem the remaining 14.5% Subordinated Notes at their stated
redemption price of 107.25% of their principal amount, resulting in a call
premium of $1.4 million which was paid with available cash from operations. The
net proceeds from the Notes were applied as follows: (i) $30.9 million to retire
the Old Senior Notes at their stated redemption price of 103.0%
9.
<PAGE>
of the principal amount thereof, (ii) $20.0 million to repay additional
borrowings under the Financing Agreement used to finance the Expansion, (iii)
$35.0 million to fund additional investments required to open the nine Expansion
stores and (iv) the remainder for general corporate purposes. Aggregate
scheduled principal repayments on the above debt for fiscal 1994, 1995 and 1996
are $0.7 million, $1.7 million and $2.0 million, respectively.
The Company's business strategy requires that it maintain broad product lines
and large inventories, however, the effect of this strategy on working capital
is somewhat minimized through the receipt of trade credit. The Company's
working capital is also affected by accounts receivable arising from its
proprietary credit card which had an average monthly balance for fiscal 1993 of
$11.3 million. The Company will fund its working capital needs through a
combination of funds from operations and borrowings under the Financing
Agreement. The Financing Agreement permits borrowings based on percentages of
the Company's eligible inventory and accounts receivable and is to be used for
working capital and general corporate purpose. As of May 1, 1994, Orchard had
no outstanding borrowings and $6.3 million in letter of credit guarantees and
had additional borrowing capacity under the Financing Agreement of $13.7
million. The Financing Agreement remains effective through October 29, 1995.
In connection with Orchard's expansion plans, the Company anticipates capital
expenditures of approximately $900,000 for furniture, fixtures and equipment for
each new store opened, a portion of which may be leased under operating leases.
Pre-opening expenses for the nine Expansion stores (approximately $6.1 million
in the aggregate) will average approximately $750,000 for the six metropolitan
Los Angeles stores and $540,000 for the remaining stores. The Company expects
that for its subsequent metropolitan Los Angeles stores, pre-opening expenses
will average approximately $600,000 (compared to $450,00 in its Northern and
Central California markets). The initial inventory requirement for new stores
net of trade credit is estimated at $900,000 per store. In the event that the
Company is responsible for the renovation or remodeling of the existing space to
be leased, the Company anticipates incurring additional capital expenditures of
approximately $500,000 to $1,200,000 per store. If the Company elects to
purchase the real estate, the capital expenditure would range from approximately
$2,500,000 for owned store improvements constructed on leased land to $4,000,000
- - - $6,000,000 if the entire property were to be owned by the Company. The
Company's capital expenditure plan for fiscal 1994 assumes three owned stores,
10 leased stores and the construction of one store on a ground lease.
The Company's three-year capital expenditure plan for fiscal 1994 through 1996
provides for annual capital expenditures of $19.4 million, $10.9 million to
$12.8 million (depending on the actual number of stores opened during the
period) and $13.5 million, respectively. The 1994 plan includes approximately
$2.2 million for furniture, fixtures and equipment and $7.4 million for tenant
improvements for all the Expansion stores combined. This capital expenditure
plan includes the expenditures of approximately $2.0 million to $2.5 million
annually for the maintenance of existing facilities. The remainder of the
annual budgeted amounts will be used primarily for the opening of other new
stores, including new stores fixtures and leasehold improvements with respect to
the new stores, and computer equipment. The Company has historically financed
some of its equipment through operating leases, and expects to be able to
procure such financing in the future. The inability of the Company to procure
such financing for its capital expenditure program may have a negative impact on
the ability of the company to make capital expenditures.
10.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 25, 1994 the Company issued 800,000 shares of 6% Cumulative
Convertible Preferred Stock, $.01 par value per share (the "Preferred Stock").
Pursuant to the Certificate of Designation of Rights and Preferences of the
Preferred Stock dated February 3, 1994, Exhibit 4.7 to the Company's Annual
Report of Form 10-K for the fiscal year ended January 31, 1993, the Preferred
Stock enjoys certain priorities and preferences with respect to the Common
Stock, including: (a) priority with respect to dividends, (b) priority with
respect to liquidation preference and (c) the right to elect two additional
directors of the Company whenever dividends are in arrears in an amount equal to
at least six quarterly dividends (whether or not consecutive).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 20, 1994 to
(1) elect eight Directors to serve until the next Annual Meeting of Stockholders
and until their respective successors are elected and qualified, (2) approve an
amendment to Article Fourth of the Certificate of Incorporation of the Company
(the "Amendment") to increase the number of shares of capital stock and Common
Stock that the Company is authorized to issue to 18,000,000 shares and
16,000,000 shares, respectively, (3) approve the adoption of the 1993 Stock
Option Plan (the "Plan") and (4) ratify the appointment of Arthur Andersen & Co.
as the Company's independent auditors (the "Auditors") for the fiscal year
ending January 29, 1995.
All eight nominees were duly elected. The following sets forth the number
of votes cast for, against or withheld, as well as the number of abstentions and
broker nonvotes, as to each nominee:
ABSTENTIONS
AGAINST OR AND BROKER
NOMINEE FOR WITHHELD NONVOTES
- - --------------------- --------- ---------- -----------
Bradford M. Freeman 5,644,573 14,104 0
Morton Godlas 5,643,673 15,004 0
Stephen M. Hilberg 5,644,573 14,104 0
Maynard Jenkins 5,644,323 14,354 0
J. Frederick Simmons 5,644,073 14,604 0
Ronald P. Spogli 5,641,973 16,704 0
William E. Walsh 5,642,373 16,304 0
William M. Wardlaw 5,644,073 14,604 0
The Amendment was duly approved. The following sets forth the number of
votes cast for, against or withheld, as well as the number of abstentions and
broker nonvotes, as to the Amendment:
ABSTENTIONS
AGAINST OR AND BROKER
FOR WITHHELD NONVOTES
--------- ---------- -----------
5,564,180 39,695 54,802
11.
<PAGE>
The adoption of the Plan was duly approved. The following sets forth the
number of votes cast for, against or withheld, as well as the number of
abstentions and broker nonvotes, as to the adoption of the Plan:
ABSTENTIONS
AGAINST OR AND BROKER
FOR WITHHELD NONVOTES
--------- ---------- -----------
4,118,168 525,708 1,014,801
The appointment of the Auditors was duly ratified. The following sets
forth the number of votes cast for, against or withheld, as well as the number
of abstentions and broker nonvotes, as to the appointment of the Auditors:
ABSTENTIONS
AGAINST OR AND BROKER
FOR WITHHELD NONVOTES
--------- ---------- -----------
5,643,888 4,018 10,771
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number
- - -------
3.1 Certificate of Incorporation of Orchard Supply Hardware Stores
Corporation (formerly Orchard Holding Corporation) as amended through
May 23, 1994.
10.1 Sixth Amendment to Note Agreement dated as of April 27, 1994 by and
among Orchard Supply Hardware Corporation, Orchard Supply Hardware
Stores Corporation (formerly Orchard Holding Corporation) and Teachers
Insurance and Annuity Association of America, with respect to the
10.64% Senior Secured Notes due 2002.
10.2 Form of Seventh Amendment to Note Agreement by and among Orchard
Supply Hardware Corporation, Orchard Supply Hardware Stores
Corporation (formerly Orchard Holding Corporation) and Teachers
Insurance and Annuity Association of America, with respect to the
10.64% Senior Secured Notes due 2002.
(b) Reports on Form 8-K.
None.
12.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
ORCHARD SUPPLY HARDWARE STORES CORPORATION
Date: June 10, 1994 By: /s/ Maynard Jenkins
----------------------------- ---------------------------
Maynard Jenkins
Chief Executive Officer
Date: June 10, 1994 By: /s/ Stephen M. Hilberg
----------------------------- ---------------------------
Stephen M. Hilberg
Chief Financial Officer and
Vice President Finance
13.
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- - ------ -----------
3.1 Certificate of Incorporation of Orchard Supply Hardware Stores
Corporation (formerly Orchard Holding Corporation) as amended through
May 23, 1994.
10.1 Sixth Amendment to Note Agreement dated as of April 27, 1994 by and
among Orchard Supply Hardware Corporation, Orchard Supply Hardware
Stores Corporation (formerly Orchard Holding Corporation) and Teachers
Insurance and Annuity Association of America, with respect to the
10.64% Senior Secured Notes due 2002.
10.2 Form of Seventh Amendment to Note Agreement by and among Orchard
Supply Hardware Corporation, Orchard Supply Hardware Stores
Corporation (formerly Orchard Holding Corporation) and Teachers
Insurance and Annuity Association of America, with respect to the
10.64% Senior Secured Notes due 2002.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ORCHARD HOLDING CORPORATION
First: The name of the corporation is Orchard Holding Corporation
(the "Corporation").
Second: The address of the registered office of the Corporation in
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle 19801. The name and address of the
Corporation's registered agent in the State of Delaware is The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801.
Third: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code.
Fourth: The total number of shares of stock which the Corporation
shall have authority to issue is one million (1,000,000), consisting of one
million (1,000,000) shares of common stock, $.01 par value per share.
Fifth: The business and affairs of the Corporation shall be managed
by and under the direction of the Board of Directors. The exact number of
directors of the Corporation shall be fixed by or in the manner provided in the
Bylaws of the Corporation (the "Bylaws").
Sixth: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any respect the
Bylaws, and to confer in the Bylaws powers and authorities upon the directors of
the Corporation in addition to the powers and authorities expressly conferred
upon them by statute;
(b) from time to time to set apart out of any funds or assets of the
Corporation available for dividends an amount or amounts to be reserved as
working capital or for any other lawful purpose and to abolish any reserve so
created and to determine whether any, and, if any, what part, of the surplus of
the Corporation or its net profits applicable to dividends shall be declared in
dividends and paid to its stockholders, and all rights of the holders of stock
of the Corporation in respect of dividends shall be subject to the power of the
Board of Directors so to do;
<PAGE>
(c) subject to the laws of the State of Delaware, from time to time
to sell, lease or otherwise dispose of any part or parts of the properties of
the Corporation and to cease to conduct the business connected therewith or
again to resume the same, as it may deem best; and
(d) in addition to the powers and authorities hereinbefore and by the
laws of the State of Delaware conferred upon the Board of Directors, to execute
all such powers and to do all acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the express provisions of said laws, of
the Certificate of Incorporation of the Corporation and its Bylaws.
Seventh: Meetings of stockholders of the Corporation may be held
within or without the State of Delaware, as the Bylaws may provide. The books
of the Corporation may be kept (subject to any provision of applicable law)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws.
Eighth: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
Ninth: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended or (iv) for any
transaction from which the director derived an improper benefit. If the
Delaware General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Delaware Corporation Law. No amendment to or repeal of this Article Ninth shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
2.
<PAGE>
Tenth: The name and mailing address of the incorporator of the
Corporation is:
William M. Wardlaw
Freeman Spogli & Co.
523 West Sixth Street, Suite 1234
Los Angeles, California 90014
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 31st day of March, 1989.
/s/William M. Wardlaw
--------------------------------
William M. Wardlaw, Incorporator
3.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ORCHARD HOLDING CORPORATION
Orchard Holding Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify:
FIRST: That the date of filing of the Corporation's original
Certificate of Incorporation with the Delaware Secretary of State was March 31,
1989.
SECOND: That the Board of Directors of the Corporation adopted
resolutions proposing and declaring advisable the following amendments to the
Corporation's Certificate of Incorporation and that such amendments were
approved by written consent of a majority of the stockholders of the Corporation
and notice was provided to the stockholders pursuant to the applicable
provisions of Section 228 of the General Corporation Law of the State of
Delaware:
RESOLVED, that the text of Article First of the Certificate of
Incorporation be amended to read in its entirety as follows:
"First: The name of the corporation is Orchard Supply
Hardware Stores Corporation (the "Corporation")."
RESOLVED, that the text of Article Fourth of the Certificate of
Incorporation of the Corporation be amended to read in its entirety as follows:
"Fourth: The total number of shares of stock which the
Corporation shall have authority to issue is five million
(5,000,000), consisting of three million (3,000,000) shares
of common stock, $.01 par value per share, and two million
(2,000,000) shares of preferred stock, $.01 par value per
share. All capital stock of the Corporation will be fully
paid and nonassessable.
Each holder of shares of common stock shall be entitled
to one vote for each share of common stock held by such holder
at the record date for the determination of the stockholders
entitled to vote on any matter coming to a vote before the
stockholders or, if no such record date is established, at
the date such vote is taken.
<PAGE>
Immediately upon the filing of this Certificate of
Amendment of Certificate of Incorporation, each outstanding
share of common stock will be converted into 1.2 shares of
common stock (the "Stock Split"). No fractional shares
shall be issued to stockholders in connection with such
Stock Split, but in lieu thereof cash shall be distributed
to each stockholder who would otherwise have been entitled
to receive a fractional share and the amount of cash to be
distributed shall be based upon the initial public offering
price of the shares of common stock issued in connection
with the Corporation's initial public offering of its common
stock.
The board of directors of the Corporation (the "Board
of Directors") is expressly authorized, at any time, and
from time to time, to provide for the issuance of shares of
preferred stock in one or more series, with such voting
powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating,
optional or other special rights, and such qualifications,
limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the
issuance of such shares of preferred stock adopted by the
Board of Directors."
THIRD: That the aforesaid amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
2.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Stephen M. Hilberg, its Vice President-Finance and Chief Financial
Officer, and Matt Figel, its Assistant Secretary, this 28th day of January 1993.
By: /s/Stephen M. Hilberg
------------------------------
Stephen M. Hilberg
Vice President-Finance and
Chief Financial Officer
ATTEST: /s/Matt Figel
---------------------------
Matt Figel
Assistant Secretary
3.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ORCHARD SUPPLY HARDWARE STORES CORPORATION
Orchard Supply Hardware Stores Corporation (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the date of filing of the Corporation's original
Certificate of Incorporation with the Delaware Secretary of State was March 31,
1989.
SECOND: That the Board of Directors of the Corporation adopted
resolutions proposing and declaring advisable the following amendment to the
Corporation's Certificate of Incorporation and that such amendment was approved
by written consent of a majority of the outstanding shares of (i) Common Stock,
$.01 par value per share (the "Common Stock"), as a class, (ii) Series A
Preferred Stock, $.01 par value per share (the "Series A Preferred Stock"), as a
class and (iii) both Common Stock and Series A Preferred Stock voting together
as one class, of the Corporation and notice was provided to the stockholders
pursuant to the applicable provisions of Section 228 of the General Corporation
Law of the State of Delaware:
RESOLVED, that the text of Article Fourth of the Certificate of
Incorporation of the Corporation be amended to read in its entirety as follows:
"Fourth: The total number of shares of stock which the
Corporation shall have authority to issue is ten million
(10,000,000), consisting of eight million (8,000,000) shares
of common stock, $.01 par value per share, and two million
(2,000,000) shares of preferred stock, $.01 par value per
share. All capital stock of the Corporation will be fully
paid and nonassessable.
Each holder of shares of common stock shall be entitled
to one vote for each share of common stock held by such holder
at the record date for the determination of the stockholders
entitled to vote on any matter coming to a vote before the
stockholders or, if no such record date is established, at
the date such vote is taken.
<PAGE>
The board of directors of the Corporation (the "Board
of Directors") is expressly authorized, at any time, and
from time to time, to provide for the issuance of shares of
preferred stock in one or more series, with such voting
powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating,
optional or other special rights, and such qualifications,
limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the
issuance of such shares of preferred stock adopted by the
Board of Directors."
THIRD: That the aforesaid amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Stephen M. Hilberg, its Vice President-Finance and Chief Financial
Officer, and Matt Figel, its Assistant Secretary, this 26th day of March, 1993.
By: /s/ Stephen M. Hilberg
-------------------------------
Stephen M. Hilberg
Vice President-Finance and
Chief Financial Officer
ATTEST: /s/ Matt Figel
---------------------------
Matt Figel
Assistant Secretary
2.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ORCHARD SUPPLY HARDWARE STORES CORPORATION
Orchard Supply Hardware Stores Corporation (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the date of filing of the Corporation's original
Certificate of Incorporation with the Delaware Secretary of State was March 31,
1989.
SECOND: That the Board of Directors of the Corporation adopted
resolutions proposing and declaring advisable the following amendment to the
Corporation's Certificate of Incorporation and that such amendment was approved
by written consent of a majority of the outstanding shares of (i) Common Stock,
$.01 par value per share (the "Common Stock"), as a class, (ii) Series A
Preferred Stock, $.01 par value per share (the "Series A Preferred Stock"), as a
class and (iii) both Common Stock and Series A Preferred Stock voting together
as one class, of the Corporation and notice was provided to the stockholders
pursuant to the applicable provisions of Section 228 of the General Corporation
Law of the State of Delaware:
RESOLVED, that the text of Article Fourth of the Certificate of
Incorporation of the Corporation be amended to read in its entirety as follows:
"Fourth: The total number of shares of stock which the
Corporation shall have authority to issue is ten million
(10,000,000), consisting of eight million (8,000,000) shares
of common stock, $.01 par value per share, and two million
(2,000,000) shares of preferred stock, $.01 par value per
share. All capital stock of the Corporation will be fully
paid and nonassessable.
Each holder of shares of common stock shall be entitled
to one vote for each share of common stock held by such holder
at the record date for the determination of the stockholders
entitled to vote on any matter coming to a vote before the
stockholders or, if no such record date is established, at the
date such vote is taken.
Immediately upon the filing of this Certificate of
Amendment of Certificate of Incorporation, each outstanding
<PAGE>
share of Series A Preferred Stock will be reclassified into shares of
common stock (the "Reclassification"). Each share of Series A
Preferred Stock will be converted pursuant to the Reclassification
into the number of shares of common stock determined by dividing the
liquidation preference of the outstanding Series A Preferred Stock by
the initial public offering price of the shares of common stock issued
in connection with the Corporation's initial public offering of its
common stock.
No shares of Series A Preferred Stock will remain
outstanding upon the consummation of the Reclassification.
All shares of Series A Preferred Stock which are
reclassified pursuant to the Reclassification shall be
retired and restored to the status of authorized and
unissued shares of preferred stock, $.01 par value per
share, and the board of directors of the Corporation (the
"Board of Directors") will not issue any additional shares
of Series A Preferred Stock.
The Board of Directors is expressly authorized, at any
time, and from time to time, to provide for the issuance of
shares of preferred stock in one or more series, with such
voting powers, full or limited, or no voting powers, and
such designations, preferences and relative, participating,
optional or other special rights, and such qualifications,
limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the
issuance of such shares of preferred stock adopted by the
Board of Directors."
THIRD: That the aforesaid amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
2.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Stephen M. Hilberg, its Vice President-Finance and Chief Financial
Officer, and Matt Figel, its Assistant Secretary, this 2nd day of April, 1993.
By: /s/Stephen M. Hilberg
-----------------------------
Stephen M. Hilberg
Vice President-Finance and
Chief Financial Officer
ATTEST: /s/Matt Figel
--------------------------
Matt Figel
Assistant Secretary
3.
<PAGE>
CERTIFICATE OF DESIGNATION
OF
RIGHTS AND PREFERENCES
OF THE
6% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
ORCHARD SUPPLY HARDWARE STORES CORPORATION
------------------------------
Pursuant to Section 151(g) of
the General Corporation Law
of the State of Delaware
------------------------------
Orchard Supply Hardware Stores Corporation, a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: The Certificate of Incorporation of the Corporation authorizes the
issuance of 2,000,000 shares of preferred stock, par value $.01 per share, of
the Corporation ("Preferred Stock") in one or more series, and authorizes the
Board of Directors to establish by resolution or resolutions the designation of
each series of Preferred Stock and the powers, preferences and privileges and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof.
SECOND: The Board of Directors of the Corporation, pursuant to a Unanimous
Written Consent executed as of December 29, 1993, adopted the following
resolutions:
RESOLVED, that the Board of Directors, in accordance with the provisions of
the Certificate of Incorporation of the Corporation, hereby approves the
issuance of two series of Preferred Stock and hereby fixes the designation of
such series and the powers, preferences, privileges, and relative,
participating, optional or other special rights, and qualifications, limitations
and restrictions thereof in addition to those set forth in said Certificate of
Incorporation as follows:
Section 1. DESIGNATION AND AMOUNT. The designation of such series of
Preferred Stock shall be the 6% Cumulative Convertible Preferred Stock, Series 1
(the "Series 1 Preferred Stock") and the 6% Cumulative Convertible Preferred
Stock, Series 2 (the "Series 2 Preferred Stock," and, collectively with the
Series 1 Preferred Stock, the "Convertible Preferred Stock"). The number of
shares of Convertible Preferred Stock
<PAGE>
shall be 800,000, consisting of 325,000 shares of Series 1 Preferred Stock and
475,000 shares of Series 2 Preferred Stock. Each share of Convertible Preferred
Stock shall have identical voting powers, designations, preferences and
relative, participating, optional or other rights, and qualifications,
limitations or restrictions thereof; PROVIDED, HOWEVER, that the Series 2
Preferred Stock may from time to time as hereinafter provided have a different
conversion privilege and dividend rate from the Series 1 Preferred Stock.
Section 2. RANK. All shares of Convertible Preferred Stock shall
rank prior, both as to payment of dividends and as to distributions of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, to all of the Corporation's now or hereafter issued
Common Stock. The term "Common Stock" shall mean the Common Stock, $.01 par
value per share, of the Corporation as the same exists at the date hereof or as
such stock may be constituted from time to time.
Section 3. DIVIDENDS. The holders of Convertible Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds at the time legally available therefor, dividends at the rate of
$1.50 per annum per share, and no more except as provided below, which shall be
fully cumulative, shall accrue without interest from the date of first issuance
and shall be payable in cash quarterly in arrears on March 15, June 15,
September 15 and December 15 of each year commencing March 15, 1994 (except that
if any such date is a Saturday, Sunday or legal holiday then such dividend shall
be payable on the next succeeding day that is not a Saturday, Sunday or legal
holiday) to holders of record as they appear on the stock transfer books of the
Corporation on such record dates, not more than 60 nor less than 10 days
preceding the payment dates for such dividends, as are fixed by the Board of
Directors. For purposes hereof, the term "legal holiday" shall mean any day on
which banking institutions are authorized to close in New York, New York or in
Los Angeles, California.
If on or before June 15, 1994, the Corporation has not obtained the
approval from its stockholders to increase the number of authorized shares of
the Corporation's Common Stock in an amount sufficient to provide for full
conversion of the Series 2 Preferred Stock, then from and after the date of
first issuance until but not including the date such approval is obtained, the
dividend rate on the Series 2 Preferred Stock shall be $3.00 per annum per
share; PROVIDED, HOWEVER, that the additional $1.50 per annum per share shall be
payable by the Corporation in additional shares of Series 2 Preferred Stock,
valued for this purpose at their liquidation preference of $25.00 per share.
Subject to the next paragraph of this Section 3, dividends on account
of arrears for any past dividend period may be declared and paid at any time,
without reference to any regular dividend payment date. The amount of dividends
payable per share of Convertible Preferred Stock for each quarterly dividend
period shall be computed by dividing the annual amount by four. The amount of
dividends payable for the initial dividend period and any period shorter than a
full quarterly dividend period shall be computed on the basis of a 360-day year
of twelve 30-day months. Holders of Convertible Preferred Stock shall not be
entitled to any dividend, whether payable in
2.
<PAGE>
cash, property or stock, in excess of the full cumulative dividends on such
shares of Convertible Preferred Stock.
On each dividend payment date all dividends which shall have accrued
on each share of Convertible Preferred Stock outstanding on such dividend
payment date shall accumulate and be deemed to become "due" whether or not there
shall be funds legally available for the payment thereof. Any dividend which
shall not be paid on the dividend payment date on which it shall become due
shall be deemed to be "past due" until such dividend shall be paid or until the
share of Convertible Preferred Stock with respect to which such dividend became
due shall no longer be outstanding, whichever is the earlier to occur. No
interest, sum of money in lieu of interest, or other property or securities
shall be payable in respect of any dividend payment or payments which are past
due. Dividends paid on shares of Convertible Preferred Stock in an amount less
than the total amount of such dividends at the time accumulated and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
No dividends or other distributions, other than dividends payable
solely in shares of Common Stock or other capital stock of the Corporation
ranking junior as to dividends and as to liquidation rights to the Convertible
Preferred Stock which is neither convertible into, nor exchangeable or
exercisable for, any securities of the Corporation other than Common Stock or
other capital stock of the Corporation ranking junior as to dividends and as to
liquidation rights to the Convertible Preferred Stock, shall be paid, or
declared and set apart for payment, and no purchase, redemption or other
acquisition shall be made by the Corporation of, any shares of Common Stock or
other capital stock of the Corporation ranking junior as to dividends or as to
liquidation rights to the Convertible Preferred Stock (the "Junior Dividend
Stock") unless and until all accrued and unpaid dividends on the Convertible
Preferred Stock, including the full dividend for the then current dividend
period, shall have been paid or declared and set apart for payment and the
Corporation is not in default in respect of the optional redemption of any
shares of Convertible Preferred Stock.
No full dividends shall be paid or declared and set apart for payment
on any class or series of the Corporation's capital stock ranking, as to
dividends, on a parity with the Convertible Preferred Stock (the "Parity
Dividend Stock") for any period unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Convertible Preferred Stock for all dividend payment periods terminating on or
prior to the date of payment of such full cumulative dividends. No full
dividends shall be paid or declared and set apart for payment on the Convertible
Preferred Stock for any period unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of
3.
<PAGE>
such full cumulative dividends. When dividends are not paid in full upon the
Convertible Preferred Stock and the Parity Dividend Stock, all dividends paid or
declared and set aside for payment upon shares of Convertible Preferred Stock
and the Parity Dividend Stock shall be paid or declared and set aside for
payment pro rata so that the amount of dividends paid or declared and set aside
for payment per share on the Convertible Preferred Stock and the Parity Dividend
Stock shall in all cases bear to each other the same ratio that accrued and
unpaid dividends per share on the shares of Convertible Preferred Stock and the
Parity Dividend Stock bear to each other.
The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under this Section 3, purchase or
otherwise acquire such shares at such time and in such manner.
Any reference to "distribution" contained in this Section 3 shall not
be deemed to include any distribution made in connection with any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 4. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Convertible Preferred Stock shall be entitled to receive out of
the assets of the Corporation, whether such assets are stated capital or surplus
of any nature, an amount equal to the dividends accrued and unpaid thereon to
the date of final distribution to such holders, whether or not declared, without
interest, and a sum equal to $25.00 per share, and no more, before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Convertible Preferred Stock (the "Junior Liquidation
Stock"). In the event the assets of the Corporation available for distribution
to stockholders upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, shall be insufficient to pay in
full the amounts payable with respect to the Convertible Preferred Stock and any
other class or series of the Corporation's capital stock which may hereafter be
created having parity as to liquidation rights with the Convertible Preferred
Stock (the "Parity Liquidation Stock"), the holders of the Convertible Preferred
Stock and the holders of the Parity Liquidation Stock shall share ratably in any
distribution of assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled (but only to the extent of such
preferential amounts). After payment in full of the liquidation preferences of
the shares of Convertible Preferred Stock, the holders of such shares shall not
be entitled to any further participation in any distribution of assets by the
Corporation. Neither a consolidation, merger or other business combination of
the Corporation with or into another corporation or other entity nor a sale or
transfer of all or part of the Corporation's assets for cash, securities or
other property shall be considered a
4.
<PAGE>
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 4 (unless in connection therewith the liquidation of the Corporation is
specifically approved).
Section 5. REDEMPTION AT OPTION OF THE CORPORATION. The Corporation
may not redeem the Convertible Preferred Stock on or prior to December 15, 1996.
The Corporation, at its option, may at any time after December 15, 1996 redeem
for cash, in whole or from time to time in part, on any date set by the Board of
Directors, at $26.50 per share if redeemed after December 15, 1996 and prior to
December 15, 1997, and at the following redemption prices if redeemed during the
twelve-month period beginning December 15 of the year specified below:
Year Price Per Share
---- ---------------
1997 $26.25
1998 26.00
1999 25.75
2000 25.50
2001 25.25
and thereafter at $25.00 per share, plus, in each case, an amount equal to all
dividends on the Convertible Preferred Stock accrued and unpaid thereon, whether
or not declared or due, to the date fixed for redemption, such sum being
hereinafter referred to as the "Redemption Price" (subject to the right of the
holder of record of shares of Convertible Preferred Stock on a record date for
the payment of a dividend on the Convertible Preferred Stock to receive the
dividend due on such shares of Convertible Preferred Stock on the corresponding
dividend payment date).
In case of the redemption of less than all of the then outstanding
Convertible Preferred Stock, the shares of Convertible Preferred Stock to be
redeemed shall be redeemed pro rata or by lot or in such other manner as the
Board of Directors may determine. Notwithstanding the foregoing, the
Corporation shall not redeem less than all of the Convertible Preferred Stock at
any time outstanding until all dividends accrued in arrears upon all Convertible
Preferred Stock then outstanding shall have been paid by all past dividend
periods.
Not more than 60 nor less than 30 days prior to the redemption date,
notice by first class mail, postage prepaid, shall be given to each holder of
record of the Convertible Preferred Stock to be redeemed, at such holder's
address as it shall appear upon the stock transfer books of the Corporation.
Each such notice of redemption shall specify the date fixed for redemption, the
Redemption Price, the place or places of
5.
<PAGE>
payment, that payment will be made upon presentation and surrender of the
certificate(s) evidencing the shares of Convertible Preferred Stock to be
redeemed, that on and after the redemption date, dividends will cease to accrue
on such shares, the then effective conversion price pursuant to Section 6 and
that the right of holders to convert shall terminate at the close of business on
the redemption date (unless the Corporation defaults in the payment of the
Redemption Price).
Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the holder of the Convertible
Preferred Stock receives such notice; and failure to give such notice by mail,
or any defect in such notice, to the holders of any shares designated for
redemption shall not affect the validity of the proceedings for the redemption
of any other shares of Convertible Preferred Stock. On or after the date fixed
for redemption as stated in such notice, each holder of the shares called for
redemption shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Redemption Price as herein provided. If less
than all the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
If, on the date fixed for redemption, funds necessary for the redemption shall
be available therefor and shall have been irrecoverably deposited or set aside,
then, notwithstanding that the certificates evidencing any shares so called for
redemption shall not have been surrendered the dividends with respect to the
shares so called shall cease to accrue after the date fixed for redemption, the
shares shall no longer be deemed outstanding, the holders thereof shall cease to
be holders of Convertible Preferred Stock, and all rights whatsoever with
respect to the shares so called for redemption (except the right of the holders
to receive payment of the Redemption Price as herein provided without interest
upon surrender of their certificates therefor) shall terminate.
The shares of Convertible Preferred Stock shall not be subject to the
operation of any purchase, retirement, mandatory redemption or sinking fund,
except as set forth in Section 7.
In the event that any shares of Convertible Preferred Stock shall be
converted into Common Stock pursuant to Section 6, then (i) the Corporation
shall not have the right to redeem such shares and (ii) any funds which shall
have been deposited for the payment of the Redemption Price for such shares of
Convertible Preferred Stock shall be returned to the Corporation immediately
after such conversion (subject to declared dividends payable to holders of
shares of Convertible Preferred Stock on the record date for such dividends
being so payable, to the extent set forth in Section 6 hereof, regardless of
whether such shares are converted subsequent to such record date and prior to
the related dividend payment date).
6.
<PAGE>
Section 6. CONVERSION PRIVILEGE.
(a) RIGHT OF CONVERSION OF SERIES 1 PREFERRED STOCK. Subject to and
upon compliance with the provisions of this Section 6, each share of Series 1
Preferred Stock shall, at the option of the holder thereof, be convertible at
any time (unless such share is called for redemption, then to and including but
not after the close of business on the Business Day (as defined below) prior to
the date fixed for such redemption, unless the Corporation shall default in
payment due upon redemption thereof), into that number of fully paid and non-
assessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) obtained by dividing $25.00 by the Conversion Price
(as defined in Section 6(e) in effect at such time) and by surrender of such
share so to be converted in the manner provided in Section 6(c).
(b) RIGHT OF CONVERSION OF SERIES 2 PREFERRED STOCK. Subject to and
upon compliance with the provisions of this Section 6, each share of Series 2
Preferred Stock shall, at the option of the holder thereof, be convertible at
any time following the approval by the Corporation's stockholders of an increase
in the authorized shares of the Corporation's Common Stock in an amount
sufficient to provide for full conversion of the Series 2 Preferred Stock
(unless such share is called for redemption, then to and including but not after
the close of business on the Business Day (as defined below) prior to the date
fixed for such redemption, unless the Corporation shall default in payment due
upon redemption thereof), into that number of fully paid and non-assessable
shares of Common Stock (calculated as to each conversation to the nearest
1/100th of a share) obtained by dividing $25.00 by the Conversion Price (as
defined in Section 6(e) in effect at such time) and by surrender of such share
so to be converted in the manner provided in Section 6(c).
(c) MANNER OF EXERCISE OF CONVERSION PRIVILEGE. In order to exercise
the conversion privilege, the holder of one or more shares of Convertible
Preferred Stock to be converted shall surrender such shares at any of the
offices or agencies to be maintained for such purpose by the Corporation
accompanied by the funds, if any, required by the last paragraph of this
Section 6(c) and shall give written notice of conversion in the form provided on
such shares of Convertible Preferred Stock (or such other notice as is
acceptable to the Corporation) to the Corporation at such office or agency that
the holder elects to convert the shares of Convertible Preferred Stock specified
in said notice. Such notice shall also state the name or names, together with
address or addresses, in which the certificate or certificates for shares of
Common Stock which shall be issuable in such conversion shall be issued. Each
share of Convertible Preferred Stock surrendered for conversion shall, unless
the shares issuable on conversion are to be issued in the same name as the name
in which such share is registered, be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder of his duly
authorized attorney and an amount sufficient to pay
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any transfer of similar tax. As promptly as practicable after the surrender of
such shares of Convertible Preferred Stock and the receipt of such notice,
instruments of transfer and funds, if any, as aforesaid, the Corporation shall
issue and shall deliver at such office or agency to such holder, or on his
written order, a certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such share of Convertible Preferred
Stock in accordance with the provisions of this Section 6 and a check or cash in
respect of any fractional interest in a share of Common Stock arising upon such
conversion, as provided in Section 6(d).
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which such shares of Convertible
Preferred Stock shall have been surrendered and such notice (and any applicable
instruments of transfer and any required taxes) shall have been received by the
Corporation as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date, and such conversion
shall be at the Conversion Price in effect at such time on such date, unless the
stock transfer books to the Corporation shall be closed on that date, in which
event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date upon which such shares of Convertible
Preferred Stock shall have been surrendered and such notice received by the
Corporation.
Any shares of Convertible Preferred Stock surrendered for conversion
during the period from the close of business on the record date for any dividend
payment to the opening of business on the related dividend payment date shall
(unless such shares of Convertible Preferred Stock shall have been called for
redemption on a date in such period) be accompanied by payment, in funds
acceptable to the Corporation, of an amount equal to the dividend otherwise
payable on such dividend payment date; PROVIDED, HOWEVER, that no such payment
need be made if there shall exist at the time of conversion a default in the
payment of dividends on the shares of Convertible Preferred Stock. An amount
equal to such payment shall be paid by the Corporation on such dividend payment
date to the holder of such shares of Convertible Preferred Stock at the close of
business on such record date; PROVIDED, HOWEVER, that if the Corporation shall
default in the payment of dividends on such dividend payment date, such amount
shall be paid to the person who made such required payment. Except as provided
for above in this Section, no adjustment shall be made for dividends accrued on
any shares of Convertible Preferred Stock converted or for dividends on any
shares issued upon the conversion of such shares as provided in this Section.
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(d) CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional shares
or scrip representing fractions of shares of Common Stock shall be issued upon
conversion of Convertible Preferred Stock. If more than one share of
Convertible Preferred Stock shall be surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate of $25.00 for
each such share so surrendered. In lieu of any fractional interest in a share
of Common Stock which would otherwise be deliverable upon the conversion of any
share of Convertible Preferred Stock, the Corporation shall pay to the holder of
such shares an amount in cash (computed to the nearest cent) equal to the
closing price (as defined below) on the Business Day next preceding the day of
conversion multiplied by the fractional interest that otherwise would have been
deliverable upon conversion of such share. The "closing price" for any day
shall be the last sale price regular way for the Common Stock as published by
the National Association of Securities Dealers Automated Quotation System
("Nasdaq"), or if such last sale price is not so published by Nasdaq or if no
such sale takes place on such day, the mean between the closing bid and asked
prices for the Common Stock as published by Nasdaq. If the Common Stock is
listed or admitted to trading on a national securities exchange, then the
"closing price" for any day shall be the last reported sales price regular way
or, in case no such reported sales take place on such day, the average of the
closing bid and asked prices regular way for such day on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
for trading. If the shares of Common Stock are not quoted by Nasdaq or listed
or admitted to trading on a national securities exchange, the "closing price"
shall be determined in good faith by the Board of Directors of the Corporation.
"Business Day" is a day that is not a Saturday, Sunday or legal holiday.
(e) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall mean
and be $15.625, subject to adjustment from time to time by the Corporation as
follows:
(i) In case the Corporation shall (a) pay a dividend or make a
distribution on its Common Stock in shares of Common Stock, (b) subdivide
its outstanding shares of Common Stock into a greater number of shares,
(c) combine its outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of its Common Stock any shares of
capital stock of the Corporation, then in each such case the Conversion
Price in effect immediately prior to such action shall be adjusted so that
the holder of any share of Convertible Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other capital stock of the Corporation which he
would have owned or been entitled to receive immediately following such
event had such share been converted immediately prior to the occurrence of
such event. An adjustment made pursuant to this subsection (i) shall
become effective immediately after the record date, in the case of a
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dividend or distribution, or immediately after the effective date, in the
case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this subsection (i), the holder of any share
of Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes of capital stock
or shares of Common Stock and other capital stock of the Corporation, the
Board of Directors (whose determination shall be conclusive and shall be
described in a statement filed by the Corporation with the stock transfer
or conversion agent, as appropriate) shall determine the allocation of the
adjusted Conversion Price between or among shares of such classes of
capital stock or shares of Common Stock and other capital stock.
(ii) In case the Corporation shall issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them (for a
period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase shares of Common Stock at a price per share less
than the current market price per share (as determined pursuant to
subsection (iv) of this Section 6(e)) of the Common Stock (other than
pursuant to any stock option, restricted stock or other incentive or
benefit plan or stock ownership or purchase plan for the benefit of
employees, directors or officers or any dividend reinvestment plan of the
Corporation in effect at the time hereof or any other similar plan adopted
or implemented hereafter), then the Conversion Price in effect immediately
prior thereto shall be adjusted so that it shall equal the price determined
by multiplying the Conversion Price in effect immediately prior to the date
of issuance of such rights or warrants by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants (immediately prior to such issuance)
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such current market price,
and of which the denominator shall be the numbers of shares of Common Stock
outstanding on the date of issuance of such rights or warrants (immediately
prior to such issuance) plus the number of additional shares of Common
Stock offered for subscription or purchase. Such adjustment shall be made
successively whenever any rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; PROVIDED,
HOWEVER, in the event that all the shares of Common Stock offered for
subscription or purchase are not delivered upon the exercise of such rights
or warrants, upon the expiration of such rights or warrants the Conversion
Price shall be readjusted to the Conversion Price which would have been in
effect had the numerator and the denominator of the foregoing fraction and
the resulting adjustment been made based upon the number of shares of
Common Stock actually delivered upon the exercise of such rights or
warrants rather than upon
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the number of shares of Common Stock offered for subscription or purchase.
In determining whether any rights or warrants entitle the holders to
subscribe for or purchase shares of Common Stock at less than such current
market price, and in determining the aggregate offering price of such
shares of Common Stock, there shall be taken into account any consideration
received by the Corporation for such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Directors (whose determination shall be conclusive and shall be described
in a statement filed by the Corporation with the stock transfer or
conversion agent, as appropriate).
(iii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its outstanding Common Stock or capital stock
(other than Common Stock), evidences of its indebtedness or assets
(including securities and cash, but excluding any regular periodic cash
dividend of the Corporation and dividends or distributions payable in stock
for which adjustment is made pursuant to subsection (i) of this
Section 6(e)) or rights or warrants to subscribe for or purchase securities
of the Corporation (excluding those referred to in subsection (ii) of this
Section 6(e)), then in each such case the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying
the Conversion Price in effect immediately prior to the record date of such
distribution by a fraction of which the numerator shall be the current
market price per share as determined pursuant to subsection (iv) of this
Section 6(e) of the Common Stock less the fair market value on such record
date (as determined by the Board of Directors, whose determination shall be
conclusive and shall be described in a statement filed by the Corporation
with the stock transfer or conversion agent, as appropriate) of the portion
of the capital stock or assets or the evidences of indebtedness or assets
so distributed to the holder of one share of Common Stock or of such
subscription rights or warrants applicable to one share of Common Stock,
and of which the denominator shall be such current market price per share
of Common Stock. Such adjustment shall become effective immediately after
the record date for the determination of stockholders entitled to receive
such distribution.
(iv) For the purpose of any computation under subsections (ii) and
(iii) of this Section 6(e), the current market price per share of Common
Stock on any date shall be deemed to be the average of the closing price
(as defined in Section 6(d)) for the shorter of (a) 30 consecutive trading
days (as defined below) ending on the last full trading day prior to the
Time of Determination (as defined below) or (b) the period commencing on
the date next succeeding the first public announcement of the issuance of
such rights or warrants or such distribution through such last full trading
day prior to the Time of Determination. For purposes of the foregoing, the
term "trading day" shall mean a day with respect to
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which quotations on Nasdaq of the character referred to in the definition
of closing price are made if the Common Stock is then quoted on Nasdaq or,
if the shares of Common Stock are then listed or admitted for trading on a
national securities exchange, then a day on which the principal national
securities exchange on which the shares of Common Stock are listed or
admitted for trading is open for business; and the term "Time of
Determination" shall mean the time and date of the earlier of (i) the
record date for determining stockholders entitled to receive the rights,
warrants or distributions referred to in Section 6(e)(ii) and (iii) or
(ii) the commencement of "ex-dividend" trading on the exchange or market
referred to in the definition of "closing price."
(v) In any case in which this Section 6(e) shall require that an
adjustment be made immediately following a record date or an effective
date, the Corporation may elect to defer (but only until the filing by the
Corporation with the stock transfer or conversion agent, as the case may
be, of the certificate required by subsection (vii) of this Section 6(e))
issuing to the holder of any share of Convertible Preferred Stock converted
after such record date or effective date the shares of Common Stock
issuable upon such conversion over and above the shares of Common Stock
issuable upon such conversion on the basis of the Conversion Price prior to
adjustment, and paying to such holder any amount of cash in lieu of a
fractional share.
(vi) No adjustment in the Conversion Price shall be required to be
made unless such adjustment would require an increase or decrease of at
least 1% of such price; PROVIDED, HOWEVER, that any adjustments which by
reason of this subsection (vi) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 6(e) shall be made to the nearest cent or
to the nearest 1/1000th of a share, as the case may be. Anything in this
Section 6(e) to the contrary notwithstanding, the Corporation shall be
entitled to make such reduction in the Conversion Price, in addition to
those required by this Section 6(e), as it in its discretion shall
determine to be advisable in order that any stock dividend, subdivision of
shares, distribution of rights to purchase stock or securities, or
distribution of securities convertible into or exchangeable for stock
hereafter made by the Corporation to its stockholders shall not be taxable
to the recipients. Except as set forth in subsections (i), (ii) and
(iii) above, the Conversion Price shall not be adjusted for the issuance of
Common Stock, or any securities convertible into or exchangeable for Common
Stock or carrying the right to purchase any of the foregoing, in exchange
for cash, property or services.
(vii) Whenever the Conversion Price is adjusted as herein provided,
(a) the Corporation shall promptly file with the stock transfer or
conversion agent,
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as appropriate, a certificate setting forth the Conversion Price after such
adjustment and a brief statement of the facts requiring such adjustment and
the manner of computing the same, which certificate shall be conclusive
evidence of the correctness of such adjustment, and (b) the Corporation
shall also mail or cause to be mailed by first class mail, postage prepaid,
as soon as practicable to each holder of record of shares of Convertible
Preferred Stock a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price. The stock
transfer or conversion agent, as the case may be, shall not be under any
duty or responsibility with respect to the certificate required by this
subsection (vii) except to exhibit the same to any holder of shares of
Convertible Preferred Stock who requests to inspect it.
(viii) In the event that at any time, as a result of an adjustment made
pursuant to subsection (i) of this Section 6(e), the holder of any share of
Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than shares
of Common Stock, thereafter the Conversion Price of such other shares so
receivable upon conversion of any share of Convertible Preferred Stock
shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in this Section.
(ix) The Corporation from time to time may decrease the Conversion
Price by any amount for any period of time if the period is at least 20
days and if the decrease is irrevocable during the period. Whenever the
Conversion Price is so decreased, the Corporation shall mail to holders of
record of shares of Convertible Preferred Stock a notice of the decrease at
least 15 days before the date the decreased Conversion Price takes effect,
and such notice shall state the decreased Conversion Price and the period
it will be in effect.
(f) NOTICE TO HOLDERS PRIOR TO CERTAIN CORPORATE ACTIONS. In case:
(i) the Corporation shall take any action which would require an
adjustment in the Conversion Price pursuant to Section 6(e)(iii); or
(ii) the Corporation shall authorize the granting to the holders of
its Common Stock generally of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights; or
(iii) there shall be any reorganization or reclassification of the
Common Stock (other than a subdivision or combination of the outstanding
Common Stock and other than a change in the par value of the Common Stock),
or any
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consolidation or merger to which the Corporation is a party or any
statutory exchange of securities with another corporation and for which
approval of any stockholders of the Corporation is required, or any sale or
transfer of all or substantially all of the assets of the Corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then in each such case the Corporation shall cause to be given to the holders of
shares of Convertible Preferred Stock and the stock transfer or conversion
agent, as appropriate, as promptly as possible, but in any event at least 20
days prior to the applicable date hereinafter specified, a notice stating
(i) the date on which a record is to be taken for the purpose of such action or
granting of rights or warrants, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such
distribution, rights or warrants are to be determined, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, statutory
exchange, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective or occur, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale, transfer, dissolution, liquidation or winding-up. Failure to give such
notice or any defect therein shall not affect the legality or validity of the
proceedings described in subsection (i), (ii), (iii) or (iv) of this
Section 6(f).
(g) RESERVATION OF SHARES OF COMMON STOCK. The Corporation covenants
that it will, at all times in respect of the Series 1 Preferred Stock and
following the approval of the Corporation's stockholders to increase the number
of authorized shares of the Corporation's Common Stock in an amount sufficient
to provide for full conversion of the Series 2 Preferred Stock in respect of the
Series 2 Preferred Stock, reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued shares of Common
Stock or its issued shares of Common Stock held in its treasury, or both, for
the purpose of effecting conversions of shares of Convertible Preferred Stock,
the full number of shares of Common Stock deliverable upon the conversion of all
outstanding shares of Convertible Preferred Stock not theretofore converted and
on or before (and as a condition of) taking any action that would cause an
adjustment of the Conversion Price resulting in an increase in the number of
shares of Common Stock deliverable upon conversion above the number thereof
previously reserved and available therefor, the Corporation shall take all such
action so required. For purposes of this Section 6(g), the number of shares of
Common Stock which shall be deliverable upon the conversion of all outstanding
shares of Convertible Preferred Stock shall be computed as if at the time of
computation all outstanding shares of Convertible Preferred Stock were held by a
single holder.
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Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value (if any) of the shares of Common Stock
deliverable upon conversion of the shares of Convertible Preferred Stock, the
Corporation shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and non-assessable shares of Common Stock at such adjusted
Conversion Price.
(h) TRANSFER TAXES, ETC. The Corporation shall pay any and all
documentary stamp, issue or transfer taxes, and any other similar taxes payable
in respect of the issue or delivery of shares of Common Stock upon conversions
of shares of Convertible Preferred Stock pursuant hereto; PROVIDED, HOWEVER,
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the holder of the shares of Convertible
Preferred Stock to be converted and no such issue or delivery shall be made
unless and until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
(i) CONSOLIDATION OR MERGER OR SALE OF ASSETS. Notwithstanding any
other provision herein to the contrary, in case of any consolidation or merger
to which the Corporation is a party (other than a merger or consolidation in
which the Corporation is the continuing corporation and in which the Common
Stock outstanding immediately prior to the merger or consolidation is not
exchanged for cash, or the securities or other property of another corporation),
or in case of any sale or transfer to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, or in the case of
any statutory exchange of securities with another corporation (other than in
connection with a merger or acquisition), then lawful provision shall be made by
the corporation formed by such consolidation or the corporation whose
securities, cash or other property will immediately after the merger or
consolidation be owned, by virtue of the merger or consolidation, by the holders
of Common Stock immediately prior to the merger or consolidation, or the
corporation which shall have acquired such assets or securities of the
Corporation (collectively the "Formed, Surviving or Acquiring Corporation"), as
the case may be, providing that the holder of each share of Convertible
Preferred Stock then outstanding shall have the right thereafter to convert such
share into the kind and amount of securities, cash or other property receivable
upon such
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consolidation, merger, statutory exchange, sale or transfer by a holder of the
number of shares of Common Stock into which such share of Convertible Preferred
Stock might have been converted immediately prior to such consolidation,
statutory exchange, sale or transfer assuming such holder of Common Stock did
not exercise his right of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or transfer (provided that, if the kind of amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or transfer is not the same for each share of Common
Stock in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this Section 6(i) the kind and
amount of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or transfer for each non-electing share shall
be deemed to be the kind and amount so receivable per share by a plurality of
the non-electing shares). The Formed, Surviving or Acquiring Corporation, as
the case may be, shall make provision in its certificate or articles of
incorporation or other constituent documents to the end that the provisions set
forth in this Section 6(i) shall thereafter correspondingly be made applicable,
as nearly as may reasonably be, in relation to any shares of stock or other
securities or property thereafter deliverable on the conversion of the
Convertible Preferred Stock.
The above provisions of this Section 6(i) shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or transfers.
(j) COVENANT AS TO COMMON STOCK. The Corporation covenants that all
shares of Common Stock which may be delivered upon conversions of shares of
Convertible Preferred Stock will, upon delivery, be duly and validly issued and
fully paid and non-assessable, free of all liens and charges and not subject to
any preemptive rights.
The Corporation covenants that if any shares of Common Stock to be
provided for the purpose of conversion of shares of Convertible Preferred Stock
hereunder require registration with or approval of any governmental authority
under any Federal or State law before such shares may be validly issued upon
conversion, the Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may be.
The Corporation further covenants that if at any time the Common Stock
shall be quoted on Nasdaq or listed on any national securities exchange, the
Corporation will, if permitted by the rules of Nasdaq or such exchange, cause to
be quoted or list and keep listed, as the case may be, so long as the Common
Stock shall be so quoted or listed, all Common Stock issuable upon conversion of
the shares of Convertible Preferred Stock.
Section 7. CONTINGENT REDEMPTION AT HOLDERS' OPTION. Upon the
occurrence of a "Change of Control" (as defined below), each holder of shares of
Convertible Preferred Stock shall have the right, as such holder's option, to
the extent permitted under applicable law, to require the Corporation to redeem
for cash all or part of such holder's shares of Convertible Preferred Stock (the
"Redemption Right") at a redemption price of $25.00 per share in cash plus an
amount equal to all dividends on
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the Convertible Preferred Stock accrued and unpaid thereon, whether or not
declared or due, to the date fixed for redemption (the "Change of Control
Redemption Price").
On or before the 30th day after the Change of Control, notice by first
class mail, postage prepaid, shall be given to each holder of record of the
Convertible Preferred Stock, at such holder's address as it shall appear upon
the stock transfer books of the Corporation. Such notice shall specify:
(i) that a Change of Control has occurred and that the holders have the right to
require the Company to redeem all or any part of such holder's shares of
Convertible Preferred Stock at the Change of Control Redemption Price; (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
Redemption Date, which shall be a date not earlier than 30 days nor later than
60 days after the date such notice is mailed; and (iv) the instructions that
holders of shares of Convertible Preferred Stock must follow in order to have
their shares redeemed. Any notice that is mailed as herein provided shall be
conclusively presumed to have been given, whether or not the holder of
Convertible Preferred Stock receives such notice.
All capitalized terms used in this paragraph shall, unless otherwise
defined herein, have those meanings give to them in that certain Indenture by
and among the Corporation, Orchard Supply Hardware Corporation, a Delaware
corporation ("Orchard Supply"), and U.S. Trust Company of California, N.A., as
Trustee (the "Indenture"), regarding the Senior Notes due 2002 of Orchard
Supply. For purposes of this Section 7, a "Change of Control" means any of the
following: (i) any sale, lease or other transfer (in one transaction or a
series of transactions) of all or substantially all of the assets of Orchard
Supply to any Person (other than a Wholly Owned Subsidiary of Orchard Supply);
(ii) the Corporation fails to own, beneficially and of record, 100% of the
Capital Stock of Orchard Supply; (iii) a "person" or "group" (within the meaning
of Sections 13(d) and 14(d)(2) of the Exchange Act (other than FS&Co. or its
Affiliates)) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of Capital Stock of the Corporation representing 50% or more of
the voting power of such Capital Stock; (iv) the Common Stock of the Corporation
is no longer registered under Section 12 of the Exchange Act; (v) Continuing
Directors of the Corporation or Orchard Supply cease to constitute at least a
majority of the Board of Directors of the Corporation or Orchard Supply,
respectively; or (vi) the stockholders of the Corporation approve any plan or
proposal for the liquidation or dissolution of Orchard Supply or the
Corporation; PROVIDED, HOWEVER, that in the event the Corporation is merged into
Orchard Supply and the beneficial owners of the Capital Stock of the Corporation
immediately prior to such transaction beneficially own all the Capital Stock of
Orchard Supply immediately after such transaction, the provisions of clause (vi)
above shall not apply to such transaction and thereafter clause (ii) above shall
no longer be applicable
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and all references in this definition to the Corporation shall be deemed to
refer to Orchard Supply.
To exercise the Redemption Right, the holder of shares of Convertible
Preferred Stock must deliver to the place designated in such notice prior to the
close of business on the Business Day prior to the Redemption Date, a written
notice of such holder's exercise of its Redemption Right, together with the
certificate or certificates representing shares of Convertible Preferred Stock
with respect to which such Redemption Right is being exercised, duly endorsed
for transfer. In the event a Redemption Right shall be exercised in accordance
with the terms hereof, the Corporation shall pay the Change of Control
Redemption Price with respect to the shares of Convertible Preferred Stock to
which the Redemption Right has been exercised, on the Redemption Date to the
maximum extent permitted by applicable law. If the Corporation is not permitted
by applicable law to redeem all of the shares of Convertible Preferred Stock as
to which the Redemption Right has been exercised, then the Corporation shall
redeem such shares of Convertible Preferred Stock on a PRO RATA basis.
In the event that a Redemption Right is exercised with respect to less
than all the shares of Convertible Preferred Stock evidenced by certificates
surrendered for redemption or less than all the shares of Convertible Preferred
Stock surrendered for redemption are redeemed, a new certificate shall be issued
representing the unredeemed shares.
The Corporation shall comply with all applicable tender offer rules
and regulations, including Section 14(e) of the Exchange Act, if the Corporation
is required to give a notice of a Redemption Right as a result of a Change of
Control. To the extent that the provisions of any applicable securities laws or
regulations conflict with the provisions of this Section 7, the Corporation
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 7 by virtue
thereof.
Section 8. VOTING RIGHTS.
(a) GENERAL. The holders of Convertible Preferred Stock shall not
have any voting rights except as set forth below or as otherwise from time to
time required by law. In connection with any right to vote, each holder of
Convertible Preferred Stock will have one vote for each share held. Any shares
of Convertible Preferred Stock held by the Corporation or any entity controlled
by the Corporation shall not have voting rights hereunder and shall not be
counted in determining the presence of a quorum.
18.
<PAGE>
(b) DEFAULT VOTING RIGHTS. Whenever dividends on the Convertible
Preferred Stock shall be in arrears in an amount equal to at least six quarterly
dividends (whether or not consecutive), (i) the number of members of the Board
of Directors of the Corporation shall be increased by two, effective as of the
time of election of such directors as hereinafter provided, and (ii) the holders
of the Convertible Preferred Stock (voting separately as a class with all other
affected classes or series of the Parity Dividend Stock upon which like voting
rights have been conferred and are exercisable) will have the exclusive right to
vote for and elect such two additional directors of the Corporation at any
meeting of stockholders of the Corporation at which directors are to be elected
held during the period such dividends remain in arrears. The right of the
holders of the Convertible Preferred Stock to vote for such two additional
directors shall terminate when all accrued and unpaid dividends on the
Convertible Preferred Stock have been declared and paid or set apart for
payment. The terms of office of all directors so elected shall terminate
immediately upon the termination of the right of the holders of the Convertible
Preferred Stock and such Parity Dividend Stock to vote for such two additional
directors.
The foregoing right of the holders of the Convertible Preferred Stock
with respect to the election of two directors may be exercised at any annual
meeting of stockholders or at any special meeting of stockholders held for such
purpose. If the right to elect directors shall have accrued to the holders of
the Convertible Preferred Stock more than 90 days preceding the date established
for the next annual meeting of stockholders, the President of the Corporation
shall, within 20 days after the delivery to the Corporation at its principal
office of a written request for a special meeting signed by the holders of at
least ten percent (10%) of the Convertible Preferred Stock then outstanding,
call a special meeting of the holders of the Convertible Preferred Stock to be
held within 60 days after the delivery of such request for the purpose of
electing such additional directors.
The holders of the Convertible Preferred Stock and any Parity Dividend
Stock referred to above voting as a class shall have the right to remove without
cause at any time and replace any directors such holders have elected pursuant
to this Section 8.
(c) CLASS VOTING RIGHTS. So long as the Convertible Preferred Stock
is outstanding, the Corporation shall not, without the affirmative vote or
consent of the holders of at least 66-2/3% of all outstanding Convertible
Preferred Stock (unless the vote or consent of a greater percentage is required
by applicable law or the Certificate of Incorporation of the Corporation),
voting separately as a class, (i) amend, alter or repeal (by merger,
consolidation or otherwise) any provision of the Certificate of Incorporation or
the Bylaws of the Corporation so as to affect adversely the relative rights,
preferences, qualifications, limitations or restrictions of the Convertible
Preferred Stock, (ii) authorize or issue, or increase the authorized amount of,
any additional class or series of stock, or
19.
<PAGE>
any security convertible into stock of such class or series, ranking prior to
the Convertible Preferred Stock in respect of the payment of dividends or upon
liquidation, dissolution or winding up of the Corporation or (iii) effect any
reclassification of the Convertible Preferred Stock.
Section 9. OUTSTANDING SHARES. For purposes hereof, all shares of
Convertible Preferred Stock shall be deemed outstanding except (i) from the date
fixed for redemption pursuant to Section 5, all shares of Convertible Preferred
Stock that have been so called for redemption under Section 5 if funds necessary
for payment of the redemption price have been irrevocably set apart; (ii) from
the date of surrender of certificates representing shares of Convertible
Preferred Stock, all shares of Convertible Preferred Stock converted into Common
Stock; and (iii) from the date of registration of transfer, all shares of
Convertible Preferred Stock held of record by the Corporation or any subsidiary
of the Corporation.
Section 10. STATUS OF ACQUIRED SHARES. Shares of Convertible
Preferred Stock redeemed by the Corporation, received upon conversion pursuant
to Section 6, or otherwise acquired by the Corporation will be restored to the
status of authorized and unissued shares of Preferred Stock, without designation
as to series, and may thereafter be issued, but not as shares of Convertible
Preferred Stock.
Section 11. PREEMPTIVE RIGHTS. The Convertible Preferred Stock is
not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
Section 12. SEVERABILITY OF PROVISIONS. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
FURTHER RESOLVED, that the President or any Vice President is, and
each of them is hereby, authorized and directed, in the name and on behalf of
the Corporation, to execute and file a copy of this Certificate of Designation
in accordance with the provisions of Sections 103 and 151(g) of the General
Corporation Law of the State of Delaware.
20.
<PAGE>
IN WITNESS WHEREOF, ORCHARD SUPPLY HARDWARE STORES CORPORATION has
caused this Certificate of Designation to be signed by Maynard Jenkins, its
President, and Michael Seda, its Secretary, and its Corporate Seal to be
hereunder affixed this 3rd day of February, 1994.
ORCHARD SUPPLY HARDWARE STORES CORPORATION
[SEAL]
By: /s/ Maynard Jenkins
----------------------------
Maynard Jenkins, President
Attest:
/s/ Michael Seda
- - ------------------------
Michael Seda, Secretary
21.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ORCHARD SUPPLY HARDWARE STORES CORPORATION
Orchard Supply Hardware Stores Corporation (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the date of filing of the Corporation's original Certificate
of Incorporation with the Delaware Secretary of State was March 31, 1989.
SECOND: That the Board of Directors of the Corporation adopted resolutions
proposing and declaring advisable the following amendment to the Corporation's
Certificate of Incorporation:
RESOLVED, that the text of Article Fourth of the Certificate of
Incorporation of the Corporation be amended to read in its entirety as follows:
"Fourth: The total number of shares of stock which the
Corporation shall have authority to issue is eighteen million
(18,000,000), consisting of sixteen million (16,000,000) shares of
common stock, $.01 par value per share, and two million (2,000,000)
shares of preferred stock, $.01 par value per share. All capital
stock of the Corporation will be fully paid and nonassessable.
Each holder of shares of common stock shall be entitled to one
vote for each share of common stock held by such holder at the record
date for the determination of the stockholders entitled to vote on any
matter coming to a vote before the stockholders or, if no such record
date is established, at the date such vote is taken.
<PAGE>
The Board of Directors is expressly authorized, at any time, and
from time to time, to provide for the issuance of shares of preferred
stock in one or more series, with such voting powers, full or limited,
or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and such
qualifications, limitations, or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for
the issuance of such shares of preferred stock adopted by the Board of
Directors."
THIRD: That thereafter, pursuant to a resolution of the Board of
Directors, a meeting of the stockholders of the Corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
FOURTH: That the aforesaid amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
2.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Stephen M. Hilberg, its Vice President-Finance and Chief Financial
Officer, and Michael Seda, its Secretary, this 20th day of May, 1994.
BY: /s/Stephen M. Hilberg
-------------------------------
Stephen M. Hilberg
Vice President-Finance and
Chief Financial Officer
ATTEST: /s/Michael Seda
-------------------------------
Michael Seda
Secretary
3.
<PAGE>
Exhibit 10.1
SIXTH AMENDMENT
TO
NOTE AGREEMENT
This Sixth Amendment to the Note Agreement (the "Amendment") is
entered into as of April 27, 1994 by and among ORCHARD SUPPLY HARDWARE
CORPORATION, a Delaware corporation (the "Company"), ORCHARD SUPPLY HARDWARE
STORES CORPORATION (formerly Orchard Holding Corporation), a Delaware
corporation ("Holding"), and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF
AMERICA ("Teachers").
A. This Amendment amends the Note Agreement dated as of May 15,
1992, as amended by Amendment to Note Agreement dated as of February 8, 1993,
Second Amendment to Note Agreement dated as of November 23, 1993 and Third
Amendment to Note Agreement dated as of November 30, 1993, the Fourth Amendment
to Note Agreement dated as of January 19, 1994 and the Fifth Amendment dated as
of January 29, 1994 (collectively, the "Agreement") by and among the Company,
Holding and Teachers pursuant to which the Company's 10.64% Senior Secured Notes
due May 31, 2002 (the "Notes") were issued.
B. The purpose of this Amendment is to set forth the understandings
and agreements of the Company, Holding and Teachers with respect to the
following amendments of the provisions of the Agreement on the conditions stated
herein.
C. Section 19 of the Agreement provides that the Agreement may be
amended by an instrument in writing executed by the Company and the written
consent of the holders of at least 66-2/3% in aggregate principal amount of
outstanding Notes.
NOW, THEREFORE, based upon the foregoing and in consideration of the
covenants, agreements and undertakings contained in this Amendment, the parties
hereto agree as follows:
1. Section 11.06(a) (LEVERAGE RATIO) of the Agreement is hereby
amended by deleting in their entirety the entries for "Fiscal Year 1995" and all
periods thereafter in the table set forth in said section and substituting
therefor the following:
Fiscal Quarter Maximum Leverage Ratio
-------------- ----------------------
Fiscal Year 1995
----------------
First Fiscal Quarter Ending 04/94 1.70 : 1.0
Second Fiscal Quarter Ending 07/94 1.65 : 1.0
Third Fiscal Quarter Ending 10/94 1.65 : 1.00
Fourth Fiscal Quarter Ending 1/95 1.65 : 1.00
<PAGE>
Fiscal Year 1996
----------------
First Fiscal Quarter Ending 4/95 1.64 : 1.00
Second Fiscal Quarter Ending 07/95 1.63 : 1.00
Third Fiscal Quarter Ending 10/95 1.62 : 1.00
Fourth Fiscal Quarter Ending 01/96 1.60 : 1.00
Fiscal Year 1997
----------------
First Fiscal Quarter Ending 04/96 1.56 : 1.00
Second Fiscal Quarter Ending 07/96 1.52 : 1.00
Third Fiscal Quarter Ending 10/96 1.48 : 1.00
thereafter 1.45 : 1.00
2. Section 11.06(c) (CONSOLIDATED EFFECTIVE NET WORTH) of the
Agreement is hereby amended by deleting in their entirety the entries for "First
Fiscal Quarter Ending 04/94" and "Second Fiscal Quarter Ending 07/94" in the
table set forth in said section and substituting therefor the following:
Minimum Consolidated
Fiscal Quarter Effective Net Worth
-------------- ---------------------
First Fiscal Quarter Ending 04/94 60,262,000
Second Fiscal Quarter Ending 07/94 60,262,000
3. The amendments to the Agreement specified herein shall become
effective as of the date specified above when executed by all of the parties
hereto.
4. All terms used herein without definition shall have the meanings
ascribed to them in the Agreement.
5. In the event of any conflict or inconsistency between the
provisions of this Amendment and the provisions of the Agreement with respect to
the matters set forth herein, the provisions of this Amendment shall control.
Each and every other term, condition, covenant, representation, warranty and
provisions set forth in the Agreement shall remain in full force and effect and
is hereby ratified, adopted and confirmed in full. All references to the
Agreement in any other agreement or document shall hereafter be deemed to refer
to the Agreement, as amended.
6. By its signature below the Company further represents that upon
the effectiveness of this Amendment there are no defaults or Events of Default
under the terms of the Agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
ORCHARD SUPPLY HARDWARE CORPORATION,
a Delaware corporation
/s/Stephen M. Hilberg
-----------------------------------------------
ATTEST: Stephen M. Hilberg, Chief Financial Officer
By:/s/Michael Seda
------------------------
Michael Seda, Secretary
ORCHARD SUPPLY HARDWARE STORES
CORPORATION (formerly, ORCHARD HOLDING
CORPORATION), a Delaware corporation
/s/Stephen M. Hilberg
-----------------------------------------------
ATTEST: Stephen M. Hilberg, Chief Financial Officer
By:/s/Michael Seda
------------------------
Michael Seda, Secretary
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/Edward L. Toy
-------------------------------------------
Its: Director - Private Placements
$13,721,000.00
-------------------------------------------
ATTEST: Principal Amount of Notes
By:
------------------------
-3-
<PAGE>
Exhibit 10.2
SEVENTH AMENDMENT
TO
NOTE AGREEMENT
This Seventh Amendment to the Note Agreement (the "Amendment") is
entered into as of May __, 1994 by and among ORCHARD SUPPLY HARDWARE
CORPORATION, a Delaware corporation (the "Company"), ORCHARD SUPPLY HARDWARE
STORES CORPORATION (formerly Orchard Holding Corporation), a Delaware
corporation ("Holding"), and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF
AMERICA ("Teachers").
A. This Amendment amends the Note Agreement dated as of May 15,
1992, as amended by Amendment to Note Agreement dated as of February 8, 1993,
Second Amendment to Note Agreement dated as of November 23, 1993, Third
Amendment to Note Agreement dated as of November 30, 1993, the Fourth Amendment
to Note Agreement dated as of January 19, 1994, the Fifth Amendment to Note
Agreement dated as of January 29, 1994 and the Sixth Amendment to Note Agreement
dated as of April 27, 1994 (collectively, the "Agreement") by and among the
Company, Holding and Teachers pursuant to which the Company's 10.64% Senior
Secured Notes due May 31, 2002 (the "Notes") were issued.
B. The purpose of this Amendment is to set forth the understandings
and agreements of the Company, Holding and Teachers with respect to the
following amendments of the provisions of the Agreement on the conditions stated
herein.
C. Section 19 of the Agreement provides that the Agreement may be
amended by an instrument in writing executed by the Company and the written
consent of the holders of at least 66-2/3% in aggregate principal amount of
outstanding Notes.
NOW, THEREFORE, based upon the foregoing and in consideration of the
covenants, agreements and undertakings contained in this Amendment, the parties
hereto agree as follows:
1. Section 14 of the Agreement is hereby amended by deleting
therefrom in their entirety the following defined terms:
"Acquisition Agreement," "Acquisition Loans," "Acquisition Notes,"
"Bank Mortgage," "Company Security Agreement," "Company Security Agreements,"
"Company Pledge Agreement," "Company Trademark Pledge" or "Company Trademark
Collateral Security Agreement," "Compliance Certificate," "Division", "Existing
Letters of Credit," "Holding Pledge Agreement," "Letter of Credit Usage,"
"Overdraft Account," "Overdraft Agreement," "Overdraft Amount," "Total
Utilization of Working Capital Loan Commitments," "Working Capital Loan
Commitment(s)," and "Working Capital Notes."
<PAGE>
2. Section 14 of the Agreement is hereby further amended by amending
the defined terms listed below to read in their entirety as follows:
a. ACQUISITION: the meaning specified in the Recitals to the Prior
Credit Agreement.
b. BANK NOTES: one or more promissory notes, or any combination
thereof, issued by the Company in respect of the Obligations.
c. COLLATERAL DOCUMENTS: any mortgage, deed of trust, security
agreement, pledge agreement or other instrument or agreement executed by Holding
or any of its Subsidiaries in connection with the creation or perfection of
liens on collateral as contemplated under the Credit Agreement; provided that
such liens are permitted under this Agreement.
d. COMMERCIAL LETTERS OF CREDIT: the documentary letters of credit
issued by the Issuing Lender pursuant to the Credit Agreement.
e. COMMITMENTS: the commitments of the Lender or Lenders to make
loans to the Company pursuant to the Credit Agreement.
f. CONSOLIDATED CASH INTEREST EXPENSE: Consolidated Interest
Expense excluding any amounts which are not payable in cash (including
amortization of discount), any amounts referred to in Section 2.4 of the Prior
Credit Agreement payable to Agent or Lenders (as defined in the Prior Credit
Agreement) on or before the Closing Date and any Transaction Costs.
g. CONSTRUCTION LOAN: the loan made pursuant to the Fourth
Amendment and Limited Waiver dated September 12, 1990 to the Prior Credit
Agreement.
h. CREDIT AGREEMENT: that certain Financing Agreement dated October
29, 1992 between the Company and the CIT Group/Business Credit, Inc., as the
same may be amended, amended and restated, supplemented, or otherwise modified
from time to time.
i. FEE COLLATERAL: the real property owned in fee by Holding and
any of its Subsidiaries designated as Fee Collateral on Schedule A attached
hereto.
j. GROUND LEASE COLLATERAL: all rights, title and interest of
Holding and its Subsidiaries in and to those leases of real property as to which
Holding or its Subsidiaries has a leasehold interest designated as Ground Lease
Collateral on Schedule A attached hereto.
-2-
<PAGE>
k. HOLDING GUARANTY: the guaranty of Holding dated October 29,
1992, executed by Holding in respect of the Obligations.
l. HOLDING PREFERRED STOCK: the "Series 1 Preferred Stock" and
"Series 2 Preferred Stock" of Holding.
m. LETTER OF CREDIT: any of the Standby Letters of Credit or
Commercial Letters of Credit issued or to be issued pursuant to the Credit
Agreement.
n. ISSUING LENDER: with respect to any Letter of Credit the issuing
bank specified in the Credit Agreement.
o. LENDER AND LENDERS: the Lender or Lenders making loans pursuant
to the Credit Agreement; provided that Lender and Lenders shall also include any
successors and permitted assigns of any Lender pursuant to the Credit Agreement.
p. LOAN OR LOANS: any one or more loans or other extensions of
credit, or any combination thereof, pursuant to the Credit Agreement.
q. LOAN DOCUMENTS: the Credit Agreement, the Bank Notes, the
Holding Guaranty and any Collateral Document entered into in connection with the
Credit Agreement.
r. OBLIGATIONS: all obligations of any nature of Holding and/or the
Company from time to time owed to Lenders or any of them arising under the
Credit Agreement, the Bank Notes or any of the other Loan Documents, or
reimbursement obligations with respect to the Letters of Credit or obligations
under interest rate agreements relating to the Loans, including without
limitation, all liability of the Company for principal and interest on the Loans
or under the Bank Notes or reimbursement obligations owed with respect to the
Letters of Credit and all interest thereon or for fees or expenses,
reimbursements and indemnifications and other amounts due or to become due
thereunder.
s. PERMITTED EXCEPTIONS: the meaning specified in the Mortgage and
in the mortgages or deeds of trust encumbering the Fee Collateral as of the date
of this Agreement.
t. STANDBY LETTERS OF CREDIT: the standby letters of credit issued
by the Issuing Lender pursuant to the Credit Agreement.
u. SUBSCRIPTION AGREEMENTS: (i) those certain subscription
agreements dated May 30, 1989 between Holding and any or all of the investors
set forth on Schedule G annexed to the Prior Credit Agreement and (ii) such
other subscription agreements for the
-3-
<PAGE>
purchase of Holding Securities substantially in the form of the subscription
agreements described in (i) above as may be executed from time to time by
Holding and persons who become employees of Holding or its Subsidiaries.
v. WORKING CAPITAL LOANS: the Loans made to the Company pursuant to
Section 2.2A of the Prior Credit Agreement.
3. Section 14 of the Agreement is further amended by adding thereto
the following defined term:
"PRIOR CREDIT AGREEMENT: that certain Credit Agreement dated May
30, 1989 by and among the Company, Holding and Bankers Trust Company
of New York and the other lenders signatory thereto."
4. All references to the "Credit Agreement" appearing in Section
5.14, and Section 11.7(b)(iii) of the Agreement are hereby amended to refer to
the "Prior Credit Agreement."
5. The definition "Pro Forma Consolidated Fixed Charge Coverage
Ratio" set forth in Section 14 of the Agreement is hereby amended by deleting
the phrase "agreements relating to Interest Swap Obligations" appearing in
clause (3) of the last sentence thereof and substituting therefor the phrase
"Interest Rate Agreements."
6. Section 11.2(c) of the Agreement is hereby amended in its
entirety to read "Intentionally Omitted."
7. Section 11.4(e) of the Agreement is hereby amended to read in its
entirety as follows:
"(e) the Company may become and remain liable with respect to
reimbursement obligations in respect of Letters of Credit, PROVIDED,
that the Company's actual and contingent reimbursement obligations
with respect to all Letters of Credit shall not exceed, in the
aggregate, $8,000,000 at any time;"
8. By its signature below the Company further represents that upon
the effectiveness of this Amendment there are no defaults or Events of Default
under the terms of the Agreement.
9. The amendments to the Agreement specified herein shall become
effective as of the date specified above when executed by all of the parties
hereto.
-4-
<PAGE>
10. All terms used herein without definition shall have the meanings
ascribed to them in the Agreement.
11. In the event of any conflict or inconsistency between the
provisions of this Amendment and the provisions of the Agreement with respect to
the matters set forth herein, the provisions of this Amendment shall control.
Each and every other term, condition, covenant, representation, warranty and
provisions set forth in the Agreement shall remain in full force and
effect and is hereby ratified, adopted and confirmed in full. All references to
the Agreement in any other agreement or document shall hereafter be deemed to
refer to the Agreement, as amended.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
ORCHARD SUPPLY HARDWARE CORPORATION,
a Delaware corporation
ATTEST:
--------------------------------------------
Stephen M. Hilberg, Chief Financial Officer
By:
-----------------------
Michael Seda, Secretary
ORCHARD SUPPLY HARDWARE STORES
CORPORATION (formerly, ORCHARD HOLDING
CORPORATION), a Delaware corporation
ATTEST:
--------------------------------------------
Stephen M. Hilberg, Chief Financial Officer
By:
-----------------------
Michael Seda, Secretary
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
-----------------------------------------
Its:
ATTEST: ------------------------------------
Principal Amount of Notes
By:
-----------------------
ORCHARD:ERH:AMEND.7
-5-
